Archives of “two ways” tag

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Larry Hite-Trend Following Legend Who Respects the Risks

  
  Education
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Larry Hite was featured in Market Wizards. Market Wizards is a must read for all trend followers. On one level you will learn various trading tips however on the other hand, do not be think that your trading will be so easy. Trend following as easy as it is, is very difficult.

Try to internalize some of Larry Hite’s trading tips for trend followers:

I have noticed that everyone who has ever told me that the markets are efficient is poor.

People develop systems and people will make mistakes. Some will alter their system or jump from system to system as each one has a losing period. Others will be unable to resist second-guessing the trading signals. People don’t change.

The very first rule we live by at Mint is: Never risk more than 1% of total equity on any trade. Secondly, we always follow the trends and we never deviate from our methods. In fact, we have a written agreement that none of us can ever countermand our system. Thirdly, diversify in two ways. A. we trade more markets worldwide than any other money manager. B. we use lots of different systems ranging from short term to long term.

Over-rated indicators: Overbought/oversold indicators.

Two basic rules: (1) if you don’t bet, you can’t win. (2) If you lose all your chips, you can’t bet.

Never trade counter to the market trend.

29 Points for Traders

  
  Education
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1. Train with deadly seriousness.

2. Educate yourself.

3. Be vigilant.

4. Take away emotion.

5. Be your sternest critic.

6. Feel your way to a win.

7. Be Patient.

8. Don’t be afraid to lose.

9. Know your strengths and weaknesses.

10. Lead a healthy life and diet. (more…)

Discipline

  
  Education
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Learning to accept losses as part of the game and cutting them short is the single most important step towards becoming consistently profitable. It sounds simple, but in reality is extremely difficult for everybody. Why? Because we’ve been taught that giving up is for losers and we should fight till last breath. I certainly agree that you should not give up quickly, but only if you can influence the end result. Let me be clear, the stock doesn’t know that you own it and it doesn’t care that you cannot afford to lose the money. The market will strip your last cloth if you don’t know how to manage risk. You have to understand and accept your power. You cannot move the market. You cannot tell him where to go and how fast. This is why so many people, who are successful as entrepreneurs and engineers, have troubles breaking even in the capital markets. It takes a special kind of person. Someone, who can forget his ego and concentrate on what actually works. Very few people are able to reach that level and to distinguish their trading life from their personal life.

Trading or investing is a skill that can be learned. There are two ways to learn a new skill in general. Through the school of hard knocks and through the mentorship of others that have the gift of teaching. To become a successful trader, you need to somehow implement both approaches. Nothing can replace personal experience. You can hire the best mentors in the world to teach you and purchase the most expensive equipment and trading software, but this is not going to help you to build a new skill. Skill building is subdued to eternal physical laws. There are a hundred billion neurons in your brain. For every skill that you possess (speaking a language or driving a car), there is a certain combination of connections between some of your neurons. To build a new skill, you need to build a new net of connections. This is why every beginning is hard, this is why big changes do not happen overnight. You have to establish new connections, which takes hard work via repetition and visualization. (more…)

Learning From Losers

  
  Education
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Traders will typically approach a large loss in one of two ways. First is the dumb way, and that is to become a petulant whiner and throw a fit. Next is the more-constructive way, and that is to use the loss as a means of developing as a trader and to “quote” — learn from your mistakes. But there is a third way. And that is to view the loss as the cost of information.

I don’t mean the cost of doing business per se. This is not typically associated with large losses. Small losses, yes. Because to make money you have to lose some along the way, as casinos do every day.  And not the cost of tuition where the market charges a fee to school us. No, I mean information.

Instead of asking yourself about where you placed your stops and getting all personal about the whole thing, ask yourself what happened. Why did the market move the way it did? If you haven’t suffered a capital depletion, you are not likely to demand an answer and more likely to throw off the question with a wave of the hand and a shrug. “Who knows, who cares. I only play odds.”

Markets are a beast and if you want to play with them, you’ll have to be careful. Wear protective goggles and gloves. If you want to tame them though, you’ll need to wrestle with them. And sometimes you lose some body parts along the way. 

The importance of emotion in trading.

  
  Education
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Anxious:  Am I prepared?  Can I afford to lose what I am risking?  Am I breaking my rules?  Did I drink too much caffeine?

Anger:  Have I not moved from the last trade?  Am I tired?  Is there conflict in my personal life?

Happiness:  Are psychological gains more important than monetary gain?  Am I overconfident?

Indifference:  Do I care?  Is something more important?

It is natural to feel emotion but in an appropriate and proportional way.

Anxious:

To this day, the first trade always produces a little anxiety.  That little tingle in your stomach and shallow breathing.  The same is true when I a trade I have been waiting for sets up.  Above that, I know there is something wrong.

