Pump And Dump – Stock Fraud

Pump and dump is a term referred to an investment scheme which attempts to boost the price of a company’s stock through false and misleading promotions or highly exaggerated statements. As long as there have been stocks, there have been stock fraudsters who seek to inflate the price of stocks. Usually the con artist is a third party person who is not in any relation to the company about to be scammed. The only In most cases the company itself is clueless that it is part of a scam. It’s chosen because its stock is selling for pennies a share, making it easy for the scammer to acquire a huge number of shares with a minimal investment. Due to the small float of these types of stocks it does not take a lot of new buyers to push a stock higher. Often the promoters will claim to have inside information about an impending development or to use a great combination of economic and stock market indicators to pick stocks. In reality, they are only thieves who will earn a quick profit by gaining lots of investors. Once the price is high enough they sell their shares and stop inflating and promoting the stock which ultimately ends with a sharp fall in prices and thus investors lose their money. Similar but inverse scam is Short and Distort.

HOW PUMP AND DUMP SCAM WORKS

a) You need a worthless stock, with a tight float and which is thinly traded. Small companies are needed as a precondition. Tight float means that most of the stocks are held by insiders and promoters and not by the general public. The reason for this is that it is much easier to manipulate the price of the stock when there are fewer stocks held by the general public since fewer buying of stock is needed to increase the price. You now buy an otherwise worthless stock at low prices. This sets the stage for to make money when the stock price elevates.

b) You start a promotional campaign to create interest in the stock. You use advertising campaigns, cold calls, newsletters, newsgroups, message boards, chat rooms, emails, seminars and any other media to promote the stock. Information used to promote the stock is said to be a rumor, inside information or your unbeatable technical and economical analysis. Investors are being enticed with visions of making the big score, quickly and without much risk. Your promotions will make investors swim in the water of excitement. Essentially, you are playing on the investors strings of greed to try to make the investors feel that he can’t miss the next great investment play.

c) You now attempt to increase the price of a stock. The stock chosen is thinly traded, so you and insiders can quietly raise the price by buying up the stock. Instead of putting bid offers at lower prices, they take the ask bids out and go up the price ladder. Since there is little public float, it doesn’t take a lot of buying to get the price up.

d) You have increased the price of a stock and now dump it at a higher level. You leave with a high profit, while other investors face a sharp ride to the south.
Source: http://www.bustathief.com

Quote for the day

"If you want to create wealth, it is imperative that you believe that you are at the steering wheel of life, especially your financial life." - T. Harv Eker

Quote for the day

"We were not taught financial literacy in school. It takes a lot of work and time to change your thinking and to become financially literate." - Robert Kiyosaki

Investing: Top-down Or Bottom-up

When it comes to investing in good companies, there has been much debate on the top-down and bottom-up approaches. Most fund management companies use the top-down approach and recommend that investors examine the economic and industry outlooks first before deciding on which stocks to purchase.

On the other hand, investment experts like Warren Buffet and Peter Lynch favor the bottom-up approach. They say that macroeconomic forecasts are actually major distractions for investors as the projections might turn out to be wrong. Instead, investors' efforts should be placed more on detecting the quality of earnings and asset value of the company.

Both approaches have their strengths and weaknesses, but they share a common goal, which is identifying good fundamental companies to invest in.

With the top-down approach, investors study the economic trends and then determine the industries and companies that are likely to benefit the most from them. Say, for instance, the reduction in prices of imported paper will contribute to lower operating costs for media companies and increase their earnings. Investors will then search for more efficient and cheaply priced media companies. On the other hand, negative events like high interest and inflation rates or currency depreciation, can affect a country's economy and definitely cause stock prices to tumble.

Top-down investors will first look at the entire forest instead of specific trees and try to identify the main market theme ahead of the market in general. They believe that picking individual companies comes second because if the economic conditions are not right for the industry that a company operates in, it will be difficult for the company to generate profits, regardless of how efficient it is. However, such investors may sometimes miss good companies that are still performing well, even in a depressed sector.

Conversely, bottom-up investors conduct extensive research on individual companies. As long as the company's future prospects look strong, the economic, market or industry cycles are of no concern. In fact, the downturn in the stock market may provide investors with a good margin of safety to buy stocks at depressed levels and ride them up to big gains.

So, bottom-up managers will buy stocks even though the macroeconomic and industry outlooks look uncertain. When the industry may be out of favor and most investors are ignoring the true earnings of companies, bottom-up managers can detect good and well-managed ones selling at prices that are far lower than the intrinsic value.

However, to top-down managers, bottom-up managers may be attempting to catch a 'falling knife' (a stock whose price has fallen tremendously in a short period of time) in a down market. Unless bottom-up managers have plenty of bullets to average down on their purchase prices, they may run out of cash if the stock prices continue to lower. Moreover, they may sometimes fail to see the wood for the trees; they may identify certain companies but miss the overall industry trend.

The top-down and bottom-up approaches are two distinct and fundamentally very different approaches to investing. Investors can combine the top-down and bottom-up approaches by applying top-down analysis on asset allocation decisions while using a bottom-up approach to select the individual securities in the portfolio.
Article Source: http://EzineArticles.com

Quote for the day

"The greatest deception men suffer is from their own opinions." - Leonardo da Vinci

Quote for the day

"Speculation is only a word covering the making of money out of the manipulation of prices, instead of supplying goods and services." - Henry Ford

Quote for the day

"Either you deal with what is the reality, or you can be sure that the reality is going to deal with you.
" - lex Haley

Quote for the day

"A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life." - Suze Orman

Quote for the day

"I have learned that success is to be measured not so much by the position that one has reached in life as by the obstacles which he has had to overcome while trying to succeed." - Booker T. Washington

Quote for the day

"Stress primarily comes from not taking action over something that you can have some control over… stress comes from ignoring things that you shouldn’t be ignoring." - Jeff Bezos

Five Keys to a Peak Performance Mindset for best trading

By Brett Steenbarger, Ph.D.

What is the right mindset for best trading?  Here are five ideas, drawn from successful traders I've known and admired:

1) An open mindset - Traders succeed when they see things that others don't. Sometimes those are overarching themes and trends; sometimes they are short-term patterns in market behaviour. To see things differently, we need a mind that is open to new and different information and open to shifts in market behaviour.

2) A quiet mindset - Minds filled with noise can't process new information. When we're focused on ourselves and our profits/losses, we're no longer focused on markets. We can't exercise self-control in our actions if we are not able to sustain control over our thought processes.

3) A constructive mindset - Losses happen. We miss opportunities. The great trader learns from mistakes and embraces the lessons from drawdowns. If every day brings wins from trading or wins from learning, there is always something of value to be taken from each day.

4) A positive mindset - It's because we cannot count upon our profits and losses to make us happy that we need to lead a fulfilling life outside of trading. A life that is filled with meaningful activities, fun activities, activities that bring us close to others, and activities that give us energy is most likely to provide us with the emotional fuel needed to power through challenging market times.

5) An action mindset - All the best ideas and intentions will get us nowhere if we aren't prepared to act upon them. The action mindset is one focused on plans, translating excellent ideas into excellent risk/reward opportunities. Preparation is idea-focused, but also execution-focused. It is as important to work on our implementation of ideas as our generation of them.

