| Discipline – Majority of traders are not disciplined in their approach, else they would not be failing. These failed traders simply hate to hear the word Discipline! As Jack Schwager points out in his book, ‘The New Market Wizards’, “Discipline was probably the most frequent word used by the exceptional traders that I interviewed. Often it was mentioned in an almost apologetic tone: ‘I know you’ve heard this a million times before, but believe me, it’s really important’.” Discipline allows you to more effectively plan your work (trades) and work (trade) your plan. Discipline – “Habit of Obedience” – yes the keyword being habit, i.e. have a Trading Plan and make a habit of following it. The golden rule should be No Signal – No Trade. Passion – We may spend a third of our life working, so you deserve to feel fulfilled in what you do, you do it because you love to do it! – Yes the monetary rewards are the by-product of your success in doing things you love to do. How can you be naturally successful at something, continue to fine-tune your trading skills, seek the services of a mentor, and stomach the ups and downs of the business and if you don’t know WHY you’re doing it? As Michael Jordan once said, “If you have a love for the game, your talent will eventually catch up to you.” So if you do not have the love for trading, will you succeed? To sum-up this Mental skill set PAIR (Discipline / Passion): You must be disciplined AND remain emotionally detached from the market. |
Archives of “trades” tag
rssCONCENTRATE ON EXECUTION
Trade execution is very important. It is the same in sports – you can have a good team, a very talented team that you put on the field. But if they don’t execute the plays like they’re trained to, the team will probably not win. It’s a simple fact of life. You’ve got to be able to execute. Tiger Woods can have a game plan when he hits that course, but if he doesn’t execute and follow through his game plan, no matter how talented he is, the competition is going to beat him. This is a very important factor in trading a portfolio of technical or priced based strategies that is grossly overlooked. You need to get the execution of trades correctly day in and day out, because there’s just one or two missed opportunities which get away that could have made your month or there can be mistakes that can take away weeks and weeks of profitable work. This is where the use of good automated trading software can control some of these variables. |
OverTrading
Overtrading is also the result of improper trade preparation. It’s difficult to overtrade when you begin the day fully prepared. Trade what you see not what you hear or feel during the day. Plan your trades and trade your plan. Prior planning can prevent and severely limit these problems. Overtrading as I see it is the essence of trading frustration. Trying to “catch” a good trade regardless of risk involved is the ultimate in trading suicide. Overtrading will greatly reduce your probability of success because you are trading without a plan.
7 Warning Signs for Traders
You stop trading your plan and start “shooting from the hip” you are losing or winning so you believe that you are above your own rules, you start trading your opinions instead of your plan.
- You are about to take a trade you are 100% sure of, you have no doubt that it will work out. Trades that feel good to do and feel like can’t lose trades rarely win because everyone is already positioned in those trades.
- When you ignore your first stop and start deciding that you should give your trade “more room”, when you allow a loss to grow and rationalize why you should hold it instead of following your plan and stopping out you are in trouble.
- Averaging down in a position that is going against you is never a good idea, fighting trends are very dangerous amplifying your losses by increasing your position size can be fatal to your account.
- Fighting against the prevailing market trend over an over again can chop your account to pieces.
- When losing, you start trading bigger and bigger to get back to even. When you are losing you should start trading smaller and smaller to decrease losses.
When you actually disagree with the market and believe it is wrong and you are right. Price is reality wherever it is, your job is to trade trend and price action not your own opinion.
Expectancy
Expectancy along with position sizing are probably the two most important factors in trading/investing success. Sadly most people have never even heard of the concept.
Expectancy is the average amount you can expect to win (or lose) per rupee at risk.
Here’s the formula for expectancy:
Expectancy = (Probability of Win * Average Win) – (Probability of Loss * Average Loss)
As an example let’s say that a trader has a system that produces winning trades 30% of the time. That trader’s average winning trade nets 10% while losing trades lose 3%.
Expectancy, position-sizing and other aspects of money management are far more important than discovering the holy grail entry system or indicator(s). Unfortunately entry techniques are where the vast majority of books and talking heads focus their attention. You could have the greatest stock picking system in the world but unless you take these money management issue into consideration you may not have any money left to trade the system. Having a system that gives you a positive expectancy should be in the forefront of your mind when putting together a trading plan.
Trading Wisdom
Successful traders:
1) are very solid with what he called the “basics” (tape reading, execution, preparation for the trading day),
2) have discovered the trades that fit your personality and became excellent at those and
3) realize that successful trading is about pulling a small bucket of profit water out of the market well multiple times (in other words they are not greedy).
4) a passion for trading,
5) the willingness to admit you are wrong in your bias and to change your bias or terminate a losing trade and
6) to work really hard to become better each day.
7) an ability to recognize what trades truly work for you and to STICK with them and
8) calmness in the midst of market volatility.
Unglamorous as it may sound, it looks like the clear winner is hard work and learning the basics. Should this be that big of a surprise? Wasn’t it Thomas Edison who said ” genius is 1% inspiration and 99% perspiration”? But it is interesting to note that two of the three put a very high premium on recognizing your trading strengths and focusing on those types of trades primarily.
Resolutions For 2012
Resolutions On Trading & Investing:
- Define my trading plan and stay with it.
- Take no trades without establishing a complete and precise trading plan before the initial trigger.
- Keep an open mind for new market scenarios based on what the price action and pattern setups provide.
- Always trade with the trend.
- The less trading I do, the better my results so for 2012 I’m adoping weekly/monthly time frames
- Once I am in a trade, stick with the original plan for target and stop-loss – Don’t panic!
- Make every trade meet the strategy requirements and what happens from there is up to the market.
- I need to exercise greater patience in both buying and selling.
