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10 Things A Trader Needs to START DOING …To Mint Money

  
  Education
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There are many trading principles that are common among  successful rich traders. It is important to learn the things that allow them to win so we can follow in their footsteps and make money. There are 10 things that new traders can start doing tomorrow to improve their results immediately. If you have been trading for awhile but have not been profitable these  may be things that you need to start doing to stop losing money.

 1. Start trading the price action by using charts. The market doesn’t care about your opinions but the chart expresses the collective actions of all market participants. Learn to understand what the chart is saying.

Start to understand that the market determines whether any single trade wins or loses not you and not an imaginary “they”.

2. We can only surf the price waves not control them. 

Start to take 100% responsibility for your losses.

3. You enter the trade, you exit the trade, the wins and losses are yours alone. The blame game is a losing game in the markets.

Start to bounce back from losing trades quickly, move on don’t ruminate.

4. If your position size and risk management are correct no one losing trade should emotionally devastate you it should be only one of the next hundred trades with little significance by itself.

Start caring more about what the market is doing and less about what you think it should be doing.

5. ALL that really matters is current price action not your opinion of what might be price action later.  (more…)

Three stages of trading objectives.

  
  Education
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To make money every trade. At first, I did not have the ability to make money every trade.  After I had the ability to make money on most trades I realized it was a horrible objective.  If you want to make money on every trade you are always waiting.  You can never take that much risk and hence the rewards are very small.  I was trading 1′s and 2′s to start, which was the right thing to do.  I would watch my mentor take every trade, no matter how dog shit it was.  As a 1 and 2 lot trader you do not have the same luxury to take dog shit trades because you can only trade one way.  Because of the flexibility he had he could do more and the truth is no matter how good or bad a trade looks we don’t know until we are in it. Getting the most out of a trade is the mark of good trader.  Risk is always related to reward.  There is very little money in making money on every trade.  This type of trading is like making 100k and keeping 80K

To make huge chunks of money.  After I realized that objective did not work for me I shifted to the extreme.  I started to swing for the fences whenever I had the ability.  It is nice when I was right but I struck out a lot too. At this point, I did not respect trading.  I did it because money made me a bad ass.  Well as you know you hard to pay your bills with bad ass.  This type of trading is like making 200k and keeping 80k.

Here are the major risks of having both of those objectives.  The first is making small amounts of money no matter the situation.  Eventually you will get in a hole because statistically you are behind.  Trading every situation the same is bad.  The second objective is trying to make huge amounts of money on every trade.  If the first trades were the best and I stopped it was great.  If the first trades were bad, I was forced to stop.  It made it hard to learn.

The Power of Regret

  
  Education
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Everyone knows that chasing price is usually not beneficial, we either end up catching the move too late, or we get poor trade location, which makes it more difficult to manage the trade.

However, there are other forms of chasing that are just as common, maybe more common, and just as counter-productive.   As a trading psychologist I see these all the time.

Traders who are not profitable are often too quick to chase after new set-ups and indicators, or a different chat room, if that’s your thing.  Obviously, we need to have a trading edge, whether it is from the statistical perspective of a positive expectancy, or simply the confidence in a particular discretionary strategy such as tape reading, following order flow, market profile, etc.

Chasing a trade is the fear of missing out. The fear of missing out is associated with various emotions, including regret. In my work with traders and in my own trading, I’ve seen the incredible power of regret. There’s a lot of talk about fear and greed in trading, but the power of regret is often overlooked. Some of my own worst trades, and those of my clients, often have a ‘regret from missing a prior opportunity’ component. When I finally finish my book on the psychology of financial risk taking, I will include much about this overlooked but very powerful emotion.

Somewhat related to chasing a trade, is impulse trading.  They both have in common the underlying feeling of the fear of missing out.  It’s tempting for me to talk about impulse trading here, but it really deserves its own piece.

Top Ten Side Effects of Greedy Trading

  
  Education
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  1. Greed causes the trader to only look at the best case scenario for profits and ignore the worst case scenario for losses in every trade.
  2. Greedy traders trade WAY to big a position size.
  3. A Greedy trader’s #1 priority is getting rich quick while ignoring the risk of ruin.
  4. Traders that are greedy tend to believe they can have returns bigger than the best traders in the world right at the beginning.
  5. Greed makes traders have absurd targets for their trades.
  6. Greedy traders tend to buy stocks that are down 50% believing they will double and go back to where they were.
  7. Greed distorts a trader to focus on the money not the homework involved to make the money.
  8. Traders take trades where the odds are way against them because of the greed of wanting to make huge returns on one trade. (Far out of the money options)
  9. Greedy traders trade with no plan and no method they are just pursuing profits randomly.
  10. Greedy traders are always looking for the easy path to money not to the real path of hard work and experience.

