The Power of Quitting

“It’s not the daily increase but daily decrease. Hack away at the unessential.” -Bruce Lee

Quitting is not always the wrong thing to do. There is a time when you have to decide what you want and go get it, you do not stop until you reach your journey to your destination, this is when you are on the right path, following your passion, making progress, and loving the journey. There are other times to stop if you hit a dead end or you are heading in the wrong direction. People that eventually win learn to know the difference. There is a time to press through temporary pain to achieve long term success and a time to quit wasting your time with diminishing returns on a path that is just not working out and has little chance to work out because there is no joy, success, or progress on the wrong path.

Sometimes a marriage can not be saved through counseling it is just not going to work for many reasons. Sometimes a restaurant owner has worked 70 hour weeks for three years for the privilege of losing money and in deep debt, they are better off getting a job and at least get paid for there time and effort. No matter how much the Ford Motor Company believed in the Edsel or the federal government believed in the Chevrolet Volt they were making a mistake by continuing to produce them.

Cutting losses short is smart in all areas of life because it frees up resources to be used more wisely whether it is time, money, or energy.

Here are ten things that traders should stop doing where perseverance is the wrong thing to do.

1. Quit letting trades go through your original stop loss, you were wrong, get out. When you start hoping and stop managing your stops you are losing money, losing discipline, and fighting a trend.
2. Quit over trading, only take the very best entries and trade the very best stocks in your system.
3. Quit making up stories about why you decided to hold your position instead of taking your stop when it was hit. Trade your plan.
4. Stop trading your opinions and start trading what the price action is saying.
5. Stop following people in social media that cause you to be biased and trade badly and lose money.
6. Stop looking financial news networks for trading and investing advice, they are for news and entertainment.
7. Stop trading so big that your emotions are more involved in your trades than your mind.
8. Disconnect your ego from your trading. You determine your risk size and entry the market chooses whether you win or lose.
9. Quit riding an emotional roller coaster, your emotions should stay level whether winning or losing. If not, trade smaller.
10. Quit buying falling knives and shorting rocket stocks, wait for confirmation and a reversal before trying to short an uptrend or buy in a downtrend.
11. Quit trading your emotions and replace them with valid signals.
12. Quit having big losses and keep all losses small.
13. Quit asking for trade ideas and start looking for a trading system.
14. Quit agonizing over trading decisions and write a trading plan.
15. Quit listening to traders who claim to know the future and start following traders who make money trading in the present.

Sometimes in life what you quit is more important than what you start. Quitting the wrong things frees up your time, energy, and passion to pursue the right 

7 Good Ways To Exit a Trade

In trading, the money is not made in the entry, it is in the exit. The art of the exit is crucial to a trader’s success in the markets. Profits can disappear if you do not take them at the right time, and small losses can become huge losses if you do not cut them short. Small profits can become huge profits if you let them run until they truly stop moving in your favor. Keeping capital tied up in a trade going nowhere can cause you to miss out on other great opportunities.

So what is a trader to do?

1. Use stop losses. Only risk losing 1% of your total trading capital on any one trade through the placement of stops and position sizing, and when you have lost that 1%, get out. Position sizing, stop losses, and understanding volatility is the key to proper risk management.
2. Enter trades at break out points to new highs, off key price support levels, or key moving average support levels. If it loses that support later and fails to retake it, then sell it.
3. Buy when a stock is one ‘R’ multiple above a key support level, and sell if it falls back and loses that support level. (One ‘R’ multiple = 1% of total trading capital).
4. Use a ‘stale’ or ‘time’ stop: Set a time limit on how long you will give a trade to move a certain amount, if it fails to move enough fast enough, get out.
5. Volatility stop: Stop out if the market or your stock has a big expansion in its daily price range, or starts moving against you the full daily range. You either cut your position down in size, or get out due to increased risk based on volatility expansion.
6. Trail a stop loss behind your winner. When it reverses and hits that stop, you sell. A trailing stop can be a moving average or a percentage you your gain.
7. Sell your position because you have found a much better trade with a better probability of success, or a bigger upside.

