Knowledge – A trader must put in the time and effort to study and learn the proper skills in order to be successful. Whether that is through technical or fundamental analysis, one must invest in their education. They must completely understand their market, and its ideal as a beginner to focus on one market and be a specialist. A part of the knowledge and education is devising a game plan or strategy for trading. Writing down your rules and sticking to your trading plan is a key to success. Patience – A successful trader can sit on the sidelines for days waiting for the proper setup. They don’t jump into a trade just for the sake of trading. Yes there may be opportunities, but the smart trader waits for trades that meet their trading rules and system. Over trading by beginner traders is a big obstacle to overcome. A need to always be in the market will lead to taking trades that are likely too risky. Learn patience, it’s a key to success. A winning trader usually has an extraordinary amount of self control, and often the best trade is no trade. |
Archives of “trades” tag
rssDont Take Too Much Risk
One of the most devastating mistakes any trader can make is risking too much of their capital on a single trade. One thing is certain in trading and that is if you lose all your capital you are out of the game. Why risk so much you could be prevented from continuing? There is a saying in poker than going all-in (risking all your chips) works every time but once. This is true of trading.
If you risk all your account on every trade it only takes one loser to wipe you out (and no trading method is 100% accurate), so you will be out of the game at some point it is only a question of time.
In general, we only risk 1-3% of the available capital allocated to a system on any individual trade. This is calculated using the size and, the difference between our entry price and our maximum stop price, and the amount of capital allocated to the system. With the win probability and ratio of size of winning trades to losing trades we are almost certain never to lose all of our trading capital. In fact, the chance of us hitting our maximum drawdown for the year is tiny. (more…)
7 Bad Habits of Traders
Trading with no stop losses. You can’t control your profits but you can control and limit your losses with a planned exit. Not having an exit plan can be very expensive when a trend takes off against you and you start hoping instead of just cutting your losses and moving on.
- Your opinion can be very expensive. Trading your opinion against all other market participants can be very expensive. The market goes where it wants and when you disagree with where it is going it will cost you.
- “Egos are expensive things.” – Ray C. Freeman. Inflated egos cause a trader’s #1 priority to be proving they are right and refusing to admit when they are wrong. It is very expensive for ego gratification to be above making money.
- Trading off predictions can cost a lot of money when they are wrong. There is more to be made by reacting to what the market is doing instead of predicting what you think it will do later.
- Stubbornness causes small losses to become big losses. It causes a trader to make the same mistake over and over becasue they do not assimilate feedback they keep doing the same thing over and over and getting the same results.
- Not having an exit strategy for a winning trade can be very expensive, it is possible to ride a big winning trade into being a big loser if you do not have a set way to take profits. Trailing stops and targets can put the profits in the bank.
Trading too big of position sizes for your account size can be very costly because no manner how good your winning trades are you are set up to give back the profits with a few big losing trades.
Where Most Of Your Time Should Be Spent
Selecting the one or two super trades should consume most of your time. There’s a great deal of work and thinking to be done in comparing markets, finding the best Open Interest play and carefully reviewing the premiums. The average tendency is to rush over this section of trading simply because it seems more productive to look at all the technical wiggle-waggles.
In actuality, as I’ve said so many times, unless you are fundamentally right in your initial selection decisions, all the technical tools will do is get you in trouble. Please devote all your concentration and energies to the selection of your commodities before you give the technical data any consideration at all. Technical data is secondary to screening out the potential big winning trades.
The only technical tool to look at during this screening is the ten week moving average trend line. For a bullish situation it should be slanting up; for a bearish market, it should be slanting down.
by Larry Williams, excerpt from his book, How I Made $1,000,000 Trading Commodities Last Year.
Thinking Can Make Impossible Become Possible
I am sure that all of us have seen the statue of The Thinking Man. It is an amazing sculpture that evokes in individuals many different emotions and ideas.
As a trader, if we are always worrying about what might happen if we do this or do that and if it is wrong that we will lose money, then we will rarely if ever have a successful session.
I submit that if we take time before we begin a trading session to think about all of the correct decisions we will make, all of the good trades we will execute, all of the money management actions that we will adhere to and so much more, then we will be so far ahead of multitudes of other traders.
When we take time to think about what we desire to accomplish and what skill sets we have and how we will put them to use while we trade, when the session is over we will many times be amazed at what we have accomplished.
Don’t begin trading with thoughts of it being impossible to succeed or else your results will match those thoughts. Fill your thoughts with confidence and focus on what you truly desire to happen and then let yourself just go ahead and make it happen.
20 Trading Skills for Traders
1. Know the difference between trading and investing. We are traders, NOT investors. •• Disciplineis doing the right thing at the right time…every time! Survival in this business is dependent on the right decisions.
2. Don’t let losers run! Always use stops . Riskmanagement is very, very important in your trading. Don’t be stubborn in holding a position. Remember, while you may not be wrong often, The Market Is Always Right. The best traders are the first to admit (to themselves and the market) that they made a mistake.
3. Trade only price pattern set-ups.
4. Trade for skill, NOT the money. If you’re focused on the money aspect of trading…you’re not focused on the ‘trade’. And SCARED MONEY NEVER WINS!
