This is the second part of Jea's article entitled Trading on Borrowed Time. The first part is available here.
Most day traders are going to blow out their accounts, they just don’t know it yet. The same applies to almost every new trader entering the game. They are all on borrowed time, a disaster waiting to happen. It’s a gloomy picture, unless they take the right steps to prevent the impending disaster. The initial goal of trading is to diffuse the bomb before it explodes. It’s not about making money. This is what traders don’t realize until it’s too late.
The only way to diffuse the time bomb is by slowly building a foundation of knowledge and experience so that you will be properly equipped to handle all situations. I see newbie...
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Articles
Have you heard the one about the poor guy who ends up lost in a minefield? Having no clue what to do, he prays, covers his eyes and walks a straight line. Miraculously, he survives. Brimming with confidence, he is convinced that if it happens again, he will employ the same technique to survive. Well, you can figure out the rest of the story. Boom. It’s just too obvious. That guy was simply on borrowed time.
This ‘guy’ could be any number of traders, including you, who trade in the same style. Finding themselves in that proverbial minefield with huge intra day losses. In a fit of desperation, they put on crazy Hail Mary trades with double, triple, and quadruple the normal size just looking for that miracle. You also know the ending to...
As a trader and educator, I have come across thousands of traders during the past 15 years. I can honestly say that I have never met or seen one trader be able to sit down in front of a screen each morning without a trading plan, look at a few charts, start trading, and make money consistently year after year. I am not saying it's not possible, I have just never seen it. The people you see do well have a trading plan. Of that group that does well, it is typically the people with the short, simple trading plans that do the best. The key is making sure your trading plan is yours and works for you. Make sure it ensures that almost everything that can be a rule, is a rule. These don't have to be the best rules, the fact that they are rules...
You go long and the market immediately goes down - you go short and the market immediately goes up. That's 2 consecutive losses, and you are getting a little 'anxious' so you don't take the 'next' trade. Of course, this trade is a winner. Now to make the situation worse, you then 'chase' the move, and as soon as you enter the trade it immediately reverses, thus giving you another loss - this is now 3 in a row. Ok one more "try" - this can't happen on every trade can it?
This time though, you will be real clever. You have noticed that the market is in a range, and it's the bounce from the low/retrace from the high that is causing all the problems. So this time, the next trade you take will be a range extreme fade AND the hell with your...
When it comes to trading, one of the most neglected subjects are those dealing with trading psychology. Most traders spend days, months and even years trying to find the right system. But having a system is just part of the game. Don't get me wrong, it is very important to have a system that perfectly suits the trader, but it is as important as having a money management plan, or to understand all psychology barriers that may affect the trader decisions and other issues.
Most Forex trading courses and Forex training programs forget about these important aspects of trading. But the truth is that in order to succeed in this business, there must be a complete equilibrium between all important aspects of trading.
In the trading...
One day after a particularly spectacular trading debacle, my Uncle Joe took me aside and consoled me with some hard facts about how the stock market works. You see, Uncle Joe owns a very unique company and has an insider's perspective on how stock price movement is managed.
His company, Widgets & Co., is the only company in the States that distributes widgets, and it does so under license from the government. It has been buying and selling its unique widgets for many years. Now imagine also that these widgets have an intrinsic value, they never break, and that the number in circulation at any one time is the same. So, Uncle Joe, being a clever man with many years of experience managing his business, realized early on that just buying...
dis ci pline (n.) 1. Training intended to produce a specified character or pattern of behavior. 2. Controlled behavior resulting from such training. 3. A state of order based upon submission to rules and authority. WEBSTER'S CONCISE DICTIONARY.
How do you react to rules? Do you find them to be a burden, a drudgery to observe and obey? Do you look at them as something negative, a restriction to your freedom perhaps?
Or, do you instead see rules as beneficial, as a protection from possible harm? Do you find that rules are necessary in your trading?
While growing up, we were constantly confronted with rules of one type or another. We received rules in proper hygiene, how to address other people, how to respond to various signs on the...
As traders, we soon come to realise and appreciate how difficult it can be to take money consistently from the markets. We learn that to have a chance of doing so requires us to make a lot more effort than we may have imagined. We need to have extensive knowledge of the markets and instruments we intend to trade, a sound grasp of technical analysis, a thorough macro-economic overview and also to have secured for ourselves an appropriate amount of "risk" capital. However, most importantly, and the issue this article seeks to address, is the effort that is required to study ourselves when we trade and specifically to understand how the patterns of behaviour we come to observe in ourselves whilst trading, once identified, can be...
