The Holy Grail of Trading

Do you want to make money from the markets? Consistently? I'd suggest forgetting everything you know about the market. The more you know about the stock market the worse off you are. The majority of people when they first start out trading think it's necessary to know everything about it because the market seems so complex. The markets are complex only if you make them out to be. Trading is actually very simple but what makes it so hard is human nature, not the market.

 

 

Lack of confidence, second guessing, fear of losing money, being greedy and selling when you can, not when you're forced too all are human emotions and those qualities are the reasons it's so hard to trade. It's not the market, it's you. The holy grail of trading is inside you, not in some technical indicator, a newsletter or some book. Understanding why people make the decisions they do under pressure and being able to read emotion from a chart, is one step closer to the only thing you really need to know. Emotion and perception about what people believe the prices should be are the driving forces of the market.

 

 

I'm telling you, technical indicators all pretty much same. It's the same regurgitated bull crap derived from volume and price. It only tells you where the price has been, none of them tell you where it will end up. If an indicator did tell you where the price is going to end up, exactly and all the time, that indicator won't work very long because everyone will jump on the bandwagon and destroy that particular indicator because everyone is expecting the same thing. At that point it'll be a great contrarian indicator.

 

 

Plus, the more technical garbage you have on your chart, the more likely paralysis by analysis will spring up while you're debating whether to sell or buy. You have so much going on you start second guessing yourself because one indicator might be conflicting with another. Soon enough, you sit there doing nothing while the stock is declining. Having a game plan before entering a trade is so crucial because it prevents what I just mentioned. The game plan you create will include: when to get in, when to get out if it goes against you, when to get out if you goes in your favor. Knowing these before hand, I guarantee will take the fear and psychological load off you while in the middle of a trade.

 

Trading is about probabilities, the odds of something happening with the provided information. Creating a strategy you develop yourself or buying one if you have the discipline to follow it are ways to help push the odds in your favor. But, the hard part is following the strategy exactly. Following directions seems to be something people don't know how to do. Someone will buy a strategy, put on a few trades and they all end up being losers's so they completely scrap that strategy and find one that works. WRONG! You can't have 100% winners, it just doesn't work like that. You will have losers. Any strategy that doesn't produce losers, I'd be very afraid of. 

 

Another emotional barrier you need to get past is admitting your wrong while you're in the moment of a losing trade. This is something I have trouble with sometimes. Why? Because I think the stock will go back up. Horrible...the fact that the stock is declining is more than enough reason to sell it for the loss you have and move on. When you buy a stock, I'm sure you're expecting it to move in your favor. Why would you hold on to it if it's not doing what you intended it to do? Stocks will go against you, it's the nature of the beast. Again, why is this so hard to do? Emotion. We get so wrapped up in wanting to make money now that we won't sell it and hope it goes back up so we can say we "won".

 

Trading is something of an art. It's not something you can go to school for, learn and then start making money right after school. It takes time, a lot of patience, and passion to keep you driven to understand the language of the market. Which is why I think the market is similar to reading music.

 

To a musician, he/she can read the musical notes and tell if this is a master piece or work done by a 5th grader (not knocking any genius 5th graders or anything  but I'm sure you get my point). To the untrained and undisciplined person, that sheet of music looks like a bunch of mumbled up squiggly garbage. But anyone can learn to read music. Same idea apply's to trading. An uninformed person looking at a chart has no idea what's going on and wonders how anyone can consistently make money at this. But the to trader who understands emotion and can relate that idea with the chart of a particular stock, he can read whether he'll buy it or sell it or even walk away from the trade. He can read the probabilities and decide whether to pounce or not.

 

It's about only putting on trades where the probabilities are slanted in your favor. Trade these setups over and over, while cutting any losses that might result from a good trade turning into a loser, and taking profits that result from your trade, is the holy grail to trading. Keeping it simple is the best way to go.

 

 

 

Below are a few books that I've read and highly recommend everyone to read to help them on their journey. Go to amazon and read the reviews.

