- Trade based on the probabilities NOT the potential profits.
- Trade small position sizes based on your account NEVER put your whole account at risk of ruin.
- Trade a plan NOT emotions.
- Always enter a trade with an edge that can be defined DO NOT trade with entries that are only opinions.
- Trade based on quantifiable facts NOT opinions.
- Trade after extensive research on what works and what does not. Don’t trade in ignorance.
- Trade with the correct position sizing since risk management is your number one priority and profits are secondary concern.
- Trade in a way that eliminates any chance of financial ruin NOT to get rich quick.
- Trade with discipline and focus DO NOT change the way you trade suddenly due to winning or losing streaks.
- Trade in the present moment and DO NOT get biased due to old wins or losses.
Archives of “Trade” tag
rssEssentials of a Winning Psychology
Four fears that block a winning psychology:
- Fear of Loss
- Fear of being wrong
- Fear of missing out
- Fear of leaving money on the table.
Realize that trading is based on probabilities, as such, every trade is unique. In other words, the past does not equal the future.
Probability thinking manifest other states and beliefs:
- Because we know that we will succeed in the long run and because we know we will protect ourselves no matter what the market does, we acquire the state of “self trust” and the state of being “carefree”.
In turn these states allow us to remain….
- Focused, confident and carefree when we are experiencing the inevitable prolonged drawdown.
- Because at the micro level we know that the market is random, we will not allow euphoria to set in and lead us to reckless trades. Each trade will only be one in a series of probabilities.
- We will view market information not as a source of pleasure or pain but merely as data providing us with opportunities.
Personal Attributes Essential to a Winning Mentality
- Awareness – the ability to step outside ourselves and observe. The more effectively we can do this, the easier our progress to “Acceptance”.
- Honesty – the ability to seek to perceive reality in spite of our filters.
- Courage – the willingness to bear the pain brought about by our awareness and honesty.
- Commitment – the willingness to do whatever is necessary to achieve our goals
To succeed, a trader must have a vision about where he is heading, and must internalise that a winning attitude is total submission to the trading outcome.
This means managing Fear and Euphoria. To do this, we need to ACCEPT, with every fibre of our body, the belief that at the micro level the market is uncertain and unpredictable and at the macro level it is relatively certain and predictable.
Accept Responsibility For Your Actions!
Whether you win or lose, you are responsible for your own results. Even if you lost on your broker’s tip, an advisory service recommendation, or a bad signal from the system you bought, you are responsible because you made the decision to listen and act. I have never met a successful trader who blamed others for his losses.
3 things that will kill your trading success
Not having a plan. Get a plan, who cares if it is bad, start with something. You can build off of it and refine it. You have to be willing to spend the time to make the plan yours. You do not start anything without some level of planning. Trading is hard; your brain spends a lot of time in fast forward, affecting your memory. You can slow it down by having a plan and increase your brains ability to remember.
Thinking trading is easy. It is not, there are times when it can be slightly less difficult after a lot of time, patience, and hard work. When I think to myself “this is easy” I lose my sharpness. My focus is adverted from my goal. I will lose. It may not be on that trade but maybe the next.
Thinking you have finished. There is only one thing that every trade is guaranteed to give me: a chance to learn about myself, the market, and the interaction between the two. You have to be willing to be relentless in your learning. It will enable you to learn the cheapest.
Hope & Fear in Trading
In trading most new traders allow hope and fear to dictate their trading. They have a losing trade and instead of selling it and getting out they instead hope it will come back to even allowing the loss to grow. Another error for new traders is that when they have a winning trade they fear that the profit will disappear so they sell for a small gain and miss the big trend in their favor. When hope and fear controls the trader they end up with big losses and small gains. A formula for ruin.
Instead the rich trader is fearful of losses getting bigger so they sell quickly when losing, risking a maximum of 1% of their capital on any one trade. Rich traders are able to think clearly and trade rationally knowing exactly what they are risking, when their stop is hit, they get out. This enables them to keep all their losses small.
