Cutting losses and riding profits are equally important to the success of a trader. Both are difficult to master.
To cut the story short, in order to make money, profits must be more than the losses and must be enough to cover all the expenses for a trader to survive.
Sound stupid, who don't know about it, but why many are still losing money? The answer lies in the past few lessons, simply just unable to follow them.
In trading performance, notice the difference between the 2 traders?
8038 is very consistent, slow and steady, controlling his losses very well and riding his profits on low volume. I like to see traders making money on low volume trading from home, controlling the comm with patience instead of recklessly getting into a trade.
Remember, being a Day Trader don't try to scalp, when the volume increases you are just not trading right. Too much slippage. Compare the comm of 8022 and 8038, you will understand what I'm talking about. Despite advising 8022 on numerous occasion to reduce his volume, he just can't change the way he trades, thus going around in circles.
When you are not making money after some time, put in an effort to find out the reasons from your trading journal. Unfortunately, most don't keep one, that's why they are not learning.
Sunday, May 29, 2011
Saturday, May 21, 2011
Lesson No 7 - Trading Rules
Formulate your own trading rules that suits your style of trading and follow them religiously. Examples below are some that you might want to adopt, adjust, change or add.
1. Check the overnight performance of the various markets.
2. Check the timing for announcement of economic data and the various figures.
3. Plan your Trades.
4. Justify your trade entry.
5. Put in a stop immediately.
6. Limit your losses per trade, 5 ticks, 10 ticks or 20 ticks.
7. Limit your losses per day, $500, $1,000 or $2,000.
8. Stop trading if being stop out 3, 4 or 5 times in a row.
9. Avoid getting in an out of the market too often unless you are a scalper.
10. Avoid Averaging on bad trades unless it's in your trading plan.
11. Avoid chasing the market if you miss it, the market is there everyday.
12. Don't ever allow a big winning trade to turn into a loser, move your stop to protect it.
13. Beware of the risk of trying to pick tops or bottoms, many stops are placed there.
14. Trade what you see not what you think.
15. Get out of a Trade immediately if you don't feel comfortable.
16. Stop trading if you are tired.
17. Never never carry a losing position overnight.
18. Do a post mortem of your trades at the end of the day.
19. Control your frustration, don't blame anybody for your losses and admit when you are wrong.
20. Learn from your losses, you paid for them.
Trading is simple but it's not easy.
Many traders are not making money because they can't even follow simple rules.
1. Check the overnight performance of the various markets.
2. Check the timing for announcement of economic data and the various figures.
3. Plan your Trades.
4. Justify your trade entry.
5. Put in a stop immediately.
6. Limit your losses per trade, 5 ticks, 10 ticks or 20 ticks.
7. Limit your losses per day, $500, $1,000 or $2,000.
8. Stop trading if being stop out 3, 4 or 5 times in a row.
9. Avoid getting in an out of the market too often unless you are a scalper.
10. Avoid Averaging on bad trades unless it's in your trading plan.
11. Avoid chasing the market if you miss it, the market is there everyday.
12. Don't ever allow a big winning trade to turn into a loser, move your stop to protect it.
13. Beware of the risk of trying to pick tops or bottoms, many stops are placed there.
14. Trade what you see not what you think.
15. Get out of a Trade immediately if you don't feel comfortable.
16. Stop trading if you are tired.
17. Never never carry a losing position overnight.
18. Do a post mortem of your trades at the end of the day.
19. Control your frustration, don't blame anybody for your losses and admit when you are wrong.
20. Learn from your losses, you paid for them.
Trading is simple but it's not easy.
Many traders are not making money because they can't even follow simple rules.
Saturday, May 14, 2011
Lesson No 6 - How do you want to trade?
Full Time or Part Time?
Scalper?
Day Trader?
Spreader?
Position Trader? or
Option Trader?
For someone who is new to trading, jumping in to be a full time trader is like on a suicide mission, the risk of losing your capital is extremely high. With 90% failure rate, what do you think your odds will be against all those veteran traders?
If you are having a decent paying job, think carefully before you embark on this treacherous mission straight away. There are so many things to learn about trading, it will probably take a few years, just like going to school and paying tuition fees.
Ask yourself honestly whether you are prepared go without income for a year or two, even losing your capital.
For someone new, I suggest starting out as a part time trader taking a few hours (3 would be ideal) at night to focus on trading. Anything more than that will be very tiring since you need to work the next day, don't burn yourself out, have a clear mind.
