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3 Types of Traders & 4 Questions

  
  Education
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An egotistical trader is more likely to argue with the markets, potentially leading to huge losing days or possible account blow-outs. You don’t need to win on every trade, or even every trading day, or every trading week.

A humble trader is able to admit that his trading is creating nothing but losses that day, and stop trading until the markets are better suited to his/her style. A humble trader is less likely to double-up into excessively risky trades, in order to ‘get back even’ on the trade or on the day. A humble trader has nothing to prove, to anyone, and can freely admit mistakes to themself and others, enabling them to quickly and easily react to what the market is telling them, with little regard for it’s contradiction to what he/she may have expected only minutes earlier.

Conversely, and egotistical trader might confidently tell his friends ‘what is going to happen’ and is unwilling or unable to subsequently change his mind when the market tells him otherwise. Once he’s made a public proclamation, he can’t go back on his ‘call’ or he might appear to be wrong.

The successful trader can’t tie up their self image or self worth on a single trade, or a single trading day. Keeping your attitude humble enables you to simply treat each and every trade as individually irrelevant, and allows you to focus on doing what’s right, and not being right.”

I’ll close with the questions I ask myself about each trade at the end of the day:

1. Was it a valid setup?

2. Did I wait for confirmation of the setup and follow my rules for entry?

3. Did I implement my risk management plan?

4. Did I manage the trade according to my rules, taking profits at or beyond the initial target, never earlier unless a valid stop-and-reverse signal appeared?“A successful trader is humble, not egotistical. The trader that knows it all, will typically quickly be proven wrong by the market. The humble attitude leads a trader to be willing to admit mistakes quickly, close out losing trades, and move on without loss of confidence.

Learn from your mistakes

  
  Education
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“The single most important advice I can give anybody is: Learn from your mistakes. That is the only way to become a successful trader.”

David Ryan

Make it a habit to review all your trades once a month. Notice where you entered and ask yourself why did you initiated such a position. What was the underlying reason behind your move. Was it pure emotional reaction or strictly following a plan. What were your exit rules and how well did they help you to preserve capital and maximize profits. No other exersize will teach you more about your weaknesses and strengths.

Activity and Inactivity

  
  Education
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active-inactive

I’ve noticed that my trading is more and more characterised by periods of doing a lot of trading, followed by periods of doing nothing except watching.
This seems to be a positive thing, as the old days consisted of trading every day no matter what the conditions, where as now I find that the markets will go into a mode that I just do not like the look of. In such cases if I try to force something, to “find a trade”, then I’ll get burned for sure.
To some degree I think this is because I have not yet spent much time on developing my strategies for trading insides large consolidation patterns. Of course it gets easier as they become more developed but by that time they are also getting old, and in the past I start making good trades in them just as they are about to end. The hard parts to trade are the start of trends / end of consolidation, and the end of trends / start of consolidation. These are times when the market is changing its basic mode, and are great places to lose money.

What characterizes great and successful traders

  
  Education
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  • Great traders graciously accept mistakes. They don’t need to be right all the time. Thoughts-Trading
  • Great traders focus on proper execution not on the outcome of a single trade.
  • Great traders concentrate on good risk management. They constantly manage their open positions.
  • Great traders are emotionally detached. Single trades do not affect their mood.
  • Great traders don’t compare themselves to others. They isolate themselves from the opinions of others.
  • Great traders are not afraid to buy high and sell low.  As you probably know by now the single biggest mistake a trader can make is to hold on to a losing position. Failing to cut losses quickly and letting them develop into huge losses is mentally and financially devastating. The underlying psychology which is responsible for this behavior is the ‘need to be right’ and the fear to sell at a loss. What aggravates the situation is adding to a losing position.  “Do more of the things that work and less of the things that don’t.“

  • Conclusion:Isolate yourself from the opinions of other people. Make trading decisions your own. Focus on proper execution. Have the courage to do the right thing because it is right.

    • Losses & Discipline in Trading

      
      Education
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    Losses

    1. Remain mentally and emotionally focused while trading.
    2. Losses are part of all systems; knowing when to take losses is important.
    3. Always try to be extremely disciplined, and exit your losing trades when your system requires you to do so.
    4. Not taking losses when indicated is dangerous.
    5. Riding losing trades for too long usually results in larger losses and risk of ruin increases.
    6. It’s not a good idea to keep changing stops to avoid a loss.
    7. System traders use stops consistently.
    8. Separate yourself as a trader from yourself as a person.
    9. No system can trade the markets without taking losses at times.
    10. Clumping can happen on the losing side as well as the winning side.
    11. Your ability to take losses quickly is a great asset to your trading.

