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Archive for the ‘Psychology’ Category

PostHeaderIcon Top 15 Ways to Manage Trader Stress


Trading stress is primarily caused by two  things: either not knowing what to do or knowing what to do and not doing it.

Many times in trading  a new trader will discover that real money on the line is not the same as reading about trading or simulated trading. One of the top three things that will determine the success of a trader is the trader’s psychology, the weakest part of any trading plan is the trader. Stress can knock a trader out of trading faster than anything else. You have to trade like it is a business. Realize that it is highly probable that half of your trades will be losers and your profits will come from the half of your trades that are bigger winners  than the half that are losers. You can not control the market you can only control what you do, your entries, exits, position sizing, and method. Practicing discipline and self control at all times keeps you out of very stressful situations. The key to trading success is not fun and excitement and being right all the time, it is about making what you do as sterile and boring as possible and steadily make money with good trades that have the odds in your favor. This is a business not an amusement park ride, trade accordingly.

  1. Only risk 1% of total trading capital per trade with stop losses and proper position sizing. Proper positions sizing makes the emotional impact of any one trade only one of the next one hundred a totally different mental perspective than an all in/have to be right Hail Mary trade.

  2. Only trade a  position size you are comfortable with.

  3. Trade a method or system you believe in based on back testing of a positive expectancy.

  4. Know where you will get out of a trade before you get in.

  5. Only trade with a detailed trading plan.

  6. Believe in your ability to follow your trading plan. YOu must have faith in yourself to lower your stress levels.

  7. Know yourself as a trader and only take your kind of trades. Take trades that will leave no regrets because they were good trades regardless of out comes.

  8. Do not listen to any unsolicited advice about the trade you are in, follow your own plan. Noise can really cause stress and mess up a trade, trade with emotional horse blinders on, keep out others voices and listen to your trading plan.

  9. Sit out markets that you are uncomfortable trading due to volatility or other looming risks. Know when it is time to trade and time to ‘go fishing’. This can save you a lot of emotional capital.

  10. Do your homework before you trade. Be confident in your trade until it hits your stop. Get out when your stop is hit, you already lost money don’t lose sleep as well.

  11. Keep your ego out of your trading, run it like a business.the P& L is your focus not your ego and not trying to prove anything to anyone else.

  12. Only trade when the odds are believed to be in your favor. It is much less stressful trading with the trend than against it.

  13. Do not blame yourself for losses if you followed all your rules. The market giveth and the market taketh away, just keep taking your entries and exits.

  14. If you do not know what to do, DO NOTHING.

  15. To lower stress levels trade less and get away from watching every single price change. Day traders could trade only the open and closing hour, swing trader and trend traders could just take opening or closing signals. You could go from every tick to just checking in every hour or so if you have options or hard stops in. Most of the days trading is random noise, and randomness will stress you out focus on your time frame and only the quotes that really manner when they manner. 


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PostHeaderIcon Successful Trading: How to Put it All Together


What trips up the vast majority of traders so they never quite make the transition from new trader to good trader?

Not being able to deal with the stress of trading: this is caused primarily from a lack of faith in themselves and or their method.

They lack the ability to pull the trigger when it is time to enter a trade or cut a loss.

Some people just can’t overcome the fear of losing money both in the entry and exit.

Many traders just do not have the discipline or work ethic to create a trading plan through proper homework.

Most traders have no trouble over analyzing the markets to death with enough indicators to make someone go cross-eyed. Many traders read enough books to know how to trade, many follow enough different people online that they get so confused they do not know what to do. Most traders spend far to much time in front of the computer all day watching the prices tick. The majority of traders would really quit trading if they added up the amount of time they spent for the privilege of losing money.

What is the key to over coming the barriers to success in trading. A GOOD TRADING PLAN, not a few rules I mean a complete plan. A plan that you 100% believe in based on your own studies and back testing. Your own personal plan that YOU created, not someone’s opinions.

What needs to be in there?

The Trading Plan comes first and should account for the following parameters:

1.  Entering a trade. Quantified approved entries.

2.  Exiting a trade. Predetermined Exit point BEFORE you enter a trade.

3.  Stop Placement. How will you know you were wrong about a trade? A stop loss, trailing stop, chart signal, volatility stop, time stop, or target price.

4.  Money Management. How much capital will you risk on any one trade? This is the key to position sizing.

5. Position Sizing. How much capital will you put on any one trade? Do you have rules that tell you to trade bigger or smaller based on the odds?

