Fear is a misunderstood emotion, and one that gets a pretty bad rap these days. We owe our survival as a species to the hard-wired fear that kept us safe from physical threats for hundreds of thousands of years.
But what about the litanies of fears that plague traders every day? Fear of losing, of watching profits disappear, of making mistakes, of missing out?
Perhaps the larger question is this: If almost every trader feels fear, why do millions of people continue to trade? The answer lies in the way that fear is perceived.
For many, fear is a predator that’s constantly lurking, sneaking up on them, ready to attack at any moment. In this mindset, they’re always running away from fear, crouching in a corner, or looking for a safe place to hide. Fear blinds them to opportunity.
For others, fear is the prey. They move steadily and with discipline in the direction of the fear — always keeping it in front of them. As they approach the fear, they see it for what it really is.
F.E.A.R.: False Evidence Appearing Real. They see fear as something to go through in order to get what they desire — better trades and more profits. (more…)
Archives of “trading strategy” tag
rss6 Universal principles of successful traders
1). Preparation
Author Brent Penfold is in the minority believing risk management is the #1 priority in trading. Brent believes that once you get your trading system and position size in place you must use the amount you will risk on each trade to determine your risk of ruin. The book shows exactly how to figure this out using Excel. His point is that if your risk of ruin is not zero then you will eventually blow out your account. Risking 1% to 2% of your capital in any one trade usually gives you a zero percent risk of ruin but it also depends on your systems win/loss ratio. But the point is to test any system with 30 trades first then determine your risk of ruin.
2). Enlightenment
Your most important goal is to lower your risk ruin to zero. In trading, the trader with the best ability to cut losses short wins. Simple trading strategies work the best based on traditional support and resistance while trading with the trend on either retracements of break outs. The 10% of winners in the market win by treading where others fear, buying on break outs when they first occur and going short when a new low is made, or buying into the abyss when a security finds support or resistance and reverses at the end of a monster trend.
3). Developing a trading style (more…)
10 Trading Lessons for 2011
1)You can’t succeed overnight. Most retail/aspiring traders get hooked on trading because they want money and they want it NOW! Over-trading, scalping, over-leveraging, random decisions, greed and the mirage of getting rich quick will turn trading into gambling.
A common sense rule says that – in order to make a lot of money fast, you either 1) steal, 2) you are a genius inventing or discovering something new, something that everyone will use or buy from you (like Google, Facebook, Angry Birds) or 3) gamble, if you are really lucky.
Learn from your own mistakes, don’t repeat them, practice and persevere. It doesn’t matter if you count Elliott waves better than anyone else or if you anticipate a rate hike 6 months in advance. It only matters how you control your emotions and your money.
2) Focus your efforts on the things that work best for you. If there is one trading strategy that works for you, then stick to it as long as it works. Don’t waste time testing everything you find on the Internet and don’t listen to everything you hear or read. Too much information can lead to confusion, difficult choices and failure – eventually.
3)Losing is part of the game but recovering is not an easy task and requires smarter trading decisions.
Have you ever been on a diet?
Common sense rule, again: if you have gained 40 lbs. (18 kg) in 1 year, don’t expect to lose 40 lbs. in 2 weeks. It takes a lot of work to get rid of them.
So if your trading account is down 50% after 2 months, you’ll have to double your remaining equity to break even. Will that be easy? I doubt.
4)Making mistakes is normal but rather than give up, try to learn something from your own trading mistakes, bad strategies, emotions etc.
If you don’t succeed, you aren’t out of the game.
Make a list of things that didn’t work – check it regularly so you don’t forget them. Avoid them in the future.
5)If you keep doing the same thing and you are constantly losing, it’s obvious that you are doing something wrong. Is your trading strategy constantly giving poor results? Change it. Are you always predicting the wrong market direction? Stop predicting – trade what you see, not what you think or expect.
