8 Easy Ways to Blow Up Your Trading account

23 Oct
October 23, 2014

 

Almost everyone has read the statistic that 90% of active traders are not profitable and eventually quit trading. While I don’t have the exact numbers, I suspect that a lot of those traders blow their entire trading account before they quit. Even many legendary traders like Dan Zanger, Nicolas Darvas, and Alexander Elder lost a lot of money before they were millionaires. A new trader is like a 16 year old with a car; you know that eventually mistakes will be made, and you just hope that the mistakes are not too dangerous, or that they don’t cause any long term discomfort.

During the first year, the new trader needs to focus on learning and not trading. Why would you trade before you know what you are doing? When a new trader begins to trade, they should start small to avoid letting their decisions become influenced by emotion. When the trader gets up to speed, the focus should be on what can be lost more than what can be made. The new trader must learn what they should be looking for before launching directly into trading. Their focus should be on methodology, entries, exits, risk management, and a well researched trading plan.

Of course there is also a quick and easy way to just blow up a trading account. I do not recommend these paths to destruction.

  1. A losing trade? No Problem just keep adding to it until it comes back. It will eventually come back, right?
  2. The bigger the better; if you are right, you can make a lot of money, as long as you are never wrong.
  3. Short bull markets and go long in bear markets. You can pick all the right reversals, right?
  4. You are smarter than the market. You are so special you can predict the future. Trade your predictions, they have an edge, right?
  5. Be stubborn with losing trades. The losses can’t get too big, can they?
  6. Cut winning trades short while the profits are there. Can big losses and small wins lead to profitability?
  7. Follow someone else in their trades, not knowing their position size or stop losses. What could go wrong? 
  8. Spend a ton of money on snake oil salesmen that promise you the Holy Grail of trading. I wonder why these can’t lose money machines are so affordable?

10 Ways For Traders to Stay Inside the Circle of Profitability

22 Oct
October 22, 2014
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“Stay in the center of the circle, and let all things take their course.” – Lao Tzu

For long term profitability a trader has to develop an edge over other traders, and then leverage that edge using discipline. Money comes from a trader’s ability to develop a system of robust entries and exits, and trade it using a plan that incorporates risk management. 

Regardless of what is going on around you in the markets, stay inside your circle of competence as a trader:

  1. Follow your trading plan.
  2. Take your trade entry signals and set ups.
  3. Manage your risk closely.
  4. Cut your losses when you are proven wrong.
  5. Keep trading within your own time frame.
  6. Keep following your own tested system.
  7. Don’t start trading out of fear.
  8. Don’t start to position size based on greed.
  9. If you are on a losing streak, trade smaller not bigger until you start winning again.
  10. Do not let others predictions and opinions influence your trading; trade price action.

15 Of My Most Popular Tweets

21 Oct
October 21, 2014
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10 Fast Facts About the $SPY Chart 10/19/14

19 Oct
October 19, 2014
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  1. Last week the markets did things that have not happened in a long time all of them pointing to a down trend and a structural change in the market.
  2. The 200 day was lost and then the market dropped dramatically. The 200 day has held as support since 2012.
  3. The 30 RSI was lost intra-day and not recovered by the end of the day which has not happened in a very long time.
  4. Swing traders and dip buyers buying weakness and fear was finally punished by relentless plunging.
  5. Trend followers finally started making money going short below the 200 day.
  6. The market for the first time in a long time started truly having fear about the end of quantitative easing.
  7. The gap up on Friday was met by selling all day as it finished where it began and used the previous day’s high of day as support. This was not a bullish gap and go just a gap and hold.
  8. $SPY was rejected at the 200 day sma on Friday which was not a confirmation long for my system. A close above the 200 day would get me to start wading in long. Friday was just a rally inside a down trending market at this point.
  9. $IWM was rejected strongly in its Friday move back into the red. $IWM has been leading the other market indexes up and down in recent weeks this correlation has good odds of continuing.
  10. Some recent hot stocks like $TSLA $SCTY $NFLX $AAPL and $GOOGL have appeared to be under distribution as well. A sign of an aging uptrend in equities.

5 Great Trading Articles For Weekend Reading 10/18/14

18 Oct
October 18, 2014
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