How to Plan your success in Trading
Posted on May 17, 2008 - Filed Under Trading | 1 Comment
How to Plan your success in Trading
1. Establish a plan and define specific risk and profit objectives before trading. Maintain the necessary discipline to follow that plan through both good and bad times. Successful traders will agree that discipline contributed more to their success than their trading philosophy itself. Remember that the key to any plan is how well it holds over time
2. There is no “sure thing”, and there is no trading system that is 100% accurate. Your goal, as a trader, is to use the tools available and try to develop an edge. Base your trades on sound fundamental and technical reasoning, rather than on hunches and long shots. If you can develop an edge, however small, over time you will be successful.
3. A trader must be able to admit they have made a mistake.Do not become emotionally or financially committed to a losing trade. Avoid the pitfall of becoming emotionally involved with any trade.
4. An investing edge is only part of the equation. A trader should diversify sufficiently so that the growth in equity can be consistent and the likelihood of a catastrophic loss can be diminished. The lower the percentage of a trader’s account dedicated to any one trade the greater the chance of the trader being successful. Even if the trader has a perceived investing edge, it is unwise to run the risk of ruin, and bet it all on one trade. The goal is not only to make money, but also to be able to continue to make money consistently for an extended period of time. A trader must learn the basic concepts and the importance of money management.
5. Lack of experience in the market causes many traders to make the mistake of taking small profits and letting losses run. Fundamental trading wisdom dictates the exact opposite. When in a winning trade, be patient and fully capitalize on the success. The trading axiom is, “cut your losses short and let your profits run”.
6. A trading system does not have to be difficult, time consuming, complicated and stressful in order to be profitable. In trading systems, as in many other things in life, simple can be better (www.stressfreetrading.com).
7. As a trader, be cautious, and never let greed take control of a winning position.
8. Be aware that declining volume usually indicates the market is not accepting higher or lower prices, and this could indicate a market turn.
9. Learn from your trading mistakes. Never make a trading mistake without asking yourself why.
10. Do not make trading decision based solely on margin requirements, and always trade within your capabilities. Remain true to your trading plan and follow the trading style that works best for you.
11. Do not trade markets that you don’t understand. Trade with confidence and conviction. Trade only with risk capital, and be aware of the risk of losing. Divide your capital into 6 equal parts and never risk more than one-tenth of your capital on any one trade.
12. After a long period of success or a period of profitable trades, try to avoid the natural tendency toward increasing your trading activity. Conversely, use self-discipline when a trade goes against your position. Take your loss and wait for another opportunity. Never increase your trading after a loss.
13. Avoid getting into the market because you are anxious from waiting and/or out of the market because you have lost your patience. Never over trade and adhere to your risk management rules
14. Do not make a trading decision to buy just because the price of the stock is low or sell just because the price is high. Never change your position in the market without a good reason that is based on a fundamental or technical rule indicating a change in trend.
15. Trade the most active stocks and refrain from trading the slow moving markets. Trade “at the market” whenever possible and try to avoid a fixed buying and selling price.
16. When the market is moving with your position and you are using a stop loss order, then raise your stop loss so as to lock in your profit. Protect yourself against the possibility of turning a profit into a loss.
17. The “trend is your friend,” and never buy and sell if you are insecure of the trend according to your fundamentals and technical rules. If you are in doubt,then exit the market. Only trade when you feel confident with your trading strategies.
18. Trade in five or six different stocks at a time, so as to avoid tying up all of your capital in any single stock.
19. A trader should establish a “surplus account” after a series of successful or winning trades. The goal is to retain the “surplus account” for times of emergency orpanic.
20. It is difficult to try and guess where the top and bottom of the market is, instead let the market prove its top and bottom.
The 10 Golden Rules of Trading
Posted on May 17, 2008 - Filed Under Trading | 2 Comments
1 Introduction
In this article we cover the few important rules that should never be broken in trading. If you can apply these rules consistently, and with discipline, you will be well on the way to being a profitable trader.
