7 Things Each Trader Has To Accept If They Want to Trade

If you truly are serious about being a trader then there are seven things that you will have to accept.

1. You will have to accept that over the long term at best only 60% of your trades will be winners. It will be much less with some strategies.
2. Accept that the key to being a successful trader is having big wins and small losses, not big bets paying off. Big bets can lead quickly to you being out of the game after a string of losses.
3. Accept that the best traders are also the best risk managers, even the best traders do not have crystal balls so they ALWAYS manage their capital at risk on EVERY trade.
4. If you want to be a better trader then you need to accept that trading smaller and risking less is a key to your success. Risking 1% to 2% of your capital on any single trade is the first step to winning at trading. Use stops and position sizing to limit your losses and get out when your losses grow to these levels.
5. You must accept that you will have 10 trading losses in a row a few times each year. The question is what your account will look like when they happen.
6. You have to accept that you will be wrong, a lot.  The sooner you accept you are wrong and change your mind the better off you will be.
7. If you really want to be a trader then you are going to have to accept the fact that trading is not easy money. It is a profession like any other and requires much work and effort and even years to become proficient. Expect to work for free and pay tuition to the markets through losses until you learn to trade consistently and profitably.

Trading is about math, ego control, risk management, psychology, focus, perseverance, passion, and dedication. If you are missing one, you may not make it. Trade wisely my friends.

Four Types of Trades

“There are really four kinds of trades or bets: good bets, bad bets, winning bets, and losing bets.” – Larry Hite

Hite explains that good and bad trades are independent of winning and losing trades. Therefore, a winning trade wasn’t necessarily a good trade, and a losing trade wasn’t necessarily a bad trade. There are trades that are good when taken that end up losing and trades that are a bad idea from the start that make money.

We should not get to excited over winning trades or beat ourselves up over losing trades. We must have the ability to logically assess whether our reasons for taking a trade were valid upon entry.

A good trade can lead to a loss because of the nature of randomness.

A bad trade can lead to a big win due to luck.

Winning trades can come from bad entries or good entries in the short term.

Losing trades can be caused by bad entries or good entries in the short term.

In the short term trading results can be random but in the long term managing risk, going with the trend, and following a system with discipline will separate the lucky traders from those that have an edge.

Trading Methods, Systems, and Plans

Do You Know the Difference Between Trading Methods, Systems, and Plans?

There are significant differences between trading methods, trading systems, and trading plans. These variations can be confusing for new traders, but it is important that students of the market understand and develop these areas in order to optimize their chance of success.

Trading Method

A trading method is the overall process and trading style that is used to profit from the markets. A trading method can be defined as principles used to successfully trade in the stock market, options, forex, futures, or bonds. These operating principles are based on the belief of long term profitability and increased value of trading capital. Traders using different systems and different plans can use the same methodology. Methodology is based on the specific style of trading, with some examples being:

• Technical Analysis
• Trend Following
• Value Investing
• Momentum Trading
• Growth Investing
• Swing Trading

Trading System

A trading system is a set of rules that quantifies buy and sell signals, as demonstrated by successful testing on price history or chart studies. A trading system is the specific kind of data or knowledge used to execute the trading method, based on price action or fundamental valuations. These signals are triggered by measurable technical indicators or key levels on charts. Trading systems have specific parameters relating to position sizing that manage risk and increase the probability of profitability over time. A trading system has at least eight quantifiable elements:

1. Entry signal
2. Exit signal
3. Winning percentage
4. Risk to reward ratio
5. Position sizing parameters
6. Frequency of trading opportunities
7. Average expected annual return
8. Maximum expected drawdown

Trading Plan

A trading plan is a set of rules, consistent with a trader’s chosen methodology and system that govern how trades will be executed in real-time. These rules determine what will happen based on the trading system’s entries and exits, risk management, and psychology. The trading plan is meant to keep the trader disciplined and safe from their own weaknesses, while providing the parameters for consistent profitability.

Understanding the difference between methodology, system, and plan is essential to organizing and implementing trades at the right levels. As traders turn research into beliefs, trading methods will become their religion, trading systems will become their bible, and their trading plan will allow them to walk in faith every day.

