The Anatomy of a Good Trade

“There are just four kinds of bets. There are good bets, bad bets, bets that you win, and bets
that you lose. Winning a bad bet can be the most dangerous outcome of all, because a
success of that kind can encourage you to take more bad bets in the future, when the odds
will be running against you. You can also lose a good bet, no matter how sound the underlying
proposition, but if you keep placing good bets, over time, the law of averages will be working
for you.” – Larry Hite

Here are the elements of good trades:

1. Your position size should be small enough to keep the volume down on your emotions.
2. Your entry has to be based on a quantified signal.
3. A good trade has a good risk/reward ratio. Your stop loss should be positioned so that if you are wrong then you lose a small amount of money. You have to leave your profit side open to capture trends when they occur.
4. The odds of winning trades are greater when you go with the larger market trend. Buying dips in uptrends and selling rallies in downtrends have the best odds of success.
5. Trades have to be taken inside a quantified system to have meaning above the randomness of any one trade.
6. Good trades are taken inside your own trading timeframe.
7. Good trades end in one of three ways: big wins, small wins, or small losses. A good trade never ends in a big loss.

10 Habits of Highly Profitable Traders

Philip Taylor

1. Create asymmetry in your trading by using stop losses. Profitable trading only happens by making more money than you lose. Big losses are the main cause of not being profitable. Eliminate big losses by cutting your loss when proven wrong.
2. Have a great risk/reward ratio on entry. Give yourself the potential to make two or three times more if you are right than you could lose if you are wring. Let a winning trade run until there is a reason to exit.
3. Trade with the odds on your side. Trade historical patterns and price action that has worked in the past.
4. Trade a plan and a system using quantifiable signals instead of your own predictions and opinions.
5. Trade your plan with discipline and perseverance.
6. Limit your capital at risk on any one trade to eliminate your risk of ruin.
7. Work so hard when the market is closed that all their is to do when the market is open is take your signals.
8. Have a system that profits in up and down trends.
9. Have a system that works in multiple markets.
10. Trade position sizing that does not cause your emotions or ego to get louder than your trading plan.

7 Smart Ways to Trade Against Uncertainty

                                                                                                                                                                                                                                                                                                     

To really be a great trader we have to get comfortable with being uncomfortable. We have to accept that no one has a crystal ball or time machine  so the future is not known by anyone and we can only take our entries and manage our current risk. Successful trading comes from understanding the past psychological chart patterns and trends of markets made by  traders reacting to their own fear and greed. The past is a map to the future but it is not a replica. As we move to the right hand side of our charts they do disappear into the unknown future and that is where we get compensated for taking on risk and trading against the new traders that make the wrong moves.

1. We do not know if each trade is a winner or loser so we have to let the stop losses, trailing stops, and profit targets tell us when to exit.
2. We have to take our entries and let the markets decide what happens next.
3. The future does not exist so we have to trade the present moment price action.
4. We have to accept that we do not know if the next trade will be a small loss, small profit, or a big profit. But we can make sure it is not a big loss.
5. Since we do not know what will happen next we can not trade a huge position size.
6. We have to accept that anything can happen at any time in the markets and we have to be ready to adjust to it.
7. We should never risk more than 1% of trading capital on any one trade so the big unexpected move will not hurt us much

22 Bad Trading Habits

Here are the best answers from my Facebook trading group when I posted the following question:

What is one of your bad trading habits that causes you to lose money?

1. Underestimating the possibility of volatility expansion at times and taking too big a position size.
2. Overly optimistic that the market will trend well… only to reverse.
3. Averaging in on losing positions.
4. Not studying more.
5. Not following the trend and trying to predict the top or bottom.
6. Following other’s trades.
7. Deviating from positive expectancy models.
8. “Fighting” back instead of taking the loss/killing a bad trade (bad trade = against the plan)…
9. Trading too large for my account size.
10. Overtrading.
11. Starting the day “looking” for something to trade like a trading addict.
12. Wishful thinking for big profits.
13. Taking trades that aren’t “my” trades.
14. Focusing on returns instead of risk-adjusted returns.
15. Closing trades too soon.
16. Not being consistent in daily activity but being inconsistent is not something I do consistently.
17. Going all in.
18. Probably tweaking my strategy too much during drawdowns.
19. Moving my stop up too quickly.
20. Not being patient.
21. Feeling like I have to do something.
22. All of the above.