The above criteria form a useful checklist for making sure you're in peak performance mode. The right mindset won't, in itself, bring profits, but the wrong mindset can ensure losses. At the end of the day, trading requires skill in the processing of information. When we work on our mindset, we keep our information processing engine well-tuned.

http://traderfeed.blogspot.com/

Quote for the day

"Fundamentals might be good for the first third or first 50 or 60 percent of a move, but the last third of a great bull market is typically a blow-off, whereas the mania runs wild and prices go parabolic... There is no training, classroom or otherwise, that can prepare for trading the last third of a move, whether it's the end of a bull market or the end of a bear market." - Paul Tudor Jones

The Stock Market Syndrome – Your wealth is out there in abundance, grab it

“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years”  - Warren Buffett

It’s Money, It’s for a better future, It’s scary and sometimes it’s gambling. Only a few even think of investing their money in stock market through Equity, Derivatives or Mutual / Insurance funds. Many treat this as untouchable. Stock markets of growing economy like India are a boon that many should latch on to. While it is imperative that you must be part of this, it’s important that you take caution before “blindly” investing and eventually losing your hard earned money. You need to get your basics right and ensure these are followed religiously before taking a plunge. Keeping your money in traditional savings account, post office savings, buying a house etc are not going to fetch you the kind of return that stock markets would deliver.

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” - Robert G. Allen

Easy Money

First and biggest mistake. Many think people involved in Equity or Derivatives market make easy money sitting in front of their computers or TV screens and just buy/sell stocks to make a fortune. Well, if that was the case wouldn’t 90% of this country’s population trade in stock market? Other factor is that people enter this market thinking its easy money, burn their fingers, empty their pockets and owe never to return to this “wretched” stock market again.

“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets” - Peter Lynch

Timing the Market

Many a time we tend to be smart or think so and try to time markets. In doing so, end up losing a lot. Some people think it’s smart, some think they got the analysis right. However, it’s not advisable to try and time Markets. It can completely take you by surprise. Even best of market gurus have been caught off guard. Instead of trying time the market, try spending time in market. No one has ever lost money staying longer in the market.

“Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this.” - Dave Ramsey

Catching the falling knife

A big blunder. People see markets have corrected a few hundred points and try to make maximum of it by either shorting the market or trying to go long thinking it will reverse. A falling market is like a knife. Allow it to settle down; else in trying to catch the falling knife you will be left profusely bleeding with losses. Spend time analyzing reasons for fall and what experts have to say about the trend. Look at the charts and the patterns emerging from these charts. Allow market to settle down, this could be a few points up or down during the consolidation period. Don’t worry about missing out here; once it stabilizes you will get opportunities.

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” - Paul Samuelson

Averaging position

This could be a dangerous ploy. While we could have taken positions after due consideration, there is always a chance that some bad news either at domestic front or globally could alter market dynamics sharply. Sometime we tend to panic and in trying to recover lost money we start averaging our existing positions by pumping in more money. With more money into markets, chances are you will end up losing all of them. You should also be careful not to speculate. This can cause a lot of discomfort.

“The individual investor should act consistently as an investor and not as a speculator.” - Ben Graham

Maintain Stop loss

Don’t trade if you cannot follow this. Domestic investors some time tend to ignore falling stock prices and continue to hold stocks in a belief stocks will rally sooner than later. While we tend to quickly book profits, we seldom want to get out of markets by keeping stop loss strategy in place. We are hesitant to let go of some losses and leave it to fall further ensuring further losses. Anyone trading must learn this art of keeping stop losses.

“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” - Warren Buffett

Don’t be impulsive

Staying calm in a volatile market is extremely crucial for your financial well being. A volatile market is a great opportunity to learn market strategy, chart pattern, technical swing. Instead we tend to get swayed away by the volatility where stocks move a few hundred points up and down in few session or days time. Such play is only for professional and stock players who recognize markets for decades and can hedge their position. Instead keep your money in the sidelines, assess market and take your chance when opportunity is right.

“One of the very nice things about investing in the stock market is that you learn about all different aspects of the economy. It’s your window into a very large world” - Ron Chernow

Don’t put all your eggs in one basket

While stock markets can give you great returns, it’s important that you don’t put all your money into this. Ensure you have a part of your funds diversified into other areas. This could be property, savings account for emergency, govt schemes such as post office, provident fund etc. Your financial planning needs to be thorough so that you don’t get caught up during personal crisis. Some part of your money should be available for you at any given time.

“Never invest emergency savings in the stock market” - Suze Orman

Borrowed money

Never invest borrowed money. If you don’t have enough money to invest then just don’t bother to invest in markets. No matter how compelling the situation is or how sure you are about certain stock market trend, it is never advisable to borrow money and invest. This could be in form of a loan, pledged amount of gold, vehicle, property or from friends, relatives. Bring in money only when it’s your own. Stock markets are always going to be around and will continue to give opportunities.

“I have a million dollars in the stock market, because if I lose a million dollars, I don’t personally care” - Suze Orman

Stick to blue chip stocks

While stock markets have hundreds of options to pick and chose. In a volatile market, it is always advisable to pick blue chips stocks. These are well established companies which have a solid balance sheet like the top IT, Banking or Pharma type of companies. These stock prices may also dip during a falling market or due to other factors such as weak earnings in a quarter, industry related bad news etc. However, remember these are quality companies which were built by some great leaders of our time. These are companies that have a solid foundation and will stand the test of time.

“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” - Robert Kiyosaki

Have a reliable financial consultant or broker

While you may still do things on your own, having a financial consultant or broker helps. They do this day in and day out. Don’t have the brokerage or fees play in your mind. Chances are you are not going to do this full time and hence its important you have someone who can keep you abreast with latest trends and details. There are many out in the market and do your research on these individuals, firms, stock brokers, banks and chose the one that fits your bill. Remember no matter what the research reports suggest, do take some time out to do your own check. You should know what you are doing.

“Know what you own, and know why you own it.” - Peter Lynch

Source:eiramoni.wordpress.com/

Quote for the day

"As a bull market continues, almost anything you buy goes up. It makes you feel that investing in stocks is a very easy and safe and that you're a financial genius." - Ron Chernow

Trading Psychology – 11 Things that Separate Winners from Losers

By Alton Hill

Trading to me is the greatest personal endeavour a person can take on in their life. I say this because of how difficult it can be at times and how all-consuming it can be as well. It was one of the last professions that who you are and what you think of yourself is reflected back at you based on your equity curve.

Throughout this article I will walk you through various aspects of trading psychology and how a winning attitude can lead to greater profits. I can honestly say as I write this article that I am a profitable trader and will continue to be so for as long as God allows me. The one thing that has taken me from losing money in the market is realizing that whether I make money or not boils down to my attitude and blind belief in myself.

1. Avoid Analysis Paralysis

Most traders start out soaking up information. This information will come in the form of stock picks, books, seminars, trading coaches, gurus, you name it. Your personal beliefs, background and personality traits will then take that information and digest it into what I call your foundation for trading.

Next you will take this newly found information into the world of the market. This can be exciting and a bit scary at the same time. If you are lucky you will put on a few trades and things will go smoothly. The money will just flow. If you are unlucky, you will quickly realize why 90%+ of traders fail within the first few years of taking up the charge.

No matter how you start out you inevitably will face a loss that will hit you in the gut. This loss will resemble the first time a girl broke your hear, or the disbelief you had when you heard at school that Santa didn’t exist after your parents have been helping you draft your Christmas wish list and leaving out cookies for years.

You will feel a sense of utter disparity as your trading world unravels much quicker than the time you have spent to build it up.

