3 Trading Truths about Trading in Market

Humility:  We are in a business with change.  I have never met a person who has been successful at anything who thought they had it all figured out.  Yes, celebrate and enjoy but tomorrow you start over at the beginning.  Celebrate later and not until the play is over.

Perspective: Trading is emotional.  Eliminating the highs and lows is important because it takes out so much energy.  Yes it would have been cool to dive into the end zone but I would have had to pick myself off the ground and had to be on the extra point team the next play. The low is never as low or the high is never as high as it is in reality, generally.  Having perspective is how it all evens out.

Preparation:  When asked why athletes make better traders I always respond because they are willing to work long hours for the few times when it all lines up.  For football, you train 6 months the play a season.  You have 12 games.  You spend 4 days preparing, 1 day playing, 1 day reevaluating, and 1 day resting.  We prepare for those times and we always are waiting for the next time.  One trade can make your day, one week can make your month, one month can make your year, one year can make your career.

When I see people cheerleading a winning trade I think to myself have they never been here before and do they understand that….

YOU NEVER WIN.

You either get to go out on your terms or they lock you out of the building.

Never forget it is about the money.  Understand the goal.

Trading Truths............

1. It’s all about risk management … never risk what you can’t comfortably lose.
2. Never fall in love with a stock.
3. To be succesfull in trading; study, understand and practice. The rest is easier.
4. Always start by assuming your analysis is WRONG and that people much smarter and with more recent information are already positioned opposite you.
5. Never take on a position larger than your comfort zone. (Don’t overtrade)
6. Patience. never chase a stock.
7. Before entering the trade very think carefully what will make you wrong, write it down clearly and put it infront of you where you trade, and when your wrong get out happy you’ve followed your trading discipline.
8. Buy strength, sell weakness. Most traders are essentially counter-trend; most traders lose.
9. No one ever went broke taking a profit!
10. Once you find a good one, hang on unless of course they do you wrong.
11. Never add to a losing position! (Unless scaling in was part of the plan).
12. Whenever you think you’ve found the key to the lock, they’ll change the lock.
13. Do not overtrade.
14. Trade price not perception.
15. Know the difference between stocks that you want to stay married to and those that are just a fling.
16. The only sure way to make a small fortune is to start with a large one.

and to paraphrase Will Rogers: Buy only stocks that will go up. Don’t buy the ones that don’t go up. “THIS is GAMBLING.”

1. Cut your losses quickly and you may have a chance.
2. An indicator works until it doesn’t.
3. “MR. MARKET” IS ACTUALLY “MRS. MARKET” ONLY WOMEN CAN THINK, AND ACT THE WAY THE MARKET DOES. THAT IS WHY -ON AVERAGE -WOMEN ARE BETTER TRADERS THAN MEN, THEY UNDERSTAND WHAT THEY DEALING WITH!
4. I will be charged a transaction fee.
5. A healthy dose of ‘Common-sense’ mixed with a little ‘Patience’…increases the chances for trading success in the long-run…Let the trading set-ups come to you(i.e..master the art of patience)…Don’t let yourself be dragged in to chasing set-ups(i.e…show impatience)
6. If it’s that obvious , it’s obviously wrong” … Joe Granville
7. When you have that King-Kong feeling stop trading for a while.
8. In this business only the sky is the limit. Our personality is the gravity.
9. “I never benefited much from a move if I did not get in at somewhere near the beginning of that move. And the reason is that I missed the backlog of profit which is very necessary to provide the courage and patience to sit through a move until the end comes.”

Jesse Livermore/ How to Trade in Stocks

1. never plunge, in or out, of the market. Move in deliberately slow adjusting steps over time.
2. How do you know if you are overtrading and/or overleverged?

Simple! You feel “rushed” or compelled to plunge.