6.  What to Trade. What qualifies stocks to be on your watch list?

7.  Trading Time Frames. Are you going to day trade or position trade and hold for a week or more? or will you be a short term or long term trend follower?

8.  Back Testing. You need back testing either with a computer, by reviewing charts, or others research to show that your system is a winner.

9.  Performance Review. You must keep a detailed log of your trades and watch your performance to understand the wins and losses and their causes.

10.  Risk vs. Reward. Each trade must begin with the potential of winning more money than you are risking.

This is a very basic outline, I suggest expanding this to include 30 rules minimum; 10 each covering the areas of risk management, psychology, and method. If you can write this, believe it, and follow it, you will win in trading the only question that remains is when?


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PostHeaderIcon New Trader, Know Thyself


Trading is more about the trader himself than the markets. The markets are neutral they have no agenda and no evil plots to take your money. Each random entry has a 50% chance to win or lose even with no method attached. The key is getting an edge in your trading. Knowing who you are as a trader, what your plan is, and sticking to your own method is the place to start. Everything you are learning now should be taking you to your own trading plan that fits your personality. All your homework right now should be giving you faith in yourself to take your trading method live with real money.

  1. New traders do not need trading ideas they need a trading system. A single trade alone has no real meaning unless it is made inside a robust trading system that contains a good risk/reward ratio and proper risk management on every trade.

  2. New traders should understand their own stress tolerance level for position sizes and losses. Trading the right size is crucial to keep as many emotions as possible on the sidelines. It is crucial that a trader be able to handle their trading size so they can trade their plan and not have it over ridden by their emotions.

  3. A new trader has to decide who they are: day trader, position trader, growth investor, CAN SLIM investor, momentum trader, option trader, trend follower, or a combination of these, etc.  An edge is gained over the market by mastering a method and sticking to it so you can benefit when it is in favor. While a changing market environment may dictate your entries, exits, or if you just stay on the side lines, it can not dictate your method or change who you are as a trader.

  4. New traders should look for answers on what they should be doing in charts and price action based on their own method and time frame not with other traders. We can all learn from great traders principles that will make us better but we all have to trade our own plans at the end of the day.

  5. Our success in the markets will be based on our work ethic, discipline, focus, risk management, perseverance, and pain tolerance. NO newsletter, seminar, book, stock pick, or Holy Grail trading method is a magic elixir that will take the new trader to success. All the above things are just classes, and it is great to educate yourself, but real success in trading takes place in the arena that is the markets. The real education takes place when real money is on the line, when the losses happen, and you decide this is the game for you.


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PostHeaderIcon Fragile Traders vs. Anti-Fragile Traders. Who breaks First?


Reading Nicholas Taleb’s newest book Anti-Fragile really got me thinking about how traders are broken.

Traders can become fragile and be broken in several ways:

  1. They can quit because they believe that trading successfully is impossible.

  2. They can lose half their account or all of their account and just give up.

  3. They can become emotionally traumatized by one huge loss or a string of losses and just not be able to trade any more due to the pain going forward.

  4. A trader can lose faith in them self as a trader.

  5. A trader can lose faith in their system.

  6. A trader can trade too big and blow up their account, they want to trade, they believe they can make it back but have no money.

A trader can become anti-fragile they can benefit from adversity at times by:

  1. Having 100% confidence that they will be in the 10% percentile of  consistently winning trades, it is just a matter of time.

  2. They do not give up after losing the majority of their very first account  they just accept it as paying tuition and start again this time with faith they will win.

  3. The anti-fragile trader trades small, their emotions do not bleed into their trades, each trade is just 1 of the next 100. They risk 1% of capital per trade.

  4. The successful trader identifies themselves as a successful trader, losing trades do not change who they are.

  5. The trader believes that time is on their side and draw downs are just temporary, short term losses do not change the trader’s belief in long term success.

  6. Successful traders know that their trading account is their life blood, guarding  it against big losses is their #1 priority.

Fragile traders are inevitably  broken, anti-fragile traders are not only not broken but benefit from circumstances by learning, growing, and becoming more resolved to win. Adversity makes them stronger.


