Three stages of trading objectives.

Three stages of trading objectives.

 

To make money every trade. At first, I did not have the ability to make money every trade. After I had the ability to make money on most trades I realized it was a horrible objective. If you want to make money on every trade you are always waiting. You can never take that much risk and hence the rewards are very small. I was trading 1′s and 2′s to start, which was the right thing to do. I would watch my mentor take every trade, no matter how dog shit it was. As a 1 and 2 lot trader you do not have the same luxury to take dog shit trades because you can only trade one way. Because of the flexibility he had he could do more and the truth is no matter how good or bad a trade looks we don’t know until we are in it. Getting the most out of a trade is the mark of good trader. Risk is always related to reward. There is very little money in making money on every trade. This type of trading is like making 100k and keeping 80K

To make huge chunks of money. After I realized that objective did not work for me I shifted to the extreme. I started to swing for the fences whenever I had the ability. It is nice when I was right but I struck out a lot too. At this point, I did not respect trading. I did it because money made me a bad ass. Well as you know you hard to pay your bills with bad ass. This type of trading is like making 200k and keeping 80k.

Here are the major risks of having both of those objectives. The first is making small amounts of money no matter the situation. Eventually you will get in a hole because statistically you are behind. Trading every situation the same is bad. The second objective is trying to make huge amounts of money on every trade. If the first trades were the best and I stopped it was great. If the first trades were bad, I was forced to stop. It made it hard to learn.

AN 1873 LETTER ON LUCK VERSUS SKILL

We often confuse luck with skill, especially in the stock market. In fact, Michael J. Mauboussin has written a worthy read on separating the two in his newest book The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing. But long before the contemporary discussions of luck versus skill, ancient speculators were enthralled by luck’s deceptive ways of making mere mortals feel godlike. However, that sense of omniscience, just like a string of luck, is fleeting and continues to lure modern speculators into a trap today just like it did Saxon-les-Bains, a man of culture, almost 150 years ago. In a 1873 letter to The Spectator entitled “A Study in the Psychology of Gambling” Saxon-les-Bains describes his gambling experience in Monte Carlo.


And what was my experience? This chiefly, that I was distinctly conscious of partially attributing to some defect of stupidity in my own mind, every venture on an issue that proved a failure; that I groped about within me something in me like an anticipation or warning (which of course was not to be found) of what the next event was to be, and generally hit upon some vague impulse in my own mind which determined me: that when I succeeded I raked up my gains, with a half impression that I had been a clever fellow, and had made a judicious stake, just as if I had really moved skillfully as in chess; and that when I failed, I thought to myself, ‘Ah, I knew all the time I was going wrong in selecting that number, and yet I was fool enough to stick to it,’ which was, of course, a pure illusion, for all that I did know the chance was even, or much more than even, against me. But this illusion followed me throughout. I had a sense ofdeserving success when I succeeded, or of having failed through my own willfulness, or wrong-headed caprice, when I failed. When, as not infrequently happened, I put a coin on the corner between four numbers, receiving eight times my stake, if any of the four numbers turned up, I was conscious of an honest glow of self-applause…

Evidently, in spite of the clearest understanding of the chances of the game, the moral fallacy which attributes luck or ill luck to something of capacity and deficiency in the individual player, must be profoundly ingrained in us. I am convinced that the shadow of merit and demerit is thrown by the mind over multitudes of actions which have no possibility of wisdom or folly in them, granted, of course, the folly in gambling at all, as in the selection of the particular chance on which you win or lose. When you win at one time and lose at another, the mind is almost unable to realize that there was no reason accessible to yourself why you won and why you lost. And so you invent what you know perfectly well to be a fiction, the conception of some sort of inward divining rod which guided you right, when you used it properly, and failed only because you did not attend ‘adequately to its indications.’

Ah, the trader’s skill versus luck in a nutshell and so it continues to this day. Speculators often confuse luck with skill, while also attributing losses either to a deficiency in divining the true way or to some birthright prone to stupidity. We speculators, in our desire to successfully predict, forget that there is really never a reason for winning or losing; there is no certainty that can be latched on to whenever we ask fate to smile upon us with an increase in our wealth.

Although it is in our nature to long for certainty and contribute some skill to its desired outcome we must be acutely aware that in our speculating we have no control over a right that has never been granted nor shall be any time hence.

Most Common Advice is Ineffective

“Plan the trade, and trade the plan!” is perhaps the most common advice given to traders. As far as advice goes, it’s well meaning, but unfortunately falls well short of addressing the problem most traders actually face.

Looking at the advice, it has two parts. The first part says you need a plan. No argument there. But the second part, about executing the plan, that’s where the problems appear. Why?

The two parts to the advice ‘plan the trade’ and the ‘trade the plan’ require two very different skill sets. Without understanding the different skills required, it’s highly likely that you will continue to regularly veer from your plan.

Here’s the disconnect. Planning the trade depends on your intellect. And most of the time, the development of the plan does not occur in the heat of battle. It’s relatively easily to let your intellect guide you, to be the primary driver when you’re not in the heat of battle. But in the heat of battle, when we have to decide right now whether to enter or exit, an entirely different situation occurs.

At the time of execution, no longer are we cool, calm, and collected. Now, a whole slew of things enters the picture – and many of these things are subconscious to a degree. Our feelings about our P&L, our feelings about our performance, or concerns about how we appear in the eyes of others, etc.

And no matter how smart you are, how much you believe you are not an ‘emotional person’, modern brain science is telling us emotions, including subconscious emotions, are very much a part of our decision making that leads to actions whether we realize it or not. Viewed this way, you can see why the typical advice to ‘plan the trade and trade the plan’ may be well intentioned, but ineffective.