This is the phase where most traders will spend their entire careers. In any business analysis of the company’s performance to drive further growth is paramount. Trading is no different. The only problem is you have to decipher when it’s time to tweak your model versus when results are just noise from the market.

Think about it, if you have just spent hours, weeks or months researching a system. This system on all fronts looks like it will give you an edge over the market let’s say 60% of the time. In addition to this edge, it also provides you 2-to-1 in terms of the size of winners and losers. By all accounts this would be considered a system worth testing in the real world.

Of course since the market is random, let’s say out of your first 6 trades only 1 works. The seasoned trader will know that it’s a matter of placing a large enough sample set of trades for things to net out. The junior trader or the trader stuck in the analysis paralysis phase will without a doubt, change this system before it has time to bloom.

As I’m writing this, it sounds so obvious that you have to allow time and opportunity to work in your favour. But when it’s your hard earned money on the line your first reaction is to analyse and correct. It’s such a normal human reaction to protect oneself. Yet this type of behaviour is what traps us as traders and never allows us to reach our full potential.

2. Accept that the Market is Random

Understanding that the market is random is probably the key tenet of becoming profitable. I have done it all in terms of predicting the next action of the market. Elliott Wave, harmonic trading, point and figure, classic breakout estimates, etc. etc. At times the market would adhere to my analysis, which would make me feel like I was in control of the situation. However, there were times when the market would pass through my key level as if it didn’t exist. Now that I’ve been doing this for 14 years, I now realize that my analysis does not exist anywhere else but in my head. The only reason the market would respond to my analysis is based on whether or not the other the other active traders who can influence the move of my stock are on the same page as I.

It only takes one trader with enough capital to completely invalidate your analysis. It doesn’t take a herd of people yelling and screaming on the floor or placing thousands of trades over the internet. It only takes one person somewhere on planet earth to decide that the stock should go higher or lower.

So, where does this leave you? I will never tell you to not perform some level of analysis, because I believe in technical analysis. What I am saying is you must remove any emotional attachment for what the market can or will do next. You have to believe that the market will and can do anything. Until you come to this realization you will always cut profits short or get stopped out short of the breakout move, because your analysis has told you that if x happens then y is right around the corner.

3. Review Your Equity Curve

People spend a lot of time analyzing their individual winners and losing trades looking for some sort of insight that will help them crack the code. Maybe if I choose a different moving average or if I cut my losses earlier. These all are helpful things when looking at one or two trades, but how would this impact all of your trades? Have you honestly maintained the same system long enough to even analyze how minor tweaks could help?

For me reviewing individual trades is critical, but even more important is the review of your equity curve. This allows you to take a bird’s eye view of your trading performance. The crazy thing is if you plot your equity curve you will see some of the same patterns that you see in price charts. As we speak for the year of 2013, I have a quadruple top at 70% return. I am now sitting right around 50%. Over the last 3 months every time I hit 70% I would have a nonsense trade that backs me off my high and then I quickly march right back up there again only to be denied. What hit me just his past week is that every time I approach the high, my appetite for risk diminishes. I am so worried that I will somehow lose the money that I begin to trade so conservatively that I slowly erode any gains until I pull away from my account peak. I know that I am losing my appetite for risk because when I back off my account highs it is a slow process; however, after backing off I will run right back up to my account peak in 20% or less of the time. This is only because after the pullback, I go back to trading loosely and with confidence. The difference between me now and me 5 years ago, is that (1) this back and forth process may last 6-8 weeks versus years, (2) I can see when I am displaying this type of behaviour and (3) I know that it’s not my system but rather it’s all in my head.

So, my point in telling you this story is that when you review your equity curve you can see clear as day psychologically how you are processing the information presented to you by the market. It is better if you start your review of your account first by looking at the equity curve before you go into each individual trade. This will let you know if it’s really your system or if it’s you sabotaging yourself.

4. No More Tips

The one thing the internet provides as a plethora of market analysis and opinions. There are literally hundreds of sites that will tell you what the market is going to do next. Here at Tradingsim, I like to keep the articles more general in nature since everyone’s system is different and remember we never know what the market is going to do next.

There was a time where I was subscribing to two investment newsletters. One was that of a Elliott Wave expert and another was from a Richard Wyckoff method guru. Just reading this out loud almost makes me laugh since each method while at times will tell the same story are so different in how they translate market information. On top of this I was also a frequent reader of the trading deck over at marketwatch.com. Then when I really got desperate or bored I would venture on to StockTwits.

Just to make sure I didn’t lose you there I am up to 2 newsletters, 1 market commentary site with multiple others and then Stocktwits which has ramblings from all sorts of people. How do you think this impacted my view of the market and the decisions I was making. If you don’t know, it only confused me further.

Once I shut out all of the “noise” my equity curve never looked back. The reason being is because I could interpret the market for myself and no longer relied on other people to solve my problems. Which funny enough is the same reason you can become successful in life.

5. Truly Accept the Risk

Some of you reading this will say that you always place your stop and are willing to lose the money. While you may say this, you really don’t want to lose the money. You’ll place your stop out there, which could be pretty far off from your entry price. Over the next couple of hours or days depending on your timeframe, you will slowly move the stop up because the stock is not “acting” properly. Sure enough, at some point your new stop order is triggered right before the market takes off. If this has happened to you, it is one of the most frustrating events that can occur in the market. Your analysis was right, the market in the end gave you what you expected; however, you were not willing to accept the randomness of the market and the fact you could lose money.

Until you accept the risk, you will interpret the noise of the market as a potential threat and will find some way of rationalizing to yourself that you must exit the trade now.

6. Knowing When to Take Profits

What is your trigger for exiting a trade as a winner? Please don’t give me some nonsense about this or that key level. Unless you are intuitively trading for profits, which are probably less than 1% of the trading population, how exactly do you book profits?

Again this concept sound simple enough, but when you factor in that most traders have an expectation of what the market will do next it makes this almost an impossible task. For example, back in March of 2003 my business partner and I were long put options on the DIAs. We had about $200k in profits. Up to this point we had executed our trading plan flawlessly. At the time we expected the Dow to hit the 6k – 7k level which it ultimately did in ’09 but for this fight the bears did not have enough energy. Instead of listening to what the market was telling us in terms of the correction was over, we held on for what we expected to happen. This crucial mistake meant that instead of coming out slightly north of 1M, we loss the 200k. Afterwards we were talking about this traumatic experience and both of us had the same feeling that it was time to take profits, but because we did not have a clear trigger we just held on for what the market was going to do next.

Do you find yourself holding on for what your analysis says the market should do next? You must figure out when it’s time to walk away with the cash to move on to your next conquest.

7. Recognizing when you are wrong

Recognizing when you are wrong does not mean the stock deviated from how your analysis stated things should go. Remember, the market is completely random. Understanding when you are wrong is something you need to define. For me it’s how much a position goes against me before I see a profit. Once this happens things will go one of two ways for me. First the market will give me the mercy exit opportunity and will close the position with a minor loss or slight gain. Secondly, the market will continue in the opposite direction and I will take a bath. Please do not get caught up in my specific rules; more focus on the fact that you need to know when you are wrong. Accepting that you will not always get it right will save you all sorts of time and money.

More importantly, you will begin to think of the market in terms of averages. You will have x percentage of winners and x percentage of losers. There is no escaping this fact. Show me a trader that always needs to be right and I will show you a negative equity curve.