    Discipline

    Now this is vital to trading success. Imagine a person trying to become a pro athlete, but he or she sleeps in every day, eats excessively, stays up late and parties every night. Is this person going to become an elite athlete or not? The answer is no, and the reason why has everything to do with the amount of discipline. Discipline, in my mind, is like homework, only it’s homework that pays off in dollars in the trading industry. Here are a few rules that I use when it comes to discipline in my life as a trader:

    1. Good trading discipline is vital to my success.
    2. My three successes to the market are: doing my market homework, following through, and using my stop losses.
    3. I train my mind every day to be disciplined and focused.
    4. I see myself every day doing my market homework and following the signals, setting stops.
    5. I track my system exactly as it dictates.
    6. If my system gives me daily signals, I follow them every day.
    7. If my system gives me intraday signals, I follow them during the day.
    8. I do not allow outside influences to affect my discipline.
    9. Placing my orders correctly as my system dictates increases my odds for success.
    10. Discipline to follow through with my system is my friend.
    11. A system without stop losses puts me in a position of unlimited or unknown loss.
    12. I understand that a major aspect of being disciplined is using stops.

    Over Trader Anonymous : Here's A Great Tip

      
      Education
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    overeating

    Over trading is the single most damaging thing to an account. the commissions alone will eventually slowly eat away at capital and that’s not even taking into consideration the mental and emotional drain you will go thru. Your soul goes into a dark place when you over trade and get poor results. Sometimes it made me even angry and i used to lash out at others.It took me years to figure out that trading more ironically meant more losses, (more…)

    Great Lines for Traders

      
      Education
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    1. You are not in the game, you are in the bleachers. All you can do is enter and exit.
    2. If the market goes with you, all you can do is try to go with it and jump off quick if turns against you.
    3. If you think in terms of winning and losing, you have already lost.
    4. Your goal should be to make good trades not money. Good trades will make money often enough.
    5. Strive to have a 4 to 1 reward risk ratio.
    6. Trade criteria, trade neutral; your opinion + your ego + your money = Disaster on a stick.
    7. When you make money on a trade, you have not beaten the market, you have blended with it.

    Four Possible Basic Outcomes To Any Trade

      
      Education
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    1) Wins initially, and keeps winning.

    2) Wins initially, but then reverses to become a loss.

    3) Loses initially, and keeps losing.

    4) Loses initially, but then reverses to become a win.

    If you average down, you only get the chance to add to trade types 2, 3 and 4.

    If you average up, you only get the chance to add to trade types 1, 2 and 4.

    Averaging down tends to be attractive to people, since it allows the possibility of trade type 4 i.e. a trade that goes against you, but then reverses to recover your losses and more. However, that comes at the material risk of trade type 3 i.e. the trade that never recovers.

    Averaging down virtually guarantees that your biggest positions will be in trade type 3 i.e. the trades that never win. Pyramiding up avoids this risk, and also allows you to add to trade type 1 i.e. the trades that start off winning and keep winning.

    To be clear, there is a legitimate strategy of picking a range of entry into a trade. Rather than picking a particular price point, you may choose to scale into a position over a range of entries. The distinction here is that you must decide this plan before the first entry is made, rather than in response to a trade going against you.

    Trading rules – something new to think about

      
      Education
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    NEW TRADING RULESTrading hours and decision making
    You should make your overall (long or intermediate term) decisions before the trading hours and you should not change your general overview of the market during trading hours. Look at the bigger picture.

    Breaks & presents
    Take breaks from trading, don’t trade every day – after couple of weeks, make presents to yourself if you have been successful, go abroad or something like that. If you haven’t made profit, just take a couple of days off.

    Crowd is wrong
    Don’t follow the crowd, historically the public tends to be wrong. If everyone are buying, it might be good idea to start thinking of going short. If 85% of the market analysts are bullish, the market is most likely overbought, if less than 25% are bullish, it’s probably oversold.

    Bets are bad
    Don’t make bets. You don’t have to make trades multiple times a day or even every
    day. Make trades only when you have a good reason to go into the trade. Wait for
    an opportunity. If in doubt about the trade you have done, reduce the size or get out
    of the trade.

    Ego and Fear

      
      Education
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    But of course “ego” in trading reveals itself in subtler ways. I came to realize that after watching any chart for a while I would form an confident opinion about where the price was headed. “Okay, that’s a bottom there.” “Now the price is going to reverse and test that last support level.” Thinking I could predict the market was clearly egotistical.

     

    So one big change has been to no longer guess where the price is going. I wait for trends where ANYBODY can see the price is going somewhere, and trade that trend. Makes for a lot more quiet periods of no trades but more successful trades when they do occur.

     

    “Fear” is another big issue for traders and for me the issue is “not having enough of it”. I’ve been willing to bet the bank on a hunch and have been working to change that. Now when I enter a trade I use mental imagery to escalate my fears so that I trade more responsibly. Have you seen the iMax films “Everest” or “The Alps”. Currently I imagine I am high up the sheer face of a rock cliff and the only thing keeping me alive is my attention to the security of the pitons and the condition of the ropes. This helps me be more selective in my entries and in placing my stops.

    How do fear and ego enter into your trading? Are you still trying to guess where price is going? Are you imagining yourself on the edge of a cliff, or are you already spending the profits you haven’t yet banked? 

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