20 trading principles

wish i had written these!!!
thanks ANANTH J ACHARYA for these.
he seems to have struggled and got the real thing.
many points i totally agree. rather all.
these are simple but not simplistic. worth framing and reading again and again.

pl download from
http://www.appliedelliottwave.com/page_cms.php?link_id=87

(thank u JP for sharing these with me)

secret of day trading success

which of the following trading scenario would you prefer
A. (total 375 points profit in 7 trades) + (total 95 points loss in 8 trades)
B. (280 points profit in 7 trades with no loss)
(*brokerage adjusted profit and loss)
well, on the face of it
both the above scenario look same.
rather, scenario B looks better than scenario A which looks scary!
but, the reality is
that
1. scenario B is just a mirage....it doesn;t happen pratically.
2. scenario A is not only practical but is the best way to be successful in trading.
3. even scenario A doesn't happen
instead scenario C happens as below
C.  (total 175 points profit in 7 trades) + (total 375 points loss in 8 trades)
why?
cutting winning trades early
and cutting losing trades late!
------------------------------------------------------
there is nothing called opportunity without risk.
and where risk is there, there has to be loss.
"cutting loss early, letting profit go on till max possible and trying to increase percentage winner trades"
is the secret of trading success.
------------------------------------------------------

in the above example (scenario A) which is close to reality, you will notice that trade success ratio isless than 50% but the net result is good! this fact speaks volumes. traders are so scared of loss as well as losing trades that they miss the real thing....the net profit!

same thing happens in life. we are so obsessed with the hardships and troubles that we miss the real things.........!!! 

(niftyshots.blogspot.com)

taking stock of the trades

results of last 22 trades (recent to backwards)
+26, -22, -20, -32, 0, -13, +33, +162, +38, +89, 0, -9, +31, -14, +30, +44, +46, -11, -8, +30, +72, +44

total +635, -129

net = +506

lessons = 80% of the profit comes from 20% of the trades. but since we can't be sure which 20%, we have to overcome fear and take every trade signal as per our method. also, it is not how many trades hit stop loss that matters, what matters is how less you lose in wrong trades and how you maximise the profit from the right ones! nobody feels good at the ringing of the stoploss bell. but you have to have the heart to keep listening and yet keep trading. few solid trades are worth all the pain! when you are not getting the head or tail of the situation it is either most likely not your fault and something is happening behind the curtain OR you are not in form. in both cases, stop trading for the day. (today being one of such days. and when you are going great guns, cricket ball looks like a football, keep going and turn your guns into a tank.

disclaimer = i missed some juicy trades too which don't figure in the above list. and was lucky in some which show here. being lucky as well as unlucky is also part of trading life.

why traders struggle - III

if you can't see blood

don't be a doctor.

if you can't see a temporary loss

don't be a trader!

minor corrections are part of a trade. that's the only way price moves. majority trades experience low blood pressure and abnormal pulse rate at the sight of an adverse price movement. those who are not sure of their trade and those who can't see temporary loss can't hang on.

(caution : don't lose more (blood) than is warranted)

why traders struggle - II

they

DON'T TRUST THE TREND.

majority traders are insecure fearful adament rebels

who take premature unwarranted prolonged reverse positions!

why traders struggle - I

the trouble with struggling traders is not that they don't take risk

the trouble is that they take wrong type of risk.

they take risk with losing trades

but avoid risk with winning trades!!!

a line that did wonders for me

"millionaires avoid safety

protect risk"

10 lessons i have learned from traders (Brett Steenbarger)

http://traderfeed.blogspot.com/2006/04/ten-lessons-i-have-learned-from.html

the above article is from Dr.Brett Steenbarger, my distant guru in trading psychology.
his blog is an encyclopedia of trading psychology and more....

platinum rule of trading

have u ever been to pushkar?

it's famous globally
for its pushkar fair.

hundreds of shops are set up
to trade camels, horses, bulls, cows and much more.

very hard bargaining takes place.

prices as high as five times the correct price can be quoted initially!

many traders throng the place
spend a day or two
to trade the livestock.

everyone wants
the best
for the least.

every animal gets sold
except
(and this is what i want to underline)
....except
the sick ones
or the ones with some or the issue.

hardly any trader in his thinking cap
is interested in an animal
he is not sure of its survival.

but very very surprisingly
in stock market
everyday
thousands and lacs of traders
trade in (live)stocks
which are not only sick
but seriously sick.
some are
shockingly
terminally sick!