8. Take Every Setup that fits your System

I use to create alerts for setups that I would review at night. Then once the alert was triggered I would sit there and analyse the structure of the setup to make sure it still fit my system. I would then tell myself that the stock wasn’t that good and if an alert was triggered for this other stock I would jump all over the trade. Sure enough, the alert would trigger for the other stock and I would enter the position. Since I am my harshest critic I would then follow the stock that I decided to pass on to see how it would perform. Funny enough 50% of the time the stock that I thought was no good would outperform the stock I thought was a sure winner.

What this taught me is if my system presents me with opportunities that fit my trading parameters I need to take them on a first in first out basis because there is no benefit in further analyzing the stock. All I was doing was creating a tense situation for myself in which I was unable to make a decision.

Now what I do is set my alarms the night before and I have them sent directly to my email and cell phone. Once the alert has been triggered, I review the stock just to make sure there isn’t some crazy event driving the price up or down at which point I enter the trade.

Taking every opportunity as they are presented to me allows me to trade in harmony with the market and not overthink the trade before me. This means I am trading in the moment and not trying to outsmart or predict what the market will do next.

9. Recognize that the market is limitless

If you haven’t read the market wizards books, please do; especially the first one, it’s a classic. As you read these stories of successful traders, you will notice that they have enormous gains. I’m talking taking a few thousand dollars to hundreds of millions of dollars. In addition to the size of their gains, the consistency of their wins almost seems too good to be true. The reason their gains appear to have no limits is because these top traders do not think in terms of yearly targets or expectations for their trades.

They have their system and they take whatever the market presents to them. If this means a windfall profit, they do not look to rationalize the markets movements or exit the trade prematurely. They simply follow their rules and let the market goes wherever it must.

I magically came up with the bright idea to make a 100% in the market for 2013. To-date I am at 50%. The difference now is that I no longer have any expectations for gains. I must turn a profit, but other than that I’m done worrying about such things. If you set a target you will either fall slightly below it or above it. By placing this confine on your trading you will inevitably hit the target.

10. Trading Psychology and Self-Reflection

Never be too proud that you are unwilling to point out your flaws. As you read this article you will see a number of examples where I have called out flaws in my trading. This is both therapeutic and also forces me to realize that my issues have little to do with my system and more around how I mentally approach the market.

If you approach the market from a negative perspective, you will lose money. Negative does not mean you expect to lose, but you may have a lot of fear in your trading or have not fully accepted the risk. Reviewing your equity curve and keeping a trading journal will help you navigate times when you fall off the rails.

11. Develop a Winning Attitude

I have had streaks of 14 or more winning trades in a row. When you are in the zone it is the best feeling in the world. It’s like you and the market are 100% connected and the money falls into your account.

You can only get to this mental place if you approach the market with a can do attitude. This does not mean you approach the market with an “I am right” attitude, but you fully accept that you will get whatever the market is willing to provide.

In Summary

Winning at trading has little to do with your system, trading equipment or internet speed. It comes down to can you accept full responsibility for your trading results. Do you accept the fact that the market gives you what you are willing to receive. Do you believe in the concept of probabilities and that you do not have to be right on every trade? The quest of finding the trading zone and staying in it never ends, so remember to have fun along the way.
Source: www.tradingsim.com

Quote for the day

"Value investors have to be patient and disciplined, but what I really think is you need not to be greedy. If you're greedy and you leverage, you blow up. Almost every financial blow up is because of leverage." - Seth Klarman

Quote for the day

"There are two ways to be fooled. One is to believe what isn't true; the other is to refuse to believe what is true." - Soren Kierkegaard

Applying Sun Tzu's Art of War to Trading

Sun Tzu’s Art of War is a classic piece of work that is widely read and applied to many fields, due to it’s fundamental nature that is highly adaptable to many areas of our lives. 

In this post, I extracted parts of the work and applied to trading and in doing so, hope to introduce the important trading concepts to you. I have also group and categorize them for easy understanding.

To put it in the context of trading, I have rationalised the following terms:
- General = You, the trader
- Battle = Trading the market/making a trade
- Men, Soldiers = Your capital, dollars!

ON WINNING IN THE MARKET

“Now the general who wins a battle makes many calculations in his temple ere the battle is fought. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory, and few calculations to defeat: how much more no calculation at all! It is by attention to this point that I can foresee who is likely to win or lose.”

Calculations are to be made prior to any trade. What is the risk-reward ratio? What is the stop loss level and the amount that I am willing to lose? What is the size of position to take? How much leverage can I take? If the price moves to $XXX, what action should I take? What is my price objective? What is the proabability of winning? These are just questions that need to be answered and determined BEFORE a trade is made. THE BATTLE/TRADE IS WON BEFORE IT IS FOUGHT/MADE.

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat.
If you know neither the enemy nor yourself, you will succumb in every battle.”

This is a phrase commonly quoted. In trading, it is true that you need to know yourself. It includes understanding your psychology and how you behave or react to profits and losses. The enemy in this case is the market. You need to understand the market before you do any form of investing. You need to take time to understand the market, ensuring yourself to have an edge over the rest of the investors. With a good understanding, you can design and use a system to capitalise on market movement. In addition, you will be able to apply the correct tactic to beat the market. If you do not know the market and you do not understand yourself, it is likely you will end up in losses.

“To secure ourselves against defeat lies in our own hands, but the opportunity of defeating the enemy is provided by the enemy himself.”

As a trader, you need to protect your trading capital and abide to the rules of your trading system for entries and exits. Once you ensure you have done your part, the amount of profits or losses will be determined by the market. You have no rights to ask for any amount of profit from the market. Even if you followed all your rules strictly, it is possible you can lose but you have to accept it and move on.

“What the ancients called a clever fighter is one who not only wins, but excels in winning with ease. Hence his victories bring him neither reputation for wisdom nor credit for courage. He wins his battles by making no mistakes. Making no mistakes is what establishes the certainty of victory, for it means conquering an enemy that is already defeated. Hence the skillful fighter puts himself into a position which makes defeat impossible, and does not miss the moment for defeating the enemy.”

To trade correctly is to follow a system or a set of rules. The converse is true, making a mistake means the trader did not abide to the system or the rules when making a trade. The trader does not follow the rules because he is affected by his emotions, which are in turn swayed by news, recommendations, and comments of the others. To win in the market, traders must strive not to make mistakes, ie, he must be able to execute his trades without any people affect his decision making. This is especially so when it comes to cutting losses. A trader who fails to cut loss commits a grave mistake. Because this one mistake can wipe out his gains and his capital. It is very important to position yourself in the market without making mistakes.

“Thus it is that in war the victorious strategist only seeks battle after the victory has been won, whereas he who is destined to defeat first fights and afterwards looks for victory.”

A trader enters a trade with certainty that he is favourable to win. He has an edge over the others in terms of probability. He has a favourable risk-reward ratio, such that he risk an amount for at least 2-fold of reward. He knows when to enter and exit. Hence, the victory is calculated before the trade is made. Most untrained investors get into the market without any careful calculation and often end up not knowing how to exit when the market moved.

“In respect of military method, we have, firstly, Measurement; secondly, Estimation of quantity; thirdly, Calculation; fourthly, Balancing of chances; fifthly, Victory.”

When it comes to assessing a trade, you must have a pre-determined set of rules or system to help you evaluate (measure) a potential trade. Secondly, you must know your position sizing to buy the right number of contracts (quantity) based on the size of your capital. Thirdly, you must determine the cut loss and profit taking price and calculate the risk-reward ratio to make sure your reward is at least 2 times your risk. Fourthly, you must know what is the probability of winning using your system in the current market condition. Lastly, make the trade and wait for the market to decide if you are right or wrong.

