Not Doing Anything is Hardest to Do
When it comes to trading there is a common misconception that traders are always buying and selling. This could not be farther from the truth. Two of the main attributes of a successful trader are patience and restraint.
Sometimes we need to sit on our hands and do nothing while the markets reveal their direction. It becomes very easy to get caught in the rapid ups and downs and forget what's really happening. If you feel like you're putting in trades or closing trades simply for the excitement of a new position or closing of a profitable position you may be crossing the line from a calculated trader to gambler. All trades need to be according to plan!
Sometimes your analysis tells you to that a change may be coming or that there may be upcoming underlying complications. In these times all you have to do is WAIT for confirmation which can sometimes be a drawn out process. Many amateur traders will feel the need to trade right away. Hold on and wait while the trend you predicted develops and is confirmed before jumping in for the sake of trading.
These days I find myself putting in smaller trades as I re-assess the state of the markets... Will it go higher? Will there be a major correction? or are we going sideways! The broader markets seem to be flatting out and conflicting data are starting to have their effects on market psychology.
Showing posts with label Trading Essentials. Show all posts
Showing posts with label Trading Essentials. Show all posts
Friday, November 20, 2009
Wednesday, September 23, 2009
September 23 - Tricks of the Trade - Part 3
Triangle Breakouts
One strategy is to trade triangle breakouts to the direction of the breakout.
Sometimes a stock which trades on a wide range gets squeezed from top and bottom in a triangular envelope and trades at tight range. Let's look at a historical chart of Mastercard which shows a triangle formation breakout on July 15, 2009:
Now lets fast forward to today and see what would have resulted from going long on the upside breakout of Mastercard from the triangle formation.
A word of caution at this point is that not all of the breakouts lead to such an upside. This was obviously assisted by the rally in the equity markets resulting from hopes of recovery and cheap capital. Sometimes after a breakout, there is downside follow through and the stock whipsaws between breakouts to the upside and downside. In these situations where follow through is weak or indecisive, its is best to put a tight stop-loss and look for other opportunities.
One strategy is to trade triangle breakouts to the direction of the breakout.
Sometimes a stock which trades on a wide range gets squeezed from top and bottom in a triangular envelope and trades at tight range. Let's look at a historical chart of Mastercard which shows a triangle formation breakout on July 15, 2009:
Now lets fast forward to today and see what would have resulted from going long on the upside breakout of Mastercard from the triangle formation.
A word of caution at this point is that not all of the breakouts lead to such an upside. This was obviously assisted by the rally in the equity markets resulting from hopes of recovery and cheap capital. Sometimes after a breakout, there is downside follow through and the stock whipsaws between breakouts to the upside and downside. In these situations where follow through is weak or indecisive, its is best to put a tight stop-loss and look for other opportunities.
Saturday, August 15, 2009
August 15 - The Difference Between Trading and a Full-time Job
In trading, state of mind and how a person looks at trading is very important.
A lot of people who work full-time jobs are constantly bombarded with financial news and trading tips. They open trading accounts and begin to trade. Soon after getting into it, they start to think of trading as a possible road to financial freedom. If only they could replace their income with trading income, then they would be free of the 9-5 grind. Very tempting!!!
In the next step they try to figure out how much they would need to make a week or a month to match their currently salary weekly or monthly income. I've probably done this a thousand times - but every time I need to bring myself back to the reality that: Trading for a living, although very possible, does NOT provide a steady stream of income. You can NOT expect to extract monthly or weekly payments from the market, especially when you start trading.
Trading is unstable! There will be times that you will not see any setups and these are the times when you should stay on the side lines and not trade. There will be no income at these times!
There will also be times when you will have losses. There will be no income at these times either! Finally, you catch a high-probability setup, get in, and it makes you money. At this point a good trader has made enough money to cover the previous losses and some for profits.
So if you've just started trading and feel like you want to replace your salary income with trading income...... STOP!
