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10 Common Trading Errors

  
  Education
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1. Making trades with insufficient study and practice.

2. Making trades out of harmony with the general trend.

3. Taking a position too late after a move is well under way or is completed.

4. Taking a position too soon due to impatience.

5. Improperly estimating the distance a stock should move.

6. Letting eagerness to make profits warp judgment.

7. Failing to keep a position sheet and selecting stocks on hunches rather than calculations.

8. Buying on bulges instead of waiting on reactions.

9. Failing to place and move stops.

10.  Listening to advice from brokers, Blue Channels,, friends, or Website Analysts

Rubber Band

  
  Education
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rubberband

“Some of the best trades come when everyone gets very panicky. The crowd can often act very stupidly in the markets. You can picture price fluctuations around an equilibrium level as a rubber band being stretched – if it gets pulled too far, eventually it will snap back. As a short-term trader, I try to wait until the rubber band is stretched to its extreme point.”

Anticipation ,Action & Reinforcement

  
  Education
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The ANTICIPATION Phase:  this is where all the left hand chart reading takes place in preparation for the right hand chart battle. It’s the PROCESS that precedes the ACTION to put on a trade. A technical trader anticipates that a past price pattern will repeat again, so he identifies the pattern, locates a current one and determines a suitable match is present.  Technical analysis is nothing more than finding previous price patterns matched with current market conditions.  Traders anticipate such repetitive behavior based on human nature and seek to take advantage of it.

The ACTION phase involves hitting the BUY key based on the previous ANTICIPATION process.  Since no one can tell the future or what the right hand side of the chart will reveal, the ACTION is based on the confidence that the trader will do what is right once a trade is put on, which is to exit gracefully at a pre-determined loss line or exit humbly at a pre-determined profit target (P2), fully accepting either/or, or an OUTCOME between one or the other, depending on current market conditions.

The REINFORCEMENT phase occurs after the trade is closed.  Whether or not the trade is a win, lose, or draw, the self-talk immediately following trade closure is vitally important for the next trade, and even the next series of trades, as future trades can be negatively or positively affected by building pathways to future success.  These pathways are neurologically based and can make or break a successful trading career.  While it is important to ANTICIPATE right side chart OUTCOMES, what is more important is DEVELOPING right side brain reinforcement.

Courage

  
  Education
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Concentrate on developing courage now, or risk a shortened investment career. Trading is not for the weak hearted. The markets are unpredictable and even the smartest analyst will make mistakes. Eventually everyone experiences a sequence of losing trades and you will not be exempt. You have a choice between self-pity and self-reflection. The Genius Trader has the courage to look at their mistakes and learn from them. The average trader perceives this as too painful, and simply curses their bad luck.

How do you become a more courageous trader? You must journal every single trade. Over the years, as I continue to interview accomplished investors, they all keep some form of trading journal. This provides such valuable information that I incorporate into other areas of my life. A detailed trading journal will be a big revelation into the success behind your best trades, and possible causes behind your losers. Armed with these facts, self-reflection becomes more productive.

Three Keys to Trading Success

  
  Education
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The successful trader is creative. I think it’s fair to say that his approach is a short-term trend-following method. His way of evaluating the market trend, however, is unique. He is definitely not just looking at the same old 14-period oscillator that comes pre-programmed in most charting applications. Similarly, he has clear stop points and price targets, but these are defined in a unique way, based upon the market conditions he’s observing. This “out-of-the-box” thinking style is common to successful traders, I’ve found. They look at markets in unique ways that help them capture shifts in supply and demand. to find a way of trading that you can make your own. You’re more likely to stick with a method that fits with how you think (and that fits with your skills) than if it’s something you’ve blindly copied from others. Our trader believes in his method, and that gives him the brass ones to hang in there during relatively lean periods.

2) The successful trader is always seeking improvement. If our trader is already successful, why does he need to talk with Henry? He knew that, by sharing his ideas, he would learn a great deal about the strengths and weaknesses of his trading. Sure enough, Henry found that the average size of the trader’s losers was larger than it needed to be. A simple modification of stop-loss rules improved the system’s performance meaningfully. Similarly, by putting a filter on the system–only taking trades if certain conditions were met–the average profit per trade went up significantly. That could aid position sizing. The trader knew he had something good, but good wasn’t good enough. He wanted better.

