Archive for category: Psychology

A Trader’s Job Description:

13 Oct
October 13, 2014

 

 

The financial markets are looking for applicants that fit these qualifications:

  1.  Expect long hours of study and research. Assume you will lose money in the beginning.
  2. A person interested in becoming a trader must have the mindset of an entrepreneur. Risk, irregular income, and spending money to make money, are all part of the business.
  3. You must trade like a business person and not a gambler. Gamblers need not apply; go to Vegas instead.
  4. Risk management will be your priority. Too much risk exposure will eventually lead you to be an unemployed trader with no trading capital.
  5. You are your own human resource department. Be prepared to manage your own greed and fear.
  6. To keep your morale up, you must keep all your losses small, and allow your winning trades to be as large as possible.
  7. You must have enough trading capital. The minimum is $25,000 in risk capital, or close to half a million to trade for a comfortable living. Small trading accounts are eaten up by percentage commissions and end up being unprofitable. When trading for a living, you must be able to live off your returns and not touch your initial trading principle.
  8. Jesse Livermore’s quote for potential candidates: “The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.”

If you are interested in this position please apply at your favorite broker. Financial markets are an equal opportunity employer, and do not discriminate based on wins or losses.

10 Reasons Why So Many Traders Lose So Much Money

08 Sep
September 8, 2014

 

 

The Ten Reasons Why So Many Traders Lose So Much Money:

  1. One of the biggest reasons that many traders lose money is that they simply trade with no plan. Their entries, exits, and position sizes are simply random opinions so they have no edge, and their money is taken by those traders that do have an edge.
  2. A great way to lose money is to continually fight the trend in their time frame. The easiest money in the market is made trading in the right direction that the majority of cash is flowing. Buying dips in up trends, and shorting strength in down trends, is a profitable endeavor.
  3. Trading with no study of past price action, or historical perspective of chart patterns, is like trading in the dark. Back testing and chart studies shed light on what a robust trading system really looks like.
  4. Bad traders chase moves after it is already too late, while profitable traders take high probability, robust entries with great risk/reward ratios.
  5. A huge difference with profitable traders is they trade consistently small position sizes, rather than the large position sizes of unprofitable traders. Those that continually ‘bet the farm’ on enough trades eventually lose their farm, and their trading account.
  6. Egos are very expensive things in the markets. Profitable traders are able to admit they are wrong fast, and remain cautious in every trade, regardless of their confidence level. 
  7. Being emotional as a trader is very expensive. Fear makes traders get out of a trade when they should be getting in, and greed makes them buy into the end of a trend when they should have been taking profits. Much of a successful trader’s earnings come from trading off other people’s emotions.
  8. Not doing your homework before you trade is a great way to get schooled by those that have.
  9. Not understanding the real odds of out-of-the-money options is a great way to transfer wealth from option buyers to option sellers.
  10. Not understanding the risk of ruin is a great way to be ruined. Your position sizing, total market risk exposure, stop losses, and discipline will determine if you survive long enough to be profitable.

Top 15 Ways to Manage Trader Stress

19 Jun
June 19, 2013


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. 


Successful Trading: How to Put it All Together

14 Jun
June 14, 2013

 

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?

New Trader, Know Thyself

28 Nov
November 28, 2012

 


Trading is more about the trader 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 best place to begin. Everything you learn now will help you create a trading plan that fits your personality. Educating yourself will give you the necessary confidence  to take your trading method live, using real money.

  1. New traders do not need trading ideas, they need a trading system. A single trade has no meaning unless it is made inside a robust trading system that contains a good risk/reward ratio and proper risk management.
  2. New traders should understand their own stress tolerance level for position sizes and losses. Trading the right size is crucial to keeping emotions on the sidelines.
  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.  An edge is gained over the market by mastering a specific method and sticking to it so you can benefit when the market environment is conducive. The environment may dictate your entries, exits, or if you just stay on the side lines, but it should not dictate your method, or change who you are as a trader.
  4. New traders should look for answers through systematic research and study, rather than the opinions and predictions of other traders. We can all learn from the principles of great traders, but at the end of the day, we have to rely on our own systems.
  5. Success in the markets is based on 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 make the new trader successful. Real learning and trading success takes place in the markets, when real money is on the line. 
UA-54541420-1