• Trade With Passion and Purpose by Mark Whistler
• Market Wizards by Jack Schwager
• Inside the Investors Brain by Richard Peterson
• Trading in the Zone by Mark Douglas

Non Trading Books

• Richest Man in Babylon by George S. Clason
• Think and Grow Rich by Napolean Hill (love this book)
• Rich Dad Poor Dad by Robert Kiyosaki (of course everyone needs this on their book shelf)

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Seven Mistakes All Novice Traders Make and How to Correct Them

MISTAKE ONE

Lack of Knowledge and No Plan

It amazes us that some people expect to trade the stock market successfully without any effort. Yet if they want to take up golf, for example, they will happily take some lessons or at least read a book before heading out onto the course.

The stock market is not the place for the ill informed. But learning what you need is straightforward - you just need someone to show you the way.

The opposite extreme of this is those traders who spend their life looking for the Holy Grail of trading! Been there, done that!

The truth is, there is no Holy Grail. But the good news is that you don't need it. 

 

MISTAKE TWO

Unrealistic Expectations

Many novice traders expect to make a billion dollars by next Thursday. Or they start to write out their resignation letter before they have even placed their first trade!

Now, don't get us wrong. The stock market can be a great way to replace your current income and for creating wealth but it does require time. Not a lot, but some.

So don't tell your boss where to put his job, just yet!

Other beginners think that trading can be 100% accurate all the time. Of course this is unrealistic. But the best thing is that with some methods you only need to get 50-60% of your trades "right" to be successful and highly profitable.

 

MISTAKE THREE

Listening to Others

When traders first start out they often feel like they know nothing and that everyone else has the answers. So they listen to all the news reports and so called "experts" and get totally confused.

And they take "tips" from their buddy, who got it from some cab driver…

 

MISTAKE FOUR

Getting in the Way

By this we mean letting your ego or your emotions get in the way of doing what you know you need to do.

When you first start to trade it is very difficult to control your emotions. Fear and greed can be overwhelming. Lack of discipline; lack of patience and over confidence are just some of the other problems that we all face.

It is critical you understand how to control this side of trading. There is also one other key that almost no one seems to talk about. But more on this another time!

 

MISTAKE FIVE

Poor Money Management

It never ceases to amaze us how many traders don't understand the critical nature of money management and the related area of risk management.

This is a critical aspect of trading. If you don't get this right you not only won't be successful, you won't survive!

Fortunately, it is not complex to address and the simple steps we can show you will ensure that you don't "blow up" and that you get to keep your profits.

 

MISTAKE SIX

Only Trading Market in One Direction

Most new traders only learn how to trade a rising market. And very few traders know really good strategies for trading in a falling market.

If you don't learn to trade "both" sides of the market, you are drastically limiting the number of trades you can take. And this limits the amount of money you can make.

 

MISTAKE SEVEN

Overtrading

Most traders new to trading feel they have to be in the market all the time to make any real money. And they see trading opportunities when they're not even there (we've been there too).

Trade Well and the $$ Will Flow!

Thanks to stockmarketgenie.com

Ten Ways to Lose Money on Wall Street

I just finished reading Tape Reading & Market Tactics by Humphrey B. Neil and at the end of the chapter he has the following rules he has come up with based on his experience.

 

1. Put your trust in boardroom gossip
2. Believe everything you hear, especially tips
3. If you don't know, guess
4. Follow the public
5. Be impatient
6. Greedily hang on for the top 1/8th
7. Trade on thin margins
8. Hold to your own opinion, right or wrong
9. Never stay out of the market
10. Accept small profits and large losses

 

If you follow any of these rules, I'd try and come up with ways to get over them, fast.

 

Here's a quote I read that really stood out for me. It's so true and sums up the difference between trading and gambling so beautifully.

 

"Speculation in stocks, to be successful, must include judgement, common sense, and market perception; whereas stock gambling is nothing more than guessing upon the tick of the quotation"

My "Success Notes for Beginners"

I've had a stack of notes on my desk that I took from various books and seminars last summer. About 15 pages or so and I just condensed them down into a 6 page PDF document for anyone to download.  The notes are all well laid out with bullet points and highlights.

 

I can't even begin to describe how much is here and I'm sure you'll find at least one tidbit in here that you can use.