“Do not repeat the tactics which have gained you one victory, but let your methods be regulated by the infinite variety of circumstances.”

Over the long run, market conditions change. The system that works in the past may not be relevant in the new market condition. You must review and fine tune the system when market conditions change. You will know it when you realise you have much more losses than usual even though you abided to the system rules closely.

“A clever general, therefore, avoids an army when its spirit is keen, but attacks it when it is sluggish and inclined to return. This is the art of studying moods.”

The central idea of trading revolves around reading the market’s moods. Price actions, volume and indicators are signs for the trader to discern the market’s moods and the investors’ behaviour. You will trade well when you can interpret the moods.

“It is a military axiom not to advance uphill against the enemy, nor to oppose him when he comes downhill.”

The key to trading is not to fight the trend. When the market is trending up, look for opportunity to long and do not short it. Likewise, if the market is trending down, look for opportunity to short and do not long it.

“The art of war teaches us to rely not on the likelihood of the enemy’s not coming, but on our own readiness to receive him; not on the chance of his not attacking, but rather on the fact that we have made our position unassailable.”

As previously addressed, a trader must do the due dilligence to put himself in a position such that he has a higher probablity of winning in the market. You should never have the mentality of conquering the market. The profits are decided by the market and you can never force it.

“The general who advances without coveting fame and retreats without fearing disgrace, whose only thought is to protect his country and do good service for his sovereign, is the jewel of the kingdom.”

The trader must win in the market not to prove that he is right, but to seek profits. When he is wrong, he must cut his losses without feeling disgrace. Only by having this mentality, he can do well for his trading account.

ON UNDERSTANDING THE MARKETS

“We are not fit to lead an army on the march unless we are familiar with the face of the country–its mountains and forests, its pitfalls and precipices, its marshes and swamps.”

Like what Warren Buffett says, “risk is not knowing what you are doing.” If you do not understand the market, you are not fit to invest in it. You will get your capital (army) wiped out.

“He who knows these things, and in fighting puts his knowledge into practice, will win his battles.”

It is not good enough to know theories and concepts behind investing. A trader must be able to apply the knowledge correctly to profit from the markets.

“He who knows them not, nor practices them, will surely be defeated.”

If he does not know, and not apply the correct trading techniques, he will definitely lose in the markets.

ON YOUR PSYCHOLOGY

“The general, unable to control his irritation, will launch his men to the assault like swarming ants, with the result that one-third of his men are slain, while the town still remains untaken. Such are the disastrous effects of a siege.”

Do not be emotionally affected by the market or your losses. If you are too eager to gain profits or revenging a loss, you lose your sanity and become irrational. The decision-making is likely to be flawed and probably ending up with losses. Re-writing the statement, “The trader, unable to control his irritation, will launch his capital to the assault like swarming ants, with the result that one-third of his capital are slain, while the profit still remains untaken. Such are the disastrous effects of an impulsive trade.”

“There are five dangerous faults which may affect a general:
(1) Recklessness, which leads to destruction;
(2) cowardice, which leads to capture;
(3) a hasty temper, which can be provoked by insults;
(4) a delicacy of honor which is sensitive to shame;
(5) over-solicitude for his men, which exposes him to worry and trouble”

Psychology is key to a trader. If he cannot control his emotions and character, he will lose in the market. If he is reckless, he will make rash trades without calculating his odds of winning. If he is a coward, he can never win big enough to cover his losses. If he has a hasty temper, he will try to take revenge at the market which end up in further losses. If he boasts when he wins, he will be quiet when he loses and he will never learn from his mistakes. If he is over concern about his losses, he will never be able to trade properly ever again.

ON MANAGING YOUR MONEY

“Sun Tzu said: The control of a large force is the same principle as the control of a few men: it is merely a question of dividing up their numbers.”

Trading a large capital is the same as trading a small capital. You should not be affected by the absolute figures of losses and profits when trading a large capital. Follow the system and rules normally and divide a large capital accordingly based on proper position sizing methods.

ON STAYING AWAY FROM THE MARKET

“He will win who knows when to fight and when not to fight.”

Opportunities are not always available in the market. There are times that your trading system will not work and it is important to abstrain from trading the market. If you insist in trading the market under such conditions, you will end up in a string of losses and deplete your capital unnecessarily. When you are experiencing a string of losses, it is an obvious sign to you to stop trading. Reflect if it is the problem with yourself, or is the system not working under that particular market condition. While undergoing your reflection, stop all your trading activities until you figure out the true problem. You will learn more about yourself, your trading system and the market. This experience will help in assessing when to trade and when not to trade in the future. Not to fight is not cowardice, it is the mantra of “live to fight another day”.

“If fighting is sure to result in victory, then you must fight, even though the ruler forbid it; if fighting will not result in victory, then you must not fight even at the ruler’s bidding.”

Learn to trade when it is favorable to do so. But it is even more important to learn not to trade when situtations do not permit.
Source:http://www.bigfatpurse.com

Quote for the day

"The trouble with most people is that they think with their hopes or fears or wishes rather than with their minds." - Will Durant

Top 10 Rules for Forecasting

Source: http://blog.alphaarchitect.com/

Quote for the day

"A speculator gambles that a stock will go up in price because somebody else will pay even more for it." - Benjamin Graham

Quote for the day

"The last leg of a bull market always ends in hysteria; the last leg of a bear market always ends in panic." - Jim Rogers

The Bandwagon Theory: A Glimpse at how the Market really works

Imagine a bandwagon that is rolling forward at a quickened pace. 

Music that is very pleasing to the ear is being played from speakers on each side of this bandwagon, and a few people currently on the back of the wagon are partying, having the time of their lives. 

The music, loud and clear, starts to attract many other onlookers that happen to be idly standing on the sidelines. 

These onlookers, unable to resist the sweet sounds being played, run to join the party that seems to be going on. 

Progressively, more and more onlookers jump on the back of this bandwagon, and those few who were initially enjoying the first phase of the party begin to leave. 

As the crowd of new party animals on this bandwagon grows larger, the bandwagon finds it harder and harder to move forward at the same pace. 

It slows, enabling more and more late onlookers, witnessing the great fun, the chance to jump on. The crowd grows even larger.

Larger and larger this crowd grows, until the bandwagon, heavily laden with the bodies of drunken party animals, can no longer move forward.

It finally comes to a complete stop. Now that the bandwagon is at a complete standstill, more people jump on. And why not? At this point, joining the fun is easy. 

Absolutely no work is required, for individuals wanting to join the crowd no longer have to run to jump on board. 

But the nature of the bandwagon is to move forward. 

Its motionless state is unnatural, and therefore cannot last. It tries to move forward again, but can't. 

The crowd, piled on back, is much too large. It must free itself of the heavy burden. And it does. 

It quickly shifts into reverse, and jolts backward, knocking a few of the party animals off the back. 

The music stops. 

Puzzled faces from the crowd begin to emerge. 

Before anyone figures out what's going on, another backward jerk takes place, only this one is more violent. 

Another large group of people gets thrown off the back. Now, reality sets in. 

The fun has turned into a nightmare of epic proportions, and panic begins to run rampant. 

Some decide to jump to their deaths. 

Another thrust backwards sends an even larger group of drunken, off-balance people, hurling to the muddy ground. 

