05 March 2020
段永平：投资最重要的是投在你真正懂的东西上
文章来源 : 100年不过时的投资圣经 2020年03月05日 分享文章 479
这是一篇老文章，但是里面的方法却是100年不过时的绝招，可以说是价值投资者的圣经，写得如此详细，不是每个人都能看到如此好，如此深度的内容。
你们第一遍读到的时候可能觉得很虚，就像我第一次跟芒叔交流的时候，觉得他好虚，讲的东西都是冠冕堂皇的，结果后来我看到这篇文章后发现，他的很多思想也来源于此，这是价值投资真正的本质内容，当然这文章也是前年芒叔推荐给我看的。
而本文作者段永平先生是一位成功的实业家，小霸王学习机开始到步步高(8.830, 0.11, 1.26%)，包括vivo和oppo的幕后老板，上市的拼多多都有他的身影。2006年62万美金拍下巴菲特的午餐后，他与全世界最顶级的价值投资者巴菲特有了交集，所以他的思想很多也是源自巴菲特，文中有很多提到。
请大家耐心看完本文，一定要静下心来看，完全投入进去，会给你豁然开朗的感觉，也是对一部分人来说从此宗教般信仰价值投资，对价值投资有里程碑式的认识。
正文：
老实讲，我不知道什么人适合做投资。但我知道统计上大概80-90%进入股市的人都是赔钱的。如果算上利息的话，赔钱的比例还要高些。许多人很想做投资的原因可能是认为投资的钱比较好赚，或来的比较快。作为既有经营企业又有投资经验的人来讲，我个人认为经营企业还是要比投资容易些。
虽然这两者其实没有什么本质差别，但经营企业总是会在自己熟悉的领域，犯错的机会小，而投资却总是需要面临很多新的东西和不确定性，而且投资人会非常容易变成投机者，从而去冒不该冒的风险，而投机者要转化为真正的投资者则可能要长得多的时间。
投资与投机的区别
投资和投机其实是很不同的游戏，但看起来又非常像。就像在澳门，开赌场的就是投资者，而赌客就是投机者一样。赌场之所以总有源源不断的客源的原因，是因为总有赌客能赢钱，而赢钱的总是比较大声些。作为娱乐，赌点小钱无可非议，但赌身家就不对了。可我真是能见到好多在股场上赌身家的人啊。
以我个人的观点，其实什么人都可以做投资，只要你明白自己买的是什么，价值在哪里。投机需要的技巧可能要高很多，这是我不太懂的领域，也不打算学了，有空还是多陪陪家人或打几场高尔夫吧。
即使是号称很有企业经验的本人也是在经受很多挫折之后才觉得自己对投资的理解比较好了。我问过巴菲特在投资中不可以做的事情是什么，他告诉我说：不做空，不借钱，最重要的是不要做不懂的东西。这些年，我在投资里亏掉的美金数以亿计，每一笔都是违背老巴教导的情况下亏的，而赚到的大钱也都是在自己真正懂的地方赚的。
作为刚出道的学生，书上的东西可能知道的很多，但融到骨子里还需要吃很多亏后才行。所以，如果你马上投入投资行业，最重要的是要保守啊，别因为一个错误就再也爬不起来了。这里唯一我可以保证的是，你肯定会犯错误的。
我个人的理解是缺什么什么重要。投资最重要的是投在你真正懂的东西上。这句话的潜台词是投在你真正认为会赚钱的地方（公司）。我对所谓赚钱的定义是：回报比长期无风险债券高。一个人是否了解一个公司能否赚钱，和他的学历并没有必然的关系。虽然学历高的人一般学习的能力会强些，但学校并不教如何投资，因为真正懂投资的都很难在学校任教，不然投资大师就该是些教授了。不过在学校里可以学到很多最基本的东西，比如如何做财务分析等等，这些对了解投资目标会很有帮助。
无论学历高低，一个人总会懂些什么，而你懂的东西可能有一天会让你发现机会。我自己抓住的机会也好像和学历没什么必然的联系。
比如我们能在网易上赚到100多倍是因为我在做小霸王时就有了很多对游戏的理解，这种理解学校是不会教的，书上也没有，财报里也看不出来。我也曾试图告诉别人我的理解，结果发现好难。又比如我当时敢重手买GE，是因为作为企业经营者，我们跟踪GE的企业文化很多年，我从心底认为GE是家伟大的公司。
我说的“任何人都可以从事投资”的意思是我认为并没有一个“只有‘某种人’才可以投资”的定义。但适合投资的人的比例应该是很小的。可能是因为投资的原则太简单，而简单的东西往往是最难的吧。顺便说一句什么是“简单”的“投资”原则：当你在买一只股票时，你就是在买这家公司！简单吗？难吗？
我想再简单地把我目前对投资的基本理解写一下：
1、买股票就是买公司。所以同样价钱下买的公司是不是上市公司并没有区别，上市只是给了退出的方便而已。
2、公司未来现金流的折现就是公司的内在价值。买股票应该在公司股价低于其内在价值时买。至于应该是40%还是50%（安全边际）还是其他数字则完全由投资人自己的机会成本情况来决定。
3、未来现金流的折现不是算法，是思维方式，不要企图拿计算器去算出来。当然，拿计算器算一下也没什么。
4、不懂不做（能力圈）是一个人判断公司内在价值的必要前提（不是充分的）。
5、“护城河”是用来判断公司内在价值的一个重要手段（不是唯一的）。
6、企业文化是“护城河”的重要部分。很难想象一个没有很强企业文化的企业可以有个很宽的“护城河”。
保持平常心
“理性”地面对市场每天的波动，仔细地检查每一个自己的投资理由及其变化是非常重要的。好像我对投资的理解就是这么简单。但这个“简单”其实并不是太简单，事实上这个简单实际上非常难。
在这里有很多问题是关于估值的，所以简单谈谈自己的想法。我个人觉得如果需要计算器按半天才能算出来那么一点利润的投资还是不投的好。我认为估值就是个毛估估的东西，如果要用到计算器才能算出来的便宜就不够便宜了。
好像芒格也说过，从来没见巴菲特按着计算器去估值一家企业，我好像也没真正用过计算器做估值。我总是认为大致的估值主要用于判断下行的空间，定性的分析才是真正利润的来源，这也可能是价值投资里最难的东西。
一般而言，赚到几十倍甚至更多的股票绝不是靠估值估出来的，不然没道理投资人一开始不全盘压上（当时我要知道网易会涨160倍，我还不把他全买下来？）。
正是由于定性分析有很多不确定性，所以多数情况下人们往往即使看好也不敢下大注，或就算下大注也不敢全力以赴。当然，确实也有一些按按计算器就觉得很便宜的时候，比如巴菲特买的中石油，我买的万科。但这种情况往往是一些特例。
巴菲特确实说过伟大的公司和生意是不需要卖的，可他老人家到现在为止没卖过的公司也是极少的。另外，我觉得巴菲特说这话的潜台词是其实伟大的公司市场往往不会给一个疯狂的价钱，如果你仅仅是因为有一点点高估就卖出的话，可能会失去买回来的机会。而且，在美国，投资交的是利得税，不卖不算获利，一卖就可能要交很高的税，不合算。
无论什么时候卖都不要和买的成本联系起来。该卖的理由可能有很多，唯一不该用的理由就是“我已经赚钱了”。不然的话，就很容易把好不容易找到的好公司在便宜的价钱就卖了（也会在亏钱时该卖的不卖。）买的时候也一样。买的理由可以有很多，但这只股票曾经到过什么价位最好不要作为你买的理由。
我的判断标准就是价值。这也是我能拿住网易8-9年的道理。我最早买网易大概平均价在1块左右（相当于现在0.25），大部分卖的价钱大约在30-35（现在价）左右。在持有的这8年到9年当中，我可能每天都会被卖价所诱惑，我就是用这个道理抵抗住诱惑的（其实中间也买卖过一些，但是很小一部分。）我卖的理由是需要换GE和Yahoo。我会一直保留一些网易的股票的。
巴菲特的东西每一个人都可以学，当然可能只有很少人能学会。事实上，我发现只有很少人会去真正认真地学，所以能学会的人很少就很容易理解了。
巴菲特反对的和他做的衍生品是完全不同的东西。我自己用很多金融衍生品，和巴菲特的用法一样，所以比较理解他说得是什么。很难一句话解释清楚，但可以用个容易理解的例子来说明。很多人用衍生品就好像去赌场当赌客，希望能够快点赚钱。巴菲特用衍生品就好像在澳门开赌场，长期而言是稳赚的。不是每个人开赌场都能赚钱，但会开的人就行。也许赌场的例子不一定合适，但道理确实一样。
投机，我也不是没有过，但就是为好玩，justforfun，只是玩玩而已。人家要跟我讨论股票，我都要跟人说清楚，是讨论投机还是投资？是forfun还是formoney？如果forfun没有什么可讨论的，买你喜欢的就好了，反正你也不会把房子卖了扛着钱去拉斯维加斯。我曾经在邮轮上用两百块钱玩了三个晚上，赚了两千块钱。如果你作为投资的故事来讲，三天翻了十倍，这叫什么故事！但你敢拿几百万这么赌吗？不敢。所以投资是另外的讲法。
选择一家好的公司，拿得住
我从头到尾真正投资过的公司最多五六家，卖掉了一些，我持有的公司一般在三家左右。巴菲特的哈撒韦一千多亿美元市值，也才投十来家。我不怕集中，我不是一般的集中，我是绝对的集中。
创维和我们算是同行了，他们这个公司到底怎么样我们多少还是了解的。由于体制的因素，我个人一直认为创维是中国彩电行业里最健康的企业了。
虽然当时出了些事，但公司最基本的东西并没有因此改变。我们买创维时创维的市值好像还不到20亿（我不太记得了，也有说20出头的），我怎么想都觉得便宜，就买了。我们是买到差一万股到5%的时候停的，因为再买就要公告了，所以很想在公告前和黄宏生沟通一下，怕人家以为我要去抢人家那一亩三分地，呵呵。结果当时由于不太方便，最后我们就没有再买。一直到前两个礼拜才和黄老板通了个电话，道个谢，问个好啥的。
对创维而言，我并没有一个很清楚的到底值多少钱的概念，对他们现在的业务情况了解的也不细，所以涨上来以后就一直在陆陆续续减持，现在可能还剩不到最高持有量的20%了。我觉得现在买的人可能比我更清楚创维的价值，后面的钱应该是他们才能赚到的。
封仓10年是个很好的思路，选股时就该这么想。但我不知道我会不会持有苹果10年或以上。实际上我买股票时还真没有想过要拿多少年。我一般会给我买的股票定个大概的价钱，比如买GE时我就认为GE至少值20块，但我确实没想过要多少年才会到。
苹果所处的行业确实是个变化很快的行业。虽然我认为苹果在竞争中已经处于一个非常有利的位置，但我还是会很关切哪些变化有可能会改变苹果的地位。如果非要我给苹果定个价的话，我大概认为苹果也许某天会到600块。
理由是：以我的理解，苹果的盈利在两到三年内大概就可以达到每股40-50块/年（现在的盈利能力大概在每股25-6块/年），也就是说苹果的盈利能力会在两三年内接近double一下，再加上那时每股现金100多块（现在大概每股60多），给他个600的价钱应该不算太过分吧？当然，苹果也是有可能掉回到100多块的，反正到时大家就知道了。
今年的第一个投资的大决策就是在一月二十一号买进了苹果，把去年赚的钱都放进去了。从很久以前就开始或多或少地关心苹果，但就是没认真分析过，大概是因为自己老是满仓的缘故。1.21由于股权到期日，要释放了不少资金出来，在压力下突然想明白了。
买苹果的灵感其实是来自博友的提问。记得前段时间我在这用苹果举过一个什么股价叫便宜的例子：如果你觉得苹果值5000亿的话，那3000亿就是便宜，虽然他曾经只有50亿的市值。其实我个人认为，苹果有可能会是地球上第一家年利润过500亿美金利润的公司（过多少不敢说）。也许苹果会是第一家市值过万亿美金的公司（这个取决于市场会有多疯狂）。
说说我喜欢苹果的一些理由。这不是论文，想到就说，没有重点和先后秩序。
1、苹果的产品确实把用户体验或消费者导向做到极致了，对手在相当长的时间里难以超越甚至接近（对喜欢的用户而言）。
2、苹果的平台建立起来了，或者说生意模式或者说护城河已经形成了（光软件一年都几十亿的收入了）。
3、苹果单一产品的模式实际上是我们这个行业里的最高境界，以前我大概只见到任天堂做到过（sony的游戏产品类似）。
单一产品的模式有非常多的好处：
可以集中人力物力将产品做得更好。比较一下iphone系列和诺基亚系列（今年要推出40个品种）。苹果产品的单位开发成本是非常低的，但单个产品的开发费却是最高的。
材料成本低且质量好，大规模带来的效益。苹果的成本控制也是做到极致的，同样功能的硬件恐怕没人能达到苹果的成本。
渠道成本低。呵呵，不是同行的不一定能明白这话到底有什么分量（同行也未必明白），我是20年前从任天堂那里学会的。那时很多做游戏机的都喜欢做很多品种，最后下场都不太好。
4、苹果的营销也是做到极致了，连广告费都比同行低很多，卖的价钱却往往很好。
5、苹果的产品处在一个巨大并还有巨大成长的市场里。
智能手机市场有多大？你懂的！
pad市场有多大？你也会懂的。
总而言之，我认为苹果现在其实还处在其成长的早期，应该还有很大的空间。扣掉现金的话，苹果的今年的未来pe只有12-13倍啊，明年可能要到10以下了。当然，以上我说的这些点中的任何一点的改变都可能或多或少地改变苹果，如果有苹果的股票的话，就要留心这些变化了。我想的只有一个东西，就是未来自由现金流（的折现）。不过，要认为苹果能做到这一点并不容易，我自己也很遗憾为什么以前一直没花功夫去想一想。
我认为Jobs如果真请长假的话，在相当长的时间里对苹果的业务不会有大影响。长期而言，没有jobs的苹果可能会慢慢变成和别的同行一样的公司。但苹果的平台已经搭好，就像当年3大战役已经打完一样，jobs在不在影响都不大了。
apple还有不少特别厉害的地方，比如：品种单一，所以效率高，质量一致性好，成本低，库存好管理等等。我从做小霸王是就追求品种单一，特别知道单一的好处和难度，这个行业里明白这一点并有意识去做的不多，我们现在也根本做不到这一点。比较一下诺基亚，你就马上能明白品种单一的好处和难度了。诺基亚需要用很多品种才能做到消费者导向，而苹果用一个品种就做到了，这里面功夫差很多啊。
做产品和市场，往往喜欢很多品种，好处用于不同细分市场，用于上下夹攻对手的品种。坏处搞一大堆库存，品质不好控制。单一品种需要很好的功力---把产品做到极致。难啊。因为难，大部分人喜欢多品种。就跟投资一样，价值投资简单，但很不容易。做波动，往往很吸引人。
苹果现在手里有600亿现金，去年4季度的盈利已经过60亿了。如果苹果达到500亿以上的年利润，5000亿以上的市值是非常合理的。一万亿只是一个说法，要看苹果后续的发展情况。
我决定买苹果以前主要想的是他们是不是还有可能成长，有多大的空间可以成长，威胁都可能来自什么地方，等等。我不去想他现在的股价和过去的股价，尽量用平常心去看这家企业。以我的观点看，苹果年利润有一天达到800亿或更多都是有可能的，所以觉得我买的价钱还很便宜。
苹果的上升空间当然远不如当年的网易，可当年的网易是可遇不可求的，而且现在就算碰上了，对我的帮助也不大。苹果这样的公司难道还要去公司看？那能看到什么？我只是somehow突然想起来要认真看看苹果，以前老觉得Jobs个人太厉害了，是个报时人，后来突然想明白其实现在他已经没有那么重要了，至少在未来几年里。毕竟我们是同行，虽然差距还比较大，但有些东西容易搞懂一些。
巴菲特说过，他一生当中有很多次很集中，甚至达到100%。碰上一个是一个，反正赚钱也不需要有很多目标（巴菲特讲一年一个主意就够了）。有时候你感兴趣的目标会自己跳到眼前的。如果你只有一只股票，而且还是满仓的，如果你真正了解你投资的东西的话，那下跌就和你无关了。
没目标时钱在手里好过乱投亏钱。如果一有钱就乱投的话，早晚都会碰上个亏大钱的目标的。有合适的股票就买，没有就闲着。鸡蛋放在一个篮子里可以看得更好些。
其实我知道的东西少的可怜。我就知道巴菲特这条路很好，肯定可以到罗马，可老是有一堆朋友问我索罗斯那条怎么样，还不许我说我不知道。我是真的不知道。总的来讲，看准了出手就要狠。似懂非懂很难下手狠。耐心等待总是有机会的。
价格合理的股票不一定非买不可。我的观点是只有价格不太合理的时候才是机会啊。有时候可能会等得很难受，尤其是大牛市的时候。Buffett说过，最难的事是什么都不做。呵呵，他都觉得难，我们觉得难也就很正常了。
买股票当然要做定量分析，不然怎么搞？比如一个公司有净资产100亿，每年能赚10亿，这个公司大概值多少钱？大概就是你存X的钱能拿到10亿的利息（长期国债利息），再把x打6折。
如果买200亿长期国债的收入有10个亿/年，我会花200亿去买个年利10亿的公司吗？国债是riskfree（无风险）的，所以买公司就要打折。越觉得没谱的打折要越厉害，和我们平时的生意没区别。这大概就是巴菲特讲的marginofsafety的来源吧。长期利率会变，我一般就固定用5%。
企业价值是未来现金流折现。这未来的玩意有点模糊。通俗的讲，假设先不谈折现率。假设我确切的知道这个企业的未来。企业的价值=股东权益+未来20年净利润之和。然后再进行折现。大概就是这个意思吧，毛估估算下就行。这种算法其实把成长性也算在内了，如果你能看出其成长性的话（这部分有点难）。
若买的公司PE是10，那即使退市，每年有10%的利润（没有计算公司的增长）。利润拿来分红也好，投资也好，比国债也高多了。这样分析对不对？问题是PE是历史数据。你如果相信他未来一定有10%就可以。巴菲特买的高盛以及GE的可转换债券就是10%加option，非常好的deal。
我在投资里用定性分析确实比较多，这也是我和华尔街分析家们的区别，不然我怎么有机会啊，不能简单的单纯看数字，除非账面净现金多过股价了。pe=10意味着要10年才能赚回股价，如果你想买的话，你必须认为10年内的平均年利润要达到或超过现在的年利润。在我眼里看来，盛大游戏好像有点强弩之末的感觉。
我一般的目标是买我认为价值被低估50%或以上，价值应该是现在的净值加上未来利润总和的折现。
老巴成功的秘诀是他知道自己买的是什么。归根到底，买股票就是买公司。无论你看懂的是长久还是变化，只要是真懂，便宜时就是好机会。我有时也这么说：投资很简单，不懂不做。但要能搞懂企业就算看一吨的书也不一定行，投资简单但不容易！
我非常同意DCF（生命周期的总现金流折现）是唯一合乎逻辑的估值方法的说法，其实这就是“买股票就是买公司”的意思，不过是量化了。对投资，我想来想去，总觉得只有一样东西最简单，就是当你买一个股票时，你一定是认为你在买这家公司，你可能拿在手里10年，20年，有这种想法后就容易判断很多。
不懂不做。我始终没完全搞懂银行的业务的风险到底在哪儿。美国的一些大银行隔个10年8年就来一次大动荡，还没明白是怎么回事。索罗斯的东西不好学，至少像我这样的一般人很难学会。老巴的东西好学，懂的马上就懂了，不懂的看看最上面那一句话。
巴菲特有很多保险和金融的投资，我基本没有，因为我还不懂，总觉得不踏实。我投了一些和internet相关的公司，巴菲特没投过，因为他不懂。他认为可口可乐是人们必喝的，我认为游戏是人们必玩的。航空公司还是不碰为好。航空公司的产品难以做到差异化，没办法赚到钱，长期来讲没投资价值。这是巴菲特教我的，省了我好多钱。
便宜就买了。如果连老巴都不信，你还能信谁？对自己觉得真正了解的公司，很少细看报表，但了解以前会看（至少是应该看）。我一般会先了解企业文化，如果觉得不信任这家公司，就连报表都不会看的。
我只是做我认为我能懂的东西（以为自己懂也不一定就真懂了），有些可能也许正好是大家说的所谓科技股吧。我分不清什么是科技股。任何人要买的话必须自己明白自己在干什么，不然你睡不好觉的。其实当我说一只股票有投资价值时，最希望有人来挑战而不是跟进。我希望看到不同的观点。我投资不限于某个市场，主要取决于我是否有机会能搞懂。
如果A股有便宜我又了解的股票的话，我也可以买。不过现在我不太了解A股。要是那时就明白巴菲特，你就已经发达了。如果你现在还不明白，你还会失去很多机会。买一只股票往往要很多理由。不买的理由往往就一两个就够了。价值投资者买股票时总是假设如果我有足够多的钱的话我是否会把整个公司买下来。
有人问过芒格，如果只能用一个词来形容他们的成功？他的回答是：“rationality”（理性），呵呵，有点像我们说的平常心。问题是不用闲钱对生活会造成负面影响啊。我从来都是用闲钱的。老巴其实也是。至少你要有用闲钱的态度才可能有平常心的，不然真会睡不着觉。
我觉得对所谓价值投资者而言，其实没有那么考验。他们也就是没有合适的东西就不买了，有合适的再买，就和一般人逛商场一样。我想每个人逛商场时一定不会把花光身上所有钱作为目标吧。我的建议就是慢慢来。慢就是快。
本分我的理解就是不本分的事不做。所谓本分，其实主要指的是价值观和能力范围。赚多少钱不是我决定的，是市场给的。呵呵，谋事在人，成事在天。呵呵，如果你赚的是本分钱，你会睡得好。身体好会活的长，最后还是会赚到很多钱的。最重要的是，不本分赚钱的人其实不快乐。
关于市场：呵呵，再说一遍，我认为抄底是投机的概念。眼睛是盯着别人的。价值投资者眼里只看投资标的，不应该看别人。不过，作为投资人，我认为对宏观经济还是要了解的好，至少要懂一般的经济现象。
我个人认为大多数基金都很难真正做到价值投资，主要是因为基金的结构造成的。由于基金往往是用年来衡量考核，投资人也往往是根据其上一年的业绩来决定是否投进去。所以我们经常看到的现象是往往在最应该买股票的时候，很多基金却会在市场上狂卖，因为股东们很恐慌，要赎回。而往往股价很高时却有很多基金在狂买，因为这个时候往往有很多股东愿意投钱进来。基金大部分是收年费的，有钱时总想干点啥，不然股东可能会有意见。
不要想去赌场赢钱，但开个赌场赚钱还是可以的。我卖puts和他做的事情是一样投机是会上瘾的，不好改。这个是芒格说的。巴菲特早就不看图看线了。看图看线很容易错失机会的。其实每个人都有机会学习巴菲特，不过大部分人都拒绝而已，唉。
绝大多数人是不会改的。再说，这个做法也不一定就亏钱，亏的是机会成本，所以不容易明白。我见过做趋势很厉害的人，做了几十年，但依然还是“小资金”。用芒格的“逆向思维”想一下，你也许就对“趋势”没那么感兴趣了。其实投机比投资难学多了，但投机刺激，好玩，所以大多数人还是喜欢投机。
我认为一个人认为自己可以战胜指数的时候，他可能已经失去平常心了。我觉得好的价值投资者心中是不去比的。但结果往往是好的价值投资者会最后战胜指数。在任何地方投资真的都一样的，你不认真了解你投的是什么都会很麻烦。价值投资只管便宜与否，不管别人的想法，找自己懂的好公司，别的不要太关心。希腊发生的事和大家有点8杆子打不着吧？
我也不知道啥时候卖好。反正不便宜时就可以卖了，如果你的钱有更好的去处的话。顺便讲一句，我个人认为抄底是投机的概念（没有褒贬的意思），价值投资者不应该寻求抄底。抄底是在看别人，而价值投资者只管在足够便宜的时候出手（不管别人怎么看）。
对我而言，如果一只股我抄底了，往往利润反而少，因为反弹时往往下不了手，所以容易失去机会。最典型的例子就是当年买万科时我们就正好抄到底了，郁闷啊（其实没那么郁闷，总比亏钱好），买的量远远少于我们的原计划。
对大盘的判断很简单。如果你有足够的钱把所有股票买下来，然后赚所有上市公司赚的钱，如果你觉得合适，那这个大盘就不贵，不然就贵了。（这里还没算交易费呢）分不分红和是否有投资价值无关。如果你认为公司每股收益可以长期高过长期国债利率，这个公司当然就可能成为投资目标。投不投取决于有没有更好的目标。
实际上，我买的时候是不考虑是不是有人从我手里买的。我要假设如果这不是个上市企业这个价钱我还买不买。你如果明白这点了，价值投资的最基本的概念就有了，反之亦然。不能单靠PE去推测公司未来的收益，不然会中招的。举个例子，GM（通用汽车）的PE一直都很低（以前老在5倍左右），但债务很高，结果破产了。你如果能想想一个非上市公司是否有价值（或价值是否能体现）可能就能明白你想问的问题。
宁要模糊的精确，也不要精确的模糊，呵呵，真是老巴说的？还是老巴说得清楚啊！我觉得这就是毛估估的意思。很多人的估值就有点精确的模糊的意思。毛估估。意思就是5分钟就能算明白的东西，一定要够便宜。我只有一个标准，就是自己觉得便宜才买。比方说我认为ge值20，我可能到15才开始买一点，但到10块以下就下手重很多了。重仓买到便宜股票是多少要些运气的。天天盯住股市时好像会比较难做到。
找到被低估的公司本身是一件很难的事。我做投资最基本的概念就是来自马克恩的“价格是围绕价值上下波动”。价值就是这家企业TheWholeLife能够赚的钱折现到今天，价格就是现在市场表现出来的那个过高或者过低的玩意儿。怎么去评估一家企业是否被低估，团队我认为当然是重要的，还要看你这个公司有没有很好的文化，一个企业真正的核心竞争力就是企业文化。
所以我买公司的时候，我有一个很大的鉴别因素就是，这家公司的行为跟华尔街对他的影响有多大的关联度？如果关联度越大，我买他的机会就越低。华尔街没什么错，华尔街永远是对的，它永远代表不同人的想法。但是你要自己知道自己在干什么，你如果自己没了主见，你要听华尔街的，你就乱了。
我的逻辑就是巴菲特的逻辑，原则上没有什么差异。差异是他熟悉的行业不等于是我熟悉的行业，所以他投的股票不等于是我要投的。去年他投了一家公司，我看了半天都没有看懂，果然，他投了以后，那支股票可能涨了50%、60%。人家问我是否着急，我说不着急。为什么？因为这不是我能赚到的钱。
反过来讲，比如我投网易这样的公司，这也不是他能够赚得到钱。再比如Google，巴菲特也没买。因为他对这个生意不了解，不了解没有赚到钱是正常的，没有什么好后悔的。如果你不了解也敢投，第一你也守不了那么久，80块买的，可能100块、120块也就卖了，其实你也赚不了钱；其次如果你四处这么做，可能早就亏光了。正因为没有在自己不熟悉的行业和企业身上赚到钱，说明你犯的错误少。
