FOUR STEPS TO TRADING PROGRESS
HEAR
To
HEAR you have to listen and listen intentionally. You will not HEAR
properly if you are focused on other things. This situation is
especially true on a webinar or during the trading day when the markets
are open. It is essential to set distractions aside and HEAR what is
being stated.
RECEIVE
To
RECEIVE something you have to HEAR it and come into agreement with it.
To RECEIVE is to take it unto yourself and personally grab hold of what
you have heard and make it your own.
BELIEVE
To
be successful you have to believe that what you HEAR and RECEIVE can
add value to your current situation. You have to BELIEVE that a specific
strategy repeated and correctly executed, regards of any specific
outcome, will provide successful results over time. You will act on what
you believe In all areas of life. Please make sure you really do
BELIEVE it and are not allowing any contradictory mindset to compete
with your belief because it is possible to hold two opposing beliefs at
once. This is being double minded and leads to instability. Being firm
and unswayed in what you BELIEVE can lead to becoming a successful
trader.
APPLY
APPLY
Is taking action on what you BELIEVE. You will not fully apply
something until you fully believe it. Application requires action. You
must be willing to pull the trigger on a trade when all of your rules
are meet or when all the T’s have been crossed. You must also without
reservation pull the trigger to exit at your predetermined stop loss.
Regardless of what we think or BELIEVE we will also act out of core or
dominant belief. To properly apply ourselves we have to revise our core
beliefs. If I APPLY all of my predefined rules for entry and exit even
when the trades go against me, my core belief will keep me confident
that I did the right thing in making this trade and over time I will
accomplish my goals. In addition my loss will not stress me because
based on following my predefined rules it was a small loss based on a
predetermined, well thought out process.C
The secret to trading success: You.
You
are the weakest part of your system. It is a defeatist statement. It
makes your expectation to fail easier to accomplish and more importantly
it makes failure easier to handle. It shifts the pressure away from you
and unto fate.
Would
you fly on an airline if their motto was “Our pilots are the weakest
part.” I do not think so. You are your system. Even if your system is
automated you added the inputs, parameters.
Taking
responsibility for your action is not easy. Taking control of the
outcomes of trading or life is a huge responsibility. You will have
moments of weakness, but you are not weak. The market does not go
straight up and either does the road to success.
Wisdom From Bruce Kovner
On protecting emotional equilibrium:
To this day, when something happens to disturb my emotional equilibrium and my sense of what the world is like, I close out all positions related to that event.
On the first rule of trading:
The first rule of trading — there are probably many first rules — is don’t get caught in a situation in which you can lose a great deal of money for reasons you don’t understand.
On making a million:
Michael [Marcus] taught me one thing that was incredibly important… He taught me that you couldmake a million dollars. He showed me that if you applied yourself, great things could happen. It is very easy to miss the point that you really can do it. He showed me that if you take a position and use discipline, you can actually make it.”
On allowing for mistakes:
He also taught me one other thing that is absolutely critical: You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best judgment, being wrong, making your next best judgment, being wrong, making your third best judgment, and then doubling your money.
On elements of a successful trading:
I’m not sure one can really define why some traders make it, while others do not. For myself, I can think of two important elements. First, I have the ability to imagine configurations of the world different from today and really believe it can happen. I can imagine that soybean prices can double or that the dollar can fall to 100 yen. Second, I stay rational and disciplined under pressure.
[Successful traders are] strong, independent, and contrary in the extreme. They are able to take positions others are unwilling to take. They are disciplined enough to take the right size positions. A greedy trader always blows out.
On having a market view:
I almost always trade on a market view; I don’t trade simply on technical information. I use technical analysis a great deal and it is terrific, but I can’t hold a position unless I understand why the market should move.
…there are well-informed traders who know much more than I do. I simply put things together… The market usually leads because there are people who know more than you do.
On technical analysis:
Technical analysis, I think, has a great deal that is right and a great deal that is mumbo jumbo… There is a great deal of hype attached to technical analysis by some technicians who claim that it predicts the future. Technical analysis tracks the past; it does not predict the future. You have to use your own intelligence to draw conclusions about what the past activity of some traders may say about the future activity of other traders.…For me, technical analysis is like a thermometer. Fundamentalists who say they are not going to pay any attention to the charts are like a doctor who says he’s not going to take a patient’s temperature. But, of course, that would be sheer folly. If you are a responsible participant in the market, you always want to know where the market is — whether it is hot and excitable, or cold and stagnant. You want to know everything you can about the market to give you an edge.…Technical analysis reflects the voice of the entire marketplace and, therefore, does pick up unusual behavior. By definition, anything that creates a new chart pattern is something unusual. It is very important for me to study the details of price action to see if I can observe something about how everybody is voting. Studying the charts is absolutely critical and alerts me to existing disequilibria and potential changes.
Three Trading Wisdom
Preservation of Capital
Preservation of capital is the cornerstone of my business philosophy. This means that, in considering any potential market involvement, risk is my prime concern. Before asking, “What personal profit can I realize?”, I first ask, “What potential loss can I suffer?”
…There is one, and only one, valid question for an investor to ask: “Have I made money?” The best insurance that the answer will always be “Yes!” is to consistently speculate or invest only when the odds are decidedly in your favor, which means keeping risk at a minimum.
Consistent Profitability
Obviously, the markets aren’t always at or near tops or bottoms. Generally speaking, a good speculator or investor should be able to capture between 60 and 80% of the long-term price trend (whether up or down) between bull market tops and bear market bottoms in any market. This is the period when the focus should be on making consistent profits with low risk.
…Anyone who enters the financial markets expecting to be right on most of their trades is in for a rude awakening. If you think about it, it’s a lot like hitting a baseball — the best players only get hits 30 to 40% of the time. But a good player knows that the hits usually help a lot more than the strikeouts hurt. The reward is greater than the risk.
Pursuit of Superior Returns
As profits accrue, I apply the same reasoning but take the process a step further to the pursuit of superior returns. If, and only if, a level of profits exists to justify aggressive risk, then I will take on a higher risk to produce greater percentage returns on capital. This does not mean that I change my risk/reward criteria; it means that I increase the size of my positions.