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Trade with Discipline

  
  Education
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“Without discipline, you will be unable to master your ego, create empowering beliefs, have faith, and develop confidence in your abilities. The lack of discipline will prevent your skill as a trader from progressing.”

Making an occasional winning trade, that ignores your trading plan, may provide short-term pleasure, but entering trades unsystematically can adversely influence your ability to maintain discipline over the long term. Why? When you stop following your plan, you are being rewarded for a lack of discipline. You may start believing that abandoning your plan is therefore not a big deal. Then, whether consciously or unconsciously, you’ll begin to think: “I was rewarded once; maybe I will be rewarded again. I’ll take a chance.” Positive outcomes from undisciplined trading are most often short-lived, and the lack of discipline will ultimately produce trading losses.

Who cares if the win is from my plan or not? It’s still a win, right! A win that results from following a trading plan reinforces discipline. A win that occurs by chance (deviating from your plan) will increase your bottom line temporarily, but may cause harm to your psyche and be responsible for future unexplained losses. It reinforces undisciplined trading. (more…)

Method-Pyschology-Risk Management for Traders

  
  Education
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METHOD:

  1. I am a trend hunter I want a stock that has the potential to move 10-20  points in my favor.
  2. My top pivot points for trades is the 5 day EMA  (3 & 7DEMA for NF )
  3. I play the long side in bull markets primarily and the short side in bear markets primarily.
  4. I go long the top monster stocks in up trending markets.
  5. I never short a monster stock above the 50 day moving average.
  6. I short the biggest  junk stocks in down trends, the ones that are unprofitable and made major missteps with customers and investors.
  7. I like to trade with all time highs or all time lows in stocks with in striking distance.
  8. Moving averages are my best indicators.
  9. I never have targets, I let a trend run until it reverses.
  10. My watch list for longs is the Investor’s Business Daily IBD50.
  11. I use Darvas Boxes at times to trade stocks.

PSYCHOLOGY:

  1. I am not trying to prove anything about myself I am only trying to make money.
  2. I will quickly admit when I am wrong when a stock moves against me enough to show me I am wrong.
  3. I trade my own method, I do not trade others advice.
  4. If I am losing and very unconformable with a trade I get out of it.
  5. I trade position sizes I am mentally comfortable with.
  6. I do not try to predict the future I look for what the chart is telling me.
  7. I trade the chart not my personal opinions.
  8. I am not afraid to chase a trending stock.
  9. I understand that I chose my entries, exits, risk, and position size and the market chooses when I am profitable.
  10. I do not worry about losing money I worry about losing my trading discipline.
  11. I have faith in myself and my method.
  12. I do not blame myself for losses.
  13. I do not blame myself for losses where I followed my rules.

RISK MANAGEMENT:

  1. I attempt to never lose more than X % of my total capital on any one trade.
  2. I NEVER add to a losing trade.
  3. I use trailing stops to get out of winning trades.
  4. I use mental stop losses to get out of losing trades.
  5. I use position size to limit my risk.
  6. I use stock options to limit my risk.
  7. I know my biggest advantage in trading is small losses and big profits.
  8. I never expose more than X % of my capital to risk at any one time.
  9. I understand the market environment I am trading in.
  10. I understand the volatility of the stock I am trading.

