If you do experience mood swings around losing trades, it’s probably because you are evaluating yourself by the criterion of being right–not by the criterion of trading well. It isn’t the losing trade making you feel bad; it’s the perfectionistic expectation that you should always be right. By embracing uncertainty and staying open to learning from it, the threat of losing can turn into the opportunity of rethinking market assumptions.
Archives of “trades” tag
rssTraders need 3 Keys
#1 Trading is not about winning percentage, being right all the time, or predicting the future. What it is about is having bigger winners than losers. If you are profitable after each long string of trades then you are a winning trader in that time frame. You can make money through winning percentage as long as you keep losers small and you can make money through huge wins even with lots of losses. The key is not how many times you are right but the size of your winners versus your losers. That is the magic elixir of profitability.
#2 Trading is first and foremost about surviving, the vast majority of traders not only don’t make money but they lose most of their trading capital. The only way to have a long profitable trading career is to manage risk and survive a string of losses. If your trading losses are more than 1% to 2% of total trading capital per losing trade you are in danger of blowing up your account with a string of losing trades or one big loss. To make the journey from new trader to successful trader you have to survive losing streaks and completely unexpected market action. Trading and betting big will eventually take you out of the game, it is only a question of when.
#3 Trading is one of the roughest things a person can do mentally and emotionally. Even if you win in the markets you have to keep up a large amount of personal human capital in perseverance, passion, dedication, focus, and faith in self and system. If you are missing one of these six psychological elements the odds will be against you. You have to cultivate your goals and drive into a vision of success that you are willing to pursue until you get it and pay the price as you go to have the prize you seek.
Ed Seykota’s 6 Rules from the Whipsaw Song
1. Do not be overly concerned about whipsaws a good trend pays for them all.
A whipsaw is when you enter a position but get stopped out quickly when the market reverses opposite to your position. If you are a trend trader this may happen many times in a row in a range bound market. This can be very frustrating to a trader and it may cause them to completely change their method. The fact is that one really good trend will pay for all of these whipsaws as long as you keep your losses small, and if you change your system you lose the benefit of that big trend.
To avoid whipsaw losses, stop trading. -Ed Seykota
2. When you catch a Trend, ride it to the end.
Your system must be able to take a position in a trending market, but then also be able to ride that trend to the end. Most new traders will jump out of trades before they are finished trending because they are scared the market has gone too far and will take back their paper profits. Let a trailing stop take you out of a trade when the trend is over, and only exit once you are stopped out.
“The trend is your friend except at the end where it bends.” -Ed Seykota (more…)
Amateur & Professional
The true mark of an amateur trader who is never going to make it in this business is one who continually blames everything but his or herself for the outcome of a bad trade. This includes, but is not limited to, saying things like:
1. The analysts are crooks.
2. The market makers were fishing for stops.
3. I was on the phone and it collapsed on me.
4. My neighbor gave me a bad tip.
5. The message boards caused this one to pump and dump.
6. The specialists are playing games.
The mark of a professional, however, sounds like this:
•It is my fault. I traded this position too large for my account size.
•It is my fault. I didn’t stick to my own risk parameters.
•It is my fault. I allowed my emotions to dictate my trades.
•It is my fault. I was not disciplined in my trades.
•It is my fault. I knew there was a risk in holding this trade into earnings, and I didn’t fully comprehend them when I took this trade. (more…)
The Ten Trading Commandments
1) Trade for success not for money.
2) Strive for discipline.
3) Know yourself and how well you handle risk.
4) Lose your ego.
5) Know your risk level and when you hit your stop point exit the trade.
6) Know when to trade and when to wait.
7) Love your losers like you love your winners.
8) Losing trades will be your best teachers.
9) After three losing trades in a row, take a break.
10) Don’t break any of the above nin rules.
Linda Bradford Raschke – 50 Time Tested Classic Stock Trading Rules
1. Plan your trades. Trade your plan.
2. Keep records of your trading results.
3. Keep a positive attitude, no matter how much you lose.
4. Don’t take the market home.
5. Continually set higher trading goals.
6. Successful traders buy into bad news and sell into good news.
7. Successful traders are not afraid to buy high and sell low.
8. Successful traders have a well-scheduled planned time for studying the markets.
9. Successful traders isolate themselves from the opinions of others.
10. Continually strive for patience, perseverance, determination, and rational action.
11. Limit your losses – use stops!
12. Never cancel a stop loss order after you have placed it!
13. Place the stop at the time you make your trade. (more…)