This is the wrong mind set and it will put unrealistic pressures on your trading, leading to bad trades. If you'd like to make a living as a trader, make sure you have enough money to live off of for at least a year before quitting your job.
Hope this sheds more light on the topic... happy trading!
A lot of people who work full-time jobs are constantly bombarded with financial news and trading tips. They open trading accounts and begin to trade. Soon after getting into it, they start to think of trading as a possible road to financial freedom. If only they could replace their income with trading income, then they would be free of the 9-5 grind. Very tempting!!!
In the next step they try to figure out how much they would need to make a week or a month to match their currently salary weekly or monthly income. I've probably done this a thousand times - but every time I need to bring myself back to the reality that: Trading for a living, although very possible, does NOT provide a steady stream of income. You can NOT expect to extract monthly or weekly payments from the market, especially when you start trading.
Trading is unstable! There will be times that you will not see any setups and these are the times when you should stay on the side lines and not trade. There will be no income at these times!
There will also be times when you will have losses. There will be no income at these times either! Finally, you catch a high-probability setup, get in, and it makes you money. At this point a good trader has made enough money to cover the previous losses and some for profits.
So if you've just started trading and feel like you want to replace your salary income with trading income...... STOP!
This is the wrong mind set and it will put unrealistic pressures on your trading, leading to bad trades. If you'd like to make a living as a trader, make sure you have enough money to live off of for at least a year before quitting your job.
Hope this sheds more light on the topic... happy trading!
Friday, July 17, 2009
July 17, 2009 - Trading Essentials - part 2
Don't Overtrade
Overtrading is another important pitfall to avoid. Successful traders aren't constantly getting in and out of positions or putting on positions solely for the purpose of being in the market.
For new traders, trading is exciting and being in the market offers an excitement not unlike the action in casinos. And this is just another reason why the line between trading and gambling can get blurred for new traders. It is important to not trade for the excitement but only if a high probabilty opportunity is available.
Sometimes when the trading platform is open in front of you, the temptation to put on a trader or end a trade starts to build. It may even compel you to change your strategy mid-game or start moving your stops in order to "better" your trade. As I've suggested before, the best way to avoid trading with emotions is to stay out of any situation that may cause those emotions.
For this I would suggest not having your trading platform open all the time. Once you have put on your trades, close the application and monitor your trades via other reporting methods. I use Yahoo Finance. For approximately $100 / year you can get realtime data streamed through Yahoo Finance, which otherwise has a 20 minute delay. This allows me to monitor positions and pricing without being in a situation where I can jump in and out of trades on a whim.
Constantly having your platform open can cause you to overtrade. Besides putting you in an emtional situation, overtrading can rack up commissions for the broker, which may not seem much at first, but they quickly add up...... Trust me!
Happy trading...
Overtrading is another important pitfall to avoid. Successful traders aren't constantly getting in and out of positions or putting on positions solely for the purpose of being in the market.
For new traders, trading is exciting and being in the market offers an excitement not unlike the action in casinos. And this is just another reason why the line between trading and gambling can get blurred for new traders. It is important to not trade for the excitement but only if a high probabilty opportunity is available.
Sometimes when the trading platform is open in front of you, the temptation to put on a trader or end a trade starts to build. It may even compel you to change your strategy mid-game or start moving your stops in order to "better" your trade. As I've suggested before, the best way to avoid trading with emotions is to stay out of any situation that may cause those emotions.
For this I would suggest not having your trading platform open all the time. Once you have put on your trades, close the application and monitor your trades via other reporting methods. I use Yahoo Finance. For approximately $100 / year you can get realtime data streamed through Yahoo Finance, which otherwise has a 20 minute delay. This allows me to monitor positions and pricing without being in a situation where I can jump in and out of trades on a whim.
Constantly having your platform open can cause you to overtrade. Besides putting you in an emtional situation, overtrading can rack up commissions for the broker, which may not seem much at first, but they quickly add up...... Trust me!
Happy trading...