If you want to achieve different results, then you must change your actions. (more…)
Top 3 Trading Strategies
1. High probability setups with short profit targets
If you are not winning more than 75% of the time you’ll never make it as a professional trader. Whilst there are other components to success, he does make a very good point. The most common trading strategy employed by successful trader is to identify a high probability set up and couple that with an aggressive profit exit strategy that captures short term gains. For example, you might have a entry criteria that easily captures 15 points on average but you set your profit target at 6 points.
2. Adding to winning positions
Many people think all trades should lead to profit but you’ll find the most successful medium term traders on win 40-55% of the time. The difference between an amateur and a professional, when trading short to medium term trading systems, is their ability to maximum their cash on a trade when it’s winning. The Turtles, under the watchful eye o f Richard Dennis and Bill Eckardt, had a way to add to their huge winners up to 4 times. Very powerful. In order to maximize this strategy you will need to identify your R multiples which will be saved for another article.
3. Mechanical trailing profit stops
Knowing when to take profits can be the most mentally draining part of any trading system. Its not unusual to start trying to let profits run that the markets starts retracing and wiping out all your open profits. The way to overcome this emotional rollercoaster is to build mechanical trailing stops that maximize your profits on winning trades whilst minimizing giving back to much in open profits. (more…)
Battle of Waterloo and Trading
I often talk about the Battle Of Waterloo and how it relates to trading in general and specifically strategy development. If you don’t know the battle (which I recommend reading about if you have time), just listen to this once popular country song and you’ll get a sense to why I think this is so important.
While I’m no historian, I do think traders can learn a lot about trading through learning about important battles in history. The Battle Of Waterloo offers a great example as it offers many lessons for us to consider:
Make your planning and risk analysis commensurate with the size of your project. For major endeavors, contingency plans are critical.
Know when to cut your losses if necessary. Don’t let your desire to succeed be the enemy of good judgment.
Be sure that the justification is clear for your project, and that your entire team is sold.
Don’t become over-confident, especially after many successes. Remember the basic principles.
Never attempt an unpopular endeavor in isolation.
Don’t make enemies. You are only as good as your allies.
Adopt leader style politics, not the Machiavellian style. Look for the win-win.
Many of these lessons apply to good trading, especially the ones about the importance of having contingency plans, knowing when to cut losses, having clear justifications for your trades, the importance of avoiding overconfidence and finally how important it is to attack from a strong position like having plenty of capital and cash reserves.
Needless to say, every trading strategy has their own weaknesses. So, what the most common weakness I’ve found? That’s easy – human error. That’s right, usually most strategies that have been backtested and proven to work continue to work well unless we do things to either deviate from the plan and/or we apply leverage to it rendering it extremely vulnerable. It is fairly often that I see traders come forward with a hot strategy they’ve used and are in the process of levering it up, creating havoc and exposing themselves to great risk. There is good reason for the expression – leverage always kills. In my experience, that has been true. Beyond that, many strategies are based on things that don’t account for the constantly evolving nature of the market. (more…)
Trading Strategy for Nifty Future -11th March’10
There are typically three stages an investor goes through before they become successful. Building discipline starts with an understanding of these points:
- Easy Money: The first stage involves thinking there is easy money to be made. This is the thinking of a newbie. Often, after a big stock tip gone wrong or a couple great broker recommendations that lose serious money, you enter the second stage.
- I need a plan: The second stage begins when an investor or trader decides a plan is needed to win. The problems begin when the search for a plan becomes a search for the Holy Grail. And we all know there is no Holy Grail. What is needed is more than just a “system”. What is needed is you following the system. This leads to stage three.
- I’m responsible for my success: Stage three comes when the investor or trader realizes that success comes from inside the person, not outside. To achieve true success you must understand the market is not responsible, you are. There is no one to blame or compliment but yourself when it comes to trading. So find a solid plan and follow it.
5144 & 5184 are Hurdles.