Perhaps to make matters worse, the advice typically offered to help traders stick to their plan is to be ‘more patient’, or ‘more disciplined’. But no one tells you how to become more patient or more disciplined. If you want to learn how to become disciplined and more patient, consider myAdvanced Course. It’s heavy duty and get’s to the heart of the matter.

Do You want to Win or Lose at Trading?

 

There are things that make you win in the stock market over the long term and then there are things that make you lose quickly even in the short term. The key to trading success is learning the difference quickly and doing what really works not what you emotions or opinions tell you to do.

If you want to win then you must create your own trading plan and follow it, if you want to lose just trade whatever you want whenever you want based on your own opinion.

If you want to win then you must control your risk carefully with only 1% or 2% of your capital at stake in every individual trade, if you want to lose then just trade huge position sizes, put all your chips on the table.

If you want to win plan your entries and exits before you enter a trade then follow them, if you want to lose ask for everyone’s opinion and just make decisions based on other people.

If you want to win cut your losses short and let your winners run, if you want to lose hold your losers and hope that they come back and sell your winners quickly to lock in gains.

If you want to win trade only the best high quality stocks in the market, if you want to lose trade the junk and hope for a miracle come back.

If you want to win then build complete confidence for your system through chart studies and back testing, if you want to lose trade with no idea of if what you are doing even works.

If you want to win go with the current trend of the market, if you want to lose fight the trend and trade against it.

If you want to win then go long the hottest stocks in a bull market, if you want to lose short the hottest stocks in a bull market.

Do what makes money not what you feel like doing.

The Timeless Wisdom Of Jesse Livermore

Why is stock investing hard?

Take a step back to think, and you realize that stock trading is the intersection of many realms of knowledge. Business. The economy. Finance. Innovation and technology. Government policy. The market. And don’t forget psychology.

The more an investor knows about each of these fields, the more likely he or she will excel in the task of buying and selling stocks properly.

In the field of psychology alone, you have multiple topics to ponder. The psychology of the herd is important. So is the psychology of the self.

Jesse Livermore, whose life spanned the 19th and 20th centuries, didn’t get a master’s degree in macroeconomics or a Ph.D. in cognitive behavior. But his experience, hard work, failures and successes across many bull and bear cycles make him one of the most respected stock and futures traders of all time.

Livermore grew up poor in Massachusetts. He found his calling after discovering he had a knack for numbers and for seeing price trends. Trading firms called “bucket shops” across the country kicked him out after he amassed profits despite stringent house rules in margin. He eventually became a powerful buyer and short-seller on Wall Street.

Tragically, a self-inflicted bullet ended Livermore’s life on Nov. 28, 1940. But his book “How to Trade in Stocks” remains a gem. As the following quotes from the first chapter “The Challenge of Speculation,” show, he defined genius in trading psychology.

Why not let Livermore’s wisdom help you?

. “Profits take care of themselves, but losses never do. The speculator has to insure himself against considerable losses by taking the first small loss.”

Your insurance policy: Sell a stock if it falls 8% from your purchase price. No questions, no exceptions. Nobody will care if you sold at a loss. The market surely won’t.

. “Successful speculation is anything but a mere guess. To be consistently successful, an investor or speculator must have rules to guide him.”

If you are new to IBD investing, read the Investor’s Corner every day for three months. In that time span, you’ll get a full course on buy rules, sell rules, and rules in selecting outstanding stocks. Some of IBD’s most successful readers say they clip the column and put them in a scrapbook for easy review.

. “Speculators in stock markets have lost money. But I believe it is a safe statement that the money lost by speculation alone is small compared with the gigantic sums lost by so-called investors who have let their investments ride.

From my viewpoint, the investors are the big gamblers. They make a bet, stay with it, and if it goes wrong, they lose it all.”

Livermore offers a few examples. On April 28, 1902, New Haven & Hartford Railroad sold at $255 a share. On Jan. 2, 1940, it traded at $0.50. Chicago Northwestern went from $240 in January 1906 to “5/16, which is about $0.31 per share” on Jan. 2, 1940. Nearly 70 years later, some of America’s biggest banks took similar paths.

. “A few thoughts should be kept uppermost in mind. One is: Never sell a stock, because it seems high-priced. You may watch the stock go from 10 to 50 and decide it is selling at too high a level. That is the time to determine what is to prevent it from starting at 50 and going to 150 under favorable earning conditions and good corporate management.”

. “One other point: It is foolhardy to make a second trade, if your first trade shows you a loss. Never average losses. Let that thought be written indelibly upon your mind.”

Enough said.

Six Rules of Michael Steinhardt

 

1. Make all your mistakes early in life: The more tough lessons you learn early on, the fewer (bigger) errors you make later. A common mistake of all young investors is to be too trusting with brokers, analysts, and newsletters who are trying to sell you something.

2. always make your living doing something you enjoy: Devote your full intensity for success over the long-term.

3. be intellectually competitive: Do constant research on subjects that make you money. Plow through the data so as to be able to sense a major change coming in the macro situation.

4. make good decisions even with incomplete information: Investors never have all the data they need before they put their money at risk. Investing is all about decision-making with imperfect information. You will never have all the info you need. What matters is what you do with the information you have. Do your homework and focus on the facts that matter most in any investing situation.

5. always trust your intuition: Intuition is more than just a hunch — it resembles a hidden supercomputer in the mind that you’re not even aware is there. It can help you do the right thing at the right time if you give it a chance. Over time, your own trading experience will help develop your intuition so that major pitfalls can be avoided.

6. don’t make small investments: You only have so much time and energy so when you put your money in play. So, if you’re going to put money at risk, make sure the reward is high enough to justify it.