Ten Things Traders Need to Start Doing to Make Money

1. Take stop losses when they are hit, holding and hoping drains your money and your emotions.

2. Never enter a trade without and exit plan, you need a stop loss for losing trades or a trailing stop for winning trades, and possible target areas where it is time to prepare an exit.

3. Only take the best trade set ups, be patient, do not trade for the sake of trading.

4. Trade smaller position sizes, most traders need to be trading MUCH smaller so they don’t give back all their profits in one trade.

5. Go back and study historical price action for your markets. Study charts on different time frames with different indicators, back test, and read books that explain charts. You need to understand what is and what is not possible.

6. Only trade with a written trading plan, and follow it.

7. Only trade a comfortable position size that allows your mind to stay in control and not let your emotions take over due to stress, fear, or greed.

8. Do you want to make money trading? TRADE LESS. Make less trades, be picky, and watch the markets less, if you are a longer term trader every tick and price change is not something you need to know.

9. Choose a method and stick to it. Whatever you choose be the best you can be through focus. Day Trader, Swing Trader, Trend Trader, Trend Follower, CAN SLIM, Option Trader etc. Focus is one of the biggest keys to success. Being a Jack-of-all-Trades usually means you are not a  master of Trading.

10. Trade price action not your opinion about what it should be.

                                                                                                                                                                                                                                                                                                                                                Ten Things New Traders Need to Quit Doing if they Want to Be Successful

1. Quit trying to hit big home run trades that stress you out and make you watch every price tick all day and focus on a winning trading method.

2. Risk a little to make a lot and stop risking a lot to make a little.

3. Quit giving back all your profits in one big trade gone bad.

4. Trade what you know and quit trading things you know little about.

5. Quit asking for trades from other traders and go back to writing your own trading plan.

6. Quit being stubborn about your opinions and flexible with your stops. You need to be flexible with your opinions and stubbornly take your stop losses when they are hit. 

7. Quit being bullish in a down trend and bearish in an up trend.

8. Quit buying break outs in a range bound market. 

9. Quit taking trades when their are no good entries, learn to quit trading at the wrong time and start waiting until the right time. 

10. Quit worrying about being right all the time and start worrying about making money over the long term.

With all the drama last week in the indexes and what seemed like wild action for traders watching live trades, it was nothing more than the market staying within a two week trading range in a range bound market. A $160.00 support/$165.50 resistance two week  trading range does not sound like a lot of volatility until you travel the full range top to bottom and bottom to top in two days.

The amazing part is all the conviction by traders to step in and sell into the 20 day sma and buy into the 50 day sma almost to the penny as these key moving averages acted as key resistance and support levels over the past three days almost flawlessly.

I really have no interest trying to guess and grab a daily move. I am interested in whether we break and close above the 20 day and return to all time highs or lose the 50 day and roll over and end up at the 100 day.

The long term trend is still up as the 50 day holds on, in the short term time frame we are simply range bound until these levels break out and a trend emerges.

It would be natural for a range bound market to develop after the nice trend we have had this year that took us to all time highs.

I will be searching for trends in individual names and trading small until this range resolves itself.

It is decision time for GOOG as it approaches the apex of a triangle pattern on the daily chart.

The 20 day resistance and lack of a sell off seems to point to a range bound GOOG for now until it closes above the 20 day with power or rolls under the 50 day this may be our churn area.

The last four days AAPL has had lower highs and lower lows.

AAPL has spent three days struggling against the 50 day and closed below it.

The next level of support is at $420 and we could easily see this next week.

The 50 day may act as the new resistance level as it was never regained Friday.

AAPL may actually now be a slow moving, dividend paying, big cap tech with declining growth that makes it a range bound behemoth going forward with its momentum days behind it.

 I want to like TSLA, I want to be that guy that bought it as it broke out to new highs but I can’t. This stock is all technicals and chart and no fundamentals nor will it have any for a very long time.  This is the definition of a bubble and the madness of crowds. The volatility on the chart also shows that day traders and high frequency traders are key players. As long as you trade price and get out before the music ends  you can do okay but when you start believing the hype about this as an ‘investment’ you will have a bad time. Congratulations to all the crazy bulls that stubbornly held on but this is not real, this price level is built completely on hopes, beliefs, and potential growth in the future. People getting in now are very late to this bull party.

TSLA’s fate rests with its ability to stay above the 20 day. TSLA is a purely speculative play without real earnings. It is not an investment and not a monster stock. In every bull market cycle the stocks that launch and never look back are companies with real earnings and huge growth that are changing the world. MSFT through the nineties along with INTC and AOL up into March of 2000. AAPL RIMM and GOOG through 2o04-2007 and again AAPL GOOG and PCLN in 2012 along with many other examples throughout history like HD and WMT. I have been involved with many monster stocks and TSLA is no monster stock yet. It is part of Elon Musk mania and without real earnings to support an $11 billion market cap this will end badly. I have bought many breakouts and held for huge gains and this is not what a strong chart looks like, it is the picture of indecision and many weak hands. If you are playing this to the long side I would be a seller when it loses its 20 day support. The TSLA price has gotten way ahead of itself here.

