Archive for category: Psychology

7 Habits Of Highly Destructive Traders

29 Oct
October 29, 2014



As traders, we try to do constructive things that build faith in ourselves, and confidence in our trading systems. We want to stay on the right path and not wander into the wilderness of destruction. Here are the seven things that we must be cautious of for the sake of profitability.

  1. Blaming outside forces for poor trading results is an incredibly destructive behavior. High frequency traders, market makers, and irrational markets, give an undisciplined trader license to make reckless trades. The less responsibility taken for results, the more destructive they can be with an account.
  2. Trading with no plan and making decisions based on feelings, is a really bad idea. Letting opinions and predictions be a guide to entries, and emotions be a guide to exits, guarantees maximum destruction of trading capital.
  3. Trade first and learn how to trade later. Traders who don’t spend time educating themselves before trading will learn the hard way, and give their trading capital to other traders as tuition.
  4. Focusing on ego and the desire to be right, instead of profitability and big losses, will quickly destroy a trader’s account.
  5. Traders that fight the trend and disagree with the actual price action will give their trading capital to those that follow the trend.
  6. Trade without discipline and risk management and a trader will be destroyed regardless of their trading system or method.
  7. If a trader doesn’t diversify their life with strong relationships, fun, peace, and health, their trading results become too entangled with their self worth. This can lead to mental and emotional ruin. 

The path to profitability leads away from these seven habits. In the end, traders are consistently rewarded for their good habits, and punished financially for their destructive habits. This is our stop list.

Why Trading is Like a Triathlon

27 Oct
October 27, 2014


“A triathlon is a multiple-stage competition involving the completion of three, continuous, and sequential endurance disciplines. While many variations of the sport exist, triathlon, in its most popular form, involves swimming, cycling, and running in immediate succession over various distances.” - Wikipedia

Trading is a three-dimensional competition that requires the management of three continuous, simultaneous, endurance disciplines. While a variety of trading methodologies and systems exist, profitable trading involves management of the trader’s psychology, attention to risk control, and dedication to trading a robust system over an extended time period.

Many traders make the mistake of thinking that simply knowing the right methodology will guarantee their success. In actuality, it is a three event marathon consisting of more than just entries; psychology and risk management have much more influence over longterm success. Entries have no meaning without the right exits, and no system is a winning system without the discipline to follow it. 

Here are the three events in the trading race:

A trader’s psychology has to be one of confidence in order to trade it with discipline. Confidence comes from doing homework, back testing, chart studies, and experience. A trader has to trade position sizes that turn down the volume on their emotions. They must have the mental discipline to follow the plan that they carefully crafted when the market was closed, when the market is open. When a trader drifts into greed, fear, and ego, they will likely wreck on the rocks of reality. A successful trader needs the psychology of an entrepreneur, cultivating the fortitude to get through the small losses so they can make it to the big wins.

A trader’s risk management will determine their short term and long term success. Trade too big and the trader will give back all past profits with just a few losing trades. Trading huge position sizes insures that a trader will eventually give their whole trading account away to disciplined risk managers. If risk is not managed, no trading method will lead to profitability because some string of losses will eventually be too much to bear.

A trader’s methodology should be robust enough to have an edge over the markets and other traders. High probability entries and set ups based on historical price action is a good place to start. Planned exits to lock in profitable trades when right, and knowing where to get out if proven wrong, is critical to success. A good trading methodology is trading with a plan that defines entries, exits, and position sizing. Implementing a strong methodology increases the likelihood that a trader’s overall wins will exceed their overall losses within the timeframe for expected profitability.  

If you want to win the trading race, you must train for all three events.




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.