Reblog: Why I Ditched Technical Indicators (And Why You Should Too)


While the article talks about Forex, the underlying concept applies to stocks as well.

technical-indicators

Technical indicators are no doubt a favorite topic in the financial markets. They can range from a simple moving average to a complex array of algorithms.

It doesn’t matter whether you’re trading stocks, commodities, futures or any other market; technical indicators are a common theme.

Useful? Well, that’s another matter entirely.

But of all the financial markets, Forex is arguably the worst offender of overutilizing indicators. Proprietary languages like MetaTrader’s MQL have made it relatively easy for newcomers to design anything imaginable.

Other trading platforms offer similar languages. There are even businesses that do nothing but custom code indicators for clients.

And if you ask me, it’s closer to being part of the problem than the solution.

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Reblog: How To Use The Reward Risk Ratio Like A Professional


The reward to risk ratio (RRR, or reward:risk ratio) is maybe the most important metric in trading and a trader who understands the RRR can improve his chances of becoming profitable.

A trader who uses the RRR incorrectly will never become profitable on the other hand. In this article, I will show you what you need to know about the RRR.

Busting myths around the reward:risk ratio

Let’s first tackle some of the common misconceptions about the RRR to help you understand what most people get wrong before then diving into the specifics of the RRR.

Myth 1: The reward:risk ratio is useless

You often read that traders say the reward-risk ratio is useless which couldn’t be further from the truth. When you use the RRR in combination with other trading metrics (such as winrate), it quickly becomes one of the most powerful trading tools.

Without knowing the reward:risk ratio of a single trade, it is literally impossible to trade profitably and you’ll soon learn why.

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Reblog: Why Having A Trading Routine Is Vital To Your Success


I think we can all agree that habits are what determine our success or failure in any endeavor, trading included. So, how do we go about developing the type of habits that will lead us to profitable trading?

The answer: Routine.

Proper trading habits do not just magically appear out of thin air (unfortunately). They can sometimes take years to form. However, luckily for you, you have the power to put into motion a plan that will bring forth the proper trading habits sooner than otherwise possible. The development of positive habits, the ones that lead to success in any field, is something you can make a conscious effort to achieve simply by implementing consistent daily routines.

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Reblog: What is Gap Trading?


Forex Gap Trading

When trading, one cannot overstate the importance of gaps.

Gaps refer to areas on a chart where the price of a currency or stock moves sharply up or down with little or no trading in between. As this area represents an abnormality in the normal price pattern of the stock / instrument, it gets referred to as a gap.

So of what use can a gap be to an investor? Because the tiny area represents a fluctuation in the pricing, a trader can potentially exploit the gap and make a profit.

Gaps occur as a result of underlying fundamental / technical factors that vary for each stock or instrument and require monitoring and knowledge by the investor.

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Reblog: Inverted Cup and Handle Pattern: A Bearish Technical Trading Indicator


Inverted cup and handle patterns can be identified by their large crescent shape followed by a less extreme, upward retracement. The entire pattern usually takes within 3 to 6 month to develop. These patterns are meant to serve as being indicative of a bearish reversal.

Below is a chart of the EUR|USD foreign currency pair showing an example of an inverted cup and handle pattern:

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Reblog: 10 Things You Need To Know About Risk, Risk Management And Trading


I will start this piece by saying that I am not bullish or bearish, I don’t make market calls, or predictions and I don’t have opinions about the markets that I trade. I just follow my process, which is based on risk management, money management, price and moving averages. I lead off with this statement so that readers do not think that I am making some type of a market call by talking about risk management and downside protection while we are at all-time highs. I follow core concepts:

Respect price, respect risk and always be prepared for any outcome. 

With Global markets at or near all-time highs, and the money flowing in for many, now seemed to be an opportune time to remind ourselves that every day is a good day to focus on risk management. All of the greatest traders, Soros, Druckenmiller, Tudor Jones and Kovner, to name just a few, have a laser-like focus on capital preservation and risk management. They have all publicly stated that risk management and their ability to cut losses short is the cornerstone of their success. Paul Tudor Jones, a Billionaire Trader, is frequently the most quoted and has said:

“…at the end of the day, the most important thing is how good are you at risk control. Ninety-percent of any great trader is going to be the risk control.”