1. Spend MUCH more time picking stocks (or trade setups) than timing the overall market. Depending SOLELY on the latter as a way to earn return is doomed to failure and for most a quick ticket into the poor house
2. Don’t make any presumptions when entering into a new trade that you are going to be an investor or trader on it. It will tell you the answer depending on how it pans out later. Just don’t let a loser run. Objective is to get into a winning position and then stick with it as long as possible. Cutting a winner prematurely is more deadly and costly than hanging onto a loser for too long.
3. Ever Present Temptations to ALWAYS Resist:

• Trading a Forecast
• Trading a move BEFORE it happens… don’t jump the gun
• Trying to pick a top in an uptrending stock and vice versa
• Asking or wondering “why?” to explain things
• Being influenced by the external news/events. They are totally meaningless to market
• Betting the farm
• Being myopic or closed minded in your selections or beliefs
• Trying to make alot in a least amt of time
• Trying too hard, watching too closely
• Assuming the “majority” is wrong
• Trading on tips or “themes”
• …and

Betting too much on any sinlge trade Not diversifying enough (over time, stock and sectors)

Do’s and Dont’s of Trading

1. Forget the news, remember the chart. You’re not smart enough to know how news will affect price. The chart already knows the news is coming.
2. Buy the first pullback from a new high. Sell the first pullback from a new low. There’s always a crowd that missed the first boat.
3. Buy at support, sell at resistance. Everyone sees the same thing and they’re all just waiting to jump in the pool.
4. Short rallies not selloffs. When markets drop, shorts finally turn a profit and get ready to cover.
5. Don’t buy up into a major moving average or sell down into one. See #3.
6. Don’t chase momentum if you can’t find the exit. Assume the market will reverse the minute you get in. If it’s a long way to the door, you’re in big trouble.
7. Exhaustion gaps get filled. Breakaway and continuation gaps don’t. The old traders’ wisdom is a lie. Trade in the direction of gap support whenever you can.
8. Trends test the point of last support/resistance. Enter here even if it hurts.
9. Trade with the TICK not against it. Don’t be a hero. Go with the money flow.
10. If you have to look, it isn’t there. Forget your college degree and trust your instincts.
11. Sell the second high, buy the second low. After sharp pullbacks, the first test of any high or low always runs into resistance. Look for the break on the third or fourth try.
12. The trend is your friend in the last hour. As volume cranks up at 3:00pm don’t expect anyone to change the channel.
13. Avoid the open. They see YOU coming sucker
14. 1-2-3-Drop-Up. Look for downtrends to reverse after a top, two lower highs and a double bottom.
15. Bulls live above the 200 day, bears live below. Sellers eat up rallies below this key moving average line and buyers to come to the rescue above it.
16. Price has memory. What did price do the last time it hit a certain level? Chances are it will do it again.
17. Big volume kills moves. Climax blow-offs take both buyers and sellers out of the market and lead to sideways action.
18. Trends never turn on a dime. Reversals build slowly. The first sharp dip always finds buyers and the first sharp rise always finds sellers.
19. Bottoms take longer to form than tops. Fear acts more quickly than greed and causes stocks to drop from their own weight.
20. Beat the crowd in and out the door. You have to take their money before they take yours, period.

Before, During and After the Trade

1. Do you know the name and numbers of all your counterparts, especially if your equipment breaks down?

2. When does your market close, especially on holidays?

3. Do you have all the equipment you’ll need to make the trade, including pens, computers, notebooks, order slips, in the normal course and in the event of a breakdown?

4. Did you write down your trade and check it to see for example that you didn’t enter 400 contracts instead of the four that you meant to trade?

5. Why did you get into the trade?

6. Did you do a workout?

7. Was it statistically significant taking into account multiple comparisons and lookbacks?

8. Is there a prospective relation between statistical significance and predictivity?

9. Did you consider everchanging cycles?

10. And if you deigned to do a workout the way all turf handicappers do, did you take into account the within-day variability of prices, especially how this might affect your margin and being stopped out by your broker?

11. If a trade is based on information, was the information known to others before you?

12. Was there enough time for the market to adjust to that information?

13. What’s your entry and exit point?

14. Are you going to use market, limit or stop orders?

15. If you don’t get a fill how far will you go? And what is your quantity if you get filled on all your limits?

16. How much vig will you be paying if you use market or limit orders and how does that affect the workouts you did knowing that if you use stops you are likely to get the worst price of the day and all your workouts will be worthless because they didn’t take into account the changing price action when you use stops, to say nothing of everchanging cycles?

