quote of the day (2)

A professional trader expects to be profitable by the end of the month or the quarter, but ask him whether he’ll make money on his next trade and he’ll honestly say he doesn’t know. That’s why he uses stops: to prevent negative trades from damaging his account

Once you have a trading system that works, it’s time to set the rules for money management. You can win only if you have a positive mathematical expectation from a sensible trading system

(Most traders take a good system and destroy it by trying to make it into a perfect system)

more quotes:-

Except for the very poor, for whom income coincides with survival, the main motivators of money-seeking are not necessarily economic. Money is a proxy for points on a scale of self-regard and achievement

This explains why most folks hold on to losses hoping to break even, seeking the joy of win back.

Emotional trading destroys losers

To be a successful trader, you need to learn risk management rules and firmly implement them

(It’s a general human tendency to take profits quickly but wait for losing trades to come back to even)

Good trading system delivers greater profits than losses over a period of time, but even the most carefully designed system doesn’t guarantee success in every trade.

No system can assure you of never having a losing trade or even a series of losing trades

Prices tend to fall twice as fast as they rise. Greed, the dominant emotion of uptrends, is a happy and lasting feeling. Fear, the dominant emotion of downtrends, is sharper and more violent

What stocks will you trade?

Beginners tend to spread themselves too thin, afraid to miss an opportunity.

It’s much better off focusing on a handful of stocks and following them every day.

What is shorting?

You identify a stock that you expect to drop, borrow it from your broker (e.g giving him a deposit), and sell it. After it declines, you buy it back at a cheaper price, return the borrowed shares to your broker, and get your deposit back.

(note: if you own a favourite stock, you expect it to drop in price, you can sell first and then buy later at a cheaper price) 

The higher the volatility of a trading instrument, the more opportunities it presents.

Popular stocks tend to swing a lot.

On the other hand, stocks of many utility companies that are quite liquid are very hard to trade because of low volatility—they tend to stay in narrow ranges.

All trading vehicles are divided into several classes/groups:

■■ Stocks

■■ ETFs

■■ Options

■■ CFDs

■■ Futures

They offer different profit opportunities and carry different risks

Make sure your trading vehicle meets two essential criteria: liquidity and volatility.

Traders say: “The trend is your friend,” and “Let your profits run.” They also say: “Buy low, sell high.”

But why sell if the trend is up? And how high is high?

A trade plan

Trade setup—write down the three key numbers for every trade: your entry, target, and stop prices

The ratio of potential reward to risk should normally be better than two to one.

Risk management—decide in advance your risk per share (to determine number of shares per trade)

Every single trade must be based on a specific system or strategy

And enter only those trades that fit the criteria.

Prices tend to fall twice as fast as they rise.

Fear, the dominant emotion of downtrends, is sharper and more violent.

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