“Don’t focus on making money; focus on protecting what you have.”

“I am always thinking about losing money as opposed to making money.”

Bruce Kovner, another Billionaire Trader, said in Market Wizards: “First, I would say that risk management is the most important thing to be well understood”.

With that being said, here are 10 key concepts regarding risk management that I focus on:

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Reblog: Trading Rules From Amos Hostetter


Amos Hostetter cofounded Commodities Corporation (otherwise known as CC) along with Helmut Weymar back in 1969. CC is the trading shop that produced more legendary trading talent than the Yankees have All-Stars. Alumni include Bruce Kovner, Michael Marcus, Paul Tudor Jones, Ed Seykota and more…

Hostetter was considered the wise sage and mentor of the group. He’s credited with imbuing many of these trading greats with the wisdom and knowledge they used to achieve their grand heights.

Upon his untimely death in a car accident in 1977, the directors of CC commissioned one of their traders, Morris Markovitz, to gather and record Hostetter’s timeless philosophy on markets and trading. The goal was to ensure future CC traders could benefit from his invaluable teachings. The resulting work was an internal booklet titled Amos Hostetter; A Successful Speculator’s Approach to Commodities Trading.

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Reblog: Richard Rhodes 18 Trading Rules


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I must admit, I am not smart enough to have devised these ridiculously simple trading rules. A great trader gave them to me some 15 years ago. However, I will tell you, they work. If you follow these rules, breaking them as infrequently as possible, you will make money year in and year out, some years better than others, some years worse – but you will make money. The rules are simple. Adherence to the rules is difficult.

“Old Rules…but Very Good Rules”

If I’ve learned anything in my decades of trading, I’ve learned that the simple methods work best. Those who need to rely upon complex stochastics, linear weighted moving averages, smoothing techniques, Fibonacci numbers etc., usually find that they have so many things rolling around in their heads that they cannot make a rational decision. One technique says buy; another says sell. Another says sit tight while another says add to the trade. It sounds like a cliche, but simple methods work best.

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Reblog: Does Your Trading Psychology Have A Dark Side?


Having worked with highly skilled traders of financial markets at a variety of money management organizations, I’ve noticed one distinctive marker of success: the great traders leverage one or more great strengths in their personalities and in their information processing. Those strengths differ from one exemplary money manager to another, but in each case some distinctive strength is evident.

One portfolio manager, for example, is introverted and highly analytical. He works from an enclosed office that creates a quiet, distraction-free environment. His trading draws upon patterns in high frequency data not tracked by the vast majority of market participants. When those patterns appear, his software enters orders in the market, essentially eliminating any subjective elements from his decision-making. This automation frees him up to conduct new research for much of his day. By leveraging his analytical capacities and emotional self-control, he has created an approach to trading that has been successful for over a decade.

A second portfolio manager is quite different. He is quite extroverted and works on an open trading floor with a team of junior traders. He watches markets closely and continually communicates with market participants on the buy and sell sides. He is unusually skilled at distilling what others are thinking and feeling, particularly as markets are moving. He explains that his “edge” in trading is his ability to feel the fear and greed of others and exploit the biases in decision making that result from these emotions. For example, he detects unusual bearishness and risk-aversion among traders prior to a central bank meeting. When the meeting produces little surprise, he quickly takes the other side and accumulates a large position. By leveraging his social competencies, he also has crafted an approach to trading that has yielded long-term success.

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Reblog: 8 Life Lessons I Learned From Becoming a Trader


Although I’ve only been involved in the markets for about 10 years now, looking back, becoming a trader had a huge impact on me, and it profoundly changed me. It changed my way of thinking and looking at things, it challenged many of my previous beliefs and ultimately changed part of my personality. And it had repercussions in many other areas of my life.

I’d like to share with you a couple of life lessons I have learned from trading.

1- Being wrong is ok

We’ve been taught since we were kids that being right is good and being wrong is bad. It makes it very difficult for us to admit when we are wrong.

