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My Trading Lessons for Traders

  
  Education
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Read….When ever you are Free.

  • Prepare, be confident & be decisive

  • Follow my trading rules without exception

  • Plan every trade with profit exit, stop exit and risk/reward ranking

  • Trade only when you have time AND you have an edge

  • Formulate and write down a trading/investing plan

  • Exit a position at my stops and not “hope” it will recover tomorrow

  • Trade the market I actually see, not the one I think I will see

  • Focus more on what’s actually happening rather than what I wish would happen

  • Learn to prevent my skepticism and opinion over the economy from keeping me from making good trades

  • Have a plan every day to trade the market and to not let my opinions of the market interfere with my trading

  • Concentrate on rule based trade management and not the outcome of the specific trade

  • Follow price action as opposed to listening to the fundamental “experts”

  • Listen to the market signal rather than market noise

  • Don’t be afraid of making mistakes

  • To pay more attention to technical signals to determine purchase/sell points rather than emotion & personal reasoning

  • Have more confidence in my trade ideas and believe in myself more often

  • Do not have a bias but instead let the charts be the guide

  • Have the discipline and fortitude to stick to my trade plans

  • To improve my organization of stock lists and automation of stock alerts

  • Do not over-leverage

  • Select only the most favorable setups

  • Try not to over analyze every potential trade

  • Lose less when I am wrong

  • Spend less time reading words and more time reading charts

  • Stick with winners and sell the losers

  • Allocate 2-3 hours each day & 5 hours every weekend to finding attractive setups

  • Increase position size and be in the market more (more…)

    • The Perfect Trader

      
      Education
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    The Perfect Trader is patient with entries and exits, they are focused on what works not personal opinions. They do not worry about missed trades, the Perfect Trader does not boast while winning and does not become depressed while losing. They are never too proud to admit when they are wrong and exit their trade.  They do not give unsolicited advice to other traders because they know everyone trades their own system and their own plan.  They are not angered by the market action with losses because they take full responsibility for all their trades. They keep a detailed record of all their trades to learn from winners and losers.  They love trading and never stop learning and getting better. The Perfect Trader always protects their capital through risk management, always trusts in their methods, always has faith in themselves and method,  and always perseveres.

     

    Good Vs. Great Trading

      
      Education
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    Good traders are able to identify opportunities in the market, plan trades, execute trades, and manage trades at a reasonable level. A good trader identifies the opportunity, plans the trade, and executes the trade. He takes his losses with discipline. One might think that great traders are similar to good traders but just better. The reality is that great traders are distinctly different from good traders. The difference is not merely a difference in measure but a difference in kind.

    Great trading is actually much closer to gambling. One of the key differences between great trading and good trading is that great traders don’t just play the odds: great traders play the unknown. The market simply isn’t predictable enough – enough of the time — to allow for the type of returns that great traders seek. So, great traders are much more likely to be going out into that unknown space. This seeking out the unknown always involves a cost. The cost for greatness is the potential for loss, even significant loss. A great trader will typically take more risks. The risks could involve taking trades with higher uncertainties (less confirmation), higher risk per trade (giving a trade more room), and in general just a higher level of risk. This increased level of risk taking is balanced by increased trading skill.

    The problem with trading just trading well is that the game, the trading game, is really close to a zero sum game, even when played perfectly. The focus on limiting risk tends to ignore the reality that every business has to make a profit to survive. The problem with trying to avoid risks is that it tends to push the game to such a competitive level such that the trader must trade at a near perfect level just to break even and nobody can trade perfectly forever. Eventually mistakes are made and losses occur. Great traders are more creative. They move laterally and find creative solutions. Great traders don’t really compete against others. It is more of a dance. Instead of playing the games against others, they make up their own game. (more…)

    Expectancy

      
      Education
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    If you perform an internet search on how to calculate expectancy as it relates to trading systems, you will most often see the following:

    Expectancy = (probability of win x average win) + (probability of loss x average loss)

    The average win and average loss can be either percent gain or loss or it can be dollar values. For example, following are the performance statistics for one of my trading strategies:

    • Probability of win = 71.7%
    • Average win = 2.72%
    • Probability of loss = 28.3%
    • Average loss = -3.59%

    I can calculate the expectancy in percentage terms as follows:
    Expectancy = (0.717 x 0.0272) + (0.283 x -0.0359) = 0.93% (more…)

    A Dozen Observations on Life and Markets

      
      Education
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    OneDozenEggs_Full
    Trading is the most difficult of sports: nowhere else does one begin a career by opposing the world’s most accomplished professionals.
    Extreme trading size produces extreme emotional outcomes, leaving traders with certain trauma or addiction.
    A universal trade setup: Hope, then despair.
    Fidelity to purpose: the mark of good trades and great traders.
    Mentors cannot achieve more for you than they have accomplished for themselves. (more…)

    Losses

      
      Education
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    losses-ASRLosses are a simple cost of doing business. Don’t try to justify a bad trade by convincing yourself that it will sooner or later turn into a good trade. Accept losses easily!  Successful traders are able to ride through downturn periods. The confidence in their methods reassures them about their future success. 
    The markets offer endless and plentiful possibilities. Missed opportunities  exist only in your mind. Prices keep changing and generate other opportunities. The goal of trading is make a net profit after a sequence of trades. It is, therefore, necessary to accept some losses and to look forward without punishing oneself. 