The rules we cover are:
• Have specific goals and objectives
• Be consistent and disciplined
• Let profits run
• Cut losses short
• Never add to a losing trade
• Don’t take too much risk
• Only trade positive expectancy systems
• Minimize all trading business costs
• Be well educated
• Don’t trade scared money
Each of the rules will now be discussed.
2 The Golden Rules of Trading
The following sections outline a set of rules that can significantly improve your chances of success if they are understood, practiced, and implemented consistently in your trading. These rules have been learned the hard way, by study, research, trial-and-error, and the inevitable mistakes that everyone makes when they start a trading business.
We hope that you can learn from the work we have done, and benefit from our experience. The rules will now be discussed.
2.1 Have specific goals and objectives
Few things are more important to your trading success than having set (i.e. written) goals and objective for what you are aiming to achieve. It is amazing to me how often we hit our targets, meet our objectives, and reach our goals only when we articulate them and write them down.
For any business to be successful it must have measurable objectives that are actually achievable. In trading (obviously) the primary objective is to make money, but it is important to have other objectives that are not purely cash-related. We must always remember that reward and risk go hand-in-hand in trading and that we cannot expect to achieve high returns without planning for high risk (i.e. draw-downs).
Your objectives and goals will be very specific to you, but they must have the following characteristics to be useful:
• Be measurable (in completion and timeframe)
• Be achievable
• Be worthwhile
• Be positive
As an example, here are some of our current objectives (this is only a partial list):
• Develop 2 new positive-expectancy trading systems each year
• Make fewer errors implementing our trading systems each year
• Achieve a return to maximum draw-down ratio of 1.5:1
• Take 2 weeks vacation each year
Note that only one of them is about making money, and that has a measurable objective that is relative to draw-down, not absolute (i.e. make 100% per year). If you know what you are trying to achieve, and when you are trying to achieve it, the whole business will be focused on meeting
your objectives and help guide you to only pay attention to things you really want to achieve with your limited time and resources. This will also give you a way to measure the success and progress of your trading. Generally traders with well-defined objectives will be much more successful than those that do not have pre-defined goals.
2.2 Be consistent and disciplined
In order to realize the full potential of your trading systems it is critical that you take every trading entry, adjust every stop, and close out every trade as and when your system says you should do. This takes extreme confidence in your trading systems, good robust reliable technology, and the mental discipline to stick to your trading plan whatever happens (assuming it is complete).
An underlying assumption about being consistent and disciplined is that you have a pre-defined plan for every situation you may face in your trading, so that you know how you are defining what being consistent is. Your plan needs to include at least the following items:
• All your trading rules for entering, adding to, and exiting positions
• What you will do if your trading computer, internet connection, broker, power, telephone
etc. fails
• What you will do if you are unable to trade
• What you will do if you lose X% of your account
• What you will do if all the markets are closed and you can’t exit your positions
Unless you write the answers down to all these issues, you cannot be consistent and disciplined in your approach to trading and if you lose money you will not know whether it is because you didn’t follow your plan, because your plan is incomplete, because your systems do not work, or simply because you are going through a losing period.
2.3 Let profits run
This simple rule is the key to being a successful trader. It is three simple words that are very hard to actually implement. When we get a profitable trade our natural fear of losing the unrealized cash kicks in and we truly want to close it out now and take the money. Most trading consists of long periods of small winners and losers followed by a few huge winners that make the difference between overall profitability and simply breaking even or losing due to trading costs(commissions, spread, and slippage).
It is our ability to let the huge winners become just that - huge - that determines how we will perform overall during the year. The key to letting winners run is to have trailing stops that are outside the daily noise of the market so that they are not tight enough to get stopped out during ‘normal’ trading. This means being prepared to give up a significant portion of a winning trade’s open profit and is the thing that makes this so hard to implement. In fact, we should be adding to a winner and widening stops rather than working out how tight our stops can be to capture maximum profit. The trade has already shown you that it intends to be a winner, and the chances are it is a low-risk idea to add to the position now rather than ‘strangle it’ with stops that are too tight.
