Reblog: 12 Dumb Things New Traders Do


There are some common mistakes that the majority of traders make as they dive into trading before they have really studied what does and does not work. All new traders will find many of these things familiar. Some of us had to fight our natural impulses hard to overcome these bad habits.

A Dozen Dumb Things that New Traders Do

  1. Being a stubborn bear in a bull market. Continuing to sell short inside a strong uptrend not only causes the loss of money as a market makes higher highs but you miss out on the easy profits made buy simply holding positions or buying the dips.
  2. Being a stubborn bull in a bear market. Some markets are under distribution and keep making lower lows. If a market is not in an established uptrend or trading range then it can go lower if support does not hold. A stop loss gets you out of a downtrend.
  3. Risking your entire trading account on one trade. You should never risk your whole trading account and trading career on one trade. Safety comes in trading a small size so every trade is just one of the next one hundred trades not your whole future on the line. This is a poor choice financially and emotionally. It is also a sign of arrogance believing you can predict a non-existent future.
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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: Profitable Trading Explained


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.