17. Are you sure your equipment is as good and as fast as the big firms that take out 100 million a day with equipment that takes into account the difference between being 100 yards away from an exchange and the time it takes the speed of light to reach you?

18. Are you going to exit at a time or based on a goal? And did you take into account what Jack Aubrey always did which is to have an escape route in case all else fails?

19. What important announcements are scheduled? and how does this affect when and what kind of order to use? For example, a limit before employment is likely to be down a percent or two in a second. Or else you won’t get filled and you’ll be chasing it all day.

20. Did you test how to change your size and types of orders based on announcements?

21. What’s the money management on this trade?

22. Are you in over your head?

23. Did you consider the changing margin requirements when the market gets testy or the rules committee with a position against you increases the margins against you?

24. How will a decline in price affect your margin and did you take into account what will happen when you get stopped out because of margin?

25. What will happen if you need some money for living expense or family matters during the trade? Or if you have to buy a house or lend money to a friend?

During and After the Trade

1. What’s your game plan if it goes against you and threatens your survival?

2. Will you be able to get out? Did you take that into account in your workout?

3. More typically, what will you do if it goes way against you and then meanders back to give you a breakeven? Or if it immediately goes for you or aginst you?

4. Would you be willing to take a ½% profit if you get it in the first 10 minutes?

5. Did you test whether taking small opportunistic profits turns a winning system into a bad one?

6. How will unexpected cardinal events affect you like the “regrettably,” or the pre-annnouncement of something you expected for the next open? And what happens if you’re trading an individual stock and the market goes up or down a few percent during the day, or what’s the impact of a related move in oil or interest rates?

7. Are you sure that you have to monitor the trade during the day? If you’re using stops, then you probably don’t have to but then your position size would have to be reduced so much that your chances of a reasonable profit taking account of vig are close to zero. If you’re using 10% of your capital on a trade, they you’ll have to monitor it for survival. But, but, but. Are you sure you won’t be called away by phone calls, or the others?

8. Are you at equilibrium in your personal life? You’re not as talented as Tiger Woods, and you probably won’t be able to handle distressed calls for money or leaks on the home front. Are you sure that if you’re losing you won’t get hit on the head with a 7-iron, or berated until you have to give up at the worst possible time?

9. After the trade did you learn anything from the trade?

10. Are you organized sufficiently to have a record of all your trades for your accounting and learning?

11. Should you modify your existing systems based on it?

12. How does recency and frequency and value affect your future?

13. Did you fit your after activities to your mojo?

14. If you made a good profit, did you take some capital out of the fray for a rainy day?

15. Have you learned to say “fair” whenevever anyone asks you how you’re doing and are you sure that you don’t spend a fortune after a good trade, and dissipate your profits with non-economic activities?

16. Is there a better use for your time than monitoring the ticks or the market every minute of the day if you do, and if you don’t, do those who do so and have much faster and better equipment than you have an insurmountable advantage against you?

10 - Things u should learn from Market

1. “There is no such thing as easy money” 

This is so true, in the markets, in everything. Those who happen upon money where it DID come to them easily, it seems, as a witness, have had it very fleetingly. In my own case, although I am supremely confident in the profitabliity of what I am doing, in practically any market, in virtually any “regime,” doesn’t mean it’s easy. It works like clockwork and is incredibly painful and distressing. It would be so much easier to simply sell buckets of blood.”

2. It’s bad to try to make money the same way several days in a row

3. Markets that have little liquidity are almost impossible to profit from.

4. When the stock market is way down, policy makers take notice and do what they can to remedy the situation.

5. The market puts infinitely more emphasis on ephemeral announcements that it should.

6. It is good to go against the trend followers after they have become committed.

7. One should not make one’s analysis more precise than one’s actual trading could ever possibly be.

8.If the rational mind has not determined the parameters of a trade, then upon execution, the lizard brain will decide.

9. Never go on vacation with open trading positions.

10.  All higher forms of math and statistics are useless in uncovering regularities.