since nobody can see the stock
unlike a horse or a cow,
hardly any amateur retail trader
bothers to check the health
of the stock he or she
is going to trade.

the result?

operators play their tricks
and the innocent traders
get trapped
amidst sick stocks
with little or no chance
of returning to health
atleast not so soon!
they are left with no choice
except to either keep bleeding
or book loss.

so,
here is the lesson
a crucial critical one
- never trade in fundamentally weak stocks
always trade in fundamentally strong ones.

so that
even if the operators play their games
(which they will)
you will still be
amidst
healthy camels
with enough "water"
to survive any desert.

trading in sick stocks
(fundamentally weak)
is like
swinging on the circus ropes
without safety net.

trading in weak stocks
is like playing
the devils game
with the devil.

a professional trader's secret

- have a method, an edge

- keep taking every trade indicated by this "edge"

- since the trade is based on a proven seasoned "edge" and since you know that anything can happen in a given trade, and since you also know that irrespective of the outcome of this trade you are bound to make good money if you keep following your "edge" without anxiety in the long run, stay in the trade till it is "definitely wrong".

- take the next trade irrespective of the outcome of previous trade.

- if the edge is right, by probability, you will make good money in the long run.

- do all this with a trade size just right for sound sleep at night.

these formulae are based on the following five fundamental truths
given by mark douglas
in
trading in the zone

1. anything can happen.

2. you don’t need to know what is going to happen next in order to make money.

3. there is a random distribution between wins and losses for any given set of variables that define an edge.

4. an edge is nothing more than an indication of a higher probability of one thing happening over another.

5. every moment in the market is unique.  

trading commandments from a samurai

trading is a lonely war
fought by we traders
everyday!

given below are some select precepts
from
The Dokkodo ("The Path of Aloneness" or "The Way to be Followed Alone")
written by Miyamoto Musashi
a great sumurai warrior
a week before he died in 1645.

after every commandment
i have given my interpretation/adaptation of it
for trading.

==

1. “Accept everything just the way it is.”
= accept the market reality in front of you.

2. “Do not seek pleasure for its own sake.”
= don't trade for pleasure

3. “Do not, under any circumstances, depend on a partial feeling.”
= don't jump or out of trade on shallow half-baked impulsive feelings.

4. “Think lightly of yourself and deeply of the world.”
= don't take your trading skills too seriously, take the ability of market to surprise seriously.

5. “Be detached from desire your whole life long.”
= make money, but don't let money make you.

6. “Do not regret what you have done.”
= smile at your mistake, laugh off your profit.

7. “Never be jealous.”
= what you've got is good and enough and incomparable

8. “Never let yourself be saddened by a separation.”
= a loss is never final. it either stays back as lesson or returns as profit.

9. “Resentment and complaint are appropriate neither for oneself or others.”
= accept the reality, keep the power with yourself by not complaining.

10. “In all things have no preferences.”
= don't measure your profit or loss, just measure them by the lesson or experience.

11. “Do not act following customary beliefs.”
= dare to think!

12. “Do not collect weapons or practice with weapons beyond what is useful.”
= a handful of tools are enough if you are willing to submit.

13. “Do not fear death.”
= do not fear unforeseen loss.

14. “Do not seek to possess either goods or fiefs for your old age.”
= don't trade under pressure to accumulate profit. if you remain alive, markets will always be there. just keep learning the game.

15. “Respect Buddha and the gods without counting on their help.”
= respect luck, acknowledge god's blessing, but don't drag them in the market.

16. “You may abandon your own body but you must preserve your honour.”
= loss is honourable if the fighter is worthy.

17. “Never stray from the Way.”
= rise again!

not a friend in need

"what does a man do

when he sets out to make the stock market

pay for a sudden need?

......he merely hopes.

.....he gambles.

he, therefore, runs much greater risks

than he would

if he were speculating intelligently,

in accordance with opinions or beliefs

logically arrived at

after a dispassionate study of underlying conditions.



to begin with,

he is after an immediate profit.

he cannot afford to wait.

the market must be nice to him at once, if at all.

he flatters himself............

