Fear & Greed

When trading there are two emotions that are more common, and more dangerous, than all the rest; fear and greed.

Fear and greed can ruin even the best trading strategies

One moment of fear or greed can lead to a moment of madness and months of hard won profits going down the drain

Uncontrolled emotions should not be an excuse for losses and losses should not be an excuse for uncontrolled emotions

Remember!! Trading affects psychology as much as psychology affects trading


“You can’t feed on greed” (more…)

Top Trend Traders Bank Millions, Ride The Trend

Famed Stanford University psychologist Leon Festinger once said, “A man with a conviction is a hard man to change. Tell him you disagree and he turns away. Show him facts or figures and he questions your sources. Appeal to logic and he fails to see your point.” 
Although trend following has been one of the most successful trading strategies for decades, some critics downplay the massive profits accumulated by trend followers, arguing there are just a few chance winners — “lucky monkeys,” they claim. 
Not true. Large numbers of trend followers have found a way to outpace market averages. They have done so with hard work and the ability to stick with a trading plan — usually for a very long time. Some argue, “There’s no romance in trend following.” The romance is found in returns. Money is the ultimate aphrodisiac. 
Think of it this way: Performance data examples from the great trend followers could be the foundation of every college finance class. When you show up on the first day, instead of your teacher handing you a syllabus and telling you to buy certain books, you are handed one piece of paper that simply shows the performance histories of professional trend following traders for the last 50 years. (more…)

The emotions of trading

When trading there are two emotions that are more common, and more dangerous, than all the rest; fear and greed.

Fear and greed can ruin even the best trading strategies

One moment of fear or greed can lead to a moment of madness and months of hard won profits going down the drain

Uncontrolled emotions should not be an excuse for losses and losses should not be an excuse for uncontrolled emotions

Remember!! Trading affects psychology as much as psychology affects trading


“You can’t feed on greed”

  • Many people think that greed is thinking that the sole aim of trading is to make money.
  • This is NOT what greed is

Greed is trying to make money too quickly
There are lots of ways to be greedy in trading;

  • Trading in sizes that are too large
  • Trading too frequently
  • Having unrealistic expectations
  • Dreaming of the big hit trade, rather than steadily building your equity


Fear in trading has two faces;

  • Fear of loss
  • Fear of missing out

The fear of loss compels traders to close profitable trades prematurely, meaning they miss out on potential profit
The fear of missing out compels traders to abandon their trading strategy so they do not miss a major price move
Fear is NOT good as it leads to overtrading and miss-timed entry and exit points

3 Big Aggravations You Shouldn’t Tolerate

The first (and in some ways, the most irritating) is knowing that there are people making it in trading, and they aren’t half as smart as you.

– They haven’t put in nearly as much effort as you.

– Haven’t sacrificed as many evenings or weekends that could have been spent more enjoyably.

– Haven’t tried nearly as many systems or strategies as you have.

– And yet, they’re making money, relaxing when its time and feeling pretty good, while you’re still beating your head on the rock and bleeding, and not getting nearly as much good sleep as you’d like.

The second is knowing that there are plenty of trading strategies and systems that are readily available to you, but you don’t know how to find them, and even if you did, you don’t have a process to know if it is one that would suit you well and actually produce the way you wanted

Well you could find out by just going ahead and trying it, but that kind of stinks too, huh?

And it doesn’t help that it seems like every Tom, Dick and Harry has a system for sale, with everybody and their brother sending you emails promoting it.

Same problem:  “Does it really work, and even if it does, would it work for ME?”

No method to KNOW without trying it. (more…)

My Trading Lessons for Traders

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…)

  • Expectancy

    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…)

    4 Trading Fears

    As Mark Douglas points out in his great book about trading psychology is that the majority of traders lose because of wrong thinking, misplaced emotions, and wanting to be right. We know fear and greed drive the market prices far more than fundamentals do. However fear makes traders do the wrong things at the wrong time. Here are four great examples of fear over ruling sound trading strategies.

    Here are more thoughts about these four fears:

    The fear of being wrong: Traders fear being wrong so much they will hold a small loss until it becomes a huge loss. Even adding to the loss in the hopes of it coming back and getting to even. Don’t do this, holding on to a loser after it hits your predetermined stop loss is like being a reverse trend trader. Do not be afraid of being wrong small be afraid of being wrong BIG.

    The fear of losing money: New traders hate to lose money, they do not quite understand yet that they will lose 40%-60% of the time in the long term. We should come to expect the small losses and wait for the big wins patiently. Many times traders fear this so much that they have a hard time taking an entry out of fear of losing. If you can’t handle the losses as part of the business, you can’t trade.

    The fear of missing out: The opposite of the fear of losing money is the fear of losing potential profits. This causes traders to watch a stock go up and up, miss the primary trend, then not being able to take it any more and get in late just in time for the trend to reverse and lose money. Trade at your systems proper entry point do not chase a stock because you are afraid to miss out on some profits.

    The fear of leaving money on the table: When your trailing stop is hit get out of the trade. If your rules tell you to get out after a parabolic run up and stall then exit. You must be disciplined on taking money off the table while it is there. Being greedy for that last few dollars when your system says to sell could lead to major losses of paper profits. Let your winners run but when the runner gets to tired to continue: bank your profits.

    Eleven Rules

    Rule #1
    Be data centric in your approach.
    Take the time and make the effort to understand what works and what doesn’t. Trading decisions should be objective and based upon the data.