Negative Trading Behaviors

  
  Education
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*Over Trading in Size *Jumping the Gun *Hesitating *Skipping Trades *Being in A Hurry * Trading without Proper Preparation *Getting Stuck in A Losing Trade *Whipsawing *Breaking Your Trading Rules *Shooting From the Hip * Over Interpreting *Discounting *Trading A  Scenario without Reference to Price *Trading Heedlessly *Trading Wildly *Abandoning Your Trading Plan *Not having A Trading Plan *Switching Strategies Frequently *Not having  A Proven Strategy *Not Pulling the Trigger *Not Believing the Evidence the Market Provides *Blindly Believing   A story you tell yourself *Blindly Believing A story somebody else tells you *Becoming Impulsive.*Not Verifying A System Or Method Before you trade it.*Over Researching *Using Trading as a Spectator Sport *Jumping in before you think *Trading too Big *Grabbing Profits too soon.*Getting Careless *Being too Careful *Not adding to A Winning Trade.*Trading Heavier when losing *Forcing  trades *Getting Trigger Happy *Gulping Profits too soon *Adding to A losing Trade.*Overtrading  in terms of Frequency *Sticking with A Losing system *Sticking with A Broker that gives you bad Fills.*Not Making Trading A Priority*Worrying what others will think.*Trading with borrowed Money.*Trading with Money you need to live on*Holding Unrealistic Expectations.*Engaging in Negative and Destructive Self talk*Becoming Despondent about your trading results.*Wanting certainty before you trade.*Disregarding Probabilities*Fooling Yourself about your Trading.*Not keeping Proper Records*Not Acknowledging Mistakes.*Not Learning from Mistakes.*Repeating Mistakes*Engaging in Self Pity* Blaming Others *Getting Envious of other traders *Giving Up periodically *Resisting loss* Feeling shame for loss *Lying and Covering up results *Becoming pessimistic about the future of your trading * Being Unrealistic about your present trading &Tying self worth to trading * Bragging about Trading * Being Unduly Secretive  about trading * Using  trading to inflate your ego *Letting trading interfere with A full and Balanced life *Letting life interfere with A Full  and Balanced trading *Using trading to avoid living *Doing anything Unethical regarding your trading *Doing what Doesn’t work *Not continuing to do what does work *Getting Reckless & Getting Overcautious * Letting others put your down Re your trading * Waiting to Respect yourself untill you succeed with trading*Being Unorganized in your efforts * Trading for the sake of trading *Letting Distractions take your attention away from trading * Not Specializing *Not executing with precision *Forgetting to cancel stops after a trade is off*Fighting Yourself *Fighting the Market *Fighting Your Methods *Making careless errors & Personifying the Market *Projecting your own feelings on the market.

-Other

Go over each of the Behaviors you have checked and scale them from 1 to 10 as to severity.Let 10 represent the most harmful to your trading.

Follow these 13 Rules

  
  Education
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1. I will create game plans for all my trades.
2. I will only trade when I have an edge.
3. If I have 3 losing trades in a row, I will take a break, walk away, and clear my head.
4. I will never trade for revenge.
5. Any time I’m hoping, wishing, or praying, I will exit the trade immediately.
6. I will never give back more than half my profit on any trade.
7. I will keep a daily trading journal and email it to someone who will hold me accountable.
8. I will think in terms of probabilities and risk/reward.
9. I will remain objective in my trades by asking, “If I had no trade on, what would I do?”
10. I will never put more than 20% of my capital at risk in any single position.
11. I will not make trades just because I’m afraid to “miss out.”
12. I will quickly recognize my emotions and compartmentalize them raither than waste time trying to get rid of them.
13. I will trade to make money, not to be right..  

Master Talk Presents…William Eckhardt!

  
  Education
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“One adage that is completely wrongheaded is that you can’t go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke taking large losses, professionals go broke by taking small profits. What feels good is often the wrong thing to do. Human nature does not operate to maximize gain but rather to maximize the chance of a gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance. Two of the cardinal sins of trading – giving losses too much rope and taking profits prematurely – are both attempts to make current positions more likely to succeed, to the severe detriment of long-term performance. Don’t think about what the market’s going to do; you have absolutely no control over that.
Think about what you’re going to do if it gets there. It is a common notion that after you have profits from your original equity, you can start taking even greater risks because now you are playing with “their money”. We are sure you have heard this.
Once you have profit, you’re playing with “their money”. It’s a comforting thought. It certainly can’t be as bad to lose “their money” as “yours”? Right? Wrong. Why should it matter whom the money used to belong to? What matters is who it belongs to now and what to do about it. And in this case it all belongs to you.”

9 Steps for Traders

  
  Education
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1- When you see a trade setup you like, pull the trigger without hesitation

It looks so simple but it isn’t! If your mind is not 100% ready to take the trades when they present themselves to you, you’ll miss them, you’ll be just watching and will let them go without any apparent reason why, and then when you realize what you just did, your reaction is to get angry! Just to make you jump into an unplanned trade and lose… Prepare in advance, market is like playing chess, you have to look ahead for the next move.

2 – Always use STOPs

In case you don’t like to use physical stops, make sure you’ll be able to stop in case it breaks the limits you’ve set for that trade

 

3 – Anything can happen

Try to start the morning with a free state of mind so that you’ll be able “to listen” to the market.

4 – Always lower your trade size when you’re losing

If you make two losing trades in a row, lower trade size until you get in tune with the market again.