Open an account with Interactive Brokers as a retail customer to trade any International product.(they offer one of the lowest comm rate). When your daily trading volume goes up, consider joining any of the Exchanges as a member to enjoy even lower comm. Check out SGX website and membership department, the Exchange offer some incentives and clearing fee rebates for new members.
Read some good trading books.
Learn about Technical and Fundamental Analysis.
Learn to be proficient in the Trading Platform for execution of trades.
Learn the charting platform.
Visit websites like www.investopedia.com for financial terms and tutorials and www.elitetrader.com, a community for active traders.
Join AFACT (Association of Financial and commodity Traders) at www.afact.org.sg for support and events, participate in the Forum, read the past threads to learn more about the trading.
To shortcut the learning process, visit www.sgxacademy.com for the various courses offered. Singaporeans who are in the financial or related industry can apply for 50% funding for some of the courses.
Once you are ready, decide on what instrument to trade, choose a contract you are comfortable, with good daily volume and volatility.
For a newcomer, I suggest doing light scalping or day trading, square off the position at the end of the day to reduce overnight risk. Have a set of rules governing how you want to engage the market, follow them strictly with military discipline. There should not be "If" or "should" in your vocabulary as excuses for any mistake made, just learn from it and move forward.
Start out with only 1 contract, until you are consistently making money doing so before attempting to add an additional contract. Many traders start losing money by increasing their trading size because they are unable to adjust their mentality to the higher risk of trading. It's one of the many challenges facing even veteran traders like myself.
Be patient, selective and justify the entry before putting in a trade, then put in a stop order immediately (without fail). It's OK not to trade for the session if you don't have a set up for an entry, that will actually build up your patience. Limit yourself to not more than 3 entries and set a limit losses for the night (maximum $300 to $500 depending on your risk tolerance).
It's very important to justify a trade entry, reasons for taking that trade. WHY? You must be able to explain and be accountable for your action. It doesn't matter if you are wrong, your stop will protect you from disaster. Once you are doing the right thing, practice will make perfect, subconsciously, you are developing good trading habits.
Scalper?
Day Trader?
Spreader?
Position Trader? or
Option Trader?
For someone who is new to trading, jumping in to be a full time trader is like on a suicide mission, the risk of losing your capital is extremely high. With 90% failure rate, what do you think your odds will be against all those veteran traders?
If you are having a decent paying job, think carefully before you embark on this treacherous mission straight away. There are so many things to learn about trading, it will probably take a few years, just like going to school and paying tuition fees.
Ask yourself honestly whether you are prepared go without income for a year or two, even losing your capital.
For someone new, I suggest starting out as a part time trader taking a few hours (3 would be ideal) at night to focus on trading. Anything more than that will be very tiring since you need to work the next day, don't burn yourself out, have a clear mind.
Open an account with Interactive Brokers as a retail customer to trade any International product.(they offer one of the lowest comm rate). When your daily trading volume goes up, consider joining any of the Exchanges as a member to enjoy even lower comm. Check out SGX website and membership department, the Exchange offer some incentives and clearing fee rebates for new members.
Read some good trading books.
Learn about Technical and Fundamental Analysis.
Learn to be proficient in the Trading Platform for execution of trades.
Learn the charting platform.
Visit websites like www.investopedia.com for financial terms and tutorials and www.elitetrader.com, a community for active traders.
Join AFACT (Association of Financial and commodity Traders) at www.afact.org.sg for support and events, participate in the Forum, read the past threads to learn more about the trading.
To shortcut the learning process, visit www.sgxacademy.com for the various courses offered. Singaporeans who are in the financial or related industry can apply for 50% funding for some of the courses.
Once you are ready, decide on what instrument to trade, choose a contract you are comfortable, with good daily volume and volatility.
For a newcomer, I suggest doing light scalping or day trading, square off the position at the end of the day to reduce overnight risk. Have a set of rules governing how you want to engage the market, follow them strictly with military discipline. There should not be "If" or "should" in your vocabulary as excuses for any mistake made, just learn from it and move forward.
Start out with only 1 contract, until you are consistently making money doing so before attempting to add an additional contract. Many traders start losing money by increasing their trading size because they are unable to adjust their mentality to the higher risk of trading. It's one of the many challenges facing even veteran traders like myself.
Be patient, selective and justify the entry before putting in a trade, then put in a stop order immediately (without fail). It's OK not to trade for the session if you don't have a set up for an entry, that will actually build up your patience. Limit yourself to not more than 3 entries and set a limit losses for the night (maximum $300 to $500 depending on your risk tolerance).