    Rule #2
    Be disciplined.
    The data should guide you in your decisions. This is the only way to navigate a potentially hostile and fearful environment.

    Rule #3
    Be flexible.
    At first glance this would seem to contradict Rule #2; however, I recognize that markets change and that trading strategies cannot account for every conceivable factor. Giving yourself some wiggle room or discretion is ok, but I would not stray too far from the data or your strategies.

    Rule #4
    Always question the prevailing dogma.
    The markets love dogma. “Prices are above the 50 day moving average”, “prices are breaking out”, and “don’t fight the Fed” are some of the most often heard sayings. But what do they really mean for prices? Make your own observations and define your own rules. See Rule #1.

    Rule #5
    Understand your market edge.
    My edge is my ability to use my computer to define the price action. I level the playing field by trading markets and not companies.

    Rule #6
    Money management.
    Money management. Money management. It is so important that it is worth saying three times. There are so few factors you can control in the markets, but this is one of them. Learn to exploit it.

    Rule #7
    Time frame.
    Know the time frame you are operating on. Don’t let a trade turn into an investment and don’t trade yourself out of an investment.

    Rule #8
    Confidence and conviction.
    Believe in your strategies and bet wisely but with conviction. There is nothing more frustrating than having a good strategy work as you expect, yet at the end of the day, you have very little winnings to show for your efforts.

    Rule #9
    It takes persistence to operate in the markets. Success doesn’t come easy, and if it does, then I would be careful. Even the best strategies come with losses, and they always seem to come when you get the nerve to make the big bet. Stay with your plan. If you have done your home work, the winning trades will follow.

    Rule #10
    In the end, trading has to be about your bottom line, but you have to love what you do and no amount of money is worth it if you aren’t passionate about the process. No matter how much success you enjoy, in the markets you can never stop learning.

    Rule #11
    Take care of yourself.
    No amount of money is worth it if your health is failing or you have managed to alienate yourself from family and friends in the process.

    20 Trading Rules for your weekend

    1.        KNOW THYSELF
    What kind of trading style fits your personality…Trend following? Day Trading? Buy and hold (please NO)? Next, what do you want to accomplish with your trading…Monthly Income? Long-Term Growth? Risk Aversion? And finally, you must have a grip on your emotions, because you will experience failure and success in trading and you need to know how you will react to both.
    2.        KEEP IT SIMPLE
    You should be able to describe each trading strategy in your war chest on a 3×5 index card.  There are so many different trading tools and indicators out there that it is easy to make trading and investing harder than it is. Find a few technical and/or fundamental indicators that you can apply to your trading, and master them.
    3.        DIVERSIFY 
    Specialize in a few different trading strategies and then spread your risk out across multiple asset classes using those trading strategies. Make sure all of your trades are not dependent on the same sector, commodity, industry, or idea. 
    Only losers add to losing positions. If a trade is going against you, move on and find another trade. It’s not about pride, it’s about profits.
     You must constantly make an investment in your trading education. Read books, go to seminars, or talk to other traders, because over time the traders that make a commitment to never stop learning will be the traders that stay in the game and are able to adjust their trading style to any market environment.   
    Having a trading plan creates discipline. Why are you making this trade? What’s your risk? What’s your reward? How much margin is required? What will you do if things get bad, or really good? These are questions you should be able to answer on every trade you execute.   
    7.        BAD TRADE MOVE ON
    I don’t care who you are, you are going to have bad trades. When you have a bad trade, take a break from trading, go to a movie, or kick the dog (once), but don’t sit around and pout.   It’s important that you move on and start planning how you are going to get it back. 
    Trust your research, feel confident in the time and energy you have put into your trading strategy and know that no matter what the market does in the short term, you have the ability to make money in the long term. 
    9.        THE MARKET IS GOING…????
    Nobody knows where the market is going and you don’t either.    So pick trading strategies that allow a little wiggle room in case you wake up one morning and the market doesn’t do exactly what you told it to. (See trade schools)
    10.    DICSIPLINE
     This word sums up a long term trader. You must have the discipline to follow your systems and manage your emotions hour after hour, day after day, year after year. If you are undisciplined in other areas of your life, don’t be surprised if one day you break your trading rules. You must practice discipline 24 hours a day.  (more…)

    Self-Control and Discipline

    Cultivating discipline and self-control is vital for consistent and profitable trading. You implement proven trading strategies, over and over, so that across a series of trades, the strategies work enough to produce an overall profit. It’s like making shot after shot on the basketball court so as to accumulate a winning number of points. The more shots you take, the more likely you will amass points. But the winning player is the person who first develops the skill to make the shot consistently, so that at every possible opportunity, the ball is likely to go through the basket. To a great extent, consistency is the key. If the player uses one approach one time and a different approach at another time, performance is haphazard. 
    It’s the same for trading. One must trade consistently, following a specific trading plan on each and every single trade. This allows the law of averages to work in your favor, so that across the series of trades, you will make an overall profit. If you follow the plan sometimes and abandon it at other times, you throw off the probabilities. Suppose you used a strategy that had a track record of 80%. Under the best-case scenario, you could only expect to win 80% of the time. But since history doesn’t always repeat itself, it’s likely that you will win less than 80% of the time. If you don’t execute the trading strategy the same way each time, you will decrease your winning odds. And fewer winning trades may mean an overall loss. That’s why discipline and self-control are so important.  (more…)

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