1. the rascal spoiler to your trades
There are already many books and articles written on similar topics such as:-
- Secrets to profitable trading
- Sure fire trading methods
- Make money strategies to trading
- etc…
Hello! There is no single system that can be 100% perfect because we are dealing in human emotions in trading – forex, options, stocks, equities, commodities and so on.
The key to successful trading is to be able to control your emotions in your trades. To be void of emotions is very difficult. Many will agree that by just investing in the stock market is highly risky because the prices move up and down. We know that many so called “Big Boys” are behind the moves but holding and not selling usually result in massive losses (on paper at least). Prices that went way below your entry price may not go back to the same level for a long time.
My view is every trade consists of majority emotionally bias and minority mechanics base. However, having said that, how then do we control our emotions? The key is to set each and every trade automatically.
- Pick a stock to buy systematically base on charts (you got to join a charting school to learn the technique)
- Do not time your entry (purchase) base on what you think (that’s emotion).
- Do not time your entry base on what you heard (that’s also emotion).
- Time your entry base on the system’s rules (from the chart school). Set the entry automatically.
- Enter “stop” (to cut loss or protect profit) everyday. Set it automatically.
So all you got to do now is to instill discipline upon yourself to do the above tasks. That is the only difficulty left. Otherwise, you will do more harm buying on listening to news, rumours, your friend’s friend tips, etc. Or, you will not sell even when making good profits on paper because your broker convinced you that there will be more upside.
Let me share with you some simple philosophies of some great traders. First, I pick a few sentences from Jesse Livermore’s book “How to trade in stocks”
All through time people have basically acted and reacted the same way in the market as a result of greed, fear, ignorance and hope. That is why the numerical formations and chart patterns recur on a constant basis.
Formula for success:
- Market timing
- Money management
- Emotional control
p/s: go to end of this page for more quotes from his book.
|
Next, I picked an article from an Australian forex trader’s site (see below box) and the supposedly secrets can be summed up like this:
4 of 9 points is about trading dynamics and the rest are emotionally linked
NIAL FULLER’s Learn To Trade The market
|
2. The traders’ fears
The four major fears of traders and investors: fear of losing, fear of missing out, fear of leaving money on the table and fear of being wrong--are really some combination of fear and greed. The bottom line here is that fear is the predator…..Janice Dorn, M.D., Ph.D.
The quotes above are extracted from the author’s article about emotions in trading stocks. To simplify so that general folks can understand better, I have filled in a chart of SEAGATE (the hard-disk drives manufacturer) the 4 fears. Take a look at the chart below.
1. Fear of missing out the action: whereby most folks who do not read chart or though able to read chart but very confused by the numerous indicators will tend to buy high.For me, I am using T3B system and the indicator K line (black line at the bottom over the volume bars) shows high and sell signals are appearing. No way it is buying long! Many novices in “investing” stocks tend to buy following stories of friends who are making money from this stock. A friend could have bought at 19~20 and held until 30. Stories tell that SEAGATE may rise over 35!
2. Fear to admit loss: when price keep dropping from 30 until 25, there is always hope that the stock may rise back. He will say, “if it touches near 30 again, I will sell”. However, most folks will start to panic and sell at 22.
3. Fear of being wrong again: after a period of downtrend, many dare not jump in yet for fear the price would drop further. It is the fear over being wrongly entered again. For me, my T3B chart tells me it is low K line and buy signals appear. It is time to start buying and also following money management rules to go in.
4. Fear of profits goes away: this is so true of many beginner traders learning chart reading skills. The slight pull back triggers him to sell off quickly at 28 while I will hold until 33 when K line again is high with sell signals.
From Jesse Livermore’s book “How to trade in stocks”
Let the market confirm your opinion. Ignore personal opinion. Markets never wrong.
Don’t become an “involuntary investor”.
Never average losses!
Be very fearful of abnormal movements.
When you see a danger signal, don’t argue with it. Get out quickly. Profits always take care of themselves but losses never do.
One cannot be successful by speculating everyday or every week; that there are only a few times a year to speculate.
Interest in too many stocks at one time can be a costly mistake.
FOLLOW THE LEADERS
If you cannot make money out of the leading active stocks, you are not going to make money out of other stocks.
MONEY MANAGEMENT
If you are fortunate enough to double your capital, draw out half for reserve.
Use uptrend and downtrend rather than bullish or bearish stage.
MARKET TIMING
Watch for pivotal points – support and resistance points.
Never too anxious to cash in your profits but play the deal out to the end. Why would you be afraid of losing something you never really had? When the upward trend had reached its pivotal point, there would be danger signals.
PATIENCE
Wait until the preponderance of evidence is in your favour. Use Top Down Trading. Be patient.
Top Down = the market – the industry – the sister companies.
Check and follow the line of least resistance.
Understand the Industry Group Movement is essential to successful trading.
FAVOUR THE STRONGEST STOCKS IN THE STRONGEST INDUSTRY.
Follow the current leader.
This may not always be the conventional leader of the group. Sometimes, a well-managed stock in the group will assume leadership.
SELLING
High price is never a timing signal to sell a stock.
Just because a stock is selling at a high price does not mean it won’t go higher.
Similarly, just because a stock has fallen in price does not mean it won’t go lower.
NEVER BUY ON DECLINES. NEVER SHORT ON RALLIES.
Familiarize with the actions of the past for anticipating future movements - repetition of similar price movements.
Don’t anticipate moves with your hard earned money until confirming signals from the market that your judgment is correct.
Distribution down – stocks falter as they rally back to the old high because public holding on to falling stocks will wait until it rallies back to the price where they bought so they can sell it to get their money back
MONEY MANAGEMENT
30-30-40 rule
Never sustain in loss of more than 10% of invested capital
Margin call on declining position – never cover; sell out!
Cash reserve – you do not have to be in the market all the time
Stop loss – don’t try to figure out why it is going in the wrong direction. The fact that it is losing is enough evidence to close out.
Never buy and hold forever – nothing is permanent. Things change.
Avoid cheap stocks
|
No comments:
Post a Comment