我的很多成功的投资，好象行业根本不搭界，但是对我来说是相关的，就是因为我能够搞懂它，知道管理层是否在胡说八道，企业是否有一个好的机制，竞争对手是否比他强很多，三五年内他会胜出对手的地方在哪里……无非就是这些东西。看懂了，你就投。
比如我也曾赚过松下股票的钱，7块钱买的，涨到20多块卖了，放了大概有两三年的时间。就是因为我是做这行，我做企业的很多理念来自于松下，我也拜访过他们公司，也知道他们的缺点和优点，觉得这个公司不可能再低于7块了，而20块让我觉得可买可不买、可卖可不卖。所以，你作的投资都是跟你过去的经历有很大的关系，你能搞懂的东西有很大的关系。你的判断跟市场主流判断没有关系，两者可能有很大的时间差。我判断的是它的未来，而市场是要等企业情况好了才会把价格体现出来。
成长率对我来说没有任何意义。投资的定义在我来讲就是拥有一家公司的部分或者全部，最简单的概念就是“拥有”。假设某家公司去年每股赚一块，今年赚两块钱，成长率百分之百，有人说明年可能还会再涨。后年呢？后年不知道。你如果是你自己的钱，把这家公司买下来，你会买吗？你说只要后面有人买我的股票，你就会买。这就叫投机。
对于投资和投机的区别，我有一个最简单的衡量办法，我没注意到是否巴菲特也这么讲过，就是以现在这样的价格，这家公司如果不是一个上市公司你还买不买？如果你决定还买，这就叫投资；如果非上市公司你就不买了，这就叫投机。
就像我当时买网易我为什么能够在那个价格买到（那么多量），因为NASDAQ有个规定，一块钱以下的股票超过多少时间就会下市，所以很多人害怕下市，就把股票卖出来。在一块钱以下就卖了。因为他们怕下市。你知道我为什么不怕呢？这就是我投资的道理。我买它跟它上不上市无关，它价格低于价值我就会买。步步高就没有上过市，但我因此就把公司卖了，这没道理啊，很荒唐，你说我创立公司后只是因为它不上市就卖了，那我开公司干嘛？
我自己懂一些基本财务常识，觉得大致够用。本分即自然，道法自然。克制不了自己的人如果不玩游戏也会玩别的的。借钱是危险的，没人知道市场到底有多疯狂（向下或向上）。我记得巴菲特说过类似这样的话：如果你不了解投资的话，你不应该借钱。如果你了解投资的话，你不需要借钱。反正你早晚都会有钱的。
投资不需要勇气，也就是说当你需要勇气时你就危险了。老巴的教导千万别忘了：不做空，不借钱，不做不懂的东西！做空有无限风险，一次错误就可能致命。而且，长期而言，做空是肯定不对的，因为大市一定是向上的。价值投资者是会犯错误的。做空犯错的机会可能只有一次，只要你做空，总会有一次犯错的，何苦呢？
其实每个人都多少知道自己能做什么，但往往不知道自己不该做什么。如果每个人把自己干过的不应该干的事情不干的话，结果的差异会大大超出一般人的想象。可以看看芒格讲的如何赚20000亿美金的例子。芒格也许真的心里素质好，传说曾经因为用margin两年内亏掉大部分身价（大概70年代的时候）。所以有了只需要富一次的说法。芒格大概可以算富过一次半的人了。
危机大概5-8年来一次，希望下一次来的时候你记得来这里看一眼，然后擦擦冷汗，然后把能投进去的钱全投进去。千万别借钱哦，因为没人知道市场疯狂起来到底有多疯狂。
巴菲特追求的是产品很难发生变化的公司，所以他买了后就可以长久持有。但他也说过，如果你能看懂变化，你将会赚到大钱。他说他花了很长的时间才学会付高一点的价格去买未来成长性好的公司，据说芒格帮了很大的忙。
我们也不负债。负债的好处是可以发展快些。不负债的好处是可以活得长些。反正你借不借钱一生当中都会失去无穷机会的，但借钱可能会让你再也没机会了。
在理解的安全边际内，如果还有钱，当然可以再买。要注意的是，加码和想买的人多了（股价涨了）没关系，只和价值和机会成本有关。我认为Buffett花钱买BNI好过把钱放在长期国债上。BNI有很好的现金流及一定的成长和大片的地产，长期而言年回报应该能超过8%。
找到优秀的管理者和企业文化
我非常在乎企业管理层的人品！刚刚进他们网站看了一眼。居然一家中国公司没有中文网站，好像是给投资人设计的。另外，也没找到任何有关企业文化的描述。由于我不太懂这个行业，前面两点看完我就不会再往下看了。我可能又失去了一个赚钱的机会。一般而言，太把“华尔街”当回事的公司我都很小心。
好企业在哪儿的经营理念都是很相近的。美国急功近利的公司也很多，中国公司也不都是急功近利。我本人很多年前就很反对没事加班加点的。我一直认为老是强迫加班加点的部门的头的管理水平有问题，老是强迫加班加点的公司的老板的管理水平有问题，呵呵。
我终于找到巴菲特说的傻瓜能经营的企业的说法，其实是Peter林奇说的，巴菲特在讲话时引用过，为的是说明巴菲特投资时还是要买信得过的管理层。江湖传言好厉害啊。
头几年到处讲讲没啥坏处，企业文化是要不停的宣讲才能慢慢深入到大家的骨髓里的。当年尼克松好像讲过类似的话。现在好像马云出来的机会已经少多了。有好的企业文化的公司往往应变能力要强很多。
我们小时候不敢愤青啊！能愤青就是社会的大进步。你要觉得随和吃亏那可就说明你骨子里不是随和的人，世界上哪里都一样，最后成事的人都还是正直的人。这也是我喜欢GE的原因。GE的integrity是在所有东西之上的。
我记得去上中欧的第一天，前院长张国华训话里讲过一个故事。他说有个著名商学院（我不记得名字了）曾经做过一个调查，想知道非常成功的人都有什么共同特性，结果发现什么特性的人都有，但他们唯一共有的特点就是integrity。
阿里文化不如步步高文化的地方是，阿里要成为最大，步步高要本分。一百年老店不意味着他就一定活到101年。这就像不能用pe去预测明年的利润一样。雷曼好像就有150多年的历史。但你只要注意到雷曼后期的企业文化都变成什么样了的话，你就不会对他们的结局感到惊奇。
把“企业文化”真正印到企业上上下下的干部的骨子里又是一项艰难的工作了。韦尔奇的《赢》里讲了不少GE是怎么做的阿里巴巴这方面做得非常好。这是一项几十年或更长的工作，应该和企业的寿命一样长，是一项重要但往往不那么紧迫，常常被人忽略的工作。
巴菲特的意思是，如果生意模式好的话，庸才都不怕（老巴自己是很看重管理层的），出入总是有的。我在公司里是个反对派，几乎做什么我都会提反对意见。如果连我的反对意见大家都不怕时，做什么我都会放心一些。
我最怕的就是当老板说什么大家都说“好”。那时公司就危险了。当然，这里的前提是我认为我们同事很多都在许多方面比我强。如果认为自己是公司里最聪明的人的“老板”是很难认同我这个观点的。
其实是不是第一没有那么重要，因为消费者在买东西时一般并不在乎谁是第一，他们在乎的是买的东西是什么（消费者导向）。我记得当年我们买万科时就有人问过我，说万一万科假账怎么办。我说，以我认识的王石而言，他绝不是会关在房间里和财务商量个假账来蒙股东的人。其实那时和王石不熟，现在也不算熟，就是直觉而已。
从做实业与投资是有很大差别的，做事情就是要做对的事情，从做对的事情的角度来看，首先你要确定你做的是一件对的事情，再就是做对一件事情还要看你的能力，但能力可以通过学习来提高。无论是做实业还是做投资要想取得成功的基本法则是做事情不求快，但关键是找到对的事情，把它坚持下去。发现错，马上就改。比如，有的事情现在有钱赚，但本身是错的，那你就得马上改，如果不改，那你赚的越多最后损失也越大。
广告是效率导向的，就是把产品本身用尽可能高的效率传达给你的目标消费群。最不好的广告就是夸大其词的广告，靠这种广告的公司最后都不会有好下场，因为消费者长期来讲是个极聪明的群体。广告能影响的消费者大概只有20%左右，其余全靠产品本身。
营销对公司来讲只能锦上添花，千万别夸大其作用。怎么打广告我认为主要取决于你的目标消费群在哪里。其实瞄得最准的广告大概就是搜索类的广告了，阿里巴巴这方面好像现在也挺厉害的。
本分和最大本身并没有任何矛盾！事实上，我们公司做的产品大部分最后都是国内“最大”的，只不过我们罕有提起而已。我们不提的原因是认为这不是我们用户关心的东西，但这往往是我们关心用户而产生的自然结果。
我个人认为，追求最大确实有点问题，因为他是一个结果而不是一个方向，而且有可能和核心价值观产生矛盾（比如有时可能不符合用户导向等）。不过，阿里巴巴作为公司还比较新，等他真到了第一以后才能明白我说的问题何在，那时再改也来得及。
“敢为人后”的经典例子很多：苹果的iPod算是吧（之前mp3早就满大街了）？iPhone算是吧（手机不用说了）？Xbox算是吧（之前有任天堂，PlayStation等等）？Playstation算是吧（之前有任天堂，世家等）？微软的几乎所有产品，国内的例子就不举了，太多了，相信你仔细想想就能明白了。（有多少人真明白了？）
品牌溢价我觉得是一种误解。品牌只是物有所值而已。当一个品牌想当然认为其有溢价时，会很容易犯错误，大多数人买有品牌的东西时肯定不是冲着“溢价”去的。所谓品牌其实就是某种（些）差异化的浓缩。早年我开的车就是属于特别便宜的车，觉得都是代步，没必要多花钱。后来偶尔有一次试了一下“好车”，第二天就去买了一部，因为发现确实差别好大。
我们认为消费者是理性的意思是从长期来看的，套用一句俗语叫“童叟无欺”。也就是说无论消费者眼前是否理性，我们都一定要认为他们是理性的。不然的话，你经营企业就可能会有投机行为，甚至会有不道德行为。
卖股票和成本无关，不知道当时的pe，也不知道什么是pb，想的就只有所谓未来现金流的概念（连折现都好像没算过）。只有能看懂公司和生意才能做到这一点。一般买股票时会有个基本判断，就是最少值多少钱（有点像巴菲特评中石油），到了以后应该看看到底应该是多少钱。
这些年有经验也有教训。以前网易每一次到目标后我都认真重新评估一次，不然不会拿了8年多，正好一个抗战。万科到了基本价以后就没有重新评估就卖了，少赚了很多。股票掉的时候也是一个动力去重新评估自己持有的股票，看看买的理由是不是有变化（比如买过UNG，认真看过后发现买错了，就斩仓了，不然的话，留到今天要多亏几千万。）
一般来讲，“市场形势”很好时，大概就是卖股票的时候了。不过，如果真是特别好的公司，稍微贵一点未必应该卖，不然往往买不回来，机会成本大。我不知道老巴是怎么判断的，但我判断的是一般来讲，当我买一只股票时，一定会有个买的理由，同时也要看到负面的东西。当买的理由消失了或重要的负面东西增加到我不能接受的时候，我就会离场。太贵了有时会成为离场的理由。如果所有的理由不变而只有价格掉到10%的话，当然是个好机会。但如果理由发生巨变的时候，也许有可能是要离场的。
我也不是很理解他这话是啥意思。我猜他大概是认为没有人会真的出个夸张的价格的吧？我觉得如果有人出个Google的价格买步步高的话我就说服全体股东卖给他了。不过我还没出过价呢。有一次在BUffett的brunch上有人问过我类似的问题：有人问我如果巴菲特要买你公司你卖吗？我说我不卖，因为价格高了对不起巴菲特，低了对不起我们股东。
卖的都是因为对公司还不够了解。买的时候认为至少值得价钱，到了以后应该很认真地再研究一下。创维我们赚到不错利润的原因是因为不太好卖涨的还挺快。现在吸取教训，开始好好研究一下GE和Yahoo，看看是不是可以永远持有的股票。（YHOO换了新的CEO后其实风险增加了，我自己的策略还是继续卖option，但不会增加投入，实际上是慢慢在减少YHOO）
当时还在想的就是可能买银行的机会到了。可惜对银行业务不太懂，下不了重手。下次如果有机会再和老巴吃饭，一定专门请教这类问题，怎么才能搞懂银行和保险公司。老巴当年好像就是谁指点了下就明白了。
有时买之前花得多时间，有时买后还要花很多时间，尤其是当目标的已经达到基本目标价以后，对其价值的判断还是挺重要的。比如，我对网易后来的发展就花了很多时间，不然没可能大部分拿到120-140倍才卖。我认真研究了网易，发现它股价在0.8美元的时候，公司还有每股2块多的现金，当然面临一个官司，也可能被摘牌，这里面有些不确定性，这就需要多做一些咨询。就官司的问题，我咨询了一些法律界人士，问类似的官司最可能的结果是什么，得到的结论是，后果不会很严重，因为他们的错误不是特别离谱。很重要的是，这家公司在运营上没有大问题。做足功课后，我基本上把我能动用的钱全部动用了，去买它的股票。敢大量买入网易的股票最重要的是对企业花了足够的工夫，对公司、产品都有深刻了解。
我在美国买了一家做租车业务的公司，当时它的股价跌到了5美元，我花了半年时间去调查研究，发现这家公司股票每股净资产有50多美元。我算了一笔账，就算把净资产打5折，还有25美元，最后我们买了100多万股，这只股票最高到过100多美元。
能够取得投资成功在于对巴菲特的理解，更在于坚持执行巴菲特的理念。“0.8美元买网易股票的不单是我一个人，但坚持持有到100美元的就不多，所以发现价值有时候要靠运气。”
投资不在乎失掉一个机会，而是千万不要抓错一个机会。在投资的对象价值大于价格时出手，这不叫大胆，而是理性。花5元钱去买10元的东西，能说是大胆吗？很多人在这个时候缺乏的是理性，而不是胆量。
投资就是找到一个最好的公司，然后把你的钱投入进去。既然你认为最好，不把钱投到这样的公司里，而把钱投到不好的公司里，在逻辑上就是错乱的。投机和投资很大区别就是：你是在动用大笔钱还是小笔钱；其二，当股价下跌时，投机和投资的态度正好相反，投资者看到股价下跌，往往很开心，因为还有机会可以买到更便宜的东西，而投机者想的是这公司肯定是出什么事情了，赶紧走人。
问巴菲特如果他买的股票一路买一路涨怎么办？如果买的股票下跌的话，还可以找到钱再去买，但后来它涨上去了，这样你就买不到更多了。他甚至认为投资的时候买到底部是一个很糟糕的事情。“你买到底部后，股价就会一路买一路涨，这样你就买不到最多的量。”真正的投资者，其实是希望，在允许的价值波动范围内，在股票一路下跌的时候一路跟着买进，也只有这样才能拿到更多更便宜的筹码。
Labels: Investment Quote, Value Investing
26 October 2018
25 Powerful Trading Lessons From Jesse Livermore
By Jesse Livermore
Born in 1877, Jesse Livermore is possibly the most famous trader in history.
He started trading at the age of 14 from bucket shops. His tape reading skill was so good that these bucket shops eventually didn’t want to do business with him.
At his peak in 1929, he was worth $100 million. Ultimately, he lost his entire fortune when he broke his trading rules.
The same trading rules which made him millions, caused him to lose everything when he lost control of himself.
Still, there are valuable lessons to be learned from Jesse Livermore’s trading experience.
Jesse Livermore’s 25 Trading Lessons
1. Watch the market leaders.
Watch the market leaders, the stocks that have led the charge upward in a bull market.
That is where the action is and where the money is to be made. As the leaders go, so goes the entire market.
If you cannot make money in the leaders, you are not going to make money in the stock market. Watching the leaders keeps your universe of stocks limited, focused, and more easily controlled.
2. Markets are driven by humans and human nature never changes.
There is nothing new on Wall Street or in stock speculation.
What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly build into human nature, that always gets in the way of human intelligence. Of this I am sure.
All through time, people have basically acted the same way in the market as a result of greed, fear, ignorance, and hope. This is why the numerical formations and patterns recur on a constant basis.
I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humans — and human nature never changes.
3. Markets are never wrong but opinions often are.
The market will often go contrary to what speculators have predicted.
At these times, successful speculators must abandon their predictions and follow the action of the market. Prudent speculators never argue with the tape.
Markets are never wrong, but opinions often are. Remember, the market is designed to fool most of the people most of the time.
4. It was never my thinking that made the big money for me. It always was my sitting.
They say you never go broke taking profits. No, you don’t. But neither do you grow rich taking a four-point profit in a bull market.
I did precisely the wrong thing. 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.
The market does not beat them. They beat themselves, because though they have brains they cannot sit tight. Old Turkey was dead right in doing and saying what he did. He had not only the courage of his convictions but also the intelligence and patience to sit tight.
After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting.
5. You can win on a stock, but you cannot beat Wall Street all the time.
First, do not be invested in the market all the time.
There are many times when I have been completely in cash, especially when I was unsure of the direction of the market and waiting for a confirmation of the next move.
Second, it is the change in the major trend that hurts most speculators.
Always remember; you can win a horse race, but you can’t beat the races. You can win on a stock, but you cannot beat Wall Street all the time. Nobody can.
There is the plain fool, who does the wrong thing at all times everywhere, but there is also the Wall Street fool, who thinks he must trade all the time.
No man can have adequate reasons for buying or selling stocks daily– or sufficient knowledge to make his play an intelligent play.
Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap the benefits from their mistakes.
6. It is what people actually did in the stock market that counted – not what they said they were going to do.
7. Successful trading is always an emotional battle for the speculator, not an intelligent battle.
8. I believe that the public wants to be led, to be instructed, to be told what to do.
They want reassurance. They will always move en masse, a mob, a herd, a group because people want the safety of human company.
They are afraid to stand alone because they want to be safely included within the herd, not to be the lone calf standing on the desolate, dangerous, wolf-patrolled prairie of contrary opinion.
9. I believe that having the discipline to follow your rules is essential.
Without specific, clear, and tested rules, speculators do not have any real chance of success. Why?
Because speculators without a plan are like a general without a strategy, and therefore without an actionable battle plan.
Speculators without a single clear plan can only act and react, act and react, to the slings and arrows of stock market misfortune, until they are defeated.