15 Ways to Manage Trader Stress

Trading stress is primarily caused by two  things: either not knowing what to do, or knowing what to do and not doing it.

Many times, a new trader will discover that there is a big difference between reading about trading or simulated trading, and trading with real money on the line. Stress can knock a trader out of trading faster than anything else. You have to trade like it is a business. Realize that it is highly probable that half of your trades will be losers, and your profits will come from the other half of your trades. You can not control the market, you can only control what you do, your entries, exits, position sizing, and method. Practicing discipline and self control at all times keeps you out of very stressful situations. The key to trading success is about stacking the odds in your favor, and not thrills. This is a business not an amusement park ride, trade accordingly.

1. Only risk 1% of total trading capital per trade, with stop losses and proper position sizing. Proper positions sizing eliminates serious emotional impact of any one trade. Each trade is only one of the next one hundred, which gives traders a totally different mental perspective than an all in/have to be right Hail Mary trade.
2. Only trade a  position size you are comfortable with.
3. Trade a method or system you believe in, based on backtesting of a positive expectancy.
4. Know where you will get out of a trade before you get in.
5. Only trade with a detailed trading plan.
6. Believe in your ability to follow your trading plan. You must have faith in yourself to lower your stress level.
7. Know yourself as a trader, and only take your kind of trades. Take trades that will leave no regrets because they were good trades, regardless of  the outcome.
8. Do not listen to any unsolicited advice about the trade you are in. Follow your own plan and shield yourself from distraction.
9. Sit out markets that you are uncomfortable trading due to volatility or  looming risks. Know when it is time to trade and time to ‘go fishing’.
10. Do your homework before you trade. Be confident in your trade until it hits your stop. Get out when your stop is hit.
11. Keep your ego out of your trading. Run it like a business, with the profits and losses as your focus, not your ego.
12. Only trade when the odds in your favor. It is much less stressful trading this way.
13. Do not blame yourself for losses if you followed all your rules. The market giveth and the market taketh away.  Just keep taking your entries and exits.
14. If you do not know what to do, DO NOTHING.
15. To lower stress levels, trade less and get away from watching every single price change. Day traders could trade only the open and closing hour, swing trader and trend traders could just take opening or closing signals. You could go from every tick to just checking in every hour or so if you have options or hard stops in. Most of the days trading is random noise, and randomness will stress. Focus on your time frame, and only the quotes that really matter when they matter.

Top 25 Money-making Trading Books

I was curious to see what I had missed in my decades of reading the best books on trading and the stock market. I was glad to see that we all shared a love of the books that I thought were some of the very best.  I  believe this is an excellent and informative list for new traders upon entering the trading field. While many lessons will only be learned after experiencing real trades, real losses, and the challenges of trading psychology, I still believe in learning from others as a shortcut. I have read the first 22 of these 25 books and I give them all 5 out of 5 stars. Each book title is linked directly to its Amazon page to simplify your research.

#1 How to Make Money in Stocks: A Winning System in Good Times and Bad

#2 Reminiscences of a Stock Operator

#3 Market Wizards, Interviews With Top Traders

#4 How I Made $2,000,000 in the Stock Market

#5 Trend Following: Learn to Make Millions in Up or Down Markets

#6 How to Trade In Stocks

#7 Trade Your Way to Financial Freedom

#8 Trading for a Living: Psychology, Trading Tactics, Money Management

#9 Trading in the Zone: Master the Market with Confidence, Discipline and a Winning Attitude

#10 The Complete TurtleTrader: How 23 Novice Investors Became Overnight Millionaires

#11 Stan Weinstein’s Secrets For Profiting in Bull and Bear Markets

#12 The Disciplined Trader

#13 Come Into My Trading Room: A Complete Guide to Trading

#14 Pit Bull: Lessons from Wall Street’s Champion Day Trader

#15 Trade Like a Casino: Find Your Edge, Manage Risk, and Win Like the House

#16 Antifragile: Things That Gain from Disorder

#17 Martin Zweig’s Winning on Wall Street

#18 One Up On Wall Street: How To Use What You Already Know To Make Money In The Market