In trading, we are wrong very often. In fact, even the best traders out there are wrong between 40% to 60% of the time.

If you can’t keep your ego in check and admit quickly when you are wrong, you’re almost sure to lose all the money you have invested in the markets at some point. There is almost no way that you will make it as a trader unless you change your perspective on being wrong. Being right or wrong is just information, a feedback you use to adjust your actions. When you are wrong, the only thing to do is to stop being wrong by taking the right action.

2- Don’t dwell on missing an opportunity

What is fantastic with trading, is that, just like in real life, there is an endless stream of great opportunities that come our way. We just have to learn how to spot them. Just like trains, if you miss one, just get ready for the next one.

3- You are 100% responsible for your results

In the market despite having no influence whatsoever on the market, we are 100% responsible for our long-term results. The only way to be able to succeed in an environment you can’t control is to focus exclusively on the few variables you actually have control over. In life, despite not being able to choose where we come from, we have the power to take control of our destiny. We have to focus on what we can impact, what we can change. Blaming something or someone or the past is a complete waste of your precious time.

4- Listening to the media often is a waste of time

Before trading, I was a complete sucker for the news and social media. In order to improve my trading, I had no choice but to tune out the media noise in order not to be negatively influenced into deviating from my strategy and trading plan.

This made me realize that nothing bad actually happened to me since I stopped watching the news. In fact, my life got much better since then. Media are just money-making machines designed to make us become addicted.

5- What you focus on determines your results

Trading is one of the few endeavors where you have almost no boundaries. You are on your own and what you focus on becomes of utmost importance. I really discovered the importance of focus with trading. What you focus on in trading will literally determine your results.

If you focus on being right, you’ll probably lose a lot.

Focus too much on your recent winnings, and you will be prone to overconfidence.

Focus too much on your recent losses, and you will be scared of taking the next entry signal and more likely to change strategy.

Focus exclusively on trading while forgetting to analyze your past trades and results, and you will likely repeat the same mistakes over and over again.

Focus on listening to others, the news, social media, and you will be influenced by external opinions and prone to disregard your own rules or take trades outside of your strategy.

Focus on the money and it will be much harder to actually make money.

Focus on the process and positive expectancy, and money will follow.

6- I don’t have to be a slave to my thoughts

Trading made me discover that I had the power not to be a slave to my thoughts. By observing myself and the thoughts that cross my mind, I have more control over whether to act or not on those thoughts. This allows me to be calmer in stressful situations, where money is on the line for instance, and act in a more rational manner than I would have if I’d let my thoughts and emotional reactions take over.

7- You have to do things others won’t do in order to get things others don’t have

When we start trading, we are inclined to do what everybody is doing. We learn the same things as everybody else, read the same books, study the same chart patterns, the same indicators, listen to anyone who has an opinion, repeat the same mistakes over and over…

But since it is a well-known fact that 90% of traders fail, how can we hope to get different results by doing what the majority does?

In trading, just like in life, we have to think differently and do what others don’t in order to get what other people wish they had.

To be successful, you must be willing to do the things today others won’t do in order to have the things tomorrow others won’t have” – Les Brown

From my own experience, I discovered that most traders do not do thorough post-analysis of their trades and trading results. The overwhelming majority of new traders prefer very short time frames. They give too much importance to the outcome of a single trade. They focus exclusively on finding a way to have a high win rate, often to the detriment of risk/reward. They watch the news and get their trading ideas from others…

8- You can succeed at anything you want

Being able to beat the odds and become consistently profitable taught me that with patience, effort, drive, persistence, confidence and adaptability, they are very few things we can’t accomplish. With those qualities, that, fortunately, anyone can develop, you can almost be anything you want to be. Since I became a trader and discovered the limitless potential we all have in us, I developed my dream relationship with the woman I love, I became fluent in 3 languages, I became a bookworm, I launched a blog, I wrote an eBook, I traveled to many countries, … You just to have to decide on the few things you really want to accomplish and put all your focus and efforts toward those goals.

The original post appears on lonestocktrader.com and is available here