There are too many items to keep track of in the market. The trader must understand that he cannot "know it all". If you could, you would be the ultimate trading machine. This being said, we realize that we are imperfect. We have only 100% of our mental energy to use in any given time frame. Some of it is used in maintaining our bodies - breathing, walking, talking, etc. Some is used in keeping track of our lives - what time is it, did I turn off the coffee pot, and did I pay the phone bill? Most of it is used in trying to understand the complexity of our world - the sensory input from our senses and their identification and categorization. In using this last energy, we tend to trap ourselves into sorting out signals and identifying...
Have you gone out of your way NOT to take care of your Trading results? Why would some traders deliberately hamper their success - make trading decisions that are doomed to fail?
A video tutorial with chart examples of real trades is illustrated in this tutorial, where traders sabotage their success;
http://www.4x4u.net/review/sabotage/sabotage.html
Self Sabotage behaviour is when there is no logical or rational explanation of your action. It is making the same mistake over and over gain. Self sabotage is not following your rules, or in many cases not having a trading plan.
How do you break free from self-sabotage behavior?
Just think where you could take yourself if you were able to manifest your goals, you are able to take care of...
If you buy a stock for $50 and it reaches an all time high of $100, but you sell at $75, why do you feel that you've made a loss?
Minds and Markets
In most people's minds finance and economics are the domains of clear, quantitative thinking. Economists merely uncover financial truth one after another as they develop new mathematical tools for modeling capital and how wealth is created. Markets, likewise, are ethereal natural forces tapped into rather than created. In truth, the assumptions that underly the pricing models used for the past three decades are based on two basic principles:
Meanwhile, down the hall on university campuses, researchers in cognitive science have uncovered evidence that humans are not quite the rational...
Over the years, traders have pointedly asked why they should spend so much money for Neuro-Linguistic (NLP) counseling to solve their trading problems. A fair number of these traders have gone through traditional therapy, taking months or years, of weekly and bi-weekly sessions that are relatively inexpensive per session. If these same traders have not achieved the results they wanted through such an extended therapy, how can I justify asking for a major financial commitment for two days of work? An excellent question, I will begin my answer by telling one of my favorite stories:
$1.00 for tapping
$999.00 for knowing where to tap
Psychological Changes Happen Instantly
Just as it is important to know where to tap to get machinery...
Wise trade selection can be a key good trading. So how do you start to select those all important trades?
Your trading week can bear witness to the fulfillment of a lot of long range planning, and the big payoffs that such planning brings to those who are wise and patient-those who want the best of the best. Many times it really pays to be patiently waiting for a trade to burst forth and make some nice gains.
A number of the spreads we do are the result of patient waiting for the two sides to come into proper alignment. We plan these trades days or even weeks in advance.When a major entry signal such as the breakout of a Ross hook are being made, every effort within reason should be made to be aboard, even if only for a couple of...
Stick With The Plan
This may seem like a common sense statement, but the reality of market timing is that the majority of timers "think" they can stick to a timing strategy, however when the market moves against them, as it always does as some point, they are swayed by financial news stories, the desire to be "with" the crowd, and their own emotions, often exiting the strategy at exactly the wrong time.
Think about it. Let's use a fictional market timer named Mark for this example.
Mark has a strategy he knows has, over many years, outperformed the stock market. Mark knows going in there will be times when the strategy will lose. He sees this in the historical trades. He accepts this or at least he thinks he does.
But then, the...
Our neurological system is comfortable with our habitual behavior patterns and will support us with that status quo. So if you are losing, winning or leveled out with consistent profits but not growing, you are very likely to stay in that situation unless you are willing to do what is necessary to stretch. Most people who want to increase their performance are willing to read a book or go to a seminar, but not willing to consistently follow through on what they have learned over the long haul. The question is, what does it take to stretch, and are you seriously willing to make that commitment? If you are not, then expect the same results. If you are, then get ready to take a ride on a trip to the next level of success where, in six...
Does your ego get in the way of your trading? After a couple of wins do you think you can't fail and go on to lose all your days gains? Here we look at ego and how to control it when trading.