5. Concentrate on what you are trade. Each market has personalities, habits and friends…get to know them all.
6. Focus on your executions. Remember, every execution is a trade. Money is valuable…don’t leave it on the table.
7. Model Yourself After Successful and Experienced Traders. You will be all you can be…but you need to start somewhere.
8. Be Teachable. Learn something new every day (or at least every week). The ‘Losing’ and ‘Winning’ trades can teach you a whole lot.
9. Remember that even the best of the best traders lose money. Learn to accept your losses and move on to the next trade. That’s just part of the business – you will NEVER win 100% of the time.
10. Use only 1 contract at the beginning. Large wins at the beginning generally means large exposure. (more…)
Discipline Trading
-The market pays you to be disciplined.
-Be disciplined every day, in every trade, and the market will reward you. But don’t
claim to be disciplined if you are not 100 percent of the time.
-Always lower your trade size when you’re trading poorly.
-Never turn a winner into a loser.
-Your biggest loser can?t exceed your biggest winner.
-Develop a methodology and stick with it. don?t change methodologies from day to
day.
-Be yourself. Don?t try to be someone else.
-You always want to be able to come back and play the next day. Once you reach
the daily downside limit, you must turn your PC off and call it a day. You can always come back tomorrow.
-Earn the right to trade bigger. Remember: if you are trading poorly with two lots you
must lower your trade size down to a one lot.
-Get out of your losers.
-The first loss is the best loss.
-Don?t hope and pray. If you do, you will lose.
-don?t worry about news. it?s history.
-Don?t speculate. if you do, you will lose.
-Love to lose money. What I mean is to accept the fact that you are going to have
losing trades throughout the trading session. Get out of your losers quickly. Love to get out of your losers quickly.
-If your trade is not going anywhere in a given timeframe, it?s time to exit.
-Never take a big loss. Only a big loss can hurt you. consistency builds confidence and control.
-Learn to sweat out (scale out) your winners.
-Make the same type of trades over and over again ? be a bricklayer.
don?t over-analyze. don?t procrastinate. don?t hesitate. if you do, you will lose.
all traders are created equal in the eyes of the market.
-It?s the market itself that wields the ultimate scale of justice.
10 Essential Trading Words
1. Simplicity – have a simple, well defined way to generate trading ideas. Have a simple approach towards the market. You can’t take everything into account when you try to make an educated decision. Filter the noise and focus on several key market components. For me, they are relative strength and earnings’ growth.
2. Common sense – create a trading system that is designed on the basis of proven trading anomaly. For example, trend following in different time frames.
3. Flexibility – be open to opportunities in both directions of the market. Be ready to get long and short.
4. Selectivity – chose only trades with the best risk/reward ratio; stocks with the best set ups; it doesn’t make sense to risk a dollar to make a dollar.
5. Don’t overtrade – two or three well planned trades in a week (month) might be more than enough to achieve your income goals. Patiently wait fot the right set up to form and to offer good risk/reward ratio.
6. Exit strategy – Always, absolutelly always have an exit strategy before you initiate a trade. Know at which point the market is telling you that you are wrong and do not hesitate to cut your losses short immediatelly. Don’t be afraid or ashamed to take a trading loss. Everyone has them. Just make sure that you keep their size to a minimum.
7. Let’s profits run – one or two good trades might make your month. One or two good months might make your year. Letting profits run is as important as cutting losses short. Bigger winners will allow you the luxury to be right in less than half of the trades and still be profitable.
8. Consistency – Stick to your method of trading ideas’ generation.
9. Specialize – Specialize in one or two distinct setups. It could be a combination of technicals and fundamentals, certain timeframe or special event as a trading catalyst, certain sector or trading vehicle.
10. Have a plan – Which are the stocks that you will be paying special attention to – this week, today. Why those stocks? In which direction you expect them to continue their move? What will give you a clue for the beginning of the move? Follow them exclusivelly and enter without a hesitation when they give you a signal. Don’t just wake up and sit in front of your monitor without having a clue what you are going to trade today.
Trading Wisdoms
“Never let the fear of striking out get in your way” – Babe Ruth
“If you can’t take a small loss, sooner or later you will have to take the mother of all losses” – Ed Seykota
“Don’t think about what the market is going to do. You have absosutely no control over that. Think about what you are going to do if it gets there.” – William Eckhardt
“I turned from a loser to a winner when I was able to separate my ego needs from making money. When I was able to accept being wrong. Before that, admitting I was wrong was more upsetting than losing money” – Marty Schwartz
“The worst mistake a trader can make is to miss a major profit opportunity. 95% of the profits come from only 5% of the trades” – Richard Dennis
Importance of money management
In Jack Schwager’s book Market Wizards, Schwager interviewed some of the world’s top traders and investors, nearly all of whom emphasised the importance of money management. Here are a few of my favourite excerpts:
‘Risk management is the most important thing to be well understood. Undertrade, undertrade, undertrade is my second piece of advice.Whatever you think your position ought to be, cut it at least in half. ’-Bruce Kovner
‘Never risk more than 1% of your total equity in any one trade. By risking 1%, I am indifferent to any individual trade. Keeping your risk small and constant is absolutely critical.’ –Larry Hite
‘You have to minimize your losses and try to preserve capital for those very few instances where you can make a lot in a very short period of time. What you can’t afford to do is throw away your capital on suboptimal trades.’ –Richard Dennis