 

 

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PostHeaderIcon How I was Wrong but Still Made Money Today

 

 

 

 

 

“Plans are plans until they aren’t. Don’t confuse trading ideas with prophecy. You don’t know the future. Unless you cause it.”
-Curtis Faith

This morning I went in very biased about buying Apple long, my mind was clouded with the support level of the 50 week moving average holding up perfectly yesterday and in the pre-market. Looked like a perfect play off  the last support level that held up for years. My love for the products did not help me think more clearly. I came in biased. I even wrote a special morning blog to explain my set up. One of the best professional money managers and a great prop trader commented on my blog post in the morning on facebook, and pretty much said I was wrong, dead wrong on that support holding. As the stock opened for trading I became flexible and aware of what happened in the past when I traded against those guys. Yes, Apple was oversold, yes it was far extended from the 5 day ema and due to return, yes it was holding at the 50 week ema, yes it has $100 per share in cash and the most innovative products in the world and a ridiculous P/E ratio of 12. But with a clear, cautious, and flexible mind ready to go long instead I shorted when it failed to make new highs of the day after opening and losing the 50 week line, then when it rallied back above it and failed again I doubled up. I used weekly in the money puts and ended up with very nice gains almost doubling my capital at risk in one hour. One thing that new traders have trouble with that seasoned traders do not is flexibility to change with the market.  We have to identify a place the market can move that tells us that we are dead wrong no matter what our beliefs are.

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PostHeaderIcon Caffeine For the Trader’s Soul

 

 

 

 

 

 

Do you really, really, want to be a trader? There is no secret system, method, or guru that will make you a successful trader. Trading is work, trading is taking the hits, managing risk, and learning how to navigate the markets you trade. It is no different than any other profession, there is no quick money to be made in the practice of law, medicine, real estate, or business. It is the same process, you pay your tuition in time and money, you learn, you work, you grow, you  persevere and if you work harder than the majority you eventually win.

Many dream of the ‘freedom’ of trading. Trading does not come with a steady paycheck, traders eat what they kill. Traders are not employees they are entrepreneurs they get paid last. You pay your broker first, you pay the traders on the winning side of your trades second, then you get paid with the profits that remain. While you can make as much money as your winning trades allow their are no guarantees that you will make any money. Whether you trade for a living, manage money professionally, or trade for capital appreciation you have to be able to take your losses and not give up.

The winning traders are not really that special, their secret is that they did what it took to be successful. They got the right mentors. They read the right books. They studied charts and systems. The trader’s that win are the ones that put their ego aside and concern themselves with what makes money in the markets. If you are willing to work harder than 90% of all traders to find what works in the markets and once you find that winning methodology to follow it then you will be in the 10% who are profitable. If the losing 90% of traders read only 3 trading books then you read 200, if most new traders study one trading method you study ten, If most new traders give up after the first 6 months you never give up. If you begin with the end in mind and are willing to pay the price to get where you want to go then only you can stop yourself.

What is the secret to being a successful trader? Work, passion, perseverance, and always making your best effort to travel in the direction of your goals.

“The secret to being successful from a trading perspective is to have an indefatigable and an undying and unquenchable thirst for information and knowledge.”
-Paul Tudor Jones

http://youtu.be/94lPBVoO-4s



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PostHeaderIcon The Top Ten Scariest Things A Trader Can Do…..


 

On this scary holiday of ghouls and goblins, trick or treating, and haunted houses it made me think of what is really scary for traders to do. Emotions sometimes are sending traders messages, fear can mean that you have not done enough homework or that you are trading too big. Fear can be screaming at you to cut your losses as they become bigger and bigger.

The majority of the time you should be greedy when you are winning and let your winner run to a logical resistance point but be fearful and ready to exit when you are losing afraid that you loser will grow bigger.

The Top Ten Scariest Things A Trader Can Do…..

  1. When risking 5% of you account on any one trade, 10 losers in a row and BAM! 50% draw down and you need a 100% return to get back to even. If you don’t think that you will have ten losses in a row this year then that is SPOOKY!

  2. Buying far out of the money options with a .10 delta. Generally this trade will lose 9 out of 10  times, only being profitable from the strongest trend within your time frame. Spooky that traders want to buy lottery tickets with those odds.

  3. Taking a trade with NO EXIT STRATEGY that is a horror movie. It is dangerous to not have a stop loss when you enter a trade becasue if a trader thinks they bought in at a great price the price starts looking better the lower it goes, and terror of all terrors the trader adds more to the trade! It only takes one mistake letting one trade run into a huge loss and add to it to blow up an account.