    Traders: When to be Flexible & when to be Rigid

      
      Education
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    1. raders should have a very flexible mindset about which way a trade can go when they enter it, but be very rigid about taking their stop loss when it is hit.
    2. Traders should be very flexible on profit expectations during each market cycle but very rigid about following their robust method during each cycle.
    3. Traders must be very flexible about allowing a winner to run but very rigid on cutting losses short.
    4. Traders must be flexible about their opinions and change them when proven wrong but they must be rigid about their risk management and never risk more than planned.
    5. Traders should be flexible about their watch list but rigid about their trading plan.
    6. Traders should be flexible about what will happen next in the market but rigid about their rules.
    7. Traders should be flexible about the direction of the trend when it changes but rigid about positions sizing.
    8. Traders should be flexible about profit targets but rigid about entering with a minimum risk/reward plan.
    9. Trades should be flexible about entries and exits as the market action develops but rigid about managing the risk of ruin at all times.
    10. Traders should be flexible about expectations on when they will have a huge winning streak that will change their financial lives but rigidly pursue success in the markets until it does happen.

    Plan the Trade, Trade the Plan

      
      Education
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    This is where all the thinking in trading comes into play, while writing your trading plan. Once you have created your rules to trade by, you become more systematic and logical in your thought process for executing successful trades. Your personal trading plan will include every step of the trade from identifying to exiting your trade. By having your setup written down in your plan, you will have a better chance of using patience and discipline to wait for your entry. Otherwise, you will use emotions to enter trades and we all know where that will get you. After entering your trade, you will have more confidence because you have back-tested your strategy and know that it has a successful track record and will give you that extra edge over your competition. Identifying your entry strategy will help you execute your strategy in an efficient manner with no hesitation. There will be no guessing or wondering what to do once your setup is identified, you just click and go. Your risk management is also pre-defined so your initial protective stop is set on entry and you know when you will be moving your protective stop to breakeven after the market moves in your direction by a certain amount. Of course, our price target is also known in advance and how we will exit the market at this target. Will we have a set price target, a trailing stop, a time stop, etc.?

    Trading Your Personality

      
      Education
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    It’s been said too many times to count – that you must trade according to your personality. In the movies they might call it “being true to yourself” or something cheesy, but it’s a necessity in this job.

    Recently I was asked which chart patterns I prefer to trade, continuation chart patterns or reversal chart patterns. My answer was that while I will actually trade either, I suppose the continuation and breakout type of patterns are the ones I trade more often than reversals or buying on support levels.

    I don’t think one setup is superior to the other, they both have their pros and cons, and you have to go with what fits your style best.

    Buying on support is an anticipatory play, which may take a few extra days to get moving. It can give you a lower cost basis than another trading strategy, but will require greater patience on your part while you wait for the stock to find traction.

    Buying a stock which is breaking out puts you (by definition) in a stock that’s already on the move. This is a confirmation play. You get instant feedback on how your trade is developing and how much momentum the stock has.

    The setups you select for your trades need to incorporate your personality tendencies on managing those trades once you are in them. For me, I tend to be a bit impatient and I want to know as soon as possible whether or not I’m right or wrong on a trade. Other traders don’t live in the left lane, and they’re willing to give a stock some time to get moving one way or another. They place their protective stop and turn their attention to something else in the meantime while waiting for their trade to make a move. Personally, I prefer to have my money at risk for the shortest timeframe possible. I really prefer the times when the market conditions are producing breakout plays and continuation patterns like the bull flag or ascending triangle patterns.

    So, when you’re doing your homework and looking for quality setups to trade, be sure to consider the ones which fit your personality and your style of trading. Those will be the trades which you ultimately will manage the best.

    15 Mistakes by Traders

      
      Education
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    1) Always wants to be in the game .. more time means less money
    2) Wants money quickly .. you can’t control the market 
    3) Finds it very inexact – which system – how much to risk – there are no hard and fast rules .. 
    using a positive expectancy system with a clear edge will work out over a period of time if risk is proportionate
    4) Finds it boring to trade small
    Since no trade is a sure thing and even with positive expectation, it is possible to have a string of 10 consecutive lossees. It is important to risk less to give probabilities a chance to work in your favour
    5) Wants immediate gratification – can’t wait
    You don’t control the market
    6) Keeps looking for new indicators/systems – the sure system
    There is no definiteness..
    7) Keeps trying new indicators
    Nothing works all the time
    8) Keeps switching between different techniques – he wants the techniques to work 100% of the time
    Nothing works all the time.. Instead stick with a few proven systems and trade them all the time
    9) Very Adventurous
    You are here to make money and not for thrills
    10) Wants to make big money overnight.. Multiple positions – excess leverage
    Since you can never be sure if the next trade is a winner or if the next 10 trades are losers, why would you want to risk too much (more…)

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