The key is to always have a plan to get out of every trade before you get in. Before each trading day begins, think about what you will do based on where your trade is at, and where it may go.

Formulas for Managing Trading Emotions

I  truly believe the hardest thing about real trading has not been the math, the method, or picking the right stock, currency, commodity, or futures contract.  The most difficult thing about trading is dealing with the emotions that arise with trading itself. From the stress of actually entering a trade or the fear of loss as a trade goes against you. Even winning trades can be stressful as the fear of losing the paper profits that you are holding with a winner can even effect a trader. Then most importantly the ability of dealing with the emotional lows of a string of losses or the highs of many consecutive wins  can cause a trader to lose their confidence or discipline. The bottom line is how you deal with those emotions will determine your long term success in trading more than any other one thing.

To manage your emotions first of all you must trade a robust trading methodology after you have confirmed that it will be a winner in the long term with your edge if you stay disciplined. You also must trade your method with proper position sizing and risk management to keep the volume down on your emotions and ego. If you have that the next step is the management of your emotions.

We must understand that every trade is not going to be a winner and not blame our self for equity drawdowns if we are trading with discipline.

Do not bet your entire account on any one trade, in fact risking only 1% of your total capital on any one trade is the best thing you can do for your stress levels and to bring your risk of ruin to virtually zero. (This is based on your stop loss placement, not 1% position sizing).

With that said here are some examples of emotional equations to better understand why you feel certain emotions strongly in your trading: (The ‘=’ sign should be read as ‘equals’ and the ‘-‘ symbol read as ‘minus’ to understand the formulas here).

Losing Money – Trading Better = Despair

Do not despair look at your losses as part of doing business and as paying tuition fees to the markets.

Expectations – Reality= Disappointment 

Enter trading with realistic expectations. You can realistically expect 15% -20% annual returns on capital with great trading after you have experience and have done the necessary homework. More than that is possible but you will have take on more risk and be one of the very best traders or investors to achieve greater returns than this.

Disappointment in a loss+ Caused by lack of Discipline = Regret

If you followed your trading plan and lose money because the market did not move in your direction so be it, but if you went off your plan and traded based on your feelings and opinions then you should feel regret and stop being undisciplined.

Winning Trades – Fear of Ruin = Enjoying your Trading

Trading is much more enjoyable when you are risking 1% of your capital in the hopes of making 3% on your capital with a zero chance of ruin or have a very high winning percentage with very small losses when wrong. It is not enjoyable when you are putting a huge percentage of your capital on the line in each trade and are only a few bad trades away from your account going to zero or a big draw down.

 Understanding what makes money + Years of successful trading = Trading Wisdom

To get good at trading you have to trade real money. Wisdom comes from putting real money on the line for years and proving to yourself that you can come out a winner in the long term.

Belief through back testing + Experience of winning with it for years = Faith in your system

Whether  any individual trade is a winner or loser should not influence your faith in your system and trading method. You should trade in a way that each trade is just one trade out of the next 100. Much of emotional trading can be overcome when you do not have doubts about your method. When you believe in your method, system, risk management, and your own discipline, you will overcome many of the emotional problems that arise in the heat of trading during a live market.

Most new traders will be very surprised at the emotions that rise up during active trading when real money is at risk, I hope this blog post gives many a heads up on this factor and how to overcome it.

Ten Questions to ask Yourself Before Every Trade

If you are just randomly trading what you like with no real underlying system, method or planning then unfortunately your odds of success in the long term are slim. Trading a winning methodology is what creates an edge in trading.

Consistently trading a robust system or methodology enables you to trade in a way that historically wins, controls risk, and does not bring your ego and your emotions into your trading in a destructive way.