It's very important to justify a trade entry, reasons for taking that trade. WHY? You must be able to explain and be accountable for your action. It doesn't matter if you are wrong, your stop will protect you from disaster. Once you are doing the right thing, practice will make perfect, subconsciously, you are developing good trading habits.
Thursday, May 12, 2011
Problems? See them as opportunities.
For those who miss this well written article by - Pragya Mehta
The word "perception" comes from the Latin words perceptio and percipio, as is defined by the Oxford English Dictionary as "the process of becoming aware or conscious of a thing or things".
It means that one should not only look at things, but also comprehend them.
Let me illustrate this with a short story.
There was a boy who stammered while speaking, and his friends often teased him about it. One day, he asked his mother whether he was "physically challenged in speaking".
His mother replied: "No, son. It is just that your brain run faster than your tongue does." And with that, she turned his weakness into a strength.
There are many ways to look at a problem. Some people see it as a stumbling block, while others see it as a stepping stone. People often blame "circumstances" for their problems. But they may not realise that these circumstances are simply the result of decisions they have made.
There is nothing inherently good or bad in any situation, but our thinking makes it so.
All problems can be solved eventually. Tears and regret will not help. What is important is to accept the mistakes you have made, analyse what went wrong and be happy to have gained experience in life.
Commit yourself to do better in future and be thankful for the opportunity to grow stronger, become more understanding and have more confidence.
So, the next time you encounter a problem, tell yourself: An opportunity is knocking.
Change your perception.
The word "perception" comes from the Latin words perceptio and percipio, as is defined by the Oxford English Dictionary as "the process of becoming aware or conscious of a thing or things".
It means that one should not only look at things, but also comprehend them.
Let me illustrate this with a short story.
There was a boy who stammered while speaking, and his friends often teased him about it. One day, he asked his mother whether he was "physically challenged in speaking".
His mother replied: "No, son. It is just that your brain run faster than your tongue does." And with that, she turned his weakness into a strength.
There are many ways to look at a problem. Some people see it as a stumbling block, while others see it as a stepping stone. People often blame "circumstances" for their problems. But they may not realise that these circumstances are simply the result of decisions they have made.
There is nothing inherently good or bad in any situation, but our thinking makes it so.
All problems can be solved eventually. Tears and regret will not help. What is important is to accept the mistakes you have made, analyse what went wrong and be happy to have gained experience in life.
Commit yourself to do better in future and be thankful for the opportunity to grow stronger, become more understanding and have more confidence.
So, the next time you encounter a problem, tell yourself: An opportunity is knocking.
Change your perception.
Sunday, May 8, 2011
Lesson No 5 - Passion
"I'm in for the money"
That's the truth, money is the main motivating force for me to be in this trading business. Trading can be lonely, boring and tiring at times, testing our patience and stretching our tolerance to the limit. Who is trading for fun and not for the money?
So, we have to develop this passion for making money by being pro-active to understand and learn more about trading. The Internet offers free information for traders who are keen to learn. Do you know any of these websites?
What trading books have you read? What have you learn from them? Most read and forget, never apply what they have learnt.
Passion is when your mind is totally focus on trading and love doing so, when you eat, sleep and even dream about trading. You make constant effort to monitor the market closely, knowing what price it open, overnight closing price, what's the high, low, volume, open interest, etc, etc at the back of your mind.
There must be a desire to know what is happening in the market, reasons for certain price movement, factors affecting it and what action you should take. One will then have a good feel of the market, that's what separate the 10% from the 90%.
That's the truth, money is the main motivating force for me to be in this trading business. Trading can be lonely, boring and tiring at times, testing our patience and stretching our tolerance to the limit. Who is trading for fun and not for the money?
So, we have to develop this passion for making money by being pro-active to understand and learn more about trading. The Internet offers free information for traders who are keen to learn. Do you know any of these websites?
What trading books have you read? What have you learn from them? Most read and forget, never apply what they have learnt.
Passion is when your mind is totally focus on trading and love doing so, when you eat, sleep and even dream about trading. You make constant effort to monitor the market closely, knowing what price it open, overnight closing price, what's the high, low, volume, open interest, etc, etc at the back of your mind.
There must be a desire to know what is happening in the market, reasons for certain price movement, factors affecting it and what action you should take. One will then have a good feel of the market, that's what separate the 10% from the 90%.
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