10. If you can’t sleep at night because of your stock market position, then you have gone too far.
If this is the case, then sell your position down to the sleeping level.
11. Remember that stocks are never too high for you to begin buying or too low to begin selling.
12. I never argue with the tape.
When I am long of stocks it is because my reading of conditions has made me bullish.
But you find many people, reputed to be intelligent, who are bullish because they have stocks. I do not allow my possessions – or my prepossessions either – to do any thinking for me. That is why I repeat that I never argue with the tape.
13. Not taking the loss — that is what does damage to the pocketbook and to the soul.
Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocketbook and to the soul.
14. I trade on my own information and follow my own methods.
15. Trade along the path of least resistance.
If after a long steady rise a stock turns and gradually begins to go down, with only occasional small rallies, it is obvious that the line of least resistance has changed from upward to downward.
Such being the case why should anyone ask for explanations? There are probably very good reasons why it should go down.
16. I don’t buy long stocks on a scale down, I buy on a scale up.
When I’m bearish and I sell a stock, each sale must be at a lower level than the previous sale.
When I am buying, the reverse is true. I must buy on a rising scale. I don’t buy long stocks on a scale down, I buy on a scale up.
17. Don’t be fooled by the charisma of other traders.
It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urging of a magnetic personality when plausibly expressed by a brilliant mind.
18. Know yourself.
A man must know himself thoroughly if he is going to make a good job out of trading in the speculative markets.
19. Fear and greed are your greatest enemies
When the market goes against you, you hope that every day will be the last day – and you lose more than you should, have you not listened to hope.
And when the market goes your way, you become fearful that the next day will take away your profit and you get out – too soon. The successful trader has to fight these two deep-seated instincts.
20. Trading is not a get rich quick scheme.
The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.
21. Being a little late in a trade is insurance that your opinion is correct.
Don’t take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don’t be an impatient trader.
22. Never average losses.
It is foolhardy to make a second trade if your first trade shows you a loss. Never average losses. Let this thought be written indelibly upon your mind.
23. The trend is your friend.
Successful traders always follow the line of least resistance. Follow the trend. The trend is your friend.
24. Always trade with a stop loss.
When you make a trade, “you should have a clear target where to sell if the market moves against you. And you must obey your rules! Never sustain a loss of more than 10% of your capital. Losses are twice as expensive to make up. I always established a stop before making a trade.
25. Don’t try to play the market all the time.
Every once in a while, you must go to cash, take a break, take a vacation. Don’t try to play the market all the time. It can’t be done, too tough on the emotions.
Born in 1877, Jesse Livermore is possibly the most famous trader in history.
He started trading at the age of 14 from bucket shops. His tape reading skill was so good that these bucket shops eventually didn’t want to do business with him.
At his peak in 1929, he was worth $100 million. Ultimately, he lost his entire fortune when he broke his trading rules.
The same trading rules which made him millions, caused him to lose everything when he lost control of himself.
Still, there are valuable lessons to be learned from Jesse Livermore’s trading experience.
Jesse Livermore’s 25 Trading Lessons
1. Watch the market leaders.
Watch the market leaders, the stocks that have led the charge upward in a bull market.
That is where the action is and where the money is to be made. As the leaders go, so goes the entire market.
If you cannot make money in the leaders, you are not going to make money in the stock market. Watching the leaders keeps your universe of stocks limited, focused, and more easily controlled.
2. Markets are driven by humans and human nature never changes.
There is nothing new on Wall Street or in stock speculation.
What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly build into human nature, that always gets in the way of human intelligence. Of this I am sure.
All through time, people have basically acted the same way in the market as a result of greed, fear, ignorance, and hope. This is why the numerical formations and patterns recur on a constant basis.
I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humans — and human nature never changes.
3. Markets are never wrong but opinions often are.
The market will often go contrary to what speculators have predicted.
At these times, successful speculators must abandon their predictions and follow the action of the market. Prudent speculators never argue with the tape.
Markets are never wrong, but opinions often are. Remember, the market is designed to fool most of the people most of the time.
4. It was never my thinking that made the big money for me. It always was my sitting.
They say you never go broke taking profits. No, you don’t. But neither do you grow rich taking a four-point profit in a bull market.
I did precisely the wrong thing. 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.
The market does not beat them. They beat themselves, because though they have brains they cannot sit tight. Old Turkey was dead right in doing and saying what he did. He had not only the courage of his convictions but also the intelligence and patience to sit tight.
After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting.
5. You can win on a stock, but you cannot beat Wall Street all the time.
First, do not be invested in the market all the time.
There are many times when I have been completely in cash, especially when I was unsure of the direction of the market and waiting for a confirmation of the next move.
Second, it is the change in the major trend that hurts most speculators.
Always remember; you can win a horse race, but you can’t beat the races. You can win on a stock, but you cannot beat Wall Street all the time. Nobody can.
There is the plain fool, who does the wrong thing at all times everywhere, but there is also the Wall Street fool, who thinks he must trade all the time.
No man can have adequate reasons for buying or selling stocks daily– or sufficient knowledge to make his play an intelligent play.
Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap the benefits from their mistakes.
6. It is what people actually did in the stock market that counted – not what they said they were going to do.
7. Successful trading is always an emotional battle for the speculator, not an intelligent battle.
8. I believe that the public wants to be led, to be instructed, to be told what to do.
They want reassurance. They will always move en masse, a mob, a herd, a group because people want the safety of human company.
They are afraid to stand alone because they want to be safely included within the herd, not to be the lone calf standing on the desolate, dangerous, wolf-patrolled prairie of contrary opinion.
9. I believe that having the discipline to follow your rules is essential.
Without specific, clear, and tested rules, speculators do not have any real chance of success. Why?
Because speculators without a plan are like a general without a strategy, and therefore without an actionable battle plan.
Speculators without a single clear plan can only act and react, act and react, to the slings and arrows of stock market misfortune, until they are defeated.
10. If you can’t sleep at night because of your stock market position, then you have gone too far.
If this is the case, then sell your position down to the sleeping level.
11. Remember that stocks are never too high for you to begin buying or too low to begin selling.
12. I never argue with the tape.
When I am long of stocks it is because my reading of conditions has made me bullish.
But you find many people, reputed to be intelligent, who are bullish because they have stocks. I do not allow my possessions – or my prepossessions either – to do any thinking for me. That is why I repeat that I never argue with the tape.
13. Not taking the loss — that is what does damage to the pocketbook and to the soul.
Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocketbook and to the soul.
14. I trade on my own information and follow my own methods.
15. Trade along the path of least resistance.
If after a long steady rise a stock turns and gradually begins to go down, with only occasional small rallies, it is obvious that the line of least resistance has changed from upward to downward.
Such being the case why should anyone ask for explanations? There are probably very good reasons why it should go down.
16. I don’t buy long stocks on a scale down, I buy on a scale up.
When I’m bearish and I sell a stock, each sale must be at a lower level than the previous sale.
When I am buying, the reverse is true. I must buy on a rising scale. I don’t buy long stocks on a scale down, I buy on a scale up.
17. Don’t be fooled by the charisma of other traders.
It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urging of a magnetic personality when plausibly expressed by a brilliant mind.
18. Know yourself.
A man must know himself thoroughly if he is going to make a good job out of trading in the speculative markets.
19. Fear and greed are your greatest enemies
When the market goes against you, you hope that every day will be the last day – and you lose more than you should, have you not listened to hope.
And when the market goes your way, you become fearful that the next day will take away your profit and you get out – too soon. The successful trader has to fight these two deep-seated instincts.
20. Trading is not a get rich quick scheme.
The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.
21. Being a little late in a trade is insurance that your opinion is correct.
Don’t take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don’t be an impatient trader.
22. Never average losses.
It is foolhardy to make a second trade if your first trade shows you a loss. Never average losses. Let this thought be written indelibly upon your mind.