- Be more willing to take a position, even if it is very small. It is tough though to gain the confidence to do so as the market has been tough.
- I am NOT going to overtrade. I will only make “A” trades.
- Don’t ever force a trade, stay in cash when unsure.
- I resolve not to violate my stops.
- Wait for opportunities instead of looking for trades.
- Do not make a move until your indicators say so.
- Follow this important Gartman rule: “Do more of what is working and less of what is not.”
- To clarify my trading approach in my mind and in writing.
- Be dispassionate and thoroughly objective when evaluating positions.
- Do not be afraid to cut a loss, even if the trade is later re-entered at a higher price / better set-up
- Never trade on impulse.
- To memorize and practice the cardinal rules of trading.
- Only trade when you can pay very close attention or exclusive attention to the market.
- Dedicate more time during non-market hours to prepare for trading.
- Take emotion out of my trading. Follow price action.
- I need to overcome my unreasonable fear of the market.
- Try to avoid personal bias in making decisions.
- Wait for pattern to work out – do not jump the gun.
- Don’t be in such a damn hurry. Wait out the times when the setup is just not there.
- Avoid buy and hold in times of high market volatility.
- Actually ignore the news and trade the charts! It’s harder than it sounds.
- Don’t force the trade. The market will open again tomorrow and there will be new opportunities.
- Don’t turn a trade into an investment. Continue to focus on price action.
- Approach each trading day well-rested, of clear mind, and with a positive, opportunistic attitude just like Kirk
Resolutions On Learning:
- Learn to do 1-2 things very well and focus.
- Write the plan for the year ahead. Specify initial position, goals, entrance and exit strategies for action, identify risks to take and manage.
- Study more on the weekends to prepare for the upcoming week.
- I will be more diligent in keeping a journal of EVERY trade made in the year.
- Quit searching for the holy grail of trading – there is none.
- Turn off CNBC and all other distractions in the way of my success
- I will keep good records and document all of my research, trades, and outcomes.
- Use the right side of my brain and be careful of the left.
- Do not blindly follow anyone else.
- Accept failure and move on.
- Methodically analyze what went right and wrong on each trade.
- Spend more time nightly looking at charts.
- Learn 10 new chart patterns this year and trade only setups identified by those patterns.
- Apply a consistent decision tree toward every single trade.
- Tune out the noise. No calls during the day. No more “experts”, no more TV and definitely, absolutely and without a smidge of doubt no more twitter.
- Transition from paper trading to live trading.
- Need to read more charts and read less newspapers.
- Assess my strengths and what is working well for me and determine how I can improve. Also, assess what does not add value and eliminate it.
- Stay with low risk, probability based methods.
- Every trade I take requires a one page description of why, how, and at what levels I intend to take action.
- Paper trade new ideas before putting real money at risk.
- Study and read more, establish a trading plan, follow the plan, experiment, re-evaluate and keep learning.
- I resolve to improve myself by: managing my emotions better, become more patient and understanding, define my goals more completely, and constantly review my efforts to these accords.
- My resolution would be to trade/invest during all market conditions. Emotion still has some control over my investments.
- Work on consistency!! (more…)
Typical trading errors
Don’t define the risk in advance of putting on a trade.
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10 Ways to Move From Peril to Profits
- The first question to ask in any option trade is how much of my capital could I lose in the worst case scenario not how much can I make.
- Long options are tools that can be used to create asymmetric trades with a built in downside and unlimited upside.
- Short options should only be sold when the probabilities are deeply in your favor that they will expire worthless, also a small hedge can pay for itself in the long run.
- Understand that in long options you have to overcome the time priced into the premium to be profitable even if you are right on the direction of the move.
- Long weekly deep-in-the-money options can be used like stock with much less out lay of capital.
- The reason that deeper in the money options have so little time and volatility priced in is becasue you are ensuring someones profits in that stock. That is where the risk is:intrinsic value, and that risk is on the buyer.
- When you buy out-of-the-money options understand that you must be right about direction, time period of move, and amount of move to make money. Also understand this is already priced in.
- When trading a high volatility event that price move will be priced into the option, after the event the option price will remove that volatility value and the option value will collapse. You can only make money through those events with options if the increase in intrinsic value increases enough to replace the vega value that comes out.
- Only trade in options with high volume so you do not lose a large amount of money on the bid/ask spread when entering and exiting trades.
- When used correctly options can be tools for managing risk, used incorrectly they can blow up your account. I suggest never risking more than 1% of your trading capital on any one option trade.
The 10 Bad Habits of Unprofitable Traders
The 10 Bad Habits of Unprofitable Traders
- They trade too much. A major edge small traders have over institutions is that we can pick our trades carefully and only trade the best trends and entries. The less I trade the more money I make because being picky is an edge, over trading is a sure path to losses.
- Unprofitable traders tend to be trend fighters always wanting to try to call tops and bottoms, while they eventually will be right there account will likely be too small by then to really profit from the actual reversal. The money is made swimming with the flow of the river not paddling up stream the whole time.
- Taking small profits quickly and letting losing trades run in the hopes of a bounce back is a sure path to failure. The whole thing that makes traders profitable is their risk/reward ratio, big wins and small losses. Being quick to take profits but allowing losses to grow is a sure way to eventually blow up your trading account.
- Wanting to be right more than wanting to make money will be VERY expensive because the trader won’t want to take losses and he definitely will not want to reverse his position and get on the right side of the market because in his mind that is a failure, in a profitable trader’s mind that is a success if they start making money.
- Unprofitable traders trade too big and risk too much to make too little. The biggest key to profitability is to not to have BIG LOSSES. Your wins can be as big as you like but the downside has to be limited.
- Unprofitable traders watch BLUE CHANNELS for trading ideas. Just stop it. (more…)