not that you need this ... LOL
but I do !
and all newbie traders do too
from coyote .....
1999...saddle up * Trading is a losing game..."he who loses best, wins"....you MUST learn to take your losses immediately and with glee...they are your insurance policy in this buisness you have chosen. By "with glee" i mean that a well defined and executed stop-loss is a thing of beauty, something to be proud of. They will keep you IN THE GAME. Your freedom to implement stops as risk-control is what differtiates trading from gambling. Once the roulette wheel spins, you can't stop it....once the horse rounds the first turn, you can't yank your bet 'cause your horse is lagging...but if your stock is not performing...you can kick it out instantly! Think of your stop loss as a means of better positioning, of looking for a better entry. Much better to jump ship -1/8 with a willingness to wait and watch for a new entry, rather than riding a stock down 3/4, with no guarentee it will reverse. Extensive computer studies have shown that if you keep your losses to a maximum of 2% of your entire equity, PER TRADE...you can successfully survive the inevitable string of losses.
Before you enter the trade, pull out the calculator, determine your
amount of risk, adjust your number of shares to what you feel is a
comfortable stop, i.e. how fast you are at executions, how much slop you want to give for market "noise", and the relative SPEED at which that market trades. Write down your stop, and stick to it. If you find a trade going against you, and you find yourself increasing your stop loss, get out! Your ego is in control, and your ego will be responsible for the demise of your trading account. Ego wants to be right, regardless of what the tape action is telling you....when that little voice starts telling you to hang on...it will surely come back....know that Ego is vying for control. Ego loves to be proven right, and will hypnotize you into taking tremendous hits to validate itself by a lucky turn of events. Do not trade on hope, trade on reality..."what is the current buying/selling pressure?", with a willingness to bail out immediately if your trading plan is not panning out. Most traders place a trade, thinking it's a great one... and wait for the market to prove them wrong in their assessment...this gives Ego lots of time to hesitate and breed hope....as well as allow the trade to go against you beyond a reasonable point. If you enter a trade, assuming it is inherantly a bad trade, and you watch the trade in light of looking for the market to prove that you have made a correct choice this time...it will keep you that much more on your toes. Your ability to keep stops will determine your ability to survive...as will taking profits.
Three schools of thought on this matter are,
1.) half of your profits belong to the market....meaning that if you are up a point, and feel there is more in the trade, you will accept a half point pullback...NO MORE.
2) You may decide to expose no more than 2% of your gains to a pullback, similar to your stop loss dicipline.
3.) If your'e up a decent percentage, take half your profits off the table. Lock 'em in. NEVER let a profit turn into a loss. Learn to be happy with your gains, EVEN IF the stock runs another point! Instead of berating yourself for getting out early, you should be looking for your next long or short entry point. Learn to plan your trade according to a risk /reward scenario. A good ratio is 1/3....you are willing to risk 2% for a 6%+ gain. Once again, break out the calculator, look at the charts, learn support and resistance, trendlines, trendline channels...how far the stock has come already,
look to see if there is 6% in this trade....look to see how much of a
move according to the #of shares you are willing to trade will get you
to this point... If there isn't that PROBABILITY <vs. Possibility>, pass it by. There is always another bus coming...right on schedule. Another thing...do not quit your job to daytrade until you can easily match your existing salary. Quitting your job and diving into daytrading will add a subtle layer of stress to an already inherantly stressful occupation....the last thing you need. The potential for large profits are there, but it is by no means Easy Money....even tho the last 6 weeks may seem to contradict this. Play the rules, not the exceptions....the last 6 weeks have been full of exceptions.You will get out of daytrading exactly what you put in....it requires study, testing, tracking, research and journaling. Your first goal is survival, your second is making steady, consistant gains, your third is making large gains. Most enter trading targeting the third, and crash and burn. Begin trading small shares...use your heart-rate as an indicator of your comfort level...if you feel your heart run to 160...you are in over your head.
You want to learn to trade from a centered, calm mind-set. Plan your
trade...trade your plan. Learn to establish targets, and to have
expectations based on probability, combined with the willingness to
admit you are wrong, instantly.
* If you are day-trading..you
absolutely MUST be trading with Level II and a broker with speedy
executions...if you don't have these, or are waiting till you get a
little bit more money, you are dangling your wallet 2/3 out of your back pocket...pleading to be snatched. Paying 20 bucks a trade vs. 10 will save you tons of money in the long run, if the xtra $ give you access to instant trading and level II. You also need to become comfortable going short as you are going long. Shorting a stock is not evil...it just acknowledges that everything has it's cycles....as the oceans tide comes in, so it goes out. The market over-reacts in both directions...you want to profit from this knowledge. Not shorting as part of your buisness is like a professional truck driver not driving at night, refusing to use his headlights. He loses time and mileage.
*Patience pays....sometimes the hardest thing in trading is NOT trading.
If you are trading for the thrill, you are in the wrong buisness. If you cannot stop trading, or quit for the day after 3 losses in a row... or wait a day or two if necessary for the right conditions...you may be gambling. Losses can give an emotional thrill the same as Wins can.....some will stay in an abusive relationship just so they can feel SOMETHING....make sure this is not you.
*FINALLY, ask yourself everymorning if you feel sharp enuf to trade....trading demands absolute clarity and focus. Trading with a
hangover can get expensive....as can trading after a fight with the
wife....as can trading after a big hit...trying to "make it back"
....better to quit or pass for the day. The Market will ALWAYS be there.
Forget about the money....your goal is to trade well.....you learn to
trade well, for the record...and the money will follow naturally...
Thanks for the opportunity to remind myself of these things...hope it
helps the newer traders....here's to a happy and profitable New Year
;-)
-Coyoti |