I really enjoyed this book because it shows real life examples of investors and traders who made huge gains following the principles and strategies of William O’Neil’s book “How to Make Money in Stocks” and the paper Investor’s Business Daily. Somewhat like the “Market Wizards” series from Jack Schwager, author Amy Smith distills the principles from successful CAN SLIM practitioners.

The book also has charts showing exact buy and sell points that the successful traders made and the specific patterns that caused them to buy, whether it was a stock breaking out of a cup with handle pattern or on a breakaway gap up after earnings. Also you will see the stock charts where these investors held a stock for long periods of time and the exact points where they added to their position along with the reasoning and also how they sold to finally lock in profits on either a climax top out in price or if the stock broke under the 50 day simple moving average on volume.

This is a gem of a book, showing how real everyday people changed their lives through the teachings of William J. O’Neil and Investor’s Business Daily. Many held stocks for 25% to 100% returns and more. Many made six figure returns and even became millionaires trading through compounding returns for years with the right stocks in a true bull market.

The key to the system is buying the stocks in the companies that are changing the world at the right time out of of the right base inside a bull market running up in a strong trend.

Most have studied the rules, principles, and concepts in IBD and “How to make money in stocks” this book shows the art of putting it all together for great investment returns by using successful stories straight from the people who made money in stocks using this specific method. 

Amazon Book Link Here:  How to Make Money in Stocks Success Stories: New and Advanced Investors Share Their Winning Secrets

Jesse Stine has audited results of turning $46k into $6.8 million in 28 months (14,972%). As far as he knows he is the post internet bubble record holder among retail traders.

This book is a tale of blow ups and making millions. I believe fans or Jesse Livermore and Nicolas Darvas will enjoy this story and find the authors methods very interesting, I did.

In “Superstocks”, author Jesse Stine explains in detail the principles he used to make millions in the market. But do not be confused, he was not a hot shot going straight to a million dollars. Jesse paid his dues for his trading education, blowing out trading account after account due to bad risk management. I think it was six times in all that he virtually lost so much of his money trading he had to start all over again and recapitalize. I love his quote, paraphrased “I did not crawl back into a cubicle.” No, he did not go get a 9-5 J-O-B he fought back to become a millionaire many times over. Then was able to take time off and travel the world at his leisure.

How did he accomplish this? His primary strategy is contrarian in nature, at least in finding the inflection points at the beginning of trends and reversals. Jesse was and is that guy that buys into IBD 100 stocks (Now IBD 50)while they are priced in the single digits and rides them up as they hit the Investor’s Business Daily Top 50 as they break over $15 a share and make the list out of nowhere. He is looking to get out as others are just discovering the stock and looking to get in. He notes how these stocks typically top out around $25-$30 where he looks for his exit, and it is true in most cases.

Jesse is a techno-fundamentalist to be interested in a particular stock, he needs not only many of the fundamental CAN SLIM criteria, but also for the chart to be appealing in a clean base or breaking out of one. He really needs to see committed insider buying also to be convinced to take big positions. Once he is in he looks for key longer term moving averages to hold as support during the stocks run called ‘magic lines’ where buyers are accumulating the stock and supporting it on pull backs.

This book is a great contribution to trading literature with a real speculator sharing his tactics for making seven figures. He reminds me of a combination of Jesse Livermore being able to “shoot the works” when he knew the odds were deeply in his favor and also Nicolas Darvas’s endless search for the next monster stocks. This book builds on the principles of trading success and adds new tactics to make huge gains on a percentage and dollar basis. I highly recommend. Book Link to “Insider Buy Super Stocks”

What trips up the vast majorities 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?

                                                                                                                                                                                                                                                                                           Everyone has heard to “Let winners run and cut your losers short”  but what does that mean? The core of this statement is positive expectancy. If you trade a system that has a positive expectancy then you will make money the same way that casinos make money because the odds are on their side. Casinos do not allow people to walk in and drop a million dollars on black on the roulette wheel, table limits is their form of risk management.

Traders can get the odds on their side also if they can control bet size and trade a system that puts the odds in their favor. If you develop a plan that has a 3:1 reward/risk  ratio then you can lose 2 out of three times and still make money.

Lose $100

Lose $100

Make $300

—————

Profit $100

With a 2:1 reward/risk ratio you can make money with a 50% win rate.