It is very important that your position management rules allow for large winning trades, and that the rules are pre-defined and understood before you place the trade. This will allow you (if you have confidence in your method and discipline) to stick to your rules when you do get the big
winner.
2.4 Cut losses short
This is the sister rule to the previous one, and is usually just as difficult to implement (although it
is very easy to define). In the same way that profitability comes from a few large winning trades, capital preservation comes from avoiding the few large losers that the market will toss your way each year. Setting a maximum loss point before you enter the trade so you know before-hand approximately how much you are risking on this particular position is relatively straightforward. You simply need to have a exit price that says to you ‘this trade is a loser and I will exit before it gets any bigger’. Due to gaps at the open, or limit moves in futures we can never be 100%
certain that we can get out with our maximum loss, but simply having the rules, and always sticking to it will save us from the nasty trades that just keep on going and going against our position until we have lost more than many winning trades can make back.
If you have a losing position that is at you maximum loss point, just get out. Do not hope that it will turn around. Given that trades are either winners or losers, and this one is shouting ‘Loser’ at you, the chances that it will turn around and become a large winner is tiny. Why risk any more money on this losing trade, when you could simply close it out (accept the loss) and move on. This will leave you in a much better place financially and mentally, than holding the position and hoping it will go back your way. Even if it did do this, the mental energy and negative feelings from holding the losing position are not worth it. Always stick to your rules and exit a position if it hits your stop point.
2.5 Never add to a losing trade
One of the few trade management rules that we can state we never break is ‘Never add to a losing trade’. Trades are split into winners and losers, and if a trade is a loser, the chances of it turning right around and becoming a winner are too small to risk more money on. If indeed it is a winner disguised as a loser, why not wait until it shows it’s true colors (and becomes a winner)before you add to it.
If you do this you will notice that nearly always the trade ends up hitting your stop loss and does not look back. Sometimes the trade turns around before it hits your stop and becomes a winner and you can count yourself very fortunate. Sometimes the trade hits your stop loss and then
turns around and becomes a winner and you can count yourself unlucky. Whatever the result, it is never worth adding to a loser, hoping that it will become a winner. The odds of success are just too low to risk more capital in addition to the initial risk.
2.6 Don’t take too much risk
One of the most devastating mistakes any trader can make is risking too much of their capital on a single trade. One thing is certain in trading and that is if you lose all your capital you are out of the game. Why risk so much you could be prevented from continuing? There is a saying in
poker than going all-in (risking all your chips) works every time but once. This is true of trading.
If you risk all your account on every trade it only takes one loser to wipe you out (and no trading method is 100% accurate), so you will be out of the game at some point – it is only a question of time.
In general, we only risk 1-3% of the available capital allocated to a system on any individual trade. This is calculated using the size and, the difference between our entry price and our maximum stop price, and the amount of capital allocated to the system. With the win probability
and ratio of size of winning trades to losing trades we are almost certain never to lose all of our trading capital. In fact, the chance of us hitting our maximum drawdown for the year is tiny.
All trades should be of a size that almost seems insignificant. If you are worried about the size of a trade then it is too big and you should reduce the size immediately. Remember that longevity is the key to making money by trading – slowly over a long time with minimal risk, is always preferable to rapidly with too much risk.
2.7 Only trade positive expectancy systems
If you have a positive expectancy trading system, the only factors that determine how much money you will make per year are the number of trades the system generates, how much capital you allocate to the system, and how accurately you implement the trading signals. If you do not know whether your trading system is positive expectancy then why are you trading it? Expectancy is calculated using the profit or loss on each trade (net of trading implementation
costs) divided by the initial risk (using your stop loss) and then taking the average of this number of a series of trades. Systems that have positive expectancy will make money on average and those with negative expectancy will lose money.
Successful traders only trade systems where the odds of success are in their favor (i.e. the system is positive expectancy) so they know that making money is the result of accurately implementing the system and not just pure luck.