Imagine a stage populated by the main characters that comprise your inner "trading decision making committee". It's a short odds bet that the loudest shout for leading man / woman will come from the ego. Brushing aside rationality and requests for inclusion alike, the ego will pronounce his / her pre-eminence and sieze control.
Trading is a magnet for ego. It is full of promise and challenge and all egos relish a good scrap,especially when the odds are stacked against them and they have a sniff of heroism in the sweetened air. Statistics that...
Jack is a trader, but not the cool, calm, collected sort of trader you would think. Yet he stills manages to be profitable by tailoring a trading strategy to suit his mindset. So how does he do it?
Our Jack is a trader. Not that you'd employ him because he is not the cool, calm, non-emotional, confident and steady-under-fire character of the job description. A highly emotional chap is our Jack. He is always scared stiff and sure every trade is going to go wrong. He hates losing and any loss wounds him deeply and stays with him for weeks. He is as greedy as hell and absolutely hates giving money back and watching his profit deteriorate. On top of all that, he's frozen fingered and can always be relied upon to come up with some reason...
Are we actually now in the bear market? And was the fall we saw in May only a prelude of what is to come? Here we take a look at the current market situation.
The markets spent most of the week preceding the Labor Day weekend hesitating right at key Short-Term resistance, as marked in our last article. This led to some pretty miserable trading conditions, as Wednesday and Thursday yielded a painfully tight 4 point range in the S&P. This is just about as tight I have seen the markets. By Friday, the market managed to break through and sustain above our 1303 mark in the S&P500, and this puts a new multi-year high into play over the short-term for the S&P500. For the DOW, a new all-time high comes into play over the Short-Term with...
In the Forex market, sometimes you get the fruit and sometimes you get trapped and shot. Why?
A friend of mine volunteers on a regular basis to rid his neighborhood of rodents and animal riff-raff: the woodchucks, groundhogs, and possums that eat up gardens, attack family pets, and so on. He sets a trap with ripe fruit or tuna fish. The animal enters the trap for the food. If the animal can't find its way out, it is eventually shot and buried.
Possums are relatively easy to catch. They go for the fruit, they get caught, and then, when the trapper approaches the trap, the possum simply plays dead. It plays dead because that's the best defense mechanism that it has.
A woodchuck is tougher to trap. A big one might enter the trap, eat...
There are times when all traders question their logic for entering a particular trade. Here Dr Doug examines how to maintain your objectivity when trading.
Perhaps one of the most challenging skills in becoming a successful trader is Maintaining Objectivity in trades. While there are a variety of factors which contribute to you losing objectivity in a given situation, there is a clear and defined path you can follow to re-gaining it. In simple terms, it is called Thinking Backwards.
The Issue
More times than not, losing objectivity occurs when you micro-manage a situation. It may be in the form of watching the tape or over-thinking a position but in essence, you lose sight of the MACRO picture or WHY you were in the trade in the first...
Trading is a stressful business, none of us would deny this. This article looks at ways of reducing stress levels to ultimately make us more relaxed and profitable traders.
The Health & Safety Executive defines stress as "The adverse reaction people have to excessive pressure or other types of demand placed on them".
Trading is precisely the kind of profession that provides plenty of "the excessive pressure" that causes stress. And unless managed properly, stress can have an extremely negative effect on your ability to trade effectively.
Stress can make you excitable, anxious, jumpy and irritable - not exactly the ideal attributes conducive to profitable trading. Stress can interfere with your ability to formulate judgments and...
What sort of trader are you? A Trigger Happy Terry or a Fatalistic Fred. In this article the author looks how most traders fall into certain trading 'types'.
?Know thyself? exhorted the ancient Greeks. Pursue intelligent, disciplined self enquiry and you will come to understand the treasures of the self. This timeless Delphic dictate could, I believe, serve well as a focus for effort for those who today would profit from trading the financial markets. Know your own strengths and weaknesses, physically, mentally, emotionally and spiritually. Accept and understand them and learn how they relate to and feature in the market environment and you give yourself some valuable edges.
You gain clarity of purpose. You have the conviction to...
An initial article giving a brief opening look at the psychology around trading.
After many long hours, you have completed a system that you have incorporated into your trader's business plan. Your money management strategy is within the bounds of your comfort range and you start to trade following your system's rules. Despite the fact that you have completed all of this work, you find that you are still losing money while your system is showing that you should be making money. This is when you discover the importance of the Psychology of Trading. Or do you?