Ten questions to ask yourself before every trade:

1. Does this trade fit my chosen trading style? Whether it is:  swing trading, momentum, break out, trend following, reversion to the mean, or day trading?
2. How big of a position do I want to trade? How much capital am I going to risk? Am I limiting my risk to 1% or 2% of my trading capital?
3. What is my risk of ruin based on my capital at risk?
4. Why am I entering the trade here? What is the trigger to trade?
5. How will I exit with a profit? A price target or trailing stop?
6. At what price will I know that I was wrong? Where is my stop loss based on the position size?
7. Will I be able to admit I was wrong and exit the trade if my stop is hit, or will my ego make me hold and hope?
8. Is the risk small enough that I can emotionally handle the loss without blaming the market?
9. Can I really risk this money or do I need it for upcoming bills? Trade with risk capital not living expenses.
10. Am I committed to staying disciplined and following my trading plan on the trade?

I believe the answers to these questions will determine your success in any trade more than anything else.

यदि आप असली आधारभूत तंत्र, विधि या योजना को पसंद ना करके आप सिर्फ बेतरतीब ढंग से कारोबार कर रहे हैं तो दुर्भाग्य से आपकी सफलता के सुअवसर लंबे समय के लिए दुर्बल हैं।
ट्रेडिंग के लिए "एक जीतने वाली कार्यप्रणाली ट्रेडिंग" एक असाधारण धार बनाता है।
एक मजबूत तंत्र या कार्यप्रणाली युक्त लगातार ट्रेडिंग आपको व्यापार करने के लिए ऐतिहासिक जीत के मार्ग पर जोखिम को नियंत्रित करने योग्य बनाता है और आपके ट्रेडिंग के विनाशकारी मार्ग पर आपका अहंकार व आपकी भावनाएँ नहीं आती है।
दस सवाल हर व्यापार से पहले खुद से पूछे:
1	यह ट्रेड मेरी चुनी हुई ट्रेडिंग शैली के लिए योग्य क्यों है। इनमें से कौन सा है: दोलन ट्रेडिंग (swing trading), वेग (momentum), चलन से बाहर (break out), पूर्व प्रवृत्ति का पालन (trend following), माध्य में लौटना (reversion to the mean) या दिन का कारोबार (day trading)?
2	मैं किस तरह लॉट को बड़ा करके ट्रेड करना चाहता हूँ? मैं जोखिम के लिए कितनी पूंजी लेने जा रहा हूँ? क्या मैं अपने जोखिम को अपनी ट्रेडिंग पूंजी का 1% या 2% सीमित कर रहा हूँ?
3	अपनी पूंजी को जोखिम से बचाने के लिए बर्बाद करने को मेरे जोखिम क्या है
4	मैं यहाँ क्यों ट्रेड के लिए प्रवेश कर रहा हूँ? ट्रेड करने के लिए ट्रिगर क्या है?
5	मैं लाभ के साथ कैसे बाहर निकलूँगा? A price target or trailing stop?
6	किस कीमत पर मैं समझूँगा हूँ कि मैं गलत था? लॉट आकार के आधार पर हानि बंद (Stop Loss) कहाँ है?
7	क्या मेरे गलत होने पर यदि मेरा बंद आ जाए या मेरा अहंकार मुझे पकड़े और आशा देने लगे तो मैं ट्रेड से बाहर निकलने को स्वीकार करने में समर्थ जाऊगाँ?
8	क्या जोखिम काफी छोटा है तो उसे मैं बाजार को दोष देने के बग़ैर हानि को भावनात्मक रूप से संभाल सकता हूँ?
9	क्या मैं वास्तव में इस पैसे का जोखिम ले सकता हूँ या मुझे आने वाले बिलों के लिए इसकी जरूरत है? जोखिम वाली पूंजी के साथ ट्रेड करो जीवित रहने के खर्चो के लिए नहीं
10	क्या मैं अनुशासित रहने के लिए प्रतिबद्ध हूँ और ट्रेड के लिए ट्रेड योजना को अनुसरण करनेवाला हूँ?
मेरा मानना है कि ओर सभी से ज्यादा इन सवालों के जवाब किसी भी ट्रेड में आपकी सफलता का निर्धारण करेगें

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.

