Monday, 12 August 2013

Quote for the day

“The final 10% of the time of a bull run will usually encompass 50% or more of the price movement.”  –  Richard Rhodes

12-Aug-2013 CSE Trade Summary

Crossings - 12/08/2013 - Top 10 Contributors to Change ASPI

Following Stocks Reached New High / Low on 12/08/2013

The Four Horsemen of the Failed Trader

The Four Horseman of the Failed Trader are Ego, Battling Price Action, Inadequate Homework, and Ruin.

Most traders that fail and leave the markets never learn the lessons that the market was trying to teach them. In all likelihood there were four horsemen that rode through that traders account leaving lost battles, pestilence, famine, and destruction in their wake. What brings this doom upon a traders account? It is the absence of risk management and a trading plan but an abundance of predictions and ego. Most of the time traders learn these lessons the hard way but it is possible to trade from the start with risk management, a trading plan, and trading the price action while staying humble.

Here is how to keep the four horsemen from riding all over you:

RUIN - Never ignore risk:
Some of the best traders in the world only have 50% win rates over the long term and have ten losses in a row regularly. If you want to make it the key is to position size and set stop losses in such a way that you don’t lose more than 1% of your total trading capital in any one trade. If you risk large percentages of your trading capital per trade then it is only a matter of time before your capital is destroyed by a string of losses. One big risky trade can take back the profits from many previous winners at one time.

Successful traders are students of markets, students of successful traders and students of historical price action and trends. From their homework they create systems and choose methodologies that give them an edge over those that have not done the work. Their homework and experience enables them to create a workable trading plan. Without a trading plan you are not a trader you are a gambler, with a trading plan you can become the casino, you can have an edge over the gamblers that trade off fear and greed. Trading plans have an edge over other traders emotions. You can not graduate to profits until you pay the tuition to the markets in time and learning from losing. That is true of any professional field.

BATTLING PRICE ACTION - Stop trying to predict price action and instead follow the action that is actually happening: 

Unless you are a true psychic and can predict the future then you will have to stop trying to predict what will happen and trade with what is actually happening on the chart. Trends, support, resistance, moving averages, chart patterns, and price are facts, give up your opinions for reality. Once the disease of prediction infects your trading your account it will become sick as it coughs up profits and you learn that you can't beat a chart and what is actually happening even if you disagree with it.

Do not let your ego trade: Your ego just wants to be right, it wants to brag, it wants to look good to your friends and fellow traders. It wants to state opinions as facts. The ego is a terrible trader along with your emotions. Egomaniac trading leads to you letting losses get way out of hand because you believe that you know better than the market does, so your ego wants to avoid admitting you are wrong, your ego demands that you just wait for the trade to turn around so you can eventually be right even as the loss gets out of hand and you lose the war while fighting one battle.