23. The trend is your friend.
Successful traders always follow the line of least resistance. Follow the trend. The trend is your friend.
24. Always trade with a stop loss.
When you make a trade, “you should have a clear target where to sell if the market moves against you. And you must obey your rules! Never sustain a loss of more than 10% of your capital. Losses are twice as expensive to make up. I always established a stop before making a trade.
25. Don’t try to play the market all the time.
Every once in a while, you must go to cash, take a break, take a vacation. Don’t try to play the market all the time. It can’t be done, too tough on the emotions.
Labels: Investment Quote
16 October 2018
Richard Dennis: 17 Trading Advice from a Market Wizard
Credit: Rayner Teo
Richard Dennis was a Systematic Trend Follower who trades the Futures market (during the 70s and 80s)
His rise to fame came when he was featured in Market Wizards as he took a $400 trading account and turned it into $200 million.
He is also the founder of the Turtle Traders (which came from a bet he made with his partner to determine if trading can be taught, or not).
And yes, he won the bet that trading can be taught.
However, not all stories have a happy ending.
According to sources, Richard Dennis’s hedge fund suffered huge drawdown (in excess of 50%) due to aggressive risk management, and he eventually shut it down.
However, there are valuable lessons you can learn from Richard Dennis — which are still applicable today.
And I want to share them with you right now…
1. Whatever method you use to enter trades, the most critical thing is that if there is a major trend, your approach should assure that you get in that trend.
If you think about it…
Breakouts are the only entries that will ensure you’ll catch every single trend — every single time.
And that’s why most Systematic Trend Followers trade breakouts as their entry method.
You might be wondering:
“But what about pullbacks?”
I know pullbacks are psychologically easier to execute because you’re buying low and selling higher.
But it comes with a price — and that’s missing the entire trend because the market didn’t offer a pullback.
So if you want to be involved in every trend that comes along, then you must trade breakouts.
2. A good trend following system will keep you in the market until there is evidence that the trend has changed.
Here’s a fact:
There’s no way to predict how high the market will go.
So, the next best thing you can do is trail your stop loss as the market moves in your favor.
However, you don’t want to have a tight trailing stop loss as you’ll get stopped out on the retracement.
Instead…
Widen your trailing stop loss to accommodate the deep retracement that might occur — and you have the best chance of riding a trend.
And chances are if you get stopped out, it’s because the trend has reversed.
Pro Tip:
You can use indicators like Moving Average or the Average True Range to trail your stop loss.
3. When you have a position, you put it on for a reason, and you’ve got to keep it until the reason no longer exists.
This is the opposite of what most traders do — and it HURTS them big time.
Here’s why…
Most of you tell me you want to ride big trends.
And it’s no secret that the KEY to riding massive trends is to trail your stop loss (I covered that earlier).
However…
You have difficulty holding on to your gains because…
You see profits.
You see green.
You see money.
BUT…
You have the FEAR of losing those gains.
So, you exit your trade even though the market hasn’t hit your exit signal.
The end result?
Big losses and small winners.
So here’s the lesson:
If you want to be a consistently profitable trader, you must follow your rules and exit your trades ONLY when the reason no longer exists.
4. You should expect the unexpected in this business; expect the extreme. Don’t think in terms of boundaries that limit what the market might do.
Look at the chart below:
You’re probably thinking:
“Insane! The price is so high. I’m sure the market is about to reverse lower.”
And here’s what happens next…
BOOM!
The market exploded even higher.
I know it’s hard to believe the market can just continue to make new highs especially when it looks “overbought”.
So the lesson is this:
You can never tell if the market is too high to buy or too low to short.
Because what’s high can go higher and what’s lower can go lower.
5. If there is any lesson I have learned in the nearly twenty years that I’ve been in this business, it is that the unexpected and the impossible happen every now and then.
If you saw the earlier Bitcoin example, you might think that such “extreme” moves rarely occurs.
Wrong!
Here are more examples…
Now don’t get me wrong.
You shouldn’t expect these moves every week or month.
But chances are, you can find these trends once every few years (and they can last for YEARS).
The bottom line is this…
If you have the discipline to ride your winners, it’ll be a matter of time before you catch one of these “monsters”.
6. Trading decisions should be made as unemotionally as possible.
If you trade based on emotions:
You’ll buy at the highs when things are moving “fast”, hold onto your losses hoping they will rebound, trade larger hoping to make back what you’ve lost, and etc.
Clearly, you know that trading based on emotions is a recipe for disaster,
Instead, you’ve got to think, act, and trade like a machine!
Now the question is, how?
Here are a few tips to get you started…
Develop a trading plan with clearly defined buy & sell rules
Risk not more than 1% of your capital on each trade
Focus on executing your trading plan consistently (this is so important)
Don’t get swayed but the short-term results, think long-term
If you want to learn more, then go check out this trading guide: How to be a Consistently Profitable Trader within the Next 180 days.
7. Trade small because that’s when you are as bad as you are ever going to be. Learn from your mistakes.
Let me ask you…
If you want to be a brain surgeon, will you immediately operate on a live human brain?
Of course not!
You’ll probably start off practicing on a “dummy” brain.
As you get better, you’ll work on a live human but only on a minor segment of it (so it doesn’t cause danger to the person).
Then as you level up, you’ll work on the major parts and finally, you have the confidence to do it on your own.
And it’s the same for trading!
You want to trade small because you’ll make mistakes — plenty of it.
So, why pay more in “tuition fees” to Mr. Market when you can do so at a fraction of the cost?
8. I could trade without knowing the name of the market.
You’re probably wondering:
“How is that possible?”
Well, that’s because you’re trading the price in front of you without concerning where the price is derived from.
It could be Soybean, Crude Oil, Copper, Rubber, or Cotton, who cares.
The only thing that matter is price, and nothing else.
Because the price is moved by an imbalance of buying & selling pressure which is based on emotions like fear, greed, hope, and regret.
These emotions or biases can last for a long time which in turn becomes a trend — something Trend Followers can capitalize on.
And that’s why you don’t need to know the name of the market.
All you need to know is…
Buy what’s going up
Sell what’s going down
Repeat
9. In the real world, it is not too wise to have your stop where everyone else has their stop.
Let me ask you…
Do you always get stopped out only to watch the market reverse back in your intended direction?
Because you put your stop loss where everyone else puts it (like below Support) — which creates an incentive for the “smart money” to hunt your stop loss.
So, how can you avoid it?
By setting your stop loss AWAY from the obvious market structure.
This means don’t place your stop loss smack under Support, or just above Resistance.
I cover in more details here: How to Avoid Stop Hunting While Other Traders Get Stopped Out
10. You could publish trading rules in the newspaper and no one would follow them. The key is consistency and discipline.
This is true for 99% of traders out there.
Most would not have the conviction to take someone’s trading rules and trade it consistently even though its profitable in the long-run.
Why?
Because when the drawdown comes (which all systems will have), they will abandon it and look for the next trading system — and rinse repeat this cycle again.
So, the question is…
How can you gain the confidence in your trading strategy or even someone’s trading system?
There are 2 ways you can go about it…
1. Backtest the trading strategy
This allows you to understand how a trading strategy performs historically.
If it’s proven to work in the past, there’s a possibility it could continue to work in the future (although no guarantee since it could be curve fitted).
2. Understand the logic behind WHY a trading strategy works
Most trading strategy that works have an underlying logic behind it.
For example:
Trend Following works because human biases and emotions cause the market to trend.
So, if a trader can cut his losses and ride his winners, he can capitalize on the long-term trend that comes about.
Or how about Value Investing?
It works because investors dump stock during “bad news” and that pushes the price of the underlying security below its intrinsic value.
This allows savvy investors to buy low (below the intrinsic value), and sell high (when the price increase back towards the intrinsic value).
11. There are lots more false breakouts, perhaps because there are more computer-based trend followers.
Here’s the deal:
Not all breakouts will work out.
In fact, half or more of your breakout trades are likely to fail.
However, it doesn’t mean trading breakouts is a losing strategy, far from it.
Remember, it’s not how often you win that’s important.
It’s how much you win when you’re right and how much you lose when you’re wrong — that’s what matters.
Also…
If you want to increase your odds of capturing a trend, you must trade across different markets.
This includes Forex, Indices, Energy, Metals, Agriculture, and etc.
If you want to learn more, then go read The Ultimate Guide to Trend Following.
12. It is misleading to focus on short-term results.
I’ll tell you this:
Your short-term results are random.
Because when you’re dealing with probabilities, anything is possible in the short run.
It’s only in the long run (after a large sample size of trades) that your results will align towards its expectancy.
Don’t believe me?
Then let me prove this to you…
Look at the performance of this trading system over the last 5 months…
Now, most of you would say this performance is crap and you’ll likely abandon this system after few losing months.
Now, look at this trading system below…
This looks like a much better system, right?
But guess what?
This is the same EXACT system as the one above.
The only difference is I’ve shared with you the results over the last 18 years instead of the 5 last months.
Do you see my point now?
In the short run your trading results are random but eventually, it’ll align towards it’s expected value.
13. You have to minimize your losses and try to preserve capital for those very few instances where you can make a lot in a very short period of time. What you can’t afford to do is throw away your capital on suboptimal trades.
Here’s the deal:
No matter which trading strategy you’re using, there will come a time where trading is so easy and it feels like you’re “printing” money.
But don’t be too happy just yet because…
There are also times where it sucks so bad you feel there’s no light at the end of the tunnel — and you just want to quit trading altogether.
So…
The “trick” is to minimize the damage during the bad times so you can survive and THRIVE during the good times.
This means:
Have proper risk management in every trade
No revenge trading even if you’re angry with the markets
No over trading hoping you can make your losses back quickly
Follow your trading system no matter how hard it is to pull the trigger
If you can do it, then you’ll likely overcome your drawdown and reach new equity high again.
14. I learned that a certain amount of loss will affect your judgment, so you have to put some time between that loss and the next trade.
There are 2 ways to look at this…
If you’re a discretionary trader, then yes, it makes sense to put some time between your loss and the next trade (especially if you have sustained a series of losses).
Because as a discretionary trader, your trading decisions are based on your analysis of the markets.
If you are carrying emotional baggage, you won’t objectively analyze the markets which lead to sub-optimal trading decisions.
However, if you’re a systems trader, then things are different.
Because the more losses you face, the closer you’ll be towards your next winning trade.
So, if you have a proven system that works, the last thing you’d want to do is to skip your trades because you have the fear of losing.
Instead, you must trade your system consistently so you don’t “mess up” the results of it.
15. Trading has taught me not to take the conventional wisdom for granted. What money I made in trading is a testimony to the fact that the majority is wrong a lot of the time.
The reason why most traders fail is because they want to be spoon fed.
They don’t want to put in the hard work to find out what works and what don’t.
They trust what “gurus” say instead of spending time and effort to figure things out themselves.
Now, is it no wonder that most traders never make it?
So here’s the deal:
If you want to succeed in this business, you must TEST everything.
Trust nothing but question EVERYTHING.
If you’re unsure, backtest it, forward test it, and use your brain to think about it!
16. Almost anybody can make up a list of rules that are 80 percent as good as what we taught people.
You’re probably thinking:
“What? I could never come up with a profitable trading strategy.”
Here’s the deal…
Trend Following isn’t a difficult concept.
It’s basically…
Trade a broad basket of markets
Ride your winners
Cut your losses
And that’s it!
How difficult can it be to come up with a set of trading rules based on the above criteria?
Still, I’m going to spoon feed you further.
Go read the book Following the Trend by Andreas Clenow.
This book provides you with the exact strategy and markets to trade — so there’s no excuse anymore.
But please do your own backtesting first before trading it live.
Now…
The difficult part isn’t formulating the strategy but the execution of it — especially when the drawdown comes.
Will you be able to execute your trades consistently when you’re down 10%, 20%, or even 40% of your trading capital?
17. I’ve learned that markets, which are often just mad crowds, are often irrational; when emotionally overwrought, they’re almost always wrong.
After many years of trading, the one thing I’ve learned is to NOT trade with the crowd.
For example:
Back in 2017, Bitcoin was making new highs with a lot of attention from the media and the public.
To an astute trader, it’s a warning sign that the “party” is about to end.
Now, I don’t expect you to short Bitcoin because the market could continue to trend higher.
However, if you’re long, then you should tighten your stop loss and be prepared to BAIL OUT the moment the market show signs of reversal.
Because when the whole world has already bought, who’s left to buy?
Nobody.
And if there’s no one left to buy, the path of least resistance is DOWN.
Here’s a quote by Warren Buffet that says it best…
“Be greedy when others are fearful and fearful when others are greedy.”
Conclusion
The wisdom shared by Richard Dennis is still as applicable as they were decades ago.
Now, some of you might argue that Richard Dennis strategy doesn’t work anymore.
Well, the exact parameters he used to trade might not work anymore.
But the principles of Trend Following still works and is currently used by some of the biggest hedge funds in the world (like Winton Capital).
So, don’t get caught up by the specific tactics but look at the big picture and understand the concepts behind it.
Richard Dennis was a Systematic Trend Follower who trades the Futures market (during the 70s and 80s)
His rise to fame came when he was featured in Market Wizards as he took a $400 trading account and turned it into $200 million.
He is also the founder of the Turtle Traders (which came from a bet he made with his partner to determine if trading can be taught, or not).
And yes, he won the bet that trading can be taught.
However, not all stories have a happy ending.
According to sources, Richard Dennis’s hedge fund suffered huge drawdown (in excess of 50%) due to aggressive risk management, and he eventually shut it down.
However, there are valuable lessons you can learn from Richard Dennis — which are still applicable today.
And I want to share them with you right now…
1. Whatever method you use to enter trades, the most critical thing is that if there is a major trend, your approach should assure that you get in that trend.
If you think about it…
Breakouts are the only entries that will ensure you’ll catch every single trend — every single time.
And that’s why most Systematic Trend Followers trade breakouts as their entry method.
You might be wondering:
“But what about pullbacks?”
I know pullbacks are psychologically easier to execute because you’re buying low and selling higher.
But it comes with a price — and that’s missing the entire trend because the market didn’t offer a pullback.
So if you want to be involved in every trend that comes along, then you must trade breakouts.
2. A good trend following system will keep you in the market until there is evidence that the trend has changed.
Here’s a fact:
There’s no way to predict how high the market will go.
So, the next best thing you can do is trail your stop loss as the market moves in your favor.
However, you don’t want to have a tight trailing stop loss as you’ll get stopped out on the retracement.
Instead…
Widen your trailing stop loss to accommodate the deep retracement that might occur — and you have the best chance of riding a trend.
And chances are if you get stopped out, it’s because the trend has reversed.
Pro Tip:
You can use indicators like Moving Average or the Average True Range to trail your stop loss.
3. When you have a position, you put it on for a reason, and you’ve got to keep it until the reason no longer exists.
This is the opposite of what most traders do — and it HURTS them big time.
Here’s why…
Most of you tell me you want to ride big trends.
And it’s no secret that the KEY to riding massive trends is to trail your stop loss (I covered that earlier).
However…
You have difficulty holding on to your gains because…
You see profits.
You see green.
You see money.
BUT…
You have the FEAR of losing those gains.
So, you exit your trade even though the market hasn’t hit your exit signal.
The end result?
Big losses and small winners.
So here’s the lesson:
If you want to be a consistently profitable trader, you must follow your rules and exit your trades ONLY when the reason no longer exists.
4. You should expect the unexpected in this business; expect the extreme. Don’t think in terms of boundaries that limit what the market might do.
Look at the chart below:
You’re probably thinking:
“Insane! The price is so high. I’m sure the market is about to reverse lower.”
And here’s what happens next…
BOOM!
The market exploded even higher.
I know it’s hard to believe the market can just continue to make new highs especially when it looks “overbought”.
So the lesson is this:
You can never tell if the market is too high to buy or too low to short.
Because what’s high can go higher and what’s lower can go lower.
5. If there is any lesson I have learned in the nearly twenty years that I’ve been in this business, it is that the unexpected and the impossible happen every now and then.
If you saw the earlier Bitcoin example, you might think that such “extreme” moves rarely occurs.
Wrong!
Here are more examples…
Now don’t get me wrong.
You shouldn’t expect these moves every week or month.
But chances are, you can find these trends once every few years (and they can last for YEARS).
The bottom line is this…
If you have the discipline to ride your winners, it’ll be a matter of time before you catch one of these “monsters”.
6. Trading decisions should be made as unemotionally as possible.
If you trade based on emotions:
You’ll buy at the highs when things are moving “fast”, hold onto your losses hoping they will rebound, trade larger hoping to make back what you’ve lost, and etc.
Clearly, you know that trading based on emotions is a recipe for disaster,
Instead, you’ve got to think, act, and trade like a machine!
Now the question is, how?
Here are a few tips to get you started…
Develop a trading plan with clearly defined buy & sell rules
Risk not more than 1% of your capital on each trade
Focus on executing your trading plan consistently (this is so important)
Don’t get swayed but the short-term results, think long-term
If you want to learn more, then go check out this trading guide: How to be a Consistently Profitable Trader within the Next 180 days.
7. Trade small because that’s when you are as bad as you are ever going to be. Learn from your mistakes.
Let me ask you…
If you want to be a brain surgeon, will you immediately operate on a live human brain?
Of course not!
You’ll probably start off practicing on a “dummy” brain.
As you get better, you’ll work on a live human but only on a minor segment of it (so it doesn’t cause danger to the person).
Then as you level up, you’ll work on the major parts and finally, you have the confidence to do it on your own.
And it’s the same for trading!
You want to trade small because you’ll make mistakes — plenty of it.
So, why pay more in “tuition fees” to Mr. Market when you can do so at a fraction of the cost?
8. I could trade without knowing the name of the market.
You’re probably wondering:
“How is that possible?”
Well, that’s because you’re trading the price in front of you without concerning where the price is derived from.
It could be Soybean, Crude Oil, Copper, Rubber, or Cotton, who cares.
The only thing that matter is price, and nothing else.