Analysing yourself

  
  Education
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“At the end of each trading day (week) you shouldn’t focus solely on your P/L. Instead, focus on your thought process during the day and how well you executed your plan. If you consistently execute your trades according to plan and still lose money, then you need to reevaluate your approach. While there is definitely a cyclical rhythm to the market, no strategy will always work. You need to constantly  and objectively  review what is working and what is not so you can make necessary adjustments to you plan.”

Ten Side Effects of Greedy Trading

  
  Education
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  1. Greed causes the trader to only look at the best case scenario for profits and ignore the worst case scenario for losses in every trade.
  2. Greedy traders trade WAY to big a position size.
  3. A Greedy trader’s #1 priority is getting rich quick while ignoring the risk of ruin.
  4. Traders that are greedy tend to believe they can have returns bigger than the best traders in the world right at the beginning.
  5. Greed makes traders have absurd targets for their trades.
  6. Greedy traders tend to buy stocks that are down 50% believing they will double and go back to where they were.
  7. Greed distorts a trader to focus on the money not the homework involved to make the money.
  8. Traders take trades where the odds are way against them becasue of the greed of wanting to make huge returns on one trade. (Far out of the money options)
  9. Greedy traders trade with no plan and no method they are just pursuing profits randomly.
  10. Greedy traders are always looking for the easy path to money to the real path of hard work and experience.

Trading Thoughts

  
  Education
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To truly become a proactive trader, you need to believe that your trade WILL go the direction you thought. This shows that you have belief in your system that finds your trade setups in the first place. If you put your trade on and the first thing you do is mark your stop or think “I hope this goes well”, then you are bound to fail as a trader. Successful traders do not hope. They do the research and use their system to find good candidates and enter the trades. It is at that point that they manage risk. They know exactly how much they have at risk and are perfectly fine if they lose that much. Why? Because it is baked into their system, and every trade does not go the way they thought.

You need to be the same way in your trading.You need to have the courage to fail, step off the curb, and enter the trade. Expect that the trade will go your way and use the power of positive thinking. Set your target, entry and your stop and then you know, at any point during the life of the trade, where you stand. If your target gets hit and you see the stock continue to go the same direction, you can’t get mad. You simply put the positive trade aside and evaluate it in a couple weeks to figure out why it continued to go beyond your target. It is at that point that perhaps you make an adjustment to your system. Perhaps you find out that it was a news item that caused the surge and then you know that it was atypical, rather than the norm, and no adjustment is needed.

In going through this thought process, you prepare yourself emotionally and as a result remove the chance of trading on emotion once in the trade. As an example, you need to be fully prepared to lose the amount invested in a single trade if your stop is triggered. If you aren’t fully prepared to take that risk, then you need to adjust the size of your trade or move on to another trade. If you prepare and emotionally accept the fact that you could be wrong, your trading becomes more mechanical and less emotional. Take some time to role-play the different scenarios and see what your reactions would be.

Psychological problems

  
  Education
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There are two parts to fixing any psychological problems:
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1. Recognizing that it exists
2. Accepting it so you can move on
In trading, this is where it’s so crucial to take responsibility for your own actions because it induces change and you can start making improvements. If you don’t recognize and accept a problem, then you won’t get anywhere!
What are some of these issues  ? Here are a few along with their causes and/or effects:
1. Anger over a losing trade – Traders usually feel as if they are victims of the market. This is usually because they either 1) care too much about the trade and/or 2) have unrealistic expectations. They seek approval from the markets, something the markets cannot provide.
2. Trading too much – Traders that do this have some personal need to “conquer” the market. The sole motivation here is greed and about “getting even” with the market. It is impossible to get “even” with the market.
3. Trading the wrong size – Traders ignore or don’t recognize the risk of each trade or do not understand money management. There is no personal responsibility here.
4. PMSing after the day is over – Traders are on a wild emotional roller coaster that is fueled by a plethora of emotions ranging throughout the spectrum. Focus is taken off of the process and is placed too heavily on the money. These people are very irritable akin to the symptoms of premenstrual syndrome. (more…)

Ego and Impatience

  
  Education
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Ego: I never feel the need to prove myself to anyone by saying that I am always right, or that I am some trading genius that has it all figured out, nobody is. But I have one friend in particular that thinks he can trade in stocks, yet every trade he has ever made has been a complete failure, but you could never get him to admit it. He has more excuses and more reasons why he thinks he is still right, even though he constantly losing money. Leave your ego out of the markets, admit when you’re wrong, and stay humble when you’re right.

Impatience: Not having enough patience has forced me to put on some horrible trades, having patience has lead to some of my most profitable ones. Pretty self explanatory.

The Fallacy Of Higher Effort = Higher Returns

  
Analysis, Education
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mailEvery week I will try to dedicate some time to answering questions that readers and  members send in to me.
First off, thank you again for letting me know what is on your mind and for pointing out topics I need to discuss further. While I’m not able to answer all of the questions submitted, I have read each one submitted to me and will be looking for opportunities to share information that will be helpful to you in the coming weeks.
Today just covering one question sent by one Trader.
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Q:  The harder I try, the more money I lose. What’s going on?

 

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). (more…)

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