 

Download: http://www.mediafire.com/?ansdxysy3wm

 

 

Sample screen shot below

 

Got worked this morning

Well, where do I begin...This past week has been horrible in so many ways and I know 90% of it is because of me and the way I've been doing things. I'm not going to trade at the open anymore because a lot of it is the public either pushing or pulling the market one way or the other and then by around 8:30-9:30 PST it starts finding a direction. Maybe I'm just pulling this out my ass right now or trying to find some excuse as to why I suck at trading. But, I'll sit down to trade around 7-7:30 PST and let the opening quirks get worked out.

 

I'm way too aggressive with entering stocks. Problem is I feel like I'll miss an opportunity if I don't take it. Fact is, there's opportunities all the time and who cares if I'm watching a stock and it moves without me. I'd rather miss an opportunity than get into a stock and have it tank, haha, which has happened to me 3 or 4 times. I'm still totally new at this. One thing I haven't been doing is learning from my mistakes because I feel like I'm making the same mistakes over and over.

 

My entry and exit's aren't detailed or clearly defined. Which is probably contributing to my volatile equity curve. My mind seems to jump from one pattern to another, to one technique to another. I know there's no holy grail and I'm not looking for one. I'm just trying to find some edge in the market that's profitable over the long run, because what I'm doing now is basically throwing money away. Now that I re read that sentence it probably does sound like I'm looking for a holy grail. I almost felt like throwing my hands up and saying duck it, I can't do this.

 

I'm extremely under capitalized and I'm sure that's also destroying my odds of success. The profit I do make barely covers commission. The trade I made today would of made a profit but I didn't sell because I still would of lost cash even though my account showed a profit because of commission. Yada yada, just more complaining. I think I might paper trade and save what little cash I have left and use that time to develop a sound strategy and come back when I'm confident.

 

Again, I'm still learning and still trying to develop a strategy. I'd love to be able to back test my ideas but I have no idea how to program. If anyone's reading this and knows how to back test, let me know. I'd like to bounce some ideas off you.

 

Mhh.. what else. I read a book called Techniques of Tape Reading and I remember reading a small blurb about volume and price action. I came back over to my PC and spent about 5 hours looking over charts trying to find these patterns. Basically, I was looking for stocks that had a gigantic volume spike and price was in a downtrend. I was figuring that the public finally capitulated and gave up and would be a good time to get in now. Well, I found about 6 and 1 of these this morning ran up 14% (COSI). I was looking at LSI, HOV, UWN, CC, TARR. All had big spikes and were in downtrends. Yet, I didn't trade it, Because I got in on HOV early, like an idiot. I got sucked into all the morning hype and threw money away.

 

I wasn't planning on writing this much and I'm sure there's a lot of grammar errors but whatever, I just needed to get these thoughts out of my head.

 

QID- Rookie Mistake

Basically I went chasing after a rally. Market was falling and kept breaking support after support and I eventually went short at the bottom. I'm pissed about this trade because I did something that I'm trying to get myself not too. I'm working on the fact that I don't need to be trading every single day chasing opportunity. Every time I do that, I lose money, over and over and I can't get it into my head that trading like that is wrong.

 

Again, what I need to focus on is being carefree, but not reckless. What I'm doing now is being carefree and reckless. Man, that's easier said than done.

 

I got out before my stop was hit because it stopped acting the way I wanted it too. Looked like the decline was over and realized I made an idiotic trade.

 

This is how you don't trade

I can't believe what I just did. For one, I had a plan for a stock, had it all laid out and I end up buying it at my exit price and selling it for a loss. Green box represents my entry and red box is exit. I feel like an idiot, not because I lost money but because I did the exact opposite of my plan.

 

I hesitated to pull the trigger at my original target entry point and I think it's because I'm putting a lot of pressure on myself to perform. I can only make 2 trades a week to comply with SEC regulations and when I trade I always catch myself trying to trade the best setup so I can make my trading worth while and profitable. I should be focusing on making good trades wether they be profitable or at losses. This is an extremely good example of a horribly bad trade.

 

So, now that I've used my trade, I have one left for this week, 2 more if I push my luck. Before I was doing about 6 trades a week with nice success because I didn't care if I was tagged a day trader or not. But now, I seriously need to control myself and in doing that I'm killing my performance and my gains. I'm way too limited by my capital.

 

 

 

In case anyone notices, I did lower my entry and stop loss targets to account for the drop in support, which, in hindsight was a good idea but I didn't take the opportunity.