It doesn't stop. 

The jolts backward continue, each successive one more violent than the last. 

At this point, only a few die-hard wagon dwellers are holding on, their very lives hanging in the balance by a very thin thread. 

Failing to be completely free, the bandwagon angrily puts the pedal to the metal, and this final thrust backward is so vicious that its front wheels lift high off the ground, momentarily suspending the wagon in a perpendicular position. 

The last of the hangers-on crash to the ground, broken and maimed to no end. 

At this point, a new group of onlookers emerge from the nearby woods. They are clean and serene. 

Each movement they make is deliberate and powerfully energetic, for they did not take part in the tragedy that just transpired. 

Or did they? A few of the dejected souls lying on the ground take a closer look, a look that reveals something very interesting. 

This seemingly new group is not new at all. It is the same group that was seen quietly exiting the party before it came to its violent end. 

An even closer examination by a few more beaten-down onlookers reveals something even more stunning. 

This group not only exited the party early, they were the originators of it! “My God,” someone exclaims.

Paralysed, and unable to move freely, all these dejected souls can do is watch, as the masters of the game go to work, again. 

No sooner does the bandwagon's wheels hit the ground than this professional platoon bolts for the wagon. In a flash they are on board. 

Easy. 

The bandwagon, now free of the larger crowd, can move forward freely and gracefully, comfortably carrying the more astute group with it. 

Its pace quickens, and before long a smooth elegant stride is in place. 

After a few miles of uninterrupted movement, someone from this masterful group flips on a switch, and suddenly the loud sounds of entertaining music start again.

Someone yells, “OK everyone. Here they come. Let’s do it again.” 

Within moments, those who were the former victims of the backward crash become interested again. The music almost calling them from the grave.

And once more, the never-ending cycle repeats.
Source: http://www.dacharts.com/

Quote for the day

"Nine requisites for contented living: 

Health enough to make work a pleasure. 

Wealth enough to support your needs.

Strength to battle with difficulties and overcome them. 

Grace enough to confess your sins and forsake them. 

Patience enough to toil until some good is accomplished. 

Charity enough to see some good in your neighbor. 

Love enough to move you to be useful and helpful to others. 

Faith enough to make real the things of God. 

Hope enough to remove all anxious fears concerning the future."
- Johann Wolfgang von Goethe

What is Investment Psychology?

By Claire

Investment psychology, in a nutshell, is the process by which an investor watches established levels of value in the market to make decisions for future investments. In other words, it is how investors think when considering whether to buy or sell stocks, or invest in any other way.

Investment psychology has been well-studied and there is an extensive amount of information available on the topic; however, to get a basic grasp of the concept, here are some of its main theories:

Contrarian Theory – This theory takes a look at why it seems people buy or sell stocks in contrast to how consumers spend their money. Consumers seem to buy when prices are low, while a common investor behaviour is to buy when prices are high. It also notes that some people playing the stock market simply follow the crowd to avoid making embarrassing mistakes alone.

Prospect Theory – This theory suggests that people will respond differently to the exact same situation depending on whether it is presented to them as a loss or a gain. Inside this theory is ‘loss aversion,’ which means that people are willing to take more risks if they feel it will help them avoid losses, but won’t do it as much to realize gains.

Regret Theory – This looks at the emotional reaction people have after making an error in judgement. This applies to having bought a stock that has now gone down, not buying one that went up, or selling at inopportune times.

Anchoring – This is an investor behaviour inherent in those who assume current prices are the correct prices because they lack better information. In this phenomenon, people give a recent experience too much credit, when in actuality, it may not occur again any time soon.

Market Over- or Under-Reaction – This is the market-wide consequence of investors relying too heavily on what they find in the news. As a result of the good or bad news they've learned, they may become too optimistic or pessimistic – and the prices in turn rise too high or fall too low, leading to extreme events like manias and crashes.

As many experts have discovered, playing the stock market not only involves the simple desire to buy or sell stocks; it also comes with it a whole world of investment psychology. But it’s not a bad thing because learning more about why people invest the way they do can help to better understand the unpredictability of the market and what it will likely do next.

Source: www.gobankingrates.com/

Quote for the day

"Jealousy is the result of one's lack of self-confidence, self-worth, and self-acceptance." - Sasha Azevedo

14 Qualities Good Traders Have That Most People Don’t Get

Being a good trader is about developing certain mental qualities. It is the process of constantly pushing yourself to grow better and stronger.

A profitable trader is not necessarily a good trader. Likewise, a good trader is also not necessarily a profitable one, yet a good trader ultimately finds himself with a much higher probability of being profitable/ of finding success in the long run.

This means that success, with the aforementioned qualities, becomes predictable, and repeatable.

So what are those qualities then?

1. Rather than succumbing to your emotions, you manage them skillfully, which helps you make wiser choices in trading.

Good traders understand how their emotions can influence their trading performance.

In an effort to make the best decisions possible, and to be constantly on top of their game, they understand the importance of being present and allowing themselves to feel their emotions from a place of freedom, without ever letting those emotions sway their decision and override their proven process.

A mindfulness practice is often the goo d traders’ best ally. The practice also helps them come to terms with things that are difficult to accept or to let go of.

2. You feel confident in your ability to adapt to change.

Change is all around us, not just in the market. Conditions are always changing.

Good traders know this and they focus on getting better at adapting to change, rather than resisting it. That’s where real peace lies.

Their focus is also on what they can control instead than what they can’t. And they know the difference.

3. Mistakes, although sometimes uncomfortable, make you deeply inquisitive and hungry for improvement.

You understand that we learn from every step we take. So you don’t punish yourself (and others) for your mistakes.

Trading is a tale of struggle, reassessment, and adaptation. You’ll fail, you’ll make mistakes, but you’ll learn.

Most;y likely, that’s how the progression will look like. And so, resilience, staying power and focus on growth are key elements on this journey.

4. You genuinely celebrate other people’s success.

Trading is a tough profession. Losses and drawdowns are challenging periods that cause many to break.

Good traders never compare their own results to others.

What’s more, they never try to belittle other fellow traders, wishing them to fail. They only display compassion, support, and understanding.

They don’t feel as though other people’s success somehow diminishes their own achievements. Losers think like that, and in return, losses and disappointments are what they keep reaping in their lives.

5. You are comfortable trading according to your rules.

Good traders make decisions with relative ease because they understand their rules and what they are trading and looking for in the market.

Their commitment to their trading plan and process is unshakable. They do not let other people’s opinions affect their judgment. They’ve learned to trust their own. And they catch their own fish.

6. You have a thorough understanding of your strategy, its probabilities, and your inherent tolerance to risk.

Your commitment to your trading strategy, plan and process is unshakable.

At this point, trading is not an intellectual game for you anymore. It’s not about learning grandiose theories, it’s about experience and practice – which you’ve done enough of.

You understand risk, and you know that managing it will not only preserve your capital; it will also protect your emotional well-being.

7. You focus on sharpening your skills, rather than showing them off.

While some people seek validation or recognition from other traders on Social Media (especially Twitter) for the trades they take, good traders are less concerned about gaining recognition. Instead, they’re intrinsically motivated to become better.

8. You view trading losses as opportunities for growth.

Good traders don’t waste time feeling sorry for themselves while giving away their power to the market. While losses cause some people to grow bitter, they make good traders grow better.

9. Good traders feel good about themselves, whether they win or lose.

For the good trader, failure is not the end of the world. It’s, again, an opportunity for growth. So they bounce back rather easily.