Because the price is moved by an imbalance of buying & selling pressure which is based on emotions like fear, greed, hope, and regret.
These emotions or biases can last for a long time which in turn becomes a trend — something Trend Followers can capitalize on.
And that’s why you don’t need to know the name of the market.
All you need to know is…
Buy what’s going up
Sell what’s going down
Repeat
9. In the real world, it is not too wise to have your stop where everyone else has their stop.
Let me ask you…
Do you always get stopped out only to watch the market reverse back in your intended direction?
Because you put your stop loss where everyone else puts it (like below Support) — which creates an incentive for the “smart money” to hunt your stop loss.
So, how can you avoid it?
By setting your stop loss AWAY from the obvious market structure.
This means don’t place your stop loss smack under Support, or just above Resistance.
I cover in more details here: How to Avoid Stop Hunting While Other Traders Get Stopped Out
10. You could publish trading rules in the newspaper and no one would follow them. The key is consistency and discipline.
This is true for 99% of traders out there.
Most would not have the conviction to take someone’s trading rules and trade it consistently even though its profitable in the long-run.
Why?
Because when the drawdown comes (which all systems will have), they will abandon it and look for the next trading system — and rinse repeat this cycle again.
So, the question is…
How can you gain the confidence in your trading strategy or even someone’s trading system?
There are 2 ways you can go about it…
1. Backtest the trading strategy
This allows you to understand how a trading strategy performs historically.
If it’s proven to work in the past, there’s a possibility it could continue to work in the future (although no guarantee since it could be curve fitted).
2. Understand the logic behind WHY a trading strategy works
Most trading strategy that works have an underlying logic behind it.
For example:
Trend Following works because human biases and emotions cause the market to trend.
So, if a trader can cut his losses and ride his winners, he can capitalize on the long-term trend that comes about.
Or how about Value Investing?
It works because investors dump stock during “bad news” and that pushes the price of the underlying security below its intrinsic value.
This allows savvy investors to buy low (below the intrinsic value), and sell high (when the price increase back towards the intrinsic value).
11. There are lots more false breakouts, perhaps because there are more computer-based trend followers.
Here’s the deal:
Not all breakouts will work out.
In fact, half or more of your breakout trades are likely to fail.
However, it doesn’t mean trading breakouts is a losing strategy, far from it.
Remember, it’s not how often you win that’s important.
It’s how much you win when you’re right and how much you lose when you’re wrong — that’s what matters.
Also…
If you want to increase your odds of capturing a trend, you must trade across different markets.
This includes Forex, Indices, Energy, Metals, Agriculture, and etc.
If you want to learn more, then go read The Ultimate Guide to Trend Following.
12. It is misleading to focus on short-term results.
I’ll tell you this:
Your short-term results are random.
Because when you’re dealing with probabilities, anything is possible in the short run.
It’s only in the long run (after a large sample size of trades) that your results will align towards its expectancy.
Don’t believe me?
Then let me prove this to you…
Look at the performance of this trading system over the last 5 months…
Now, most of you would say this performance is crap and you’ll likely abandon this system after few losing months.
Now, look at this trading system below…
This looks like a much better system, right?
But guess what?
This is the same EXACT system as the one above.
The only difference is I’ve shared with you the results over the last 18 years instead of the 5 last months.
Do you see my point now?
In the short run your trading results are random but eventually, it’ll align towards it’s expected value.
13. You have to minimize your losses and try to preserve capital for those very few instances where you can make a lot in a very short period of time. What you can’t afford to do is throw away your capital on suboptimal trades.
Here’s the deal:
No matter which trading strategy you’re using, there will come a time where trading is so easy and it feels like you’re “printing” money.
But don’t be too happy just yet because…
There are also times where it sucks so bad you feel there’s no light at the end of the tunnel — and you just want to quit trading altogether.
So…
The “trick” is to minimize the damage during the bad times so you can survive and THRIVE during the good times.
This means:
Have proper risk management in every trade
No revenge trading even if you’re angry with the markets
No over trading hoping you can make your losses back quickly
Follow your trading system no matter how hard it is to pull the trigger
If you can do it, then you’ll likely overcome your drawdown and reach new equity high again.
14. I learned that a certain amount of loss will affect your judgment, so you have to put some time between that loss and the next trade.
There are 2 ways to look at this…
If you’re a discretionary trader, then yes, it makes sense to put some time between your loss and the next trade (especially if you have sustained a series of losses).
Because as a discretionary trader, your trading decisions are based on your analysis of the markets.
If you are carrying emotional baggage, you won’t objectively analyze the markets which lead to sub-optimal trading decisions.
However, if you’re a systems trader, then things are different.
Because the more losses you face, the closer you’ll be towards your next winning trade.
So, if you have a proven system that works, the last thing you’d want to do is to skip your trades because you have the fear of losing.
Instead, you must trade your system consistently so you don’t “mess up” the results of it.
15. Trading has taught me not to take the conventional wisdom for granted. What money I made in trading is a testimony to the fact that the majority is wrong a lot of the time.
The reason why most traders fail is because they want to be spoon fed.
They don’t want to put in the hard work to find out what works and what don’t.
They trust what “gurus” say instead of spending time and effort to figure things out themselves.
Now, is it no wonder that most traders never make it?
So here’s the deal:
If you want to succeed in this business, you must TEST everything.
Trust nothing but question EVERYTHING.
If you’re unsure, backtest it, forward test it, and use your brain to think about it!
16. Almost anybody can make up a list of rules that are 80 percent as good as what we taught people.
You’re probably thinking:
“What? I could never come up with a profitable trading strategy.”
Here’s the deal…
Trend Following isn’t a difficult concept.
It’s basically…
Trade a broad basket of markets
Ride your winners
Cut your losses
And that’s it!
How difficult can it be to come up with a set of trading rules based on the above criteria?
Still, I’m going to spoon feed you further.
Go read the book Following the Trend by Andreas Clenow.
This book provides you with the exact strategy and markets to trade — so there’s no excuse anymore.
But please do your own backtesting first before trading it live.
Now…
The difficult part isn’t formulating the strategy but the execution of it — especially when the drawdown comes.
Will you be able to execute your trades consistently when you’re down 10%, 20%, or even 40% of your trading capital?
17. I’ve learned that markets, which are often just mad crowds, are often irrational; when emotionally overwrought, they’re almost always wrong.
After many years of trading, the one thing I’ve learned is to NOT trade with the crowd.
For example:
Back in 2017, Bitcoin was making new highs with a lot of attention from the media and the public.
To an astute trader, it’s a warning sign that the “party” is about to end.
Now, I don’t expect you to short Bitcoin because the market could continue to trend higher.
However, if you’re long, then you should tighten your stop loss and be prepared to BAIL OUT the moment the market show signs of reversal.
Because when the whole world has already bought, who’s left to buy?
Nobody.
And if there’s no one left to buy, the path of least resistance is DOWN.
Here’s a quote by Warren Buffet that says it best…
“Be greedy when others are fearful and fearful when others are greedy.”
Conclusion
The wisdom shared by Richard Dennis is still as applicable as they were decades ago.
Now, some of you might argue that Richard Dennis strategy doesn’t work anymore.
Well, the exact parameters he used to trade might not work anymore.
But the principles of Trend Following still works and is currently used by some of the biggest hedge funds in the world (like Winton Capital).
So, don’t get caught up by the specific tactics but look at the big picture and understand the concepts behind it.
Labels: Investment Quote
11 Top Lessons From Veterans
Credit: Rayner Teo
Who are these million dollar traders?
It is very well known that trading in the market has a high failure rate. However, the traders who have made it can go on to become very wealthy and successful. Imagine if all of us could learn from veterans in any field and drastically reduce the time to be good and not suffer some devastating lessons along the way.
Unfortunately, us humans are a complicated bunch. Most of us would rather suffer and learn the hard way ourselves than to follow the advice of the wiser. Don’t be too hard on yourself though because learning from our mistakes is part of the journey.
These millionaire traders have stood the test of time and learned some harsh lessons. An unfortunate but necessary step in anyone’s path to profitability.
The list of traders range from millionaire day traders to option traders. Some of these top traders:
Mark Minervini
Ed Seykota
Nathan Michaud
Marty Schwartz
Jesse Livermore
Richard Dennis
Paul Tudor Jones
William O Neill
David Ryan
Larry Hite
Some of you reading this are struggling to become consistent. Read through these lessons and really try and take away something from them. You will notice that the advice given is from traders old and new.
The same lessons are applicable today as they were in the past. So that leads me nicely on to the first lesson.
Download these lessons from millionaire traders to practice in your own trading
Get The Lessons In PDF
Learn these lessons from this free sheet and follow the steps of the millionaire traders.
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1. Wall Street Never Changes Because Human Nature Never Changes
A great lesson from top trader Jesse Livermore. Some of you might think that ‘it’s different in the markets nowadays‘ or trading was easier back then. While the rise of HFT’s may have caused some new problems for the average trader, fundamentally the principles remain the same.
The stock market never changes. Why? Because human nature doesn’t change. We are all fearful, greedy and emotional. (some more than others) and this is what causes us to lose money.
How many times have you been up nicely on a trade? Then decided you wanted to make more money and moved your exit point to a more ambitious target.
This is just one example of greed in place. We’ve all done it. And yes it’s bloody annoying ! But our human nature can get in the way.
Human nature means the patterns in the markets are repeatable over time. That lesson was given over 100 years ago and it is still well and truly relevant today.
Ask yourself, Do I allow my human nature to get in the way of my trading decisions?
If the answer is an absolute yes, then you have your first problem to work on! Again, it’s human nature. We all suffer from it in some form or another. The trick is being able to control it.
2. Being Wrong Is Acceptable, But Staying Wrong Is Unacceptable
Here’s a very important lesson from Mark Minervini. It really illustrates the importance of risk management. Every one of us will have losing trades. It’s part of any trading system.
The important thing is we cut our losses short. If we don’t and continue to stay wrong, we could run the risk of going broke. This is one of the most important yet basic lesson in this list.
Don’t let trades get out of hand. Accept you are wrong and move on. Unfortunately, it take some a few very large losses to learn this lesson. If you can loss small while you are learning to trade, you’ll have cash available for when things start to get consistent.
3.Investment Psychology Is By Far The More Important Element, Followed By Risk Control.
A great lesson by Tom Basso. If you’re completely new to trading, this might be lost on you. But very the rest of us, it’s important to remember how much psychology plays a major role in our trading decisions.
Feeling anxious to pull the trigger, betting too big, whatever the problem, these issues are all psychological. They are something that must be controlled. many of us, (myself included in the beginning) don’t understand the importance of psychology in trading.
I would love to be a stone cold emotionless trader but the truth is that it’s an ongoing struggle to remain fully emotionless.
How can you work on psychology and get better? Well, check out this trading psychology post for assistance. This took me years to master and even today I sometimes find myself angry over a mistake I made etc.
So don’t be too hard on yourself. It takes time but always understand that psychology is so very important and you should always be aware of how you feel and your overall emotions when trading.
4. Even A Poor Trading System Could Make Money With Good Money Management
While this can be a controversial lesson, there are some key points to take away from it. Alright, I get it. Some of you will say if the system is poor than you’ll lose money and that may very well be the case.
But the point here isn’t the trading system. It’s about money management. So many of us go from one strategy to another.
Why? Because we try to find the holy grail.
The truth is there’s no holy grail. And if a poor system could make us profitable with good money management, wouldn’t it be better to focus on the money management side of things as opposed to finding the perfect strategy?
Have a look at the equity drawdown graph below and what it would take to make back the money you’ve lost.
millionaire traders
Could you make 400% and come back from a 75% drawdown on equity? These figures are eye opening. Managing risk should always be the number 1 priority.
5. Find A Trading Style That Suits Your Personality
So what is this lesson all about? Well, let’s take an example. If I’m naturally lacking patience, do you think I would make a great position trader? I don’t think so. My personality would be at odds with my strategy and I would find it very tough to have the discipline to follow the strategy.
The same goes for you. Find a trading style that suits your personality. This article on finding the right trading style may be of assistance.
If you find the right style, you’ll find it much easier to remained disciplined during the inevitable drawdown period every strategy goes through.
6. If Most Traders Would Learn To Sit On Their Hands 50 Percent Of The Time, They Would Make A Lot More Money
A lesson by millionaire trader Bill Lipschutz. Fear of missing out or always entering and exiting trades can really eat into your performance. If you can have patience to wait for your trading setups ( yes even as a day trader or scalper) you will see a very big improvement in results.
How many times have you entered a trade early because you couldn’t sit on your hands and wait for the right time?
It happens I know but learning the discipline to follow the strategy is very important. How many times do you wish you didn’t enter a trade or waited? All these errors can ad up over time to something much more problematic.
If you struggle with trading errors, you can download this trading error template to keep track going forward.
7. The Single Most Important Thing Is To Learn From Failures
Ray Dalio believes failure plays an important role in the journey of a trader. Throughout life, we are taught to avoid failure (exams, driving tests etc) but it is a necessary part of anyone’s journey.
Why?
We learn far more from failures than successes. So with that in mind, don’t be afraid to fail. Every billionaire once failed at something. The important part is you learn from the mistakes.
You’ve more than likely heard it many times but the Thomas Edison quote rings true here.
“I have not failed. I’ve just found 10,000 ways that won’t work.”
Talk about never giving up! But as long as you are improving and learning from different mistakes you are making, don’t be discouraged. You will question your own sanity sometimes in this job (I have on countless occasions) and it can really be tough.
But my greatest breakthroughs came right after I made some monumental failures.
8. Perfection In Trading Is Not Necessary
Okay, you are reading that and think what ?? But think about it. Larry Hite said it is incredible how rich you can get by not being perfect. You will encounter many setbacks on your journey but if a trader of his level says this, you should take note.
So many of us want to be perfect. In trading that could manifest itself through wanting to always be right in trades and have a high win percentage. However, that is nonsense.
You see how trading is doing exactly the opposite of what we grew up learning? We should only focus on risk reward. That is a far more important aspect of a trading system than the need for perfection and a high win percentage.
9. Don’t Do What’s Comfortable, Do What’s Right
Picture for a moment you just had a string of losing trades. You followed your trading plan perfectly and still had these losses. It’s normal to encounter these losses. But now imagine another trade is setting up and you are fearful of entering the trade so you don’t pull the trigger.
That trade turns out to be a big winner that would have wiped all those other losses away. Have you ever been there?
In this scenario, you did what was more comfortable, not what was right. Again, don’t be too hard on yourself. We all do it. Learn from it and move on but top traders always pull the trigger.
10. Consistency Is Key
Nate, a day trading millionaire says consistency is key. Wild violent swings in your profit chart is not healthy for the mental health. Keep things simple and follow a proven approach and you are ahead of many in the industry.
Would you rather bet the house on a trade and potentially make or more importantly lose a ton? Or have small consistent gains which add up over time?
I know what I’d prefer. Keep things simple and consistent. Your health is more important 🙂
11. Win or Lose, You Are Responsible For Your Trading Results
How many of us have blamed the markets, the weather, our neighbor or whatever for a poor trading result?
We’ve all made excuses,( well most of us anyway) at one point or another. And where do you think it has gotten us?
Absolutely nowhere!
The trading result didn’t change and we were in the exact same position. So take responsibility for your own trading. How can you ever improve if you don’t take full responsibility for anything you do?
Sure you might feel better blaming others but does it change the outcome? More than likely it doesn’t. So knuckle down and start improving. In the future when you look back with a smile, you’ll be glad you took charge sooner.
What Can We Learn In Summary From These Lessons?
There is a common theme among all these lessons which can be summarized into the following:
Risk Management is EXTREMELY important
Trading psychology plays a MASSIVE role in performance
Failing is part of learning
Risk/Reward is more important than perfection
Focus and discipline are VERY important
Patience is a virtue in trading (wait for the right setup as part of your plan)
More than likely if you have read any trading literature, you’ll have read these lessons before in some form or another. There is good reason you hear it over and over again.
Why? Because it works. Plain and simple.
Final Words
There is a lot to take in from these lessons. I would suggest taking it one step at a time. Focus on getting good on one lesson and then move onto the next one. These millionaire traders have stood the test of time. They were not some overnight success stories so the lessons are tried and tested.
We all have failures but Ray Dalio highlights the importance of failing and learning from it. I’m fully aware some of you are struggling in your trading. I’ve been right there so I know first hand the struggles you are going through.
Who are these million dollar traders?
It is very well known that trading in the market has a high failure rate. However, the traders who have made it can go on to become very wealthy and successful. Imagine if all of us could learn from veterans in any field and drastically reduce the time to be good and not suffer some devastating lessons along the way.
Unfortunately, us humans are a complicated bunch. Most of us would rather suffer and learn the hard way ourselves than to follow the advice of the wiser. Don’t be too hard on yourself though because learning from our mistakes is part of the journey.
These millionaire traders have stood the test of time and learned some harsh lessons. An unfortunate but necessary step in anyone’s path to profitability.
The list of traders range from millionaire day traders to option traders. Some of these top traders:
Mark Minervini
Ed Seykota
Nathan Michaud
Marty Schwartz
Jesse Livermore
Richard Dennis
Paul Tudor Jones
William O Neill
David Ryan
Larry Hite
Some of you reading this are struggling to become consistent. Read through these lessons and really try and take away something from them. You will notice that the advice given is from traders old and new.
The same lessons are applicable today as they were in the past. So that leads me nicely on to the first lesson.
Download these lessons from millionaire traders to practice in your own trading
Get The Lessons In PDF
Learn these lessons from this free sheet and follow the steps of the millionaire traders.
enter your name
enter your email address
Download
Your email address is 100% safe from spam!
1. Wall Street Never Changes Because Human Nature Never Changes
A great lesson from top trader Jesse Livermore. Some of you might think that ‘it’s different in the markets nowadays‘ or trading was easier back then. While the rise of HFT’s may have caused some new problems for the average trader, fundamentally the principles remain the same.