30 Reasons Most Traders Don’t Make Money

The common held belief in the trading world is that 90% of traders are not profitable long term. This was based off some old studies of brokerage accounts. I read the original source article long ago in a trading book that referenced it. Other more recent studies seem to have found that the failure rate could be as high as 95%. What causes the majority of profits to go to such a tiny minority of winners? I asked this question in my facebook trading group and  received these answers:

1. Lack of homework on what works.
2. Inability to manage stress.
3. Allowing big losses in your trading account,
4. Quitting when they learn trading isn’t easy money.
5. Inability to trade volatile markets.
6. Inability to emotionally  manage equity curves.
7. Trading without a positive expectancy model.
8. Never committing to one trading strategy.
9. Changing trading systems.
10. Trading based on opinions.
11. Not managing position sizing.
12. Not managing the risk of ruin.
13. Searching for a Holy Grail instead of a winning system.
14. Over thinking their trades.
15. Reactive trading decisions based on internalizing emotions.
16. Trying to pick tops and bottoms and miss the trends.
17. Trading with leverage without understanding the risks.
18. Trading on margin without understanding it.
19. Over trading.
20. Trading with an account too small.
21. Trading without a plan.
22. Trading without stop losses.
23. Not understanding what it takes mentally to be a trader.
24. Setting stops too tight.
25. Setting stops in obvious places.
26. Having only small winners.
27. Buying what looks cheap.
28. Selling short what looks expensive.
29. A lack of discipline.
30. Taking tips.

1	क्या काम करना है पर होमवर्क की कमी।
2	तनाव का प्रबंधन करने की असमर्थता।
3	अपने व्यापार खाते में बड़े नुकसान की अनुमति देना।
4	जब लगे की पैसा बनाना आसान नही है तो भी ट्रेडिंग की कोशिश करना।
5	अस्थिर बाजार में व्यापार करने की असमर्थता।
6	भावनात्मक रूप से घटती इक्विटी का प्रबंधन करने की असमर्थता।
7	एक सकारात्मक उम्मीद भरी क्रियाविधि के बिना ट्रेडिंग।
8	कभी भी एक ट्रेडिंग रणनीति के लिए प्रतिबद्ध ना होना।
9	ट्रेडिंग पद्धति बदलते रहना।
10	ट्रेडिंग राय पर आधारित करना।
11	लॉट के आकार का प्रबंधन ना करना।
12	बर्बादी के खतरा का प्रबंधन ना करना।
13	विजय पाने वाली पद्धति के बजाय पवित्र-प्याला के लिए खोज करना।
14	जो अपने ट्रेड है उनसे परे सोचना।
15	ट्रेडिंग निर्णय अंदरूनी मनोविकार के आधार पर पुनः क्रियाशील होना।
16	सबसे ऊपर और नीचे लेने के लिए कोशिश करते रहना और ट्रेण्ड को खो देना।
17	लिवरेज के साथ जोखिम को बिना समझे ट्रेडिंग करना।
18	मार्जिन (सीमा) को बिना समझे इस पर ट्रेडिंग करना।
19	बहुतायत में ट्रेडिंग करना।
20	एक छोटे खाते से ट्रेडिंग करना।
21	एक योजना के बिना ट्रेडिंग करना।
22	स्टॉप लॉस के बिना ट्रेडिंग करना।
23	यह क्या लिया मानसिक रूप से एक व्यापारी होने के लिए समझदारी ना होना
24	स्टॉप को बहुत तंग लगाना।
25	स्टॉप को आसान स्थानों पर लगाना।
26	केवल छोटे विजेताओं को ही लेना।
27	खरीदना को सस्ता देखना।
28	शॉर्ट सेलिंग को महंगा देखना।
29	अनुशासन की कमी।
30	सुझाव लेते रहना।

Twelve of The Biggest Trading Losses in History

                                                                                                                                                                                                                                                                                                                                                                                                           

If you are feeling down about your trading losses, or feeling sorry for Ackman’s current disaster trades long J.C. Penney and short Herbalife, then this article may put both of these losses into perspective. These losses show how crucial it is to have a price level that will indicate that you were wrong and will need to stop out at. There is no reason to ever take a huge loss to your trading capital.  Position sizing, stop losses, and managing the risk of ruin is the first job of a trader, growing capital comes second.