Tuesday, July 14, 2009
July 14, 2009 - Trading Essentials - part 1
The markets have been choppy in the past week and trends are very short lived.
For a while I've wanted to post on some trading essentials for new traders as many of my recently graduated friends are just getting into trading and have opened online trading accounts. One important thing about trading is:
Don't trade an under capitalized account
One of the mistakes almost everyone makes starting out is to put a couple of thousand dollars they have saved up into a trading account in hopes of making stellar returns. Or even worse, they blur the lines between trading and investing for the long term.
It's very hard to trade with even as much as ten thousand dollars. First off you cannot buy too many shares of certain stocks. Secondly, and possibly most importantly, there isn't much room for losses.
It's a common misconception that all of a successful trader's positions should make money. In fact, this is farthest from the truth. Even a trader with a 50% error rate can make money. The hidden key to success is control, position sizing, and the ability to see a trade that is not working and cut losses and let winning trades work.
Now knowing that there will be losses along the way, your account has to be able to handle those losses and have enough capital left over to trade another day. To go further, your account would have to be able to weather a string of losses and still allow you to go on trading.
Even though I hate making a casino reference in a trading post, I think the following example is the best way to show how an undercapitalized account can be disastrous to a trader.
I've seen too many people at $25-minimum blackjack tables who come in with $100 or even $50 in hopes of making money. Almost all of these people soon find themselves bankrupt when a string of losses hits - and let's be realistic those strings will happen at some point. Then there is no more capital to go on. They cannot weather the storm long enough to bounce back. These players leave the table, having lost 100% of their capital and vow never to touch blackjack again because they "don't understand it."
The same mistake can be made with trading accounts. It is important to make sure to have enough capital to go on trading if the market turns against you and deals you a string of losses.
I've heard professionals say that realistically you need as much as a million dollars to start trading a personal account! To me that's not very feasible at this point. How much you want to fund your account is up to you, but my advice to all newer traders is: Do not trade an undercapitalized account. Keep money in a principal-protected security and trade a paper account to learn the tricks before putting your money to work.
Happy trading...
For a while I've wanted to post on some trading essentials for new traders as many of my recently graduated friends are just getting into trading and have opened online trading accounts. One important thing about trading is:
Don't trade an under capitalized account
One of the mistakes almost everyone makes starting out is to put a couple of thousand dollars they have saved up into a trading account in hopes of making stellar returns. Or even worse, they blur the lines between trading and investing for the long term.
It's very hard to trade with even as much as ten thousand dollars. First off you cannot buy too many shares of certain stocks. Secondly, and possibly most importantly, there isn't much room for losses.
It's a common misconception that all of a successful trader's positions should make money. In fact, this is farthest from the truth. Even a trader with a 50% error rate can make money. The hidden key to success is control, position sizing, and the ability to see a trade that is not working and cut losses and let winning trades work.
Now knowing that there will be losses along the way, your account has to be able to handle those losses and have enough capital left over to trade another day. To go further, your account would have to be able to weather a string of losses and still allow you to go on trading.
Even though I hate making a casino reference in a trading post, I think the following example is the best way to show how an undercapitalized account can be disastrous to a trader.
I've seen too many people at $25-minimum blackjack tables who come in with $100 or even $50 in hopes of making money. Almost all of these people soon find themselves bankrupt when a string of losses hits - and let's be realistic those strings will happen at some point. Then there is no more capital to go on. They cannot weather the storm long enough to bounce back. These players leave the table, having lost 100% of their capital and vow never to touch blackjack again because they "don't understand it."
The same mistake can be made with trading accounts. It is important to make sure to have enough capital to go on trading if the market turns against you and deals you a string of losses.
I've heard professionals say that realistically you need as much as a million dollars to start trading a personal account! To me that's not very feasible at this point. How much you want to fund your account is up to you, but my advice to all newer traders is: Do not trade an undercapitalized account. Keep money in a principal-protected security and trade a paper account to learn the tricks before putting your money to work.
Happy trading...
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