  4. Shorting the strongest stocks in the market during a bull market is scary as they continue to go up.

  5. Going long a stock in a death spiral due to a business misstep or earnings decline is like riding a roller coast that generally ends up much lower when the trade is finally closed.

  6. “Going all in” on one trade, with this plan all it takes is one bad trade to blow up your account, those are scary odds.

  7. When you are losing you go from your trading plan to “plan B” “hoping” maybe even praying for a reversal. When a trade turns you religious and leads you to pray it is definitely time to get out!

  8. Asking for others opinions instead of following your trading plan or methodology is very scary, time for homework not tips.

  9. It is terrifying to watch someone fight a trend instead of follow it. The bigger they go against the trend the scarier it gets. They are trying to stand in front of an elephant walking and tell it where it should be going.

  10. When you find out you are in a trade that is 100% the opposite position of the best traders you know, it should be a wake up call to reassess your thinking process, I know that is always an uh oh moment for me, I usually lose in those situations.

Happy Halloween Everyone! Be Safe My Friends!


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PostHeaderIcon Ten Different Types Of Traders. Which One Are You?

 

 

 

 

 

In the markets there are many different types of traders and many motivations that drive them.  Everyone has heard of  different types of traders based on their trading method: Swing Traders, Day Traders, Momentum Traders, etc. But what about different types of traders based on their psychology, their purpose And motivation?  Some trade for fun and excitement, others trade purely for ego. Others love the game and still others are in it only to make money. In the greatest game on earth it is surprising that many traders have different motivations, in reality the only correct motivation is to make money, that should be the real goal of any trader. Here are a list of ten types of traders I have observed on social media. We have all likely been more than one of these types at some time or another while trading. But we need to focus like a laser on the only real reason we should be trading: to make money and once we have made it, to keep it.

  1. Greedy Traders: They trade too big and risk too much because their only goal is the easy money. They usually end up blowing up their account.

  2. New Traders: They have no idea how the markets work so their only goal should be knowledge. New Traders do well to stay students until they have done their homework. Rushing in to make money without risk management, a winning method, the right mind set, and a trading plan will result eventually in failure 100% of the time.

  3. Arrogant Traders: Their only goal is to prove they are right and satisfy their fragile egos. Arrogant traders will lie, delete tweets and posts, never admit when they are wrong. When they are wrong they will hide it under a cloak, when they are right they will scream it from the roof tops.

  4. Trend Traders: Their only goal is to ride a trend and make money. Trend traders will buy high and sell much higher, they will short and cover much lower. They look like genius’ and prophets in a trending market either way it trends but they look like they can’t even trade in choppy or whipsawing markets. In the long term they do very well.

  5. Scared Traders: Their only goal is to not lose their capital. Scared traders will immediately close losing trades and also immediately take profits. They are very stressed out in trading due to not understanding the nature of trading itself or just can not handle the uncertainty or risk. They either need to do their homework to develop their faith in or if they have done the homework trading may just no be for them.

  6. Perma-Bull Traders: Their only goal is to go long stocks. Buy the best investment in the best stock.They have no desire to go short they always believe the next big rally is around the corner and love to buy lower and off support levels.

  7. Perma-Bear Traders: Their only goal is to short stocks. They always think the market is on the verge of a major crash. They “know” the economy is in shambles and the markets are prone to fall. In a bull market they believe prices are too high and will reverse sharply. In a bear market they believe we will go much lower.

  8. Prophet Traders: Their only goal is to rightly predict market movement then let everyone know they did. They always think they know the top or the bottom, they love targets and believe that charts show exactly what is going to happen next. They do not really discuss their own trading they just predict prices.

  9. Paper Traders: They love the market and study more than anyone but never quite make the plunge into real trading. They stay in the comfy cozy world of paper trading and make it more of a hobby. They just can’t make the transition into the real markets.

  10. Rich Traders: Their only goal is to consistently make money and grow their capital over the long term. They do not ask for tips, or advice, they did their homework and they trade their method. They maintain confidence in themselves and their methods regardless of whether they are winning or losing.

Which type of trader are you?


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PostHeaderIcon 10 Things You Might Like If You Are a Trader

 

 

 

 

 

The great thing about the modern social media world is that we have the ability to connect with like minded people. While being facebook friends and following traders on twitter it is amazing how like minded many of us are. There are ten interests that are very common among traders and the odds are that you will likely have at least seven of them. I would be very surprised if you are a trader and have less than four. For some reason if we like trading we like these things also. I am guilty of all ten.