“Two basic rules: (1) if you don’t bet, you can’t win. (2) If you lose all your chips, you can’t bet.” -Larry Hite

Here are 12 of the biggest trading losses of all time, heed the lessons of these tragedies and realize the traders on the other sides of these trades made a huge amount of money,

#12: German billionaire Adolf Merckle, one of the 100 richest people in the world, killed himself by jumping in front of a train—emotionally “broken” over a bad bet on Volkswagen in 2008.

Merckle’s business interests came out on the wrong side of 2008′s short squeeze of Volkswagen. Rival Porsche silently cornered the market on Volkswagen shares, and when they revealed the extent of their stake, the price of Volkswagen stock shot up to levels that made it briefly the world’s most valuable corporation. Many hedge funds who had bet against Volkswagen shares lost huge amounts of money, while Porsche made billions in profit.

Merckle, whose personal wealth was estimated at more than $9 billion  reportedly lost a billion alone on the Volkswagen stock, which shocked his employees. The loss led to margin calls from other creditors and threatened to unravel his entire private business empire. Full Article

#11: Nelson Bunker Hunt and William Herbert Hunt, the sons of Texas oil billionaire Haroldson Lafayette Hunt, Jr., had for some time been attempting to corner the market in silver.

The Hunt brothers had invested heavily in futures contracts through several brokers, including the brokerage firm Bache Halsey Stuart Shields, later Prudential-Bache Securities and Prudential Securities. When the price of silver dropped below their minimum margin requirement, they were issued a margin call for $100 million. The Hunts were unable to meet the margin call, and, with the brothers facing a potential $1.7 billion loss, the ensuing panic was felt in the financial markets in general, as well as commodities and futures. Many government officials feared that if the Hunts were unable to meet their debts, some large Wall Street brokerage firms and banks might collapse.

To save the situation, a consortium of US banks provided a $1.1 billion line of credit to the brothers which allowed them to pay Bache which, in turn, survived the ordeal. The U.S. Securities and Exchange Commission (SEC) later launched an investigation into the Hunt brothers, who had failed to disclose that they in fact held a 6.5% stake in Bache. Full Article

#10: Under the leadership of CEO Heinz Schimmelbusch, German metals and engineering giant Metallgellschaft was on the brink of bankruptcy after losing $1.3 billion on speculative bets.  The firm bet on an increase in oil prices in oil futures markets, but oil prices dropped instead. Full Article

#9: Robert Citron lost $1.7 billion for Orange County, California forcing it into Chapter 9 bankruptcy.In 1994, Citron was Treasurer-Tax Collector for Orange County, California. As treasurer, Citron used a series of highly-leveraged deals that included repurchase agreements and floating rate notes.  Full Article

#8: Although much success within the financial markets arises from immediate-short term turbulence, and the ability of fund managers to identify informational asymmetries, factors giving rise to the downfall of the fund were established prior to the 1997 East Asian financial crisis. In May and June 1998 returns from the fund were -6.42% and -10.14% respectively, reducing LTCM’s capital by $461 million. This was further aggravated by the exit of Salomon Brothers from the arbitrage business in July 1998. Such losses were accentuated through the Russian financial crises in August and September 1998, when the Russian Government defaulted on their government bonds. Panicked investors sold Japanese and European bonds to buy U.S. treasury bonds. The profits that were supposed to occur as the value of these bonds converged became huge losses as the value of the bonds diverged. By the end of August, the fund had lost $1.85 billion in capital.

As a result of these losses, LTCM had to liquidate a number of its positions at a highly unfavorable moment and suffer further losses. A good illustration of the consequences of these forced liquidations is given by Lowenstein (2000). He reports that LTCM established an arbitrage position in the dual-listed company (or “DLC”) Royal Dutch Shell in the summer of 1997, when Royal Dutch traded at an 8-10% premium relative to Shell. In total $2.3 billion was invested, half of which was “long” in Shell and the other half was “short” in Royal Dutch. LTCM was essentially betting that the share prices of Royal Dutch and Shell would converge. This might have happened in the long run, but due to its losses on other positions, LTCM had to unwind its position in Royal Dutch Shell. Lowenstein reports that the premium of Royal Dutch had increased to about 22%, which implies that LTCM incurred a large loss on this arbitrage strategy. LTCM lost $286 million in equity pairs trading and more than half of this loss is accounted for by the Royal Dutch Shell trade.