2.8 Minimize all trading business costs
Some trading systems have only marginal profitability, and trading implementation costs (commission, spread, and slippage) can be the difference between profitability and making a loss. With the easy availability of modern electronic brokers, and fully-automated trade processing and
execution, it is definitely worthwhile looking for a very low cost way to implement your trading system. High commission, wide spreads, and large amount of slippage can be reduced considerably simply by carefully choosing a broker. This can be the difference between a system
(especially a high frequency one) being useable or not. Paying too much for trade implementation is an avoidable way to lose money.
2.9 Be educated
In order to compete at the highest level in the trading business and be one of the few truly successful participants you must be well-educated about what you are doing. This does not mean having a degree from a well-respected university – the market doesn’t care where you were educated.
Being well-educated means that you have thoroughly researched and tested your trading ideas and know why your trading system worked in the past and is continuing to work now. It means understanding all the technology and applications that your system needs to perform accurately.
It means understanding your goal and objectives and how trading will achieve these. It means understanding yourself and how your personality affects your results. It means understanding the markets and instruments you trade.
In order to succeed you really need to become an expert in your own trading business to understand how it all fits together, when it is broken, and how it can be improved. As with all worthwhile endeavors, this takes commitment, hard work, dedication, and more hard work.
2.10 Don’t trade scared money
Lastly, no one ever made any money trading when they had to do it to pay the mortgage at the end of the month. Having a requirement to make X dollars per month or you will be financially in trouble is the best way I know to completely mess up all trading discipline, rules, objectives, and
leads quickly to disaster.
Trading is about taking a reasonable risk in order to achieve a good reward. The markets and how and when they give up their profits is not under your control. Do not trade if you need the money to pay bills. Do not trade if your business and personal expenses are not covered by
another income stream or cash reserve. This will only lead to additional unmanageable stress and be very detrimental to your trading performance.
3 Summary
In this article we have covered the rules that we believe should never be broken in trading. If you work on never breaking them, your trading should improve dramatically.
We sincerely hope this information has helped you to improve your trading performance.
Good luck in yout trading
Is Trading E-currency a legitimate business
Posted on May 17, 2008 - Filed Under Trading | Leave a Comment
Is Trading E-currency a legitimate business
When I first came across the e-currency trading business on the advice of a friend, I didn’t take the opportunity very seriously. It appeared to be just another “hyped up money making scheme.” From what my friend was telling me it seemed too good to be true. However, being naturally curious and with a deep desire to profit from the internet, I decided to do some research on my own.
The very first thing I did was run a search on e-currency scams. I was led to several online forums and was surprised to see that no one had lost money. I didn’t detect any disgruntled e-currency traders, unlike some of the other investing opportunities such as forex, options, or commodity trading.
I thought like most over-blown hyped up opportunities, I would eventually come upon some site or forum of unhappy customers. This didn’t happen; in fact, the only gripe I saw was about the lack of information regarding the system. Most of the people were talking about the best way to make even more money trading e-currency. I was puzzled, I expected to see something bad, or worse. What I found was a lot of excited people saying how much money they are making.
This opportunity seemed like it had the credibility I needed to make the jump. Lucky for me, my friend was already very successful trading e-currency. I was able to ask every question about the business that came to mind. Thanks to his generosity, I was soon on my way to trading e-currency and immediately began to see why he and others were so excited.
After several months of trading e-currency, my initial investment had multiplied one hundred fold. This was too incredible to contain. I told everyone I knew how much money I was making. Pretty soon, I was swamped with questions from friends and family wanting private coaching through each step of the learning process.
That’s when it hit me. The issue with trading e-currency is not if you can make money, but how to effectively learn the exact steps necessary to profit in the shortest amount of time.
Not everyone is as fortunate as I am, having a friend already successfully trading e-currency. After countless hours of research and through my own trial and error, I have discovered a formula to effectively and efficiently trade e-currency. With this system, you will master the e-currency trading business.
