Only price pays. In trading, emotions and egos are expensive collaborators. Our goal as traders is to capture price moves inside our time frame, while limiting our drawdowns in capital.
The longer I have traded, the more I have become an advocate of price action. Moving away from the perils of opinions and predictions has improved my mental well-being, and my bottom line. It also makes it easier to create and adapt to trading rules.
“WE LEARNED JUST TO GO WITH THE CHART. WHY WORK WHEN MR. MARKET CAN DO IT FOR YOU?” – PAUL TUDOR JONES
In developing a trading system of your own, you must begin with the big picture. First, look at the price action and then work your way down into your own time frame. You need to create a systematic and specific approach to entering and exiting trades, executing your signals with the right trailing stops, setting realistic price targets and position sizing, and limiting your risk exposure. Relying on fact, rather than being tossed around by your own subjective feelings, will insure your long term profitability.
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There are seven things that I believe are pretty common in the successful traders I have known, read about, and seen in action. Whether it is stock trader Nicolas Darvas in the sixties, commodity trader Ed Seykota in the twentieth century, or Jesse Livermore at the turn of the last century, many of their principles hold true to this day. The closer I get to these principles, the better I trade. The farther I stray from them, the worse I do. In trading, discipline pays. Adopt these seven habits of highly successful traders.
- Traders must have the perseverance to stick to trading until they are successful. Many of the best traders are the ones that had the strength to push through the pain, learn from their mistakes, and keep at it until they made it.
- Great traders cut losing trades short. The ability to accept that you are wrong and put your ego aside is the key to personal and professional success.
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If you have a winning system with the right risk management you can still fail to be profitable if you do not have the right trading psychology to trade it with discipline.
If you have a winning system with the right trading psychology you can still fail to be profitable by blowing up during a losing streak without the right position sizing and risk management.
If you have the right risk management and trading psychology you can still fail to be profitable because you are trading with no edge because you don’t have a winning trading system.
Profitable trading requires three dynamics: a winning price action trading system with an edge, proper position sizing with risk management, along with the right trading psychology to allow you to trade your process with discipline.
The original post is authored by Steve Burns of newtraderu.com and is available here.
- They risk too much to try to make so little.
- They trade with the probabilities against them.
- They think trading is easy money.
- Instead of focusing on learning how to trade they focus on getting rich.
- They blow up due to improper position sizing.
- With no understanding of the mathematical risk of ruin they are doomed after the first long string of losing trades.
- Blindly following a guru that leads them down the road of destruction.
- They don’t do their homework.
- They trade opinions not robust systems.
- They go looking for ‘trades’ instead of a methodology.
- They have no trading plan.
- They attempt to piggy back on the trades another trader but don’t understand the risks.
- Most new traders quit when they realized how much work is involved in trading successfully.
- Most traders quit when they learn how many losing trades they will have to have to get to the winners.
- New traders quit if they do not have a passion for trading itself.
- Many new traders will give up the moment they realize that trading does not have guaranteed income, you are an entrepreneur.
- They are not willing to pay the tuition to learn to trade in time, study, and losing trades.
- They are crushed by the learning curve that they do not work hard enough to get through.
- We lose a lot of new traders when they realize that trading is actually harder than their job.
- The traders that don’t make it quit when they were tired, frustrated, and stressed out, the winning traders quit after they had figured trading out.
The original article appears on newtraderu.com and is penned by Steve Burns. It can be accessed here.
I do not think traders start making money until they mature and understand the big picture. I have been on this journey myself and went through the wild excitement of the internet bubble, day trading and the experience of making a few hundred dollars in a few minutes the first time and the delusion of the get rich quit trading scheme and the expectations of doubling or tripling an account within a year. The game of trading has large amounts of money flowing through the markets that we want to capture for our accounts and can give rise to emotions that make us act immature through the delusion of ignorance, ego, and greed. We can easily become unrealistic and go down the wrong road, it is crucial for success that we stay on the right road.
1. Quit believing all the riches of people promising that you will be rich if you just sign up for their newsletter, seminar, or join their premium service. Look for realistic resources to learn from. The more hype the more the probability of a service being a scam.
2. Quit thinking you are going to double or triple your account in less than a year, even if you do that just means in almost all situations you are taking on too much risk. If you can achieve a 20%-25% annual return then you are among the best traders in the world, these are close to the annual returns of legends like George Soros, Warren Buffet, and Paul Tudor Jones.
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Most the investing establishment considers buy and hold investing the Holy Grail that always works out in the long term. For long term buy and hold investing your entry time frame matters, whether you got in at good prices and if you have time after bear markets to get back to even. NASDAQ buy and holders waited a long time from March of 2000 and buy and holders from 2007 also had to wait many years to get back to where they were. The most simple long term moving average systems can beat buy and hold by getting and keeping you in during bull markets and getting you out before big drawdowns. You are capping your downside risk and keeping your upside potential profits open by simply having an entry and exit strategy based on price action not opinions or predictions.
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The original article is written by Steve Burns and is available here.
As a trader, your #1 goal is to keep your current trading capital safe and secure. Your goal as a a trader is to make money and not lose money. Many new traders lose their trading capital in the first year, but these ten tips will help you keep your capital intact so you can make it grow.
- Do not start trading until you have fully educated yourself. Trading tuition is expensive when you trade first and learn later.
- Do not trade an account so small that commissions will end up being a big drag on your returns.
- Do not trade until you have a well developed trading plan.
- Trade a position size that does not cause your emotions to become so loud you can’t hear your trading plan.
- Only trade in markets you fully understand.
- Only take valid entry signals and do not chase. Let your entry point trigger first.
- Only trade in liquid markets so bid/ask spreads do not devour your account.
- Never risk losing more than 1% of your total trading capital on any one trade through proper position sizing, and by placing stop losses at the correct price levels.
- Never expose your total trading account to more than a 3% loss of total trading capital at any one time, on one day.
- Never move a stop loss. Take the exit the first time it is triggered.