5 – Never turn a winning trade into a loser

That’s the reason why I like to take small portions of profit when market makes it available to me, I hate to see a winner turn into a loser, manage your trades well.

6 – Buy or develop a system and stick to it, don’t change it from day to day

Find a trading system that fits your personality and once you have it, if it gives you an edge, stick to it, don’t change it because it didn’t work on one or two days, otherwise you’ll keep changing systems forever and that means: losing money.

7 – Get out of losers

One of the most known market adages is: “Cut your losses and let your profits run.” Much easier said than done, but it’s very important that you do it, usually it’s much easier to do exactly the opposite… make sure you bear that in mind.

8 – Don’t worry about news

This one I like very much, the only thing news will do is to accelerate the targets, nothing else, most of the time, I completely trash the news and just follow what I see on my map.

9 – Monitor your progress, create your own trading journal

It is very important that you have a trading journal to track your success, so that you’ll be able to stop what you’re doing wrong and keep your strong strategies. I’ll talk about this in detail on my next post.

Hope this helps, happy trading!

Technically Yours

ASR TEAM


Impulse Trades

  
  Education
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Three things to know about Impulse trades for scalpers:

  • Impulse Trades are a strict No-No
  • If you do take it by mistake, don’t do it again if you want to be a serious profit-making trader
  • Ok, you did take an impulse trade ? Do the following:
    Watch it more carefully than you would do with a normal trade that follows your system.
    Keep a stop loss or limit in mind immediately and no matter what, GET OUT at that level. If it moves in your direction, trail it with the same rigourous discipline.

The Universal Principles of Successful Trading

  
  Education
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A book review for Brent Penfold’s book “The Universal Principles of Successful Trading: Essential Knowledge for All Traders in All Markets”

This book is excellent for traders that are ready to accept its lessons. You need a foundation in trading to understand the importance of what the book is advising and take the principles seriously with an open mind. Once you are through the rainbow and butterfly phase of trading and realize that you will not be a millionaire in a year, this book will help you get focused and get serious about your trading and what really works.

Here are the six universal principles of successful traders:

1). Preparation

Author Brent Penfold is in the minority believing risk management is the #1 priority in trading. Brent believes that once you get your trading system and position size in place you must use the amount you will risk on each trade to determine your risk of ruin. The book shows exactly how to figure this out using Excel. His point is that if your risk of ruin is not zero then you will eventually blow out your account. Risking 1% to 2% of your capital in any one trade usually gives you a zero percent risk of ruin but it also depends on your systems win/loss ratio. But the point is to test any system with a minimum of 30 trades first then determine your risk of ruin. I would advise a larger sample size in multiple market environments a trend following system that looks brilliant in a trending market may result in a 50% draw down in a choppy or range bound market. (more…)

The harder I try, the more money I lose. What’s going on?

  
  Education
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A:  This is a fairly common phenomenon which is why we have to learn how to adapt to market conditions and be patient with our strategies. Just because you “try harder” doesn’t mean that your profits will expand equally in relation to your effort. While effort helps create and sustain an edge, at the end of the day you still need the market to cooperate with whatever you are doing.

The best analogy I can provide here is one that many golfers are familiar with. If you’ve ever golfed in high winds, you know that your score will often be higher. Some of this, obviously is due directly to the windy conditions (which you have no control over). However, studies show that the most significant reason why golfers perform poorly in windy conditions has less to do with the conditions but more about how they react to those conditions. For example, many golfers will tend to swing harder in high winds which causes them to lose both their swing tempo and balance and they make more mental mistakes because the wind distracts them. The same is true for traders whose strategies are not flowing with the market. Without realizing it, traders will modify their own approaches (often by trying harder by making trades that don’t fit their strategy) which tends to hurt performance more than it helps.

Bottom line – keep close tabs on yourself and how you’re “adjusting” to market conditions. Being aware of how the market environment is affecting you and your changes to it is an important skill every trader must possess.

Six Questions Worth Asking at the End of the Trading Day

  
  Education
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six2What opportunities did I miss and what could have alerted me to those opportunities?
* What kind of trades are making me money? Where am I losing my money? What can I do about that?
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* When I took heat on trades, what could I have done to enter at better prices?
* Was the level of risk that I took in trades commensurate with my conviction in the trade ideas?
* What were the themes and markets driving prices today that I should be alert for tomorrow?
* What are the themes, economic reports, and markets that might drive prices overnight that I should be alert for in the morning?

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