Where will you be this time next year? Will your lifestyle have changed for the better or worse? You can begin today on your financial path to freedom
How To Win In Futures Trading With This Simple Tactic
Posted on May 17, 2008 - Filed Under Trading | Leave a Comment
How To Win In Futures Trading With This Simple Tactic
Surprisingly, many profitable speculators have success rates between 30% and 50%. Futures traders are not successful because they predict prices well. They`re winning because their profitable trades far exceed their losses. The truth of the matter is all Futures systems win and lose.
Psychologically, this can make following a system difficult. Futures market professionals achieve success in this environment by controlling risk with money management rules. But, controlling risk goes against our natural tendencies. Most Futures traders don`t want to manage risk, they want to be right. Despite the proven fact that money management is so important, when Futures traders first come to me, many of my clients focus their time looking for the perfect entry. It`s their search for the Holy Grail. They want a perfect Futures indicator.
Not only is this Futures indicator going to get them in right at the bottom of the trend, but it`s also going to tell them at the exact point at the top of the trend when to get out. Here`s the best part and about this indicator: apparently, it can guarantee success and it`s never, ever wrong.
Unfortunately, though I don`t like to disappoint my clients, I need to let them know the hard truth. It does not matter whether you are trading in the Futures or any other market, the simple fact is this; there is no perfect indicator. Instead, there are carefully set money management rules that will place you in control. With this control, you`ll be able to follow the two cardinal rules in your Futures trading – you`ll be able to let your profits run and cut your losses short.
Once these money management rules are in place your system can be set on autopilot. You won`t need to worry…
“Should I be holding this stock?”
OR
“Shouldn`t I be holding that type of stock?”
This uncertainty is what people are confronted with when they don`t have their rules set for the Futures market. The end result is that small losses end up being big losses.
To make matters worse, a few of these big losses strung together can have a detrimental effect on your Futures trading capital. Unfortunately, it`s much more difficult to trade to gain back money you have lost then it is to trade with profits that you already have in hand. If things go to the absolute extreme, you run the risk of wiping out your entire Futures trading float, as many traders do when they first get started. But, with your money management rules in place, you can ride out the ups and downs of every Futures trading system and succeed where many fail.
Yes, You Can Start Trading Forex For Free
Posted on May 17, 2008 - Filed Under Forex | 1 Comment
Yes, You Can Start Trading Forex For Free
Yes, it’s true, you can trade the forex markets for free and using the same state-of-the-art software packages that professional Forex traders, around the world, are currently using to make real-time, live currency trades.
And you can also experience the same dynamic market action and go through the same process of making decisions based on breaking news, reacting to charting patterns, and tracking ones performance the same way professional Forex traders do.
And all this can be done even if you don’t put any real money into your account, you won’t see any difference in how the market behaves and how you react to the market. In short, at some point, every new forex trader needs to start Demo-trading.
Once you start placing demo trades, you will learn a lot about how Forex transactions are placed. I can’t emphasize you enough, that this is a very important step for you in order to be able to learn how to become a trader. A demo account allows one to become familiar with trading procedures, such as placing Market, Limit, Stop, OCO Orders without any risk. All dollar losses or gains on a demo account are imaginary but, as mentioned above, the trading experience you acquire is not.
You should notice that making big gains in a demo-account does not guarantee profits in live trading; however, those who are not successful trading on paper rarely are successful when money is on the line. So, yes, just playing around and getting familiar with a demo account can be a great learning experience; however, you will not learn how to become a trader this way. You need to have a trading strategy.
Once you sign up for a mini-demo account, you will need to try one of the trial charting packages from the broker you choose. Any demo software you choose will do because they all have the necessary indicator tools you need. Once you have downloaded the software you can then set up your demo account and start drawing trendlines, marking support & resistance levels, monitoring moving averages, etc. This is also a very good way to get used to how orders are placed. Once you have a real trading system, you will already know how to place orders properly.
And remember, everyone makes mistakes placing orders. So you need to experiment before in a demo account so you can make your mistakes without losing any real money
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