They also understand that success is equally as fleeting as failure. So good traders express gratitude for what they already have in life and what others take for granted.

Their self-worth depends on who they are, their character and the positive states of mind they choose to generate. Their self-worth is not found in what they have achieved or what people think of them.

10. You’re a master at delaying gratification.

Good traders view their trading goals as a marathon, not a sprint. They’re willing to tolerate short-term pain when it can provide long-term gain.

11. You’re an independent thinker.

Good traders think for themselves. No one acquires the skill of independent thinking merely by going to a college/university. In fact, the opposite is true — such a skill is often acquired via autodidacticism and direct experience.

12. You approach trading with openness and curiosity.

You can trade more effectively only if you let go of the fear of loss and wholeheartedly embrace its inevitability.
Only then can you fully prepare for it while staying open to the opportunities it also brings forth.

13. You do not obsess about money.

Trading for you is all about self-actualization and freedom. Money is just a way to gauge your progress on this path.

14. You’re open to learning.

Learning is always an ongoing quest for good traders.

If you didn’t recognize yourself in any of those 14 statements, rest assured, you can develop these qualities in a record period of time. 

Source: www.tradingcomposure.com/

Quote for the day

"Trade What’s Happening… Not What You Think Is Gonna Happen."– Doug Gregory

14 Signs that You're a good Trader

Good trading takes time to develop.

It is the process of pushing yourself to grow stronger and better mentally.

Here are 14 signs that you've developed into a good trader:

1. You balance discursive thoughts and emotions with mindfulness. Good traders understand how their thoughts and emotions can influence their end results. In an effort to make the best decisions possible, they balance and temper those with moments of mindfulness.

2. You feel confident in your ability to adapt to change. Good traders know that although change is uncomfortable, it is inherent to the markets more so to life. They focus on getting better at adapting to change, rather than resisting it.

3. You learn from your mistakes. Good traders take responsibility for their every action in the markets. They learn from them.

4. You balance self-acceptance with self-improvement. Good traders accept themselves for who they are while simultaneously recognizing their need for personal development. While they may admire figures like Paul Tudor Jones or Jesse Livermore, they do not try to emulate these people in their trading style. In that sense, they understand the necessity to adopt an approach that fits their unique personality.

5. You genuinely celebrate other people's success. Good traders don’t compare their results with others. They don’t feel as though other people’s success somehow diminishes their own achievements.

6. You are comfortable trading according to your rules. Good traders make decisions with relative ease because they understand their rules and what they are trading and looking for in the markets. They do not let other people’s opinions affect their judgement.

7. You focus on sharpening your skills, rather than showing them off. While some people seek validation or recognition from other traders on Social Media's (especially twitter) for the trades they take, good traders are less concerned about gaining recognition. Instead, they’re intrinsically motivated to become better.

8. You view trading losses as opportunities for growth. Good traders don't waste time feeling sorry for themselves while giving away their power to the markets. While losses cause some people to grow bitter, they make good traders grow better.

9. Your self-worth depends on who you are, not what you achieve. Good traders feel good about themselves, whether they win or lose.

10. You practice delayed gratification. Good traders view their trading goals as a marathon, not a sprint. They’re willing to tolerate short-term pain when it can provide long-term gain.

11. You bounce back from failure. Good traders don’t view failure as the end of the road. Instead, they use potential failures as opportunities to gain knowledge that will increase their chances of success in the future.

12. You express gratitude. Rather than exclaim they need more, good traders take whatever the markets are offering them in the moment however small the gains are. If they followed their plan to the letter, then what should or could have been doesn't matter!

13. You focus on what you can control. Good traders are effective in the markets for the mere reason that they devote their resources to that which they can control – and this does not include controlling the markets but their behaviour.

14. You're open to learning. Learning is always an ongoing quest for good traders.

Quote for the day

"For those who believe, no proof is necessary. For those who don't believe, no proof is possible." - Stuart Chase

Stock Market Trading - Successful or Unsuccessful? What to Believe

Frank Kollar, of Fibtimer.com, offers a list of beliefs that are generally shared by successful market timers as well as a list of beliefs that unsuccessful market timers often subscribe to. It is a good idea for traders to know which beliefs to follow and which ones to disregard.

Successful market timers—meaning profitable market timers—have several common beliefs that help them achieve consistent profits.

On the flip side of this, those who are unsuccessful also have a set of common beliefs.

It is a good idea to know which beliefs will help you to succeed as well as which ones you may have that need to be changed.

Beliefs of Successful Market Timers

1. I will not jump into a trade before or after a signal just so that I can be participating.

2. I recognize that discipline is not a concept, it is an absolute necessity. The markets have a way of removing money from undisciplined market timers.

3. I realize that what happens today, this week, or even this month, is not what is important. What is important is my success over time.

4. I realize that losses are part of trading. No strategy is without losses.

5. I accept that sometimes my investments will underperform the market, knowing that over time, they will outperform the market.

6. I know that following a timing strategy through good times and bad are what will make me successful.

7. I can follow a strategy for the long haul and stick with it, even when, at times, it is discouraging.

8. I accept that following a timing strategy will require me to make frequent trades that may seem like mistakes. A string of small losses will not make me quit.

9. I can ignore the mass media, which raise emotions and thus increase the risk of not executing a trade. It is often the trade that is hardest to take, that winds up being the most profitable.

10. The markets provide a constant stream of opportunities. If I miss an opportunity, another one will follow.

11. "Keeping losses small and letting profits ride" is not just a Wall Street saying.

Beliefs of Unsuccessful Market Timers

1. I must be trading all the time to be successful. I am uncomfortable when in cash.

2. If my strategy is not doing what I think it should, I will make a change immediately.

3. If I lose on this trade, I feel like a loser.

4. If the market is rallying, I must get in even though my strategy gave no signal for it.

5. I am unlucky.

6. I get very upset when I miss a rally or if I am in a bullish position when the market is declining.

7. I dread adverse news events and constantly worry that something will happen to make the markets go against me.

8. I can't afford to lose anything on this buy or sell signal.

9. I can't go broke taking small quick profits.

10. When this losing trade gets back to even, I'll dump it.

Final Notes on Unsuccessful Timers

Unsuccessful market timers tend to see the stock market as a place that will give them future riches and solve all their problems.

Unsuccessful market timers have difficulty coping with the reality of being wrong. When events don't live up to their hopes, they seek to ignore them.

"As a successful market timer, you have to move from a fearful mindset to a psychological state of confidence. "

If their timing strategy gives a sell signal and they have losses in that position, they have a difficult time executing the sell signal and they will hold the position so that they can exit when it gets back to break even.

When things go bad, they often exit with huge losses and blame the strategy, the timing service, the markets. Everyone but themselves.

Many market timers give up because they are usually too quick in judging small loses as a system that is not working.

Giving up is the most common way a market timer can lose. You will win only if you execute the timing strategy. Every trade.

Paper trading cannot simulate the psychological aspects of trading with real dollars. Once a market timer has experienced what it is like to keep trading through a draw down and how good it feels to follow the strategy through the good, the bad, and the ugly days, he or she will not be as easily swayed again by adverse markets.

Final Notes on Successful Timers

Successful market timers know how to follow a strategy. They know the stock market is not a game and the only way to succeed is with a plan.

As a successful market timer, you have to move from a fearful mindset to a psychological state of confidence.

You must use a strategy that builds confidence by keeping losses small and letting profits ride when the markets trend.