3) The successful trader is persistent. One thing I want to stress: the trader’s methods were very sound–and Henry found ways to make them better–but they were not perfect. Out of about sixty months analyzed, fourteen were losers. The drawdowns were not hellacious, but there were periods of flat performance and drawdown. What that means is that a successful trader needs to have the confidence to ride out these periods of poorer performance to get to the periods of success. That is one reason why it’s so important

7 Deadly Sins of Trading

  
  Education
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Perfectionism: There is no perfection in trading as far as making money on every trade or having a perfect system. All you can hope to be perfect at, is following your system, rules, and trading plan. A winning trade should be measured as one in which you followed all your preset guidelines. Even the best traders only average about a 50%-60% win rate at best over long periods of time. The key is having bigger winners than losers, not being perfect. Like in baseball where a .300 hitter can get into the hall of fame. A .500 trader in the market can become wealthy if his wins are much bigger than his losses.

Fear:  Faith in your system is the only way to overcome your fear of trading. You must complete enough back testing on your system until you know that you have a valid edge over the market in the long term. You must see opportunity in trading and just accept that there will be possible losses. You must take your systems trade signals each time and if you can’t overcome your fear of loss and failure then perhaps trading is just not for you. Traders are entrepreneurs not employes they get paid only when successful there is no guaranteed paycheck.

Pride:  We are not our trading account and staring at our profit and loss too much is a major detriment in one’s trading. Traders must cut losses at their predetermined stop, not pridefully hang on trying to prove they are right. We must separate ourselves from the trading. A person’s value is not tied to a trade or performance record. If we followed our system then we can’t view that as a personal loss. The market was just not conducive to our system that we followed with discipline. (more…)

What is Luck & What is Skill in Trading?

  
  Education
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Luck is picking the right stock and riding it up for great profits, skill is knowing when to get out and lock in profits.

Luck is returning 20% in one month, skill is returning over 20% a year for 5 straight years.

Luck is making money in a bull market, skill is making money in a bear market.

Luck is making money when the market matches your perma bull or perma bear style, skill is making money in both bull and bear markets.

Luck is picking one monster stock, skill is picking three monster stocks back to back.

Luck is having one big bet pay off for huge profits, skill is surviving 200 straight trades and not blowing up your account.

Luck is surviving the market while not knowing what you are doing, skill is acquired after you have done your homework.

So, do you have skills as a trader or have you just been lucky? So far………

Stock Market Learning

  
  Education
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1. Read the works of Soros, Jesse Livermore, William O’Neill, Warren Buffett and Nick Darvis.
2. Choose one and copy exactly what they do.
3. See each stage they go through to reach their conclusions and the actions they take and the inferrences they derive from the outcomes.
4. Pick stocks and plan out the course of action and all the permutations of what will happen in all price scenarios and put them into practice.
5. Memorise the details of the great coups and all the rules the masters have made in trading.
6. Keep all your trading a secret and don’t let others’ views interfere with your own. Keep your mind totally on the facts at hand and the details of what you see.
7. Before going to sleep look at the coups of other traders and of your own. Talk with the masters you are studying and meet them in your mind for interviews.
8. When the markets are not open or the market isn’t acting right for you then study past trades and memorise the actions you took and piece together the trade again looking for the lesson.
9. Be a better trader than your teachers and ask yourself how you can do better.
10. When you have practiced and ‘perfected’ position entry, move to exits, patterns, money management, probability theory, etc..
11. Look at situations and look at them as you would a trade. What would you do? Are there any interesting things to learn here that can be used in the markets?
12. See what’s happening rather than guess.
13. Play games like the one played in Liar’s Poker, where you invent scenarios and ask each other what you would do in that situation. E.g. nuclear explosion in Tokyo…
14. Be aware of views you are taking on a trade. Look at it always as if it’s the first time you have seen it and review an open trade every day as if you have just placed it.

Trading Wisdom

  
  Education
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WISDOMDo more of what is working for you, and less of what’s not. Each day, look at the various positions you are holding, and try to add to the trade that has the most profit while subtracting from that trade that is either unprofitable or is showing the smallest profit. This is the basis of the old adage, “let your profits run.”

Don’t trade until the technicals and the fundamentals both agree. This rule makes pure technicians cringe. I don’t care! I will not trade until I am sure that the simple technical rules I follow, and my fundamental analyses, are running in tandem. Then I can act with authority, and with certainty, and patiently sit tight.

When sharp losses in equity are experienced, take time off. Close all trades and stop trading for several days. The mind can play games with itself following sharp, quick losses. The urge “to get the money back” is extreme, and should not be given in to.

Responsibility

  
  Education
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Responsibility”You must have the ability to ntake responsibility for all of your own trades, and not look at the market as the reason for your loss.It simply is not worth it to get angry with the market….Instead, these traders learned the key to reducing losses and getting on the road to profits is to constantly analyze the trades one makes, and then learn from the mistakes.

Controlling your emotions is key because you cannot win every trade. Successful traders know that they will lose some of the time. By having a risk management/trading plan they can avoid major losses and enjoy their profits.

Take note of this quote! It makes a valuable point!


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