.............it certainly is no way to trade. "



- reminiscences of a stock operator

never buy too cheap too easily

while going thru

"reminiscences of a stock operator"

i came across a line

"i don't buy any stock too cheap too easily".

i was surprised!

i tried but couldn't digest it.

how can someone say no to buying something too cheap and too easily?

the more i tried to understand the reason behind this

the more it eluded me!

had the statement come from a modern-day business-channel expert

i would have moved on long ago.

but since it came from

"boy plunger"

after traversing some 100 years

i was desperate to get behind the veil of the statement.

i kept wrestling with the question

and finally cracked it.

--

why do we buy a stock?

so that it goes up

and we finally sell it at a higher price

and make profit.

--

what livermore wanted to say was

that till the falling stock actually stopped falling

consolidated

and started to climb again

there was little chance that it wouldn't fall more!

and hence, no point buying it.

and when it finally showed strength

and started to move up

it would be a worth buying.

but by then

it wouldn't be at its cheapest price

besides being less comforting a buy

than when at its lowest!

--------

to quote livermore further

"stocks are never too high to buy or too low to sell."

and

"it is surprising

how many experienced traders there are

who look incredulous

when i tell them

that when i buy stocks for a rise

i like to pay top prices

and when i sell i must sell low or

not at all."

judgment day

be it the selection of stock

be it the entry point

or the exit point

be it the trade size....

everything related to the trades we take

is dictated by the pressures all around us.

sudden volume surge....

conflicting expert opinions.......

peer pressure........

euphoria.....

panic.....

logics...

etc.

everything

except

our own judgement.

--

result is in front of us.

--

fortunately

here is a sane advise from

'Reminiscences of a Stock Operator'



"a man must believe in himself

and his judgment

if he expects to make a living at this game.

without faith in his own judgment

no man can go very far in this game!"

don't expect big money from trading if

do you want big money from your stock market endeavour?

seems a silly question!

but somehow, i don't think so.

reason?

because, while it seems that every "trader" in the market

"desires" big money

but is perfectly ok with whatever he or she gets

if at all.

desiring something and actually working consciously for it

are two totally different things.

market doesn't owe you any money.

--

in the words of jesse livermore

"it is the big swing that makes
the big money for you."

but big moves are nothing

but a series on medium size moves

punctuated with intermittent corrections

and pauses.

majority traders get-off at these scary points

and hence never get that big move.

--

10 one centimeter long trades

don't give the same result

as 1 ten centimeter long trade

marked with corrections and pauses.

why?

first, 10 one centimeter long trades never happen

because of the 'one centimeter' mindset.

second, a lot happens in-between

when you get-off the train.

either you are unable to catch it again

or do it all at wrong time, at wrong cost.

--

almost all the traders i meet, see, hear, read and know

have all been strugglers since years

because they somehow never got the big swings under their belt.

either they didn't plan to look for big swings

or they simply couldn't ride them due to fear or greed or trading ability.

--

big time trading success

is nothing but

successfully acquiring the ability

to ride

big trend swings.

right, but not profitable enough?

"although i often was 100 per cent right on the market
that is, in my diagnosis of conditions and general trend
i was not making as much money as my market "rightness" entitled me to.

why wasn't i?

there was as much to learn from partial victory as from
defeat.

for instance,
i had been bullish from the very start of a bull market,
and i had backed my opinion by buying stocks.

an advance followed,
as I had clearly foreseen.

so far, all very well.
but what else did i do? why?

i listened to the elder statesmen
and curbed my youthful impetuousness.

i made up my mind to be wise and play carefully, conservatively.

everybody knew
that the way to do that
was to take profits
and buy back your stocks on reactions.

and that is precisely what i did,
or rather what i tried to do;

for i often took profits
and waited for a reaction that never came.

and i saw my stock go kiting up ten points more
and i sitting there with my four-point profit
safe in my conservative pocket.

they say you never grow poor
taking profits.
no, you don't.
but neither do you grow rich
taking a four-point profit
in a bull market."

--


Reminiscences of a Stock Operator
by Edwin Lefèvre

greatest blunder in trading

"i did precisely the wrong thing,"
livingstone notes.

"the cotton showed me a loss
and i kept it.

the wheat showed me a profit
and i sold it out.

of all the speculative blunders
there are few greater than
trying to average a losing game.

always sell what shows you a loss
and keep what shows you a profit."




reminiscences of a stock operator

advanced trading lessons from my trading diary

- be aware whether u r in a rally or range. trading decisions are totally different for both conditions.

- pro-rally indications are juicy, anti-rally are bitter

- at the start and towards the end of a rally, there are rangebound movements. these are foggy and tense times and need to be avoided.