Do not focus too much on each individual buy and sell signal. It is where the strategy takes you over years of trading that is important.

Source: www.moneyshow.com/

Quote for the day

"The successful investor is usually an individual who is inherently interested in business problems." - Philip Arthur Fisher

30 Of The World’s Best Trading Rules

Here is the inconvenient truth about successful trading. It’s work.

Trading is more than just numbers — it is a three dimensional fight that rages primarily inside the traders themselves. Missing any crucial element can ruin a trader quickly. The trader must first develop a robust trading system that fits their own personality and risk tolerance. Then they must trade it with discipline and faith consistently through ups and downs. But that’s not all. Risk exposure must also be managed carefully through position sizing and limiting open positions. The risk management has to be able to carry the trader through the losing streaks and enable survival for the chance to even make it to the winning side.

Here are thirty rules that can help the new trader survive that first year in the trading the markets or take the unprofitable trader much closer to profitability.

Trade with the right mind set.

TRADER PSYCHOLOGY

1. Be flexible and go with the flow of the markets price action, stubbornness, egos, and emotions are the worst indicators for entries and exits.

2. Understand that the trader only chooses their entries, exits, position size, and risk and the market chooses whether they are profitable or not.

3. You must have a trading plan before you start to trade, that has to be your anchor in decision making.

4. You have to let go of wanting to always be right about your trade and exchange it for wanting to make money. The first step of making money is to cut a loser short the moment it is confirmed that you are wrong.

5. Never trade position sizes so big that your emotions take over from your trading plan.

6. “If it feels good, don’t do it.” – Richard Weissman

7. Trade your biggest position sizes during winning streaks and your smallest position sizes during losing streaks. Not too big and trade your smallest when in a losing streak.

8. Do not worry about losing money that can be made back worry about losing your trading discipline.

9. A losing trade costs you money but letting a big losing trade get too far out of hand can cause you to lose your nerve. Cut losses for the sake o your nerves as much as for the sake of capital preservation.

10. A trader can only go on to success after they have faith in themselves as a trader, their trading system as a winner, and know that they will stay disciplined in their trading journey.

Bring your risk of ruin down to almost zero.

RISK MANAGEMENT

1. Never enter a trade before you know where you will exit if proven wrong.

2. First find the right stop loss level that will show you that you’re wrong about a trade then set your positions size based on that price level.

3. Focus like a laser on how much capital can be lost on any trade first before you enter not on how much profit you could make.

4. Structure your trades through position sizing and stop losses so you never lose more than 1% of your trading capital on one losing trade.

5. Never expose your trading account to more than 5% total risk at any one time.

6. Understand the nature of volatility and adjust your position size for the increased risk with volatility spikes.

7. Never, ever, ever, add to a losing trade. Eventually that will destroy your trading account when you eventually fight the wrong trend.

8. All your trades should end in one of four ways: a small win, a big win, a small loss, or break even, but never a big loss. If you can get rid of big losses you have a great chance of eventually trading success.

9. Be incredibly stubborn in your risk management rules don’t give up an inch. Defense wins championships in sports and profits in trading.

10. Most of the time trailing stops are more profitable than profit targets. We need the big wins to pay for the losing trades. Trends tend to go farther than anyone anticipates.

Develop a winning trading system that fits your personality.

YOUR ROBUST METHOD

1. “Trade What’s Happening…Not What You Think Is Gonna Happen.” – Doug Gregory

2. Go long strength; sell weakness short in your time frame.

3. Find your edge over other traders.

4. Your trading system must be built on quantifiable facts not opinions.

5. Trade the chart not the news.

6. A robust trading system must either be designed to have a large winning percentage of trades or big wins and small losses.

7. Only take trades that have a skewed risk reward in your favor.

8. The answer to the question, “What’s the trend?” is the question, “What’s your timeframe?” – Richard Weissman. Trade primarily in the direction that a market is trending in on your time frame until the end when it bends.

9. Only take real entries that have an edge, avoid being caught up in the meaningless noise.

10. Place your stop losses outside the range of noise so you are only stopped out when you are likely wrong.

Source: http://www.traderplanet.com/

Quote for the day

"Strength does not come from winning. Your struggles develop your strengths. When you go through hardships and decide not to surrender, that is strength." - Arnold Schwarzenegger

The 'Self-Factors' of Successful traders.

"Self-reverence, self-knowledge, self-control - these three alone lead to power" - Alfred, Lord Tennyson.

I am using the above quote to emphasise the importance of what I call the 'self-factors' in trading. - The self-factors highlight the importance of developing and adopting the right balance of behaviours and attitudes in trading for one to be on the right side of the success/failure line. - The positive ‘self-factors’ include qualities and traits which are common to many successful traders: Amongst some of the positive Self-Factors I include:

Self-awareness - Knowledge of oneself and how one acts and behaves in situations and environments.

Self-Belief - Self-Confidence - assuredness in one’s actions, judgments and abilities.

Self-Trust -The ability to have faith in oneself under duress and pressure.

Self-Reliance - Ability to depend on one's own capabilities, judgment, and resources , and acceptance that nobody else is responsible for profits and losses.

Self-discipline - A structured approach that keeps a person focused and grounded against negative forces and pressures.

Self-Control - Is the ability of exert mind muscle and will-power to overcome the negative effects which can so easily distract and distort perceptions and judgments.

Self-Motivation - Describes the initiative to undertake risks and activities when the mood and environment have been counterproductive.

Self-Esteem - High regard, respect or value for one’s self, but not to the level of being conceited, or having an over-inflated opinion of their worth.

Self-efficacy - Belief in one’s own competency and ability.

In summary, successful traders take responsibility for their own actions, but rarely beat themselves up. – If I was to sum it up succinctly, they know themselves, they like themselves, they believe in themselves, and above all – ‘they are comfortable in their own skin’.

On the other hand, failing and struggling traders display some or many of the opposite tendencies. Typically they possess or are caught up in cycles of ‘self-defeating’ behaviour; they may be riddled by self-doubt, and wracked by self-consciousness. They may lack the necessary self-belief and self-trust which is needed to overcome the many inherent biases and injurious traits that people naturally possess which make trading such a difficult task.

We use the word ‘self’ in so many ways without really thinking about how relevant and crucial it is: Trading is not just about knowing ‘the market’, ‘a strategy’, ‘a set of rules’, it is also about knowing your-‘self’, developing your ‘self’ and managing your ‘self’.

There is a reason we find reference to 'the self' mentioned so often in the performance literature, it is because it is so relevant and matters: I will finish with some examples, from various fields of performance; sport, combat, trading and endeavour, including one significant one from the trading literature:

"Know yourself. - You can't improve on something you don't understand" - Vince Lombardi.

"It is said that if you know your enemies and know yourself, you will not be imperilled in a hundred battles;
If you do not know your enemies but do know yourself, you will win one and lose one;
If you do not know your enemies nor yourself, you will be imperilled in every single battle."
Sun Tzu - Chinese General, military strategist, and author of The Art of War.

"In actual practice a man has to guard against many things, and most of all against himself -- that is, against human nature." - Jesse Livermore - Reminiscences of a Stock Operator.

And my own personal favourite, which I quote on my business website (www.bgtedge.com).
"It’s not the mountain we conquer, but ourselves." - Sir Edmund Hillary – The first man to climb Mount Everest.
Edited Article of Steven Goldstein from http://hometraderuk.blogspot.co.uk