The stock market never changes. Why? Because human nature doesn’t change. We are all fearful, greedy and emotional. (some more than others) and this is what causes us to lose money.
How many times have you been up nicely on a trade? Then decided you wanted to make more money and moved your exit point to a more ambitious target.
This is just one example of greed in place. We’ve all done it. And yes it’s bloody annoying ! But our human nature can get in the way.
Human nature means the patterns in the markets are repeatable over time. That lesson was given over 100 years ago and it is still well and truly relevant today.
Ask yourself, Do I allow my human nature to get in the way of my trading decisions?
If the answer is an absolute yes, then you have your first problem to work on! Again, it’s human nature. We all suffer from it in some form or another. The trick is being able to control it.
2. Being Wrong Is Acceptable, But Staying Wrong Is Unacceptable
Here’s a very important lesson from Mark Minervini. It really illustrates the importance of risk management. Every one of us will have losing trades. It’s part of any trading system.
The important thing is we cut our losses short. If we don’t and continue to stay wrong, we could run the risk of going broke. This is one of the most important yet basic lesson in this list.
Don’t let trades get out of hand. Accept you are wrong and move on. Unfortunately, it take some a few very large losses to learn this lesson. If you can loss small while you are learning to trade, you’ll have cash available for when things start to get consistent.
3.Investment Psychology Is By Far The More Important Element, Followed By Risk Control.
A great lesson by Tom Basso. If you’re completely new to trading, this might be lost on you. But very the rest of us, it’s important to remember how much psychology plays a major role in our trading decisions.
Feeling anxious to pull the trigger, betting too big, whatever the problem, these issues are all psychological. They are something that must be controlled. many of us, (myself included in the beginning) don’t understand the importance of psychology in trading.
I would love to be a stone cold emotionless trader but the truth is that it’s an ongoing struggle to remain fully emotionless.
How can you work on psychology and get better? Well, check out this trading psychology post for assistance. This took me years to master and even today I sometimes find myself angry over a mistake I made etc.
So don’t be too hard on yourself. It takes time but always understand that psychology is so very important and you should always be aware of how you feel and your overall emotions when trading.
4. Even A Poor Trading System Could Make Money With Good Money Management
While this can be a controversial lesson, there are some key points to take away from it. Alright, I get it. Some of you will say if the system is poor than you’ll lose money and that may very well be the case.
But the point here isn’t the trading system. It’s about money management. So many of us go from one strategy to another.
Why? Because we try to find the holy grail.
The truth is there’s no holy grail. And if a poor system could make us profitable with good money management, wouldn’t it be better to focus on the money management side of things as opposed to finding the perfect strategy?
Have a look at the equity drawdown graph below and what it would take to make back the money you’ve lost.
millionaire traders
Could you make 400% and come back from a 75% drawdown on equity? These figures are eye opening. Managing risk should always be the number 1 priority.
5. Find A Trading Style That Suits Your Personality
So what is this lesson all about? Well, let’s take an example. If I’m naturally lacking patience, do you think I would make a great position trader? I don’t think so. My personality would be at odds with my strategy and I would find it very tough to have the discipline to follow the strategy.
The same goes for you. Find a trading style that suits your personality. This article on finding the right trading style may be of assistance.
If you find the right style, you’ll find it much easier to remained disciplined during the inevitable drawdown period every strategy goes through.
6. If Most Traders Would Learn To Sit On Their Hands 50 Percent Of The Time, They Would Make A Lot More Money
A lesson by millionaire trader Bill Lipschutz. Fear of missing out or always entering and exiting trades can really eat into your performance. If you can have patience to wait for your trading setups ( yes even as a day trader or scalper) you will see a very big improvement in results.
How many times have you entered a trade early because you couldn’t sit on your hands and wait for the right time?
It happens I know but learning the discipline to follow the strategy is very important. How many times do you wish you didn’t enter a trade or waited? All these errors can ad up over time to something much more problematic.
If you struggle with trading errors, you can download this trading error template to keep track going forward.
7. The Single Most Important Thing Is To Learn From Failures
Ray Dalio believes failure plays an important role in the journey of a trader. Throughout life, we are taught to avoid failure (exams, driving tests etc) but it is a necessary part of anyone’s journey.
Why?
We learn far more from failures than successes. So with that in mind, don’t be afraid to fail. Every billionaire once failed at something. The important part is you learn from the mistakes.
You’ve more than likely heard it many times but the Thomas Edison quote rings true here.
“I have not failed. I’ve just found 10,000 ways that won’t work.”
Talk about never giving up! But as long as you are improving and learning from different mistakes you are making, don’t be discouraged. You will question your own sanity sometimes in this job (I have on countless occasions) and it can really be tough.
But my greatest breakthroughs came right after I made some monumental failures.
8. Perfection In Trading Is Not Necessary
Okay, you are reading that and think what ?? But think about it. Larry Hite said it is incredible how rich you can get by not being perfect. You will encounter many setbacks on your journey but if a trader of his level says this, you should take note.
So many of us want to be perfect. In trading that could manifest itself through wanting to always be right in trades and have a high win percentage. However, that is nonsense.
You see how trading is doing exactly the opposite of what we grew up learning? We should only focus on risk reward. That is a far more important aspect of a trading system than the need for perfection and a high win percentage.
9. Don’t Do What’s Comfortable, Do What’s Right
Picture for a moment you just had a string of losing trades. You followed your trading plan perfectly and still had these losses. It’s normal to encounter these losses. But now imagine another trade is setting up and you are fearful of entering the trade so you don’t pull the trigger.
That trade turns out to be a big winner that would have wiped all those other losses away. Have you ever been there?
In this scenario, you did what was more comfortable, not what was right. Again, don’t be too hard on yourself. We all do it. Learn from it and move on but top traders always pull the trigger.
10. Consistency Is Key
Nate, a day trading millionaire says consistency is key. Wild violent swings in your profit chart is not healthy for the mental health. Keep things simple and follow a proven approach and you are ahead of many in the industry.
Would you rather bet the house on a trade and potentially make or more importantly lose a ton? Or have small consistent gains which add up over time?
I know what I’d prefer. Keep things simple and consistent. Your health is more important 🙂
11. Win or Lose, You Are Responsible For Your Trading Results
How many of us have blamed the markets, the weather, our neighbor or whatever for a poor trading result?
We’ve all made excuses,( well most of us anyway) at one point or another. And where do you think it has gotten us?
Absolutely nowhere!
The trading result didn’t change and we were in the exact same position. So take responsibility for your own trading. How can you ever improve if you don’t take full responsibility for anything you do?
Sure you might feel better blaming others but does it change the outcome? More than likely it doesn’t. So knuckle down and start improving. In the future when you look back with a smile, you’ll be glad you took charge sooner.
What Can We Learn In Summary From These Lessons?
There is a common theme among all these lessons which can be summarized into the following:
Risk Management is EXTREMELY important
Trading psychology plays a MASSIVE role in performance
Failing is part of learning
Risk/Reward is more important than perfection
Focus and discipline are VERY important
Patience is a virtue in trading (wait for the right setup as part of your plan)
More than likely if you have read any trading literature, you’ll have read these lessons before in some form or another. There is good reason you hear it over and over again.
Why? Because it works. Plain and simple.
Final Words
There is a lot to take in from these lessons. I would suggest taking it one step at a time. Focus on getting good on one lesson and then move onto the next one. These millionaire traders have stood the test of time. They were not some overnight success stories so the lessons are tried and tested.
We all have failures but Ray Dalio highlights the importance of failing and learning from it. I’m fully aware some of you are struggling in your trading. I’ve been right there so I know first hand the struggles you are going through.
Labels: Investment Quote
Paul Tudor Jones — 21 Trading Rules That Have Stood the Test of Time
Credit: Rayner Teo
21 trading rules that will improve your trading
1. When you are trading size, you have to get out when the market lets you out, not when you want to get out.
The old high was at 56.80, there are probably going to be a lot of buy stops at 56.85. If the market is trading 70 bid, 75 offered, the whole trading ring has a vested interest in buying the market, touching off those stops and liquidating into the stops.
If I want to cover a position in that type of situation, I will liquidate half at 75, and the remaining half beyond that point.
2. Never play macho with the market and don’t over trade.
My major problem was not the number of points I lost on the trade, but that I was trading far too many contracts relative to the equity in the accounts that I handled.
3. If I have positions going against me, I get out; if they are going for me, I keep them.
4. I will keep cutting my position size down as I have losing trades.
When I am trading poorly, I keep reducing my position size. That way, I will be trading my smallest position when my trading is worst.
5. Don’t ever average losers.
6. Decrease your trading volume when you are trading poorly; increase your volume when you are trading well.
7. Never trade in situations you don’t have control.
I don’t risk significant amounts of money in front of key reports since that is gambling, not trading.
8. If you have a losing position that is making you uncomfortable, get out. Because you can always get back in.
9. Don’t be too concerned about where you got into a position.
The only relevant question is whether you are bullish or bearish on the position that day.
10. The most important rule of trading is to play great defense, not offense.
Every day I assume every position I have is wrong. I know where my stop risk points are going to be.
I do that so I can define my maximum possible drawdown. if my positions are going against me, then I have a game plan for getting out.
11. Don’t be a hero. Don’t have an ego.
Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead.
12. I consider myself a premier market opportunist.
I develop an idea on the market and pursue it from a very low-risk standpoint until I have repeatedly been proven wrong, or until I change my viewpoints.
13. I believe the very best money is to be made at market turns.
Everyone says you get killed trying to pick tops and bottoms and you make all the money by catching the trends in the middle.
Well, for twelve years, I have often been missing the meat in the middle, but I have caught a lot of bottoms and tops.
14. Everything gets destroyed a hundred times faster than it is built up.
It takes one day to tear down something that might have taken ten years to build.
15. Markets move sharply when they move.
If there is a sudden range expansion in a market that has been trading narrowly, human nature is to try to fade that price move.
When you get a range expansion, the market is sending you a very loud, clear signal that the market is getting ready to move in the direction of that expansion.
16. When I trade, I don’t just use a price stop, I also use a time stop.
If I think a market should break, and it doesn’t, I will often get out even if I’m not losing any money.
17. Don’t focus on making money; focus on protecting what you have.
18. You always want to be with whatever the predominant trend is.
19. My metric for everything I look at is the 200-day moving average of closing prices.
I’ve seen too many things go to zero, stocks and commodities. The whole trick in investing is: “How do I keep from losing everything?” If you use the 200-day moving average rule, then you get out. You play defense, and you get out.
20. At the end of the day, your job is to buy what goes up and to sell what goes down so really who gives a damn about PE’s?
21. I look for opportunities with tremendously skewed reward-risk opportunities.
You should always be able to find something where you can skew the reward-risk relationship so greatly in your favor, that you can take a variety of small investments with great reward-risk opportunities, that gives you minimum drawdown pain, and maximum upside opportunities.
Conclusion
Do you want to learn more?
Click on the link below to access the Top 100 Trading Rules of all time.
These trading rules are personally handpicked by me and include the biggest names in trading, like Jesse Livermore, Paul Tudor Jones, and Ed Seykota.
21 trading rules that will improve your trading
1. When you are trading size, you have to get out when the market lets you out, not when you want to get out.
The old high was at 56.80, there are probably going to be a lot of buy stops at 56.85. If the market is trading 70 bid, 75 offered, the whole trading ring has a vested interest in buying the market, touching off those stops and liquidating into the stops.
If I want to cover a position in that type of situation, I will liquidate half at 75, and the remaining half beyond that point.
2. Never play macho with the market and don’t over trade.
My major problem was not the number of points I lost on the trade, but that I was trading far too many contracts relative to the equity in the accounts that I handled.
3. If I have positions going against me, I get out; if they are going for me, I keep them.
4. I will keep cutting my position size down as I have losing trades.
When I am trading poorly, I keep reducing my position size. That way, I will be trading my smallest position when my trading is worst.
5. Don’t ever average losers.
6. Decrease your trading volume when you are trading poorly; increase your volume when you are trading well.
7. Never trade in situations you don’t have control.
I don’t risk significant amounts of money in front of key reports since that is gambling, not trading.
8. If you have a losing position that is making you uncomfortable, get out. Because you can always get back in.
9. Don’t be too concerned about where you got into a position.
The only relevant question is whether you are bullish or bearish on the position that day.
10. The most important rule of trading is to play great defense, not offense.
Every day I assume every position I have is wrong. I know where my stop risk points are going to be.
I do that so I can define my maximum possible drawdown. if my positions are going against me, then I have a game plan for getting out.
11. Don’t be a hero. Don’t have an ego.
Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead.
12. I consider myself a premier market opportunist.
I develop an idea on the market and pursue it from a very low-risk standpoint until I have repeatedly been proven wrong, or until I change my viewpoints.
13. I believe the very best money is to be made at market turns.
Everyone says you get killed trying to pick tops and bottoms and you make all the money by catching the trends in the middle.
Well, for twelve years, I have often been missing the meat in the middle, but I have caught a lot of bottoms and tops.
14. Everything gets destroyed a hundred times faster than it is built up.
It takes one day to tear down something that might have taken ten years to build.
15. Markets move sharply when they move.
If there is a sudden range expansion in a market that has been trading narrowly, human nature is to try to fade that price move.
When you get a range expansion, the market is sending you a very loud, clear signal that the market is getting ready to move in the direction of that expansion.
16. When I trade, I don’t just use a price stop, I also use a time stop.
If I think a market should break, and it doesn’t, I will often get out even if I’m not losing any money.
17. Don’t focus on making money; focus on protecting what you have.
18. You always want to be with whatever the predominant trend is.
19. My metric for everything I look at is the 200-day moving average of closing prices.
I’ve seen too many things go to zero, stocks and commodities. The whole trick in investing is: “How do I keep from losing everything?” If you use the 200-day moving average rule, then you get out. You play defense, and you get out.
20. At the end of the day, your job is to buy what goes up and to sell what goes down so really who gives a damn about PE’s?
21. I look for opportunities with tremendously skewed reward-risk opportunities.
You should always be able to find something where you can skew the reward-risk relationship so greatly in your favor, that you can take a variety of small investments with great reward-risk opportunities, that gives you minimum drawdown pain, and maximum upside opportunities.
Conclusion
Do you want to learn more?
Click on the link below to access the Top 100 Trading Rules of all time.
These trading rules are personally handpicked by me and include the biggest names in trading, like Jesse Livermore, Paul Tudor Jones, and Ed Seykota.
Labels: Investment Quote
09 October 2018
Major Keys to Forex Trading Success
Credit: Brad Mitchell
Hey guys! I dropped quite a bit of knowledge in this group yesterday, and you guys seemed to love it. So, I decided to make another post! Without further ado, here are three HUGE pieces of advice I highly recommend you follow while trading:
✅ Do Not Add to a Losing Position
- While this is just common sense, ignorance of the principle, or carelessness in its employment has caused disasters to many traders in the course of history. Nobody knows where a currency pair will be heading during the next few hours, days, or even weeks. There are lots of educated guesses, but no knowledge of where the price will be a short while later.
- The only certain value about trading is now. Nothing much can be said about the future. Consequently, there can be no point in adding to a losing position, unless you love gambling. A position in the red can be allowed to survive on its own in accordance with the initial plan, but adding to it can never be an advisable practice.
✅ Don’t Let Emotions Come Into Play
- Greed, excitement, euphoria, panic or fear should have no place in traders’ calculations. Yet traders are human beings, so it is obvious that we have to find a way of living with these emotions, while at the same time controlling them and minimizing their effect on our lives. That is why traders are always advised to begin with small amounts.
- By reducing our risk, we can be calm enough to realize our long term goals, reducing the impact of emotions on our trading choices. A logical approach, and less emotional intensity are the best forex trading tips necessary to a successful career.
✅ Study Your Success & Failure
- An analytical approach to trading does not begin at the fundamental and technical analysis of price trends, or the formulation of trading strategies. It begins at the first step taken into the career, with the first dollar placed in an open position, and the first mistakes in calculation and trading methods.
- The successful trader will keep a diary, a journal of his trading activity where he carefully scrutinizes his mistakes and successes to find out what works and what does not. This is one of the most importance forex trading tips that you will get from a good mentor.
Thank you for all the love you gave on my previous post, I’ll be dropping some more value bombs soon! 💸🚀
Hey guys! I dropped quite a bit of knowledge in this group yesterday, and you guys seemed to love it. So, I decided to make another post! Without further ado, here are three HUGE pieces of advice I highly recommend you follow while trading:
✅ Do Not Add to a Losing Position
- While this is just common sense, ignorance of the principle, or carelessness in its employment has caused disasters to many traders in the course of history. Nobody knows where a currency pair will be heading during the next few hours, days, or even weeks. There are lots of educated guesses, but no knowledge of where the price will be a short while later.
- The only certain value about trading is now. Nothing much can be said about the future. Consequently, there can be no point in adding to a losing position, unless you love gambling. A position in the red can be allowed to survive on its own in accordance with the initial plan, but adding to it can never be an advisable practice.
✅ Don’t Let Emotions Come Into Play
- Greed, excitement, euphoria, panic or fear should have no place in traders’ calculations. Yet traders are human beings, so it is obvious that we have to find a way of living with these emotions, while at the same time controlling them and minimizing their effect on our lives. That is why traders are always advised to begin with small amounts.
- By reducing our risk, we can be calm enough to realize our long term goals, reducing the impact of emotions on our trading choices. A logical approach, and less emotional intensity are the best forex trading tips necessary to a successful career.
✅ Study Your Success & Failure
- An analytical approach to trading does not begin at the fundamental and technical analysis of price trends, or the formulation of trading strategies. It begins at the first step taken into the career, with the first dollar placed in an open position, and the first mistakes in calculation and trading methods.
- The successful trader will keep a diary, a journal of his trading activity where he carefully scrutinizes his mistakes and successes to find out what works and what does not. This is one of the most importance forex trading tips that you will get from a good mentor.