- fill it, shut it, forget it. once you know the direction (from experience, trained gut and indications) just sit tight and don't fiddle. don't look at scary price gyrations. ultimately, market will do what your trained mind has figured.

- trade in index. it is surprise-proof.

- if u r trading in index, and if u r well-trained, and if u have sufficient backup funds, if u have done ur homework well, u don't need a stop loss or option insurance.

- go for option insurance only when they are cheaper.

- shut up those b#@$%^$s!!!. they know nothing.....chirping langoors........they have explanation for everything. stick to ur own head.

- 1-2-3 positional trades per month are enough. these will give you enough money to be super happy. more trades only bleed ur account.

- disasters don't happen in indexes without notice. even circuits (only 3 circuits in the history) don't kill if u r not stupidly leveraged. also, pro-circuits are heavenly (though to be attempted only by well-experienced). never worry disasters except in stocks (recent examples, gtl family).

- "courage is fear whose prayer has been said" : have guts to take a studied position. have the heart to see the blood. if ur homework is right, blood turns into ketchup sooner or later.

- core trading technique is god. if u have the technique u can bat on any pitch with confidence (like gavaskar, laxman)

trading inspiration

given below are some quotations which i have taken the liberty to adapt to trading:



original = 80% of success is showing up.- Woody Allen

adaptation=80% of trading success is taking the trade



original=He who dares, wins

adaptation=He who dares to take the trade and dares to honour the stoploss, wins



original=Anyone who has never made a mistake has never tried anything new - Albert Einstien

adaptation=Anyone who has never lost in trade has never tried anything new



original=Money never starts an idea; it's the idea that starts the money.- Mark Victor Hansen

adaptation=Money never makes a trade, it's the trade which makes the money



original=Success is neither magical nor mysterious. Success is the natural consequence of consistently applying the basic fundamentals.- Jim Rohn

adaptation=Trading success is neither magical nor mysterious. It is the natural consequence of consistently applying the basic fundamentals.



original=The path to success is to take massive determined action.- Anthony Robbins

adaptation=The path to trading success is to take massive determined action.



original=Your dreams minus your doubts equal your true worth.

adaptation=Your trading ideas minus your doubts equal your true worth.



original=The man who said he never had a chance, never took one.

adaptation=The trader who said he never had a chance, never took one.

road to trading success....

churchill said
"success is going from
failure to failure
without losing enthusiasm"

this line sums up my journey in stock market.

do i lose?
yeah! you bet!!

am i a good loser?
no way!!!

for the first one hour after booking the loss
i am like a dog sniffed by a snake....
i simply become a statue and don't talk to anyone.

for the next one hour thereafter
i kick myself a hundred times

for the one hour thereafter
i decide to quit trading
and simply drown myself
in some task which can help me forget everything!

only after those three hours
do i cool down!

then i realise
that while it is easy for me to take myself
out of the market
it is not that easy (if at all it is possible)
for me to take the market out of me!

it is then
that i sit down
take out my entire army of concise trading notes and tools
and start to analyse
what went wrong
and why!

80% of the times
i realise
that i had all the tools and info
to pick the right trade
and didn't
because i was "in a hurry"!

i look into the nearest mirror
and it confirms to me
what a careless trader i am!

rest 20% of the time
i realise that something had happened
which was simply not in my experience and understanding database.

that is what
re-sparks the learner in me.
i get down
to update my "software"
and plug the gap in my method.

i have been telling my wife
four times every month
for the last 27 months
(since jan 2009)
that
i have plugged the loop hole in my system...
and everytime
i return and confess
that i just came across
another nasty one!

this way
i have been improving
my trading method
time after time
after time
after time
after time....

...everytime i feel
that i have got my "holy-method"
only to be
painfully deceived!

and amusingly (but not ashamedly)
biggest failures
and loopholes
surfaced in recent times!

it may sound strange
but i think it is expected
and ok!

my patience has been tested
to the extreme....

but thanks to all this
my trading system today
is quite strong!

am i confident now!
yes! you bet!!

am i sure that there are no loopholes left?
no, not really!

so, have i stopped trading?
no way!
not NOW!!
at any cost!!!

while i won't be surprised
to see the next loophole
i expect to see them fewer!

also,
i will not desist from kicking myself hard
if i don't stick to my
latest version of
trading taj mahal!

for i know that i am not very far
from trading success
which will stay with me
for a life time!

surely
"success is going from failure to failure
without losing enthusiam!"