From last two days if u had seen (Iam writing not in Braille )3&7 DEMA will act as support levels.
*From last two days kissing 3 DEMA and taking sharp U-turn.
Now crucial support at 5106 ,5090 level.If breaks 5090 with volumes will take to 5058-5036 level.
*Hurdle at 5148-5161.Crossover will take to 5190-5200 in Intraday trade.
*Higher it is moving…More Dangerous sign.
-Trade with eye open
-Always read twice the levels mentioned.
I will update more During trading hrs to our SUBSCIBERS.
Updated at 7:57/11th March/Baroda
10 Tips For Managing Trader Stress
Traders should never underestimate the role that stress plays in their trading. Many more will succeed or fail based on their ability to handle stress than will have their winning and losing determined by a robust method, mentor, or risk management. It is even possible for a trader to win consistently and still not be able to win in the long term due to the fact that they can not get comfortable being uncomfortable with capital on the line with an unknown outcome. Others will simply burn themselves out stressing excessively while losing and also stressing when they win scared they will give back their profits. If you are going to be a successful trader you will need to manage the weakest link in any trading system: the trader. Stress management is the traders weakest spot. You have to be able to handle the heat of trading so you don’t melt.
Here are the ten ways to manage your stress in trading:
1). When you get over excited calm down by concentrating on your breath.
2). Never trade so big that one trade will make or break your account, trading career, or lifestyle.
3). Only trade systems and methods that you fully understand and have faith in for profitable in the long term.
4). Visualize yourself being a success as a trader.
5). Slow down your trading to a pace that does not rattle your nerves.
6). Connect with like minded traders that understand your battles and goals.
7). Study and do so much homework about trading that you begin to have unshakable confidence in yourself.
8). Stop doing what does not work in your trading and start doing more of what does work for you and makes you money.
9). Do not let others shake your confidence, do not accept any unsolicited advice from anyone, stick to your game plan.
10). Accept your losses quickly when stops are hit to avoid emotional damage and stress from big losses.
Do everything you can to prevent the damaging effects of stress on your trading and life. (more…)
Psychology Vs. Adaptation
The biggest question I have here is when do you ‘adapt’ and when do you stick with your trading strategy.
We do not know whether our strategies truly work… how do we know if we have just been ‘lucky’ verses by ‘smart’. (more…)
10 Pitfalls of Trading & Answers
What are the 10 major mistakes that these traders make that cost them dearly?
- Having no trading plan
When you don’t have a plan, you don’t have a template to follow. It becomes very costly when your emotions are high and you have to make decisions on the fly.
- Using strategies that do not match your personality
You hear of a trading strategy that has worked very well and you are anxious to follow it. One important factor to consider is: does it match who you are and your lifestyle?
- Having unrealistic expectations
Most traders assume that it is very easy to make money in trading. They have unrealistic expectations with regard to their initial capital, their risk profile and how much money they can expect to make.
- Taking too much risk
Usually when traders are down, they want to make their money back very quickly. Therefore, they increase their position size without thinking about the risk/rewards.
- Not having rules to follow
Most traders think if they have rules to follow, they are restricting themselves. It is on the contrary. Having rules allows you to be more flexible since you have thought about lots of issues beforehand.
- Not being flexible to market conditions (more…)
What makes a trader consistently profitable?
There are three things:
1) Having an edge, which is some methodology for determining with reasonable accuracy the relative probability of the market price hitting your profit target before it hits your stop loss price. An edge is provided by a set of trading strategies, and a set of rules for when to use which trading strategies (briefly, when to follow a trend, when to fade a trend, and when to stay out.)
2) The discipline and emotional fortitude to follow the rules of your trading rules flawlessly.
3) Sound risk and money management rules.
Sound money management and risk control are the keys to being a profitable trader. It is not the prediction or the latest and greatest indicator that makes the profit in trading, it is how you apply sound trading discipline with superior cash management and risk control that makes the difference between success and failure. (more…)