Thank you for all the love you gave on my previous post, I’ll be dropping some more value bombs soon! 💸🚀
Labels: Forex, Investment Quote
08 October 2018
Forex is NOT EASY. Don’t give up!
By Brad Mitchell
Forex is NOT EASY. Don’t give up!
Success takes a lot of time, dedication, and most importantly: Action. Without taking massive action you literally have ZERO chance of building a long-term source of income with anything. Period.
I started trading Forex in 2016 and it definitely wasn’t easy. I went through countless nights of studying the market, analyzing patterns, testing different techniques, and much more.
Every time I wanted to throw in the towel I always reminded myself why the heck I’m still doing this, and that’s solely for financial freedom. After all the trial and error, the ups and downs, I finally figured out what worked.
I know a lot of you are feeling frustrated and/or confused because there’s so much to learn, so here are some VALUABLE KEYS that helped me a TON:
✅ Be Consistent & Correct Before You Start Worrying About Money
- A lot of people start off with the mindset where they think to themselves; “If I catch this many pips I’ll make X amount of money!” Slow your role, you’re thinking about money WAY too soon if you haven’t even learned how to trade or analyze yet. Make sure you fully understand how the market moves before you start to think about how much profit you’re going to make off each move.
- At the end of the day, if you’re prematurely thinking about the money, you’re going to over leverage and end up putting too much volume on each trade which will eventually blow your account. Even though making money is the ultimate goal in Forex, learning how to accurately predict the market is the most important part in order to succeed.
✅ Trade Higher Timeframes
- It makes no sense as to why anybody, especially if you’re new, would trade small 5 minute timeframes. I recommend to learn and trade higher timeframes in order to see the bigger picture, rather than being zoomed into one specific period of time. This will ultimately result in better long-term trading success. Pretty self explanatory.
✅ Focus on 1-2 Pairs at a Time
- Each pair has it’s own story, they move differently and at different times. Many people waste their time focusing on multiple pairs at once such as gold, commodities, etc. Instead, you need to learn and master 1-2 pairs at a time before moving onto the next pair. How do you expect to master pairs if you’re trading so many at once and constantly switching between them? If you’re not consistent with just 1, how do you expect to be consistent with 5-10? My point exactly. Forex isn’t a game, it’s not something you can play around with and expect to learn overnight.
I hope this helped some of you guys out who are trading in the foreign exchange markets. If you have any questions feel free to drop a comment or reach out to me. I’d be more than happy to help!
If you guys like these types of posts, I can definitely drop some value in this group more often.
Forex is NOT EASY. Don’t give up!
Success takes a lot of time, dedication, and most importantly: Action. Without taking massive action you literally have ZERO chance of building a long-term source of income with anything. Period.
I started trading Forex in 2016 and it definitely wasn’t easy. I went through countless nights of studying the market, analyzing patterns, testing different techniques, and much more.
Every time I wanted to throw in the towel I always reminded myself why the heck I’m still doing this, and that’s solely for financial freedom. After all the trial and error, the ups and downs, I finally figured out what worked.
I know a lot of you are feeling frustrated and/or confused because there’s so much to learn, so here are some VALUABLE KEYS that helped me a TON:
✅ Be Consistent & Correct Before You Start Worrying About Money
- A lot of people start off with the mindset where they think to themselves; “If I catch this many pips I’ll make X amount of money!” Slow your role, you’re thinking about money WAY too soon if you haven’t even learned how to trade or analyze yet. Make sure you fully understand how the market moves before you start to think about how much profit you’re going to make off each move.
- At the end of the day, if you’re prematurely thinking about the money, you’re going to over leverage and end up putting too much volume on each trade which will eventually blow your account. Even though making money is the ultimate goal in Forex, learning how to accurately predict the market is the most important part in order to succeed.
✅ Trade Higher Timeframes
- It makes no sense as to why anybody, especially if you’re new, would trade small 5 minute timeframes. I recommend to learn and trade higher timeframes in order to see the bigger picture, rather than being zoomed into one specific period of time. This will ultimately result in better long-term trading success. Pretty self explanatory.
✅ Focus on 1-2 Pairs at a Time
- Each pair has it’s own story, they move differently and at different times. Many people waste their time focusing on multiple pairs at once such as gold, commodities, etc. Instead, you need to learn and master 1-2 pairs at a time before moving onto the next pair. How do you expect to master pairs if you’re trading so many at once and constantly switching between them? If you’re not consistent with just 1, how do you expect to be consistent with 5-10? My point exactly. Forex isn’t a game, it’s not something you can play around with and expect to learn overnight.
I hope this helped some of you guys out who are trading in the foreign exchange markets. If you have any questions feel free to drop a comment or reach out to me. I’d be more than happy to help!
If you guys like these types of posts, I can definitely drop some value in this group more often.
Labels: Forex, Investment Quote
22 September 2018
Ed Seykota: The Greatest Trend Follower
Credit: Rayner Teo
Ed Seykota managed to achieve a return of 250,000% over a 16 year period. Here is what he said.
1) If I am bullish, I neither buy on a reaction,
nor wait for strength; I am already in. I
turn bullish at the instant my buy stop is
hit, and stay bullish until my sell stop is
hit. Being bullish and not being long is
illogical.
2) The feelings we accept and enjoy rarely
interfere with trading.
3) Systems don’t need to be changed. The trick is for a trader to develop a system
with which he is compatible.
4) It can be very expensive to try to convince the markets you are right.
5) There are old traders and there are bold traders, but there are very few old,
bold traders.
6) I would add that I consider myself and how I do things as a kind of system which,
by definition, I always follow.
7) Systems trading is ultimately discretionary. The manager still has to decide how
much risk to accept, which markets to play, and how aggressively to increase
and decrease the trading base as a function of equity change.
8) Trying to trade during a losing streak is emotionally devastating. Trying to play
“catch up” is lethal.
9) The elements of good trading are: 1. Cutting losses. 2. Cutting losses. 3. Cutting
losses. If you can follow these three rules, you may have a chance.
10) Losing a position is aggravating, whereas losing your nerve is devastating.
11) The markets are the same now as they were five to ten years ago because they
keep changing, just like they did then.
12) A losing trader can do little to transform himself into a winning trader. A losing
trader is not going to want to transform himself. That’s the kind of thing winning
traders do.
13) If you can’t take a small loss, sooner or later, you will take the mother of all
losses. Risk no more than you can afford to lose, and also risk enough so that
a win is meaningful.
14) The trading rules I live by are: 1. Cut losses. 2. Ride winners. 3. Keep bets small.
4. Follow the rules without question. 5. Know when to break the rules.
15) I usually ignore advice from other traders, especially the ones who believe they
are on to a “sure thing”. The old timer, who talk about “maybe there is a chance
of so and so,” are often right and early.
16) I set protective stops at the same time I enter a trade. I normally move these
stops in to lock in a profit as the trend continues. Sometimes, I take profits when
a market gets wild. This usually doesn’t get me out any better than waiting for
my stops to close in, but it does cut down on the volatility of the portfolio, which
helps calm my nerves.
17) In order of importance to me are: 1) the long term trend, 2) the current chart
pattern, and 3) picking a good spot to buy or sell.
18) The key to long-term survival and prosperity has a lot to do with the money
management techniques incorporated into the technical system.
19) To avoid whipsaw losses, stop trading.
20) Pyramiding instructions appear on dollar bills. Add smaller and smaller
amounts on the way up. Keep your eye open at the top.
21) Markets are fundamentally volatile. No way around it. Your problem is not in
the math. There is no math to get you out of having to experience uncertainty.
22) Before I enter a trade, I set stops at a point at which the chart sours.
23) The positive intention of fear is risk control.
Ed Seykota managed to achieve a return of 250,000% over a 16 year period. Here is what he said.
1) If I am bullish, I neither buy on a reaction,
nor wait for strength; I am already in. I
turn bullish at the instant my buy stop is
hit, and stay bullish until my sell stop is
hit. Being bullish and not being long is
illogical.
2) The feelings we accept and enjoy rarely
interfere with trading.
3) Systems don’t need to be changed. The trick is for a trader to develop a system
with which he is compatible.
4) It can be very expensive to try to convince the markets you are right.
5) There are old traders and there are bold traders, but there are very few old,
bold traders.
6) I would add that I consider myself and how I do things as a kind of system which,
by definition, I always follow.
7) Systems trading is ultimately discretionary. The manager still has to decide how
much risk to accept, which markets to play, and how aggressively to increase
and decrease the trading base as a function of equity change.
8) Trying to trade during a losing streak is emotionally devastating. Trying to play
“catch up” is lethal.
9) The elements of good trading are: 1. Cutting losses. 2. Cutting losses. 3. Cutting
losses. If you can follow these three rules, you may have a chance.
10) Losing a position is aggravating, whereas losing your nerve is devastating.
11) The markets are the same now as they were five to ten years ago because they
keep changing, just like they did then.
12) A losing trader can do little to transform himself into a winning trader. A losing
trader is not going to want to transform himself. That’s the kind of thing winning
traders do.
13) If you can’t take a small loss, sooner or later, you will take the mother of all
losses. Risk no more than you can afford to lose, and also risk enough so that
a win is meaningful.
14) The trading rules I live by are: 1. Cut losses. 2. Ride winners. 3. Keep bets small.
4. Follow the rules without question. 5. Know when to break the rules.
15) I usually ignore advice from other traders, especially the ones who believe they
are on to a “sure thing”. The old timer, who talk about “maybe there is a chance
of so and so,” are often right and early.
16) I set protective stops at the same time I enter a trade. I normally move these
stops in to lock in a profit as the trend continues. Sometimes, I take profits when
a market gets wild. This usually doesn’t get me out any better than waiting for
my stops to close in, but it does cut down on the volatility of the portfolio, which
helps calm my nerves.
17) In order of importance to me are: 1) the long term trend, 2) the current chart
pattern, and 3) picking a good spot to buy or sell.
18) The key to long-term survival and prosperity has a lot to do with the money
management techniques incorporated into the technical system.
19) To avoid whipsaw losses, stop trading.
20) Pyramiding instructions appear on dollar bills. Add smaller and smaller
amounts on the way up. Keep your eye open at the top.
21) Markets are fundamentally volatile. No way around it. Your problem is not in
the math. There is no math to get you out of having to experience uncertainty.
22) Before I enter a trade, I set stops at a point at which the chart sours.
23) The positive intention of fear is risk control.
Labels: Investment Quote
21 September 2018
High Probability Trading Strategy — A Complete Guide
Credit: Rayner Teo
Do you want to find high probability trading setups?
I’m sure you do, right? (Or you won’t be reading this right now)
But the thing is…
…you’re not sure how.
Instead of looking at price, you’re looking at indicators (without understanding the purpose of it).
Instead of following trends, you’re trying to predict market reversals.
Instead of proper risk management, you put on a huge bet because this trade “feels good”.
Now…
If you’re doing any of the above, then it will be difficult to identify high probability trading setups.
But don’t worry.
I’ve got good news for you.
Because in this post, I’ll teach you step-by-step on how to find high probability trading setups.
Here’s what you’ll learn:
Why trading with the trend increase your returns and reduce your risk
How to identify the best areas to trade on your chart
How to trade pullback, breakouts, and the failure test pattern
How to set a proper trading stop loss so you don’t get stopped out “too early”
A high probability trading strategy that lets you profit in bull & bear markets
Are you ready?
Then let’s begin…
Secret Bonus:
Get my free training video where you’ll learn how to identify high probability trading setups (include trading techniques that you can use to profit in the markets immediately)
The trend gives you the biggest bang for your buck
The definition of the trend is this…
Uptrend – consists of higher highs and lows
Downtrend – consists of lower highs and lows
If you want to know where’s the path of least resistance, look left (and follow the trend).
When the price is in an uptrend, you should stay long. When the price is in a downtrend, you should stay short.
By trading with the trend, you can see that the impulse move (green) goes much more in your favor, compared to the corrective move (red).
Here are a couple of examples…
most bang for buck 2most bang
Now you’re probably wondering:
Rayner, identifying a trend looks easy. But how do I enter an existing trend?
And this is what we’re covering next…
Trade in the direction of the general market. If it’s rising you should be long, if it’s falling you should be short. – Jesse Livermore
How to identify areas of value on your chart
You’d probably heard of the saying, “buy low sell high”.
But the question nobody asks is…
…what’s low and what’s high, right?
This is where Support & Resistance comes into the picture.
Support & Resistance
And this is the definition of it:
Support – an area with potential buying pressure to push price higher (area of value in an uptrend)
Resistance – an area with potential selling pressure to push price lower (area of value in a downtrend)
Here’s what I mean…
support in uptrendresistance in downtrend
Dynamic Support & Resistance
What you’ve seen earlier is what I call, classical Support & Resistance (horizontal lines)
Alternatively, it can come in the form of moving average. This is known as dynamic Support & Resistance (and I use the 20 & 50 EMA).
This is what I mean…
dynamic support2dynamic resistance2
Not only does support & resistance allows you to trade from an area of value, it improves your risk to reward and winning rate as well.
Watch this training video below and learn how:
Now, another “trick” you can use is to use overbought/oversold indicators.
High probability trading — using Stochastic to identify areas of value
A big mistake most traders make is, going short just because the price is overbought, or oversold.
Because in a strong trending market, the market can be overbought/oversold for a sustained period of time (and if you’re trading without stops, you risk losing your entire account).
Here’s what I mean:
oversold for long periodoverbought for long period
Now you’re wondering:
How do I use Stochastic to identify areas of value?
Here’s the secret…
Are you ready?
In an uptrend, you only look for longs, when the price is oversold.
In a downtrend, you only look for shorts, when the price is overbought.
Here’re some examples:
oversold in uptrendoverbought in downtrend
If you follow this simple rule, you can “predict” when a pullback will usually end.
So, you’ve learned how to identify areas of value on your chart.
Now…
…you’ll learn how to better time your entries.
How to enter your trades
There’re 3 ways you can enter a trade:
Pullback
Breakout
Failure test
Pullback
A pullback is when price temporarily moves against the underlying trend.
In an uptrend, a pullback would be a move a lower.
Here’s an example:
pullbacks in uptrend
And…
In a downtrend, a pullback would be a move higher.
An example:
pullbacks in downtrend
According to the work’s of Adam Grimes, trading pullbacks has a statistical edge in the markets as proven here.
You may wonder:
What are the pros and cons of trading pullbacks?
Advantages of trading pullbacks:
You get a good trade location as you’re buying into an area of value. This gives you a better risk to reward profile.
Disadvantages of trading pullbacks:
You may potentially miss a move if the price doesn’t come into your identified area.
You’ll be trading against the underlying momentum.
Breakout
A breakout is when price moves outside of a defined boundary.
The boundary can be defined using classical support & resistance.
Breakout to the upside:
upside breakout
Breakout to the downside:
downside breakout
You’re wondering:
What are the pros and cons of trading breakouts?
Advantages of trading breakouts:
You will always capture the move.
You are trading with the underlying momentum.
Disadvantages of trading breakouts:
You get a poor trade location as you’re paying a premium.
You may encounter a lot of false breakouts.
For a more in-depth explanation, go read The Definitive Guide to Trading Pullbacks and Breakouts.
Failure test
This technique possibly originated from Victor Sperandeo, and the works of Adam Grimes shows that it has a statistical edge in the markets.
It works like this…
You’re entering your trade when the price does a false breakout of Support/Resistance. Thus taking advantage of traders who are trapped from trading the breakout.
This entry can be applied in a trending or range market.
Here’re a few examples:
failure test2failure test3failure test1
For further explanation, watch this training video below:
Now, the next thing you’re going to learn is…
How to set your stop loss
Place your stops at a point that, if reached, will reasonably indicate that the trade is wrong, not at a point determined by the maximum dollar amount you are willing to lose. – Bruce Kovner
I’m going to share with you 3 ways to do it:
Volatility stop
Time stop
Structure stop
Volatility stop
A volatility stop takes into account the volatility of the market.
An indicator that measure volatility is the Average True Range (ATR), which can help set your stop loss.
You need to identify the current ATR value and multiply it by a factor of your choice. 2ATR, 3ATR, 4ATR etc.
atr
In the example above, the ATR is 71 pips.
So if you were to place a stop loss of 2ATR, take 2*71 = 142 pips
Your stop loss is 142 pips from your entry.
Pros:
Your stop loss is based on the volatility of the market
An objective way to define how much “buffer” you need from your entry
Cons:
It’s a lagging indicator because it is based on past prices
Time stop
A time stop determines when you exit your trades based on time.
Instead of exiting your trades based on price, you exit your trades after X amount of time has passed.
You need to define how much time you will allow before exiting it.
An example:
You took a short trade at resistance area. But after 5 days it’s not going anywhere, so you exit your trade.
time3
Pros:
You reduce losses
If you have trading records, you can identify optimal amount of time to give your trades
Cons:
You may exit prematurely only to see price move in your favor
Structure stop
A structure stop takes into account the structure of the market and set your stop loss accordingly.
An example…
Support is an area where price may potentially trade higher from. In other words, it’s a “barrier” that prevents further price decline.
Thus, it makes sense to have your stop loss below Support. Vice versa for Resistance.
Here’s what I mean:
sl below supportsl above resistance
You want to place your stop loss where there is a structure in the market that can act as a “barrier” for you.
Below is a training video that explains this concept in more detail…
Pros:
You know exactly when you’re wrong because market structure has broken
You’re using “barriers” in the market to prevent price from hitting your stops
Cons:
You need wider stop loss if the structure of the market is large (this results in smaller position size to keep your risk constant)
If you want to learn more, go read 13 ways to set your stop loss to reduce risk and maximise profits.
Now, let’s move on…
What is confluence and how it impacts your trading
Here’s the thing:
You’re not going to enter a long trade just because Stochastic is oversold, or the market is in an uptrend.
You’d need additional “supporting evidence” to give you the signal, to enter the trade. And this “supporting evidence” is known as, confluence.