The company, which was providing annual returns of almost 40% up to this point, experienced a flight-to-liquidity. In the first three weeks of September, LTCM’s equity tumbled from $2.3 billion at the start of the month to just $400 million by September 25. With liabilities still over $100 billion, this translated to an effective leverage ratio of more than 250-to-1. Full Article

#7: A rogue trader lost UBS $2.3 billion on unauthorized trades in the bank’s London office leading to the resignation of the CEO. September 2011, UBS revealed an unexpected $2.3 billion loss believed to be caused by a lone rogue trader in the bank’s London office. Kweku Adoboli, 31, who worked on UBS’s Delta One desk, was identified as the alleged rogue trader.  Full Article

#6: In 2008, a Brazilian pulp maker lost $2.5 billion on currency bets. At the time, Aracruz was the world’s biggest producer of bleached eucalyptus-pulp.  In 2008, the firm lost big time on Forex trades when it bet that Brazil’s real would appreciate in an effort to hedge against a weaker dollar.  The Brazil’s real ended up tanking. Full Article

#5: In 1996, Sumitomo’s chief trader attempted to corner the copper market and lost $2.6 billion. He went to prison. Yasuo Hamakana, who was once nick-named “Mr. Five Percent” and ”Mr. Copper” because of his aggressive trading style in the copper market, caused Sumitomo to lose $2.6 billion from his unauthorized copper trades on the London Metal Exchange. Full Article

#4: Bank officials claim that throughout 2007, Jerome Kerviel had been trading profitably in anticipation of falling market prices; however, they have accused him of exceeding his authority to engage in unauthorized trades totaling as much as €49.9 billion, a figure far higher than the bank’s total market capitalization. Bank officials claim that Kerviel tried to conceal the activity by creating losing trades intentionally so as to offset his early gains. According to the BBC, Kerviel generated €1.4 billion in hidden profits by the end of 2007. His employers say they uncovered unauthorized trading traced to Kerviel on January 19, 2008. The bank then closed out these positions over three days of trading beginning January 21, 2008, a period in which the market was experiencing a large drop in equity indices, and losses attributed are estimated at €4.9 billion. Full Article

#3: In April 2005, Brian Hunter was, reportedly, offered a $1 million bonus to join SAC Capital Partners. Nicholas Maounis, founder of Amaranth Advisors, refused to let Hunter go. Maounis named Hunter co-head of the firm’s energy desk and gave him control of his own trades. In 2006 his analysis led him to believe that 2006–07 winter’s gas prices will rise relative to the summer and fall – accordingly Hunter went long on the winter delivery contracts, simultaneously shorting the near (summer/fall) contracts. When the market took a sharp turn against this view, the fund was hard pressed for margin money to maintain the positions. Once the margin requirements crossed USD 3 billion, around September 2006, the fund offloaded some of these positions, ultimately selling them entirely to JP Morgan and Citadel for USD 2.5 billion.The fund ultimately took a $6.6-billion loss and had to be dissolved entirely. Full Article

#2: Bruno Michel Iksil, nicknamed the London Whale (for his risky trades) and Voldemort (for his supposed power on Wall Street)is a trader who worked for the London office of JPMorgan Chase who is held responsible for losses up to $9 billion. Reportedly he began working for JPMorgan in 2005 and lives in Paris, commuting to London. It is thought that Iksil, of whom it is said guards his privacy, is married with four children. Full Article

#1: In 2007, Morgan Stanley lost $9 billion on disastrous subprime mortgage bets, and heads were rolling. Hubler, now a former mortgage trader at Morgan Stanley featured in Michael Lewis’ “The Big Short,” lost the bank $9 billion on bets in the subprime housing market. Full Article