How many of these do you like?

  1. Most traders are politically for free markets, capitalism, and freedom. Most are Libertarians or Republicans.

  2. The majority of traders are big fans of Ayn Rand, or at least her book Atlas Shrugged because they see entrepreneurs as heroes.

  3. Most traders love sports because they love competition and respect team work and a strong work ethic along with the statistics.

  4. Most traders enjoy math because they love the study of probabilities, percentages, and compound growth or returns.

  5. Traders enjoy learning, they read books, study charts, go to seminars, and never quit being students of the markets.

  6. Traders enjoy the study of how economics works, supply and demand, buyers and sellers, and production and consumption are interesting topics to the majority of traders.

  7. Some traders even love gambling games where it is possible to develop a small edge at times like Poker, Black Jack, or studying handicapping and betting on horse racing.

  8. Many traders love games of skill and strategy like chess, Risk, Monopoly, or the game Civilization..

  9. Other traders love to unwind with games that are random and fun and full of numbers like Yahtzee or Bingo

  10. Traders love trading the financial markets because it is like the biggest puzzle, challenge, and game that there is. It takes all their skills of the mind, of doing the math, and accepting the uncertainty and risk. THEY LOVE THE ULTIMATE GAME>> TRADING.


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PostHeaderIcon The 7 Skills A Trader Must Have To Win

 

 

 

 

 

There are seven skills you will need to survive in trading without discipline no system will work because it will not be followed. With out risk management it is a 100% probability that the trader will blow up their account. Without passion trader’s will not have enough energy and drive to  get from new trader to rich trader. Without perseverance new traders  become quitters after meeting with resistance, failure, and monetary losses. No work ethic = no edge over other traders. Without flexibility a rigid trader will be broken by the markets. Without a focus a new trader becomes the jack of all trades and the master of none.

  1. DISCIPLINE: The trader must have the ability to control themselves and follow a plan. Discipline is a required skill in trading without it there is no edge, you are either a gambler or simply trading off fear and greed. You will not be successful, instead you will be gamed by those in control of their emotions.

  2. RISK MANAGEMENT: Risk management must be a top skill for a trader to even survive in the markets. You must structure your risk per trade to be no more than risking 1% or 2% of your trading capital. You have to be able to survive 10 losses in a row. These strings of losses come around more often than a new trader would suspect. If you lose just 5% of your trading capital in each of ten trades you will be down almost 50% and need a 100% return just to get back to even. At this point you are ruined.

  3. PASSION: A trader must love to trade, without a passion for the markets and trading the new trader will not survive the learning process because anyone with common sense would believe that it was not worth the struggle. Passion will be needed to bring a trader through the learning curve and later the losing streak.

  4. PERSEVERANCE: A top skill of a trader is not quitting. A trader will have many bad days, bad weeks, bad months, and in the beginning, even bad years. The ability to keep going anyway because you have a goal in mind can not be underestimated.

  5. WORK ETHIC: There is no easy money in trading it is work. Even the ‘easy’ money in bull markets is usually taken back from newbies in the next bear market cycle as they continue to fish for support and just know their stock will ‘come back to even and let them out’. Being a trader is probably equivalent to getting a bachelor degree in a college and in some ways it is like getting a law or medical degree. New traders should expect to pay tuition costs as they start out not just in books, tapes, videos, seminars, and newsletters but also trading losses. There is no professional field where you can just start it and make money from day one. Expecting to start making money trading from day one is like some one going up to a doctor and saying “Hey, how can I make some quick bucks in the medical field, just tell me how you do it.”

  6. FLEXIBILITY:A trader must have the skill to both quickly realize they are wrong and act on that by taking a small loss before it becomes big. There are no crystal balls good traders play probabilities and try to go with the flow. Most new traders will never accept that trading is not about being right every time it is losing small when wrong and winning big when right. Expect a 50%-60% win rate and understand that your wins have to pay for your losses so make them as small as possible.

  7. FOCUS:In trading being an expert on your specific markets: currencies, commodities, futures, options, or stocks will lead to more success than dividing your attention into too many parts. A small watch list allows you to not miss anything and understand your own trading vehicles better than the majority of others you are trading against. Also being an expert on your own systems, methods, or styles will give you an edge over others that drift between methodology.

Surprisingly I have found that these seven skills are primary and the winning trading system itself is secondary. There are many, many, robust systems, methods, and styles but none of those work if you are missing one of these.


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