#19 The Battle For Investment Survival: How To Make Profits

#20 Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary Traders

#21 Trade Like an O’Neil Disciple: How We Made 18,000% in the Stock Market

#22 Super Trader, Expanded Edition: Make Consistent Profits in Good and Bad Markets

#23 Long-Term Secrets to Short-Term Trading

#24 Technical Analysis Using Multiple Timeframes

#25 Neue Trading Dimensionen

Traders Top 12 Favorite Trading Blogs

I conducted a poll titled “What is your favorite trading Blog?”  looking for the top trading blogs online. I was trying to get the poll out there and have some diverse voting. I looked around online to find other top trading blog lists to build my original poll. Thanks to everyone who cast a vote and also to those that took the time to fill in a blog under ‘other’ that allowed us to discover new blogs I had not heard of but seem great. I ended up getting 389 people to participate and I am happy with the results. My original plan was a top ten list but three blogs ended up in a tie for 10th, not wanting to leave out any of the three great blogs that tied I expanded this to a top twelve list. I had heard of many of these blogs before and read some of them at times. I believe this list could provide a great starting point to quickly find a few blogs that fit your trading style. I know I will start checking them out myself and find the ones that want to read going forward.

#1 www.NewTraderU.com

#2 www.MarketChess.com

#3 www.BenCBanks.com

#4 www.joefahmy.com

#5 www.seeitmarket.com

#6 www.smbtraining.com

#7 www.bclund.com

#8  www.dragonflycap.com

#9 www.jonboorman.com

#10 www.trendfollowing.com

#11 www.chartlearning.com

#12 www.fat-pitch.blogspot.com

Find a Monster Stock in 15 steps

Monster stocks are those wonderful beasts that make you look like a genius trader.

Shorts think that they are way too expensive and will crash, so they go short and have to cover en-mass after another 10 point run; they create even more buying pressure. Traders that short monster stocks do not understand the momentum that earnings expectations and growth cause for a stock’s price. They do not understand supply and demand. A stock that is $300, $400, or $500 based on earnings per share, could still be fundamentally cheaper than a $10 junk stock that has billions of shares floating around with tiny earnings per share.

Sounds great, but where do we find these beasts?

Many times, they are right under our noses. What about your new favorite energy drink, your favorite store at the mall, a new drug you are using with amazing results, your favorite restaurant, or the fact that you love everything Apple? Choosing a company you love is just the start of the process. Next you have to find out if it is a growth story, or if it is in decline. A stock’s price can only increase in conjunction with earnings growth or future earnings expectations.An old, giant, low growth big cap stock can only grow through innovation and not size.

“Buy the best, forget the rest.”

How to Find a Monster Stock

1. Review the IBD 50 each week for the best stocks in the market. The list is in the Monday edition of Investor’s Business Daily and available by subscription to www.Investors.com.
2. Look for higher priced stocks, with a minimum above $20. The best are often times the most expensive before splitting: $200, $300, $500 and up.
3. Earnings should be greater than 25% for the past few quarters, and growing steadily.
4. Sales should be close to equal with earnings and growing at +25%.
5. The best stocks should have a return on equity between 25% and 50%.
6. Look for growing industries where profits are expanding.
7. Monster stocks are the #1 company in its industry. Buy the best, forget the rest.
8. The stock should trade at least 500,000 shares a day, preferably a million.
9. Monster stocks are currently loved by mutual funds, and there are holders and buyers.
10. Monster stocks are special. They have a new product, service, innovation, or business model that is hard to copy or compete with.
11. Monster stocks have their best price action in bull markets with their key moving averages price supports at the 5 day ema or 10 day sma.
12. Even in bear markets or corrections, monster stocks bounce at the 50 day or 200 day sma creating a high probability entry point.
13. The majority of monster stocks have high volume options traded on them, creating liquidity that can be traded with little bid/ask spreads.
14. The majority of monster stocks are household names or most people know about their product.
15. Find and trade the very best monster stocks. You only need 5 to watch and trade.

Recommended reading: Monster stocks book by John Boik.

(Never risk more than 1% of your total trading capital on any one trade, always plan your position sizing carefully and have a planned stop loss along with a trailing stop to lock in profits.)