At this point, most traders maintain the status quo and refuse to admit that a psychological issue might be holding them back from following their rules. Those traders who are...
Is trading just a game of cat and mouse? Do we smaller traders - the mice - get noticed nibbling the cheese (profits) on the mouse traps set by the cats (the major player)?
A Game of Cat and Mouse
In my decades of trading, I've learned many lessons about the market. The chief of these lessons is that I don't know anything about the market; at least, in comparison to the market makers on Wall Street. Think about it. The traders at firms like Goldman Sachs, Merrill Lynch and the like pull down salaries of several million dollars each year. I refuse to believe that they are so richly compensated because they don't know anything. They know a lot! It's their job!
As a result, like many individual investors, I engage daily in a game...
Trader education has become a hot topic in recent years. Everywhere you look there is someone offering some course, seminar, training program, or whatever. Many are very pricey, and we can certainly debate the real value of quite a few. The proliferation of the products and such can't help but bring up some of the commonly debated topics related to whether traders can be taught or just have some innate talent which allows them to succeed. This article makes its own contribution to that discussion.
In the interest of openness, my personal view is that anyone can learn to trade effectively. By that, I mean we are all capable of trading toward a reasonable and rational set of goals and/or objectives determined by our own personal...
So you want to be a day trader huh?, really???, hmmm, well isn’t that special!!!! Think you have what it takes to make a living trading the Markets??? Do ya Bunkie???? I wouldn’t quit my day job pal. In fact unless you’ve done your homework first and foremost, don’t do this until you’ve at least tried it on a part time basis. Otherwise if you try to dive into the abyss without a net, you're doomed right from the get go! Doing it on a part time basis just for the feel of it is fine. Never would work otherwise.
Oh and pardon me for asking, but what makes YOU think you're smart enough, stable enough, and mechanical enough to do this? You read about it in a book right? Seemed kinda easy to ya? Did it? You figured heck this doesn’t seem so...
With everything said and written on the subject of stops, it should be given that everyone is conditioned to keep them religiously even before they start trading. No matter what source a newer trader turns to, utter importance of stops will be underlined and emphasized up to the degree that keeping them is heralded as the ultimate key to success. We all heard adages like “Take care of your losses, profits will take care of themselves”.
Do all the stern warnings work? Not really.
Time and again traders blow their stops, widen them in a course of a trade, hold losing position in false hope it will make them whole. If this destructive behavior continues despite all the warnings, there must be deeply rooted reasons for this. As with most...
A large number of traders that I work with express the feeling that they are somehow sabotaging themselves: repeating the same mistakes day after day, giving back valuable profits in a fraction of the time it took to earn them. Their intuition is that there is some kind of pattern to what they're doing; they're repeating the same mistakes again and again. They realize that they're not mentally ill and don't have a history of out-of-control behavior, so they are understandably confused as to why they can't stop shooting themselves in the foot.
In this article, I will summarize a few ideas central to brief therapy, a discipline which uses very active techniques to accelerate change processes that might otherwise take months or years...
Those who haven't worked in the industry may not be aware that nowadays most investment bank traders will only trade one particular sector or cross rate or country. This has not necessarily always been the case. When I first started in the industry as an 18 year old trading Japanese warrants in 1989 all the banks involved in that market divided their trading books into alphabetical order. For example, I traded all warrants whose company names were from S to Z such as Sumitomo Chemical and Toyota. While this arrangement had seemed to work during the bull market years, it was only when the market got tougher during the crash years that banks realised that it would be far better to divide the trading books by sector as there was no...
Psychology Getting Started Improving Your Trading Performance: The Single Most Important Step You Can Take
A chess player analyzing the board for the next move; fighter pilots maneuvering their planes to get a lock on enemy aircraft; a baseball player tracking the release of the ball from the pitcher's arm; ballet dancers executing their leaps; an oncologist diagnosing a rare form of cancer; a bodybuilder sculpting a small muscle group to achieve symmetry: all of these are examples of performance activities. They are also examples of fields that have been widely researched in the past two decades, uncovering important clues as to the factors that create successful performance.
This research raises fascinating questions: What makes expert performers different from less successful ones? Is expert performance a function of inherited...