When a trade is immediately a winner for a rich trader they hope it will run 100 points in their favor. Rich traders enable this to be possible with a trailing stop, they do not get out of a winning trade until a key price reversal has happened that tells them that the trend is actually reversing.
Rich traders are fearful of losses growing bigger and hope that their winners will continue on a monster trend. This mindset allows them to be on the right side of trends and avoid any huge losses. This is why the best traders in the world are trend followers and win consistently. Do you want to join their club? Then do not let fear and hope dictate your trading decisions use them correctly.
MARKET WISDOM
A list of golden sayings and rules I have gleaned from many sources:
- Plan your trades, trade your plan.
- Trade Quality, Not Quantity.
- Keep it simple.
- Don’t look for a reason to enter the market, look for a reason NOT to enter.
- Don’t act due to “Newbie Nerves”
- Don’t make up a trade. If you have to look, it isn’t there.
- Never play with scared money.
- You are not the market.
- Buy dips in an uptrend, sell rallies in a downtrend.
- Do not try to pick tops and bottoms.
- It is only divergence if it came off a retracement – not a sideways market.
- Indicators warn, price action confirms.
- Divergence is early, cross-overs are late.
- You cannot expect your positions to go immediately into the money.
- Divergence means a detour, but not necessarily a new trend.
- No-one knows what will happen in the markets.
- Standing aside is a position.
- Subordinate your will to the will of the market.
- Large ranges beget small ranges, small ranges beget large ranges.
- Once a thing is set in motion, it tends to stay in motion.
- Sniper-rifle, not a shotgun.
- Cut your losses short, let your profits run.
- Only move stops in the direction of your position.
- Do not let a winner turn into a loser.
- Never add to a losing position.
- Forget losses quickly. Forget profits even quicker.
- Consistent behavior equals consistent results.
There are probably more, send ’em in…
Five Trading Lessons From Market Wizard Dr. Van. K. Tharp
The composite profile of a losing trader would be someone who is highly stressed and has little protection from stress, has a negative outlook on life and expects the worst, has a lot of conflict in his/her personality, and blames others when things go wrong. Such a person would not have a set of rules to guide their behavior and would be more likely a crowd follower. In addition, losing traders tend to be disorganized and impatient.”
The profitable trader is able to manage stress, has a positive outlook on life and expects the best from themselves and their trading. They take responsibility for their wins and losses. They know who they are and are in touch with their goals. They have specific rules to guide their trading and are organized and patient.
“The simple truth is that most people are risk-aversive in the realm of profits – they prefer a sure, smaller gain to a wise gamble for a larger gain – and risk-seeking in the realm of losses – they prefer an unwise gamble to a sure loss. As a result, most people tend to do the opposite of what is required for success. They cut their profits short and let their losses run.”
Most traders are unprofitable because they take profits quickly but let losers run. Many traders can have a nice winning streak or be profitable in a bull market only to give back their profits with one big loss or lose all their bull market profits during the next bear market.
“Most people approach trading to make a lot of money, and that is one of the primary reasons they lose.” (more…)
25-One Liners for Traders (Read and Understand ) -Anirudh Sethi
- If you need to spend your money in a relatively short period of time it doesn’t belong in the stock market.
- If you want to earn higher returns you’re going to have to take more risk.
- If you want more stability you’re going to have to accept lower returns.
- The stock market goes up and down.
- If you want to hedge against stock market risk the easiest thing to do is hold more cash.
- Risk can change shape or form but it never really goes away.
- No Trader is right all the time.
- No Trading strategy can outperform at all times.
- Almost any Trader can outperform for a short period of time.
- Size is the enemy of outperformance.
- Brilliance doesn’t always translate into better Trading results.
- “I don’t know” is almost always the correct answer when someone asks you what’s going to happen in the markets.
- Watching your friends get rich makes it difficult to stick with a sound Trading plan.
- Day trading is hard.
- Outperforming the market is hard (but that doesn’t mean it’s impossible).
- There is no signal known to man that can consistently get you out right before the market falls and get you back in right before it rises again.