Lose $100

Lose $100

Make $200

Make $200

—————

Profit $200

Winning in the markets is not all about picking the right trades and being right all the time. It is about keeping losses small and trading a method that gives you the possibility of bigger wins than losses. Every year there are a few big trends that make me all my profits, I have to keep taking entries at critical points to be able to catch them. The bigger your winning trades the less of them you need to make you profitable. The bigger you losses the more winning trades you need to dig yourself out of the losing hole.  The key? Stay out of the big losing hole cut losses when you are proven wrong.

The missing key to trading success for so many that they don’t understand is asymmetric trading where losses are kept smaller than wins. This makes it possible to take the stress out of trading and you can make money while only being right half the time. You don’t have to be a genius just a great risk manager and be able to capture trends in your time frame.

Having the discipline to build a trading plan with an edge and execute it over and over again is the key. If you take high probability entries, go with the trend, cut your losses short, let your winners go as far as they will go, and keep your ego away from your account then trading will work for you.

                                                                                                                                                                                                                                                                                              Here are seven reasons why being on twitter, facebook, stock twits, Linked-In, tumblr, YouTube, Amazon, and Google+  may be a very valuable use of our time as traders, if we are doing it right.

1. Trading Buddies: Traders primarily come to social media for camaraderie. Today’s trading from home leaves a void that use to filled by other traders on the exchange floor. It is great fun to interact with like minded people online when your family and even friends think you are nuts.

2. Education: New Traders come to social media to learn how to trade, it is a huge short cut to pick up advice from veterans that have already been down the same road and are successful. There is a flood of free information, charts, blogs, articles, and e-books available through social media that you can educate yourself with free of charge.

3. Live Trading: Many traders like to post live trades, this can be very helpful in learning a trader’s methods and to show live trading skills. Live trades can be very educational to understand parameters for entries and exits and risk levels. However a trader should never blindly follow another trader’s trade not knowing his risk levels and time frame, this is very dangerous.

4. Recommendations: Social media is a great place to ask opinions and experiences with specific training programs, trading books, brokers, trading systems, and trading methods. Posting a simple question you need help with will usually produce an overwhelming response of help.

5. Support: It is great after a bad trade of a losing streak to have trading buddies that share war stories and keep losses in perspective. They understand your pain and know you have skills even when you doubt it.

6. Connections: In the modern world social media can lead to jobs, managing money, publishing books, business ventures, web sites, and other things that grow from a friendship and getting to know someone, I know this first hand.

7. Entertainment: When drama erupts it can be very entertaining much like reality television is for some of us. Also many have a great sense of humor and I find myself laughing out loud daily and many of the jokes, sarcasm, and clever memes that I come across.

I am a part of a very friendly, helpful, and knowledgeable group of traders on facebook: New Traders, Rich Traders, and Good Traders.  This group is about connecting new traders with experienced traders. It is about shared knowledge to take all traders to the next level in their trading.

(This is a private group in the above link so if it is not viewable to you just friend request me at Steve Burns on facebook and ask for me to put you in).

When I have a string of losses I pause and reflect and ponder if it is me trading badly or just the market environment not being conducive to my trading method.  Here are 10 questions we will do well to ask ourselves at times when we seem to be out of synch with the market.

1. Are we taking good entries? We have to enter at a high probability moments to put the odds of winning on our side. Buying support bounces, shorting resistance levels, or entering on confirmed break outs.

2. Are we trading too big? Big position sizes can cause us to stress to much and exit too quickly, we must trade a comfortable level that allows us to overcome our emotions and stick to our trading plan.

3. Are we risking too much per trade? We need to cap our risks at no more than 1% to 2% capital at risk per trade. It is very difficult to make back big losses on a percentage basis it is much easier to steadily grow an account by avoiding those big losses with correct position sizing.

4. Are we trying to fight a trend in the market? Has our ego and opinions over taken our ability to trade price action? We must identify the trend in our time frame and trade with it.

5. Are our stops too tight? We have to place stops at logical areas that prove we are wrong, we have to give trades room to breathe and not get knocked out too early.

6. Are we trading markets or stocks we are unfamiliar with? We need to focus our efforts on only the trading vehicles and markets we know very well.

7. Are we trying to trade outside our own time frame? Day traders can’t turn into investors in a bad trade and long term trend followers can’t suddenly start day trading. We must stick to what we know.

8. Do we need a break? There are times to just get away from the market and refresh your mind and emotions. Tired and stressed out trading is bad trading. 

9. Are we trying to trade too many markets or stocks? I have always made all my profits with a condensed watch list of only a few things not trying to trade more than 3 to 5 things at any given time. 

10. Have we done our homework? If we are not prepared with chart studies, back testing, trading psychology, and risk management we will lose, our trading will suck.

If the answer is yes to all these questions it could be time for a vacation and let the market settle down or trading small to get to the other side of a draw down safely until your method starts winning again.