Anger and Happiness:

I am angry after a negative outcome and happy after a positive outcome but in order to adapt more quickly I have to remove emotion from the outcome as soon as possible.  It is more important to focus on what happened and less how I feel about it. Prolonged feelings of anger or happiness causes risk blindness and impedes my learning.  Misjudging risk will prevent me from taking a trade or taking too much risk. (more…)

Ways to Recognise and Defeat Your Evil Trader

  
  Education
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  • Have a plan.  If you don’t have a plan, your Evil Trader has zero boundaries and will take over entirely.  When you have a plan, you’ll start to notice him telling you not to follow it.  You’ll hear him whisper seductive anti-plan ideas that sound and look perfectly reasonable – except they aren’t in the plan.
  • Have an Evil Trader Journal.   The thing with ET is that often his ideas sound great and are really hard to ignore.  So as not to discard potentially good ideas, keep a log and after each trade is closed make a note of whether the idea would have been positive or detrimental to the outcome of your trade.  After a period of listing these ideas you’ll be able to notice that a) ET is wrong and he needs to shut it, or b) his idea deserves some further testing as it’s possible it has merit.
  • Try to make your method as water-tight as possible.  A signal needs to be a signal without a shadow of a doubt.  An exit needs to be a definite exit, no two ways about it.  The more black and white the better, as your Evil Trader loves to second guess your judgement.  Planting seeds of doubt is just the way he rolls.
  • Make a check-list for those times when you’re just not sure.   There will always be times when things just don’t seem so clear-cut.  This is your evil trader’s very favourite moment to strike.  You need to be armed with your weapons of ET destruction – aka, your check-list – to guide you through.  Having a checklist on hand allows you to objectively determine whether what you think you’re seeing is in fact what the market is presenting.

Learning From Losers

  
  Education
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Traders will typically approach a large loss in one of two ways. First is the dumb way, and that is to become a petulant whiner and throw a fit. Next is the more-constructive way, and that is to use the loss as a means of developing as a trader and to “quote” — learn from your mistakes. But there is a third way. And that is to view the loss as the cost of information.

I don’t mean the cost of doing business per se. This is not typically associated with large losses. Small losses, yes. Because to make money you have to lose some along the way, as casinos do every day.  And not the cost of tuition where the market charges a fee to school us. No, I mean information.

Instead of asking yourself about where you placed your stops and getting all personal about the whole thing, ask yourself what happened. Why did the market move the way it did? If you haven’t suffered a capital depletion, you are not likely to demand an answer and more likely to throw off the question with a wave of the hand and a shrug. “Who knows, who cares. I only play odds.”

Markets are a beast and if you want to play with them, you’ll have to be careful. Wear protective goggles and gloves. If you want to tame them though, you’ll need to wrestle with them. And sometimes you lose some body parts along the way. 

Learning From Losers

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Traders will typically approach a large loss in one of two ways. First is the dumb way, and that is to become a petulant whiner and throw a fit. Next is the more-constructive way, and that is to use the loss as a means of developing as a trader and to “quote” — learn from your mistakes. But there is a third way. And that is to view the loss as the cost of information.

I don’t mean the cost of doing business per se. This is not typically associated with large losses. Small losses, yes. Because to make money you have to lose some along the way, as casinos do every day.  And not the cost of tuition where the market charges a fee to school us. No, I mean information.

Instead of asking yourself about where you placed your stops and getting all personal about the whole thing, ask yourself what happened. Why did the market move the way it did? If you haven’t suffered a capital depletion, you are not likely to demand an answer and more likely to throw off the question with a wave of the hand and a shrug. “Who knows, who cares. I only play odds.”

Markets are a beast and if you want to play with them, you’ll have to be careful. Wear protective goggles and gloves. If you want to tame them though, you’ll need to wrestle with them. And sometimes you lose some body parts along the way. 

Learning From Losers

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #

Traders will typically approach a large loss in one of two ways. First is the dumb way, and that is to become a petulant whiner and throw a fit. Next is the more-constructive way, and that is to use the loss as a means of developing as a trader and to “quote” — learn from your mistakes. But there is a third way. And that is to view the loss as the cost of information.

I don’t mean the cost of doing business per se. This is not typically associated with large losses. Small losses, yes. Because to make money you have to lose some along the way, as casinos do every day.  And not the cost of tuition where the market charges a fee to school us. No, I mean information.

Instead of asking yourself about where you placed your stops and getting all personal about the whole thing, ask yourself what happened. Why did the market move the way it did? If you haven’t suffered a capital depletion, you are not likely to demand an answer and more likely to throw off the question with a wave of the hand and a shrug. “Who knows, who cares. I only play odds.”

Markets are a beast and if you want to play with them, you’ll have to be careful. Wear protective goggles and gloves. If you want to tame them though, you’ll need to wrestle with them. And sometimes you lose some body parts along the way. 

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