- Most backtests work better on a spreadsheet than in the real world because of competition, taxes, transaction costs and the fact that you can’t backtest your emotions.
- It’s almost impossible to tell if you’re being disciplined or irrational by holding on when your investment strategy is underperforming.
- Reasonable investment advice doesn’t really change all that much but most of the time people don’t want to hear reasonable investment advice.
- Successful Trading is more about behavior and temperament than IQ or education.
- Don’t be surprised when we have bear markets or recessions. Everything is cyclical.
- You are not George Soros or Jesse Livermore
- The market doesn’t care how you feel about a stock or what price you paid for it.
- The market doesn’t owe you high returns just because you need them.
- Predicting the future is hard.
Trading Rules: Strategies For Success
1. Divide your trading capital into ten equal risk segments
2. Use a two-step order process
3. Don’t overtrade
4. Never let a profit turn into a loss
5. Trade with the trend
6. If you don’t know what’s going on, don’t do anything
7. Tips don’t make you any money
8. Use the right order to get into the markets
9. Don’t be whimsical about closing out your trades
10. Withdraw a portion of your profits
11. Don’t buy a stock only to obtain a dividend
12. Don’t average your losses
13. Take big profits and small losses
14. Go for the long pull as an outside speculator
15. Sell shorts as often as you go long
16. Don’t buy something because it is low priced
17. Pyramid correctly, if at all
18. Decrease your trading after a series of successes
19. Don’t formulate new opinions during market hours
20. Don’t follow the crowd – they are usually wrong
21. Don’t watch or trade too many markets at once
22. Buy the rumor, sell the fact
23. Take windfall profits when you get them
24. Keep charts current
25. Preserve your capital
26. Nothing new ever occurs in the markets
27. Money cannot be made every day from the markets
28. Back your opinions with cash when they are confirmed by market action
29. Markets are never wrong, opinions often are
30. A good trade is profitable right from the start
31. As long as a market is acting right, don’t rush to take profits
32. Never permit speculative ventures to turn into investments
33. Don’t try to predetermine your profits
34. Never buy a stock because it has a big decline from its previous high, nor sell a stock because it is high priced
35. Become a buyer as soon as a stock makes new highs after a normal reaction
36. The human side of every person is the greatest enemy to successful trading
37. Ban wishful thinking in the markets
38. Big movements take time to develop
39. Don’t be too curious about the reasons behind the moves
40. Look for reasonable profits
41. If you can’t make money trading the leading issues, you aren’t going to make it trading the overall markets
42. Leaders of today may not be the leaders of tomorrow
43. Trade the active stocks and futures
44. Avoid discretionary accounts and partnership trading accounts
45. Bear markets have no supports and bull markets have no resistance
46. The smarter you are, the longer it takes
47. It is harder to get out of a trade than to get into one
48. Don’t talk about what you’re doing in the markets
49. When time is up, markets must reverse
50. Control what you can, manage what you cannot
Hope & Fear
In trading most new traders allow hope and fear to dictate their trading. They have a losing trade and instead of selling it and getting out they instead hope it will come back to even allowing the loss to grow. Another error for new traders is that when they have a winning trade they fear that the profit will disappear so they sell for a small gain and miss the big trend in their favor. When hope and fear controls the trader they end up with big losses and small gains. A formula for ruin.
Instead the rich trader is fearful of losses getting bigger so they sell quickly when losing, risking a maximum of 1% of their capital on any one trade. Rich traders are able to think clearly and trade rationally knowing exactly what they are risking, when their stop is hit, they get out. This enables them to keep all their losses small.
When a trade is immediately a winner for a rich trader they hope it will run 100 points in their favor. Rich traders enable this to be possible with a trailing stop, they do not get out of a winning trade until a key price reversal has happened that tells them that the trend is actually reversing.
Rich traders are fearful of losses growing bigger and hope that their winners will continue on a monster trend. This mindset allows them to be on the right side of trends and avoid any huge losses. This is why the best traders in the world are trend followers and win consistently. Do you want to join their club? Then do not let fear and hope dictate your trading decisions use them correctly.