Confluence is when two or more factors give the same trading signal. E.g. The market is in an uptrend, and price retraces to an area of support.
Here’re two guidelines for you:
1. Not more than four confluence factors
The more confluence you have, the higher the probability of your trade working out. But…
In the real world, your trading strategy should have anywhere between 2 – 4 confluence factors.
Anything more, chances are you’re going to get very little trading setups. And it’ll take you forever before your edge can play out.
You can take mediocre trading setups, and still make money in the long run.
2. Do not have more than one confluence factor in the same category
If you’re going to use indicators (oscillators) to identify overbought/oversold areas, then use that only.
Don’t add Stochastic, RSI and CCI because it’ll leave you with analysis paralysis. Similarly…
…adding simple, exponential and weighted moving average on your charts, doesn’t make any sense.
If you’re still reading at the point, you’re in for a treat. Because here comes the exciting part…
A high probability trading strategy that lets you profit in bull & bear markets
And here’s my secret (which is what you’ve just learned)…
Trade with the trend
Trade at areas of value
Find an entry
Set my stop loss
Plan my exit
If a trade meets these 5 criteria, then its a good trade to me.
Now, let’s learn a new trading strategy, that gives you high probability trading setups.
Are you ready?
Here it goes…
If 200ma is pointing higher and the price is above it, then it’s an uptrend (trading with the trend).
If it’s an uptrend, then wait for the price to pullback to an area of support (trading at an area of value).
If price pullback to an area of support, then wait for failure test entry (my entry trigger).
If there’s failure test entry, then go long on next candle’s open (my entry trigger).
If a trade is entered, then place a stop loss below the low of the candle, and take profit at nearest swing high (my exit and profit target).
Vice versa for a downtrend
**Disclaimer: I will not be responsible for any profit or loss resulting from using this trading strategy. Past performance is not an indication of future performance. Please do your own due diligence before risking your hard earned money.
Here’re a few trading examples:
high probability trading setup3high probability trading setup2high probability trading setup1
Secret Bonus:
Get my free training video where you’ll learn how to identify high probability trading setups (include trading techniques that you can use to profit in the markets immediately)
Here’s the thing:
You may not be comfortable using my trading strategy because it may not suit you.
So, what you need to do is, “tweak” it into something that fits you. And this is what we’ll cover next…
I don’t think traders can follow rules for very long unless they reflect their own trading style. – Ed Seykota
How to develop a high probability trading strategy (a template you can use)
You can “mix and match” different trading techniques I’ve shared with you earlier.
But ultimately, your trading strategy needs to answer these 7 questions:
1. How are you going to define a trend?
You can consider moving average, trendline, structure etc.
2. How are you going to define an area of value?
You can consider dynamic Support & Resistance, weekly highs/lows, Stochastic etc.
3. How are you going to enter your trade?
You can consider pullbacks, breakouts, failure test, moving average crossover etc.
4. How are you going to exit your trade?
There’re many ways to exit a trade. Go read 13 Ways to Set Your Stop Loss to Reduce Risk and Maximise Profits to learn more.
5. How much are you going to risk on each trade?
I would suggest risking no more than 1% of your account on each trade, to avoid the risk of ruin.
6. How are you going to manage your trade?
Will you scale out or scale in your trades? If so, how much?
7. Which markets will you be trading?
Are you focusing on one market or many markets?
If you trade a variety of markets, you want to be aware of the correlation between markets.
Do you want to find high probability trading setups?
I’m sure you do, right? (Or you won’t be reading this right now)
But the thing is…
…you’re not sure how.
Instead of looking at price, you’re looking at indicators (without understanding the purpose of it).
Instead of following trends, you’re trying to predict market reversals.
Instead of proper risk management, you put on a huge bet because this trade “feels good”.
Now…
If you’re doing any of the above, then it will be difficult to identify high probability trading setups.
But don’t worry.
I’ve got good news for you.
Because in this post, I’ll teach you step-by-step on how to find high probability trading setups.
Here’s what you’ll learn:
Why trading with the trend increase your returns and reduce your risk
How to identify the best areas to trade on your chart
How to trade pullback, breakouts, and the failure test pattern
How to set a proper trading stop loss so you don’t get stopped out “too early”
A high probability trading strategy that lets you profit in bull & bear markets
Are you ready?
Then let’s begin…
Secret Bonus:
Get my free training video where you’ll learn how to identify high probability trading setups (include trading techniques that you can use to profit in the markets immediately)
The trend gives you the biggest bang for your buck
The definition of the trend is this…
Uptrend – consists of higher highs and lows
Downtrend – consists of lower highs and lows
If you want to know where’s the path of least resistance, look left (and follow the trend).
When the price is in an uptrend, you should stay long. When the price is in a downtrend, you should stay short.
By trading with the trend, you can see that the impulse move (green) goes much more in your favor, compared to the corrective move (red).
Here are a couple of examples…
most bang for buck 2most bang
Now you’re probably wondering:
Rayner, identifying a trend looks easy. But how do I enter an existing trend?
And this is what we’re covering next…
Trade in the direction of the general market. If it’s rising you should be long, if it’s falling you should be short. – Jesse Livermore
How to identify areas of value on your chart
You’d probably heard of the saying, “buy low sell high”.
But the question nobody asks is…
…what’s low and what’s high, right?
This is where Support & Resistance comes into the picture.
Support & Resistance
And this is the definition of it:
Support – an area with potential buying pressure to push price higher (area of value in an uptrend)
Resistance – an area with potential selling pressure to push price lower (area of value in a downtrend)
Here’s what I mean…
support in uptrendresistance in downtrend
Dynamic Support & Resistance
What you’ve seen earlier is what I call, classical Support & Resistance (horizontal lines)
Alternatively, it can come in the form of moving average. This is known as dynamic Support & Resistance (and I use the 20 & 50 EMA).
This is what I mean…
dynamic support2dynamic resistance2
Not only does support & resistance allows you to trade from an area of value, it improves your risk to reward and winning rate as well.
Watch this training video below and learn how:
Now, another “trick” you can use is to use overbought/oversold indicators.
High probability trading — using Stochastic to identify areas of value
A big mistake most traders make is, going short just because the price is overbought, or oversold.
Because in a strong trending market, the market can be overbought/oversold for a sustained period of time (and if you’re trading without stops, you risk losing your entire account).
Here’s what I mean:
oversold for long periodoverbought for long period
Now you’re wondering:
How do I use Stochastic to identify areas of value?
Here’s the secret…
Are you ready?
In an uptrend, you only look for longs, when the price is oversold.
In a downtrend, you only look for shorts, when the price is overbought.
Here’re some examples:
oversold in uptrendoverbought in downtrend
If you follow this simple rule, you can “predict” when a pullback will usually end.
So, you’ve learned how to identify areas of value on your chart.
Now…
…you’ll learn how to better time your entries.
How to enter your trades
There’re 3 ways you can enter a trade:
Pullback
Breakout
Failure test
Pullback
A pullback is when price temporarily moves against the underlying trend.
In an uptrend, a pullback would be a move a lower.
Here’s an example:
pullbacks in uptrend
And…
In a downtrend, a pullback would be a move higher.
An example:
pullbacks in downtrend
According to the work’s of Adam Grimes, trading pullbacks has a statistical edge in the markets as proven here.
You may wonder:
What are the pros and cons of trading pullbacks?
Advantages of trading pullbacks:
You get a good trade location as you’re buying into an area of value. This gives you a better risk to reward profile.
Disadvantages of trading pullbacks:
You may potentially miss a move if the price doesn’t come into your identified area.
You’ll be trading against the underlying momentum.
Breakout
A breakout is when price moves outside of a defined boundary.
The boundary can be defined using classical support & resistance.
Breakout to the upside:
upside breakout
Breakout to the downside:
downside breakout
You’re wondering:
What are the pros and cons of trading breakouts?
Advantages of trading breakouts:
You will always capture the move.
You are trading with the underlying momentum.
Disadvantages of trading breakouts:
You get a poor trade location as you’re paying a premium.
You may encounter a lot of false breakouts.
For a more in-depth explanation, go read The Definitive Guide to Trading Pullbacks and Breakouts.
Failure test
This technique possibly originated from Victor Sperandeo, and the works of Adam Grimes shows that it has a statistical edge in the markets.
It works like this…
You’re entering your trade when the price does a false breakout of Support/Resistance. Thus taking advantage of traders who are trapped from trading the breakout.
This entry can be applied in a trending or range market.
Here’re a few examples:
failure test2failure test3failure test1
For further explanation, watch this training video below:
Now, the next thing you’re going to learn is…
How to set your stop loss
Place your stops at a point that, if reached, will reasonably indicate that the trade is wrong, not at a point determined by the maximum dollar amount you are willing to lose. – Bruce Kovner
I’m going to share with you 3 ways to do it:
Volatility stop
Time stop
Structure stop
Volatility stop
A volatility stop takes into account the volatility of the market.
An indicator that measure volatility is the Average True Range (ATR), which can help set your stop loss.
You need to identify the current ATR value and multiply it by a factor of your choice. 2ATR, 3ATR, 4ATR etc.
atr
In the example above, the ATR is 71 pips.
So if you were to place a stop loss of 2ATR, take 2*71 = 142 pips
Your stop loss is 142 pips from your entry.
Pros:
Your stop loss is based on the volatility of the market
An objective way to define how much “buffer” you need from your entry
Cons:
It’s a lagging indicator because it is based on past prices
Time stop
A time stop determines when you exit your trades based on time.
Instead of exiting your trades based on price, you exit your trades after X amount of time has passed.
You need to define how much time you will allow before exiting it.
An example:
You took a short trade at resistance area. But after 5 days it’s not going anywhere, so you exit your trade.
time3
Pros:
You reduce losses
If you have trading records, you can identify optimal amount of time to give your trades
Cons:
You may exit prematurely only to see price move in your favor
Structure stop
A structure stop takes into account the structure of the market and set your stop loss accordingly.
An example…
Support is an area where price may potentially trade higher from. In other words, it’s a “barrier” that prevents further price decline.
Thus, it makes sense to have your stop loss below Support. Vice versa for Resistance.
Here’s what I mean:
sl below supportsl above resistance
You want to place your stop loss where there is a structure in the market that can act as a “barrier” for you.
Below is a training video that explains this concept in more detail…
Pros:
You know exactly when you’re wrong because market structure has broken
You’re using “barriers” in the market to prevent price from hitting your stops
Cons:
You need wider stop loss if the structure of the market is large (this results in smaller position size to keep your risk constant)
If you want to learn more, go read 13 ways to set your stop loss to reduce risk and maximise profits.
Now, let’s move on…
What is confluence and how it impacts your trading
Here’s the thing:
You’re not going to enter a long trade just because Stochastic is oversold, or the market is in an uptrend.
You’d need additional “supporting evidence” to give you the signal, to enter the trade. And this “supporting evidence” is known as, confluence.
Confluence is when two or more factors give the same trading signal. E.g. The market is in an uptrend, and price retraces to an area of support.
Here’re two guidelines for you:
1. Not more than four confluence factors
The more confluence you have, the higher the probability of your trade working out. But…
In the real world, your trading strategy should have anywhere between 2 – 4 confluence factors.
Anything more, chances are you’re going to get very little trading setups. And it’ll take you forever before your edge can play out.
You can take mediocre trading setups, and still make money in the long run.
2. Do not have more than one confluence factor in the same category
If you’re going to use indicators (oscillators) to identify overbought/oversold areas, then use that only.
Don’t add Stochastic, RSI and CCI because it’ll leave you with analysis paralysis. Similarly…
…adding simple, exponential and weighted moving average on your charts, doesn’t make any sense.
If you’re still reading at the point, you’re in for a treat. Because here comes the exciting part…
A high probability trading strategy that lets you profit in bull & bear markets
And here’s my secret (which is what you’ve just learned)…
Trade with the trend
Trade at areas of value
Find an entry
Set my stop loss
Plan my exit
If a trade meets these 5 criteria, then its a good trade to me.
Now, let’s learn a new trading strategy, that gives you high probability trading setups.
Are you ready?
Here it goes…
If 200ma is pointing higher and the price is above it, then it’s an uptrend (trading with the trend).
If it’s an uptrend, then wait for the price to pullback to an area of support (trading at an area of value).
If price pullback to an area of support, then wait for failure test entry (my entry trigger).
If there’s failure test entry, then go long on next candle’s open (my entry trigger).
If a trade is entered, then place a stop loss below the low of the candle, and take profit at nearest swing high (my exit and profit target).
Vice versa for a downtrend
**Disclaimer: I will not be responsible for any profit or loss resulting from using this trading strategy. Past performance is not an indication of future performance. Please do your own due diligence before risking your hard earned money.
Here’re a few trading examples:
high probability trading setup3high probability trading setup2high probability trading setup1
Secret Bonus:
Get my free training video where you’ll learn how to identify high probability trading setups (include trading techniques that you can use to profit in the markets immediately)
Here’s the thing:
You may not be comfortable using my trading strategy because it may not suit you.
So, what you need to do is, “tweak” it into something that fits you. And this is what we’ll cover next…
I don’t think traders can follow rules for very long unless they reflect their own trading style. – Ed Seykota
How to develop a high probability trading strategy (a template you can use)
You can “mix and match” different trading techniques I’ve shared with you earlier.
But ultimately, your trading strategy needs to answer these 7 questions:
1. How are you going to define a trend?
You can consider moving average, trendline, structure etc.
2. How are you going to define an area of value?
You can consider dynamic Support & Resistance, weekly highs/lows, Stochastic etc.
3. How are you going to enter your trade?
You can consider pullbacks, breakouts, failure test, moving average crossover etc.
4. How are you going to exit your trade?
There’re many ways to exit a trade. Go read 13 Ways to Set Your Stop Loss to Reduce Risk and Maximise Profits to learn more.
5. How much are you going to risk on each trade?
I would suggest risking no more than 1% of your account on each trade, to avoid the risk of ruin.
6. How are you going to manage your trade?
Will you scale out or scale in your trades? If so, how much?
7. Which markets will you be trading?
Are you focusing on one market or many markets?
If you trade a variety of markets, you want to be aware of the correlation between markets.
Labels: Forex, Investment Quote, Reference, Risk Management, Stock Trading System
20 September 2018
10 Best Trading Tips You Can Learn in 10 Minutes That Improves Your Trading
Credit: Rayner Teo
Have you heard of the “Pareto principle”?
It’s known as the 80-20 rule, where 80% of the results is due to 20% of the effort.
So, what does this mean?
For a business, 20% of its clients produce 80% of its revenue.
For a software, 20% of its features cause 80% of its usage.
And for a trader, 20% of your actions produce 80% of your results.
Now… there are so many things a trader can focus on. Entries, exits, risk management, position sizing, fundamentals etc.
But the question is…
Which are the 20% that you must focus on, to deliver the biggest results?
So, this is what you’ll be learning today…
The 10 best forex trading tips that you can learn in 10 minutes, that will improve your trading immediately.
Are you ready?
Then let’s begin.
10 trading tips
Best forex trading tips #1: Don’t scare yourself out of a trade by going into lower time frames
Look:
If you enter a trade on the daily time frame, then manage that trade on the daily time frame.
A big mistake you can do is, drilling down into a lower time frame, and scare yourself out of the trade.
Here’s what I mean…
micro manage1micro manage2micro manage3
The takeaway is this…
If you enter off the daily time frame, you set your stop loss and manage your trade on the daily time frame.
If you enter off the 1-hour time frame, you set your stop loss and manage your trade on the 1-hour time frame.
If you enter off the 15 minutes time frame, you set your stop loss and manage your trade on the 15 minutes time frame.
Get it?
2. Place your stop loss at a level where your trading setup is invalidated
Don’t set your stop loss based on a dollar amount you’re willing to lose.
Instead…
Set it based on the structure of the markets, where if your stop loss is triggered, you know you’re wrong.
For example, if you’re long at support, then a break of support would mean you’re wrong…
support
Or if you’re trading a breakout, then a close back into the range would mean you’re wrong…
breakout
If you want more examples… go watch this training video below:
3. Trading with the trend increases the probability of your trades
When the market is trending, it has an ebb and flow with two different “legs” in it.
Impulse move – Longer “leg” that trades in the direction of the trend
Corrective move – Shorter “leg” that trades against the direction of the trend
By trading with the trend, you’ll get a bigger bang for your buck as the impulse move is stronger than the corrective move. This gives you greater profitability for the same amount of risk.
Here’s what I mean:
most-bangmost-bang-for-buck-2
The trend is your friend… right?
4. You need to find a trading method that suits you
If you love watching the markets and have all the time in the world, then a long-term trend following approach will not suit you. You’d micromanage your trades on the shorter time frames, and miss the longer term trend.
Or…
If you have a full-time job and can’t afford to watch the markets, then intraday trading will not suit you. You’d miss trading opportunities because you do not focus on the trading session.
Or…
If you love to build systematic trading systems, then learning how to read chart patterns and price action will not suit you. You’d be frustrated because there are some things in the market that can’t be quantified.
So whats my point?
My point is… you need to find a trading approach that suits you, yourself.
Here’s how you can increase the odds of your success:
Adopt a trading method that fits your belief about the markets (if you don’t believe in trends, then trying to be a trend follower is ridiculous)
Find a trading time frame that suits your schedule (if you have little time to trade, stick to the higher time frames)
Don’t hop from one trading system to the next, just because you see another trader having success with it (that’s a sure fire way to remain a consistently inconsistent trader)
5. Don’t abandon your trading strategy after a few losing trades
Why?
Because no matter how good a trading strategy is, in the short run your results are random.
And this can be explained using the law of large number…
If you take a coin and toss it 1000 times, you’d get close to 50% heads and 50% tails.
However, if you toss it 10 times only, it’s unlikely to be 50% heads and 50% tails due to the small sample size.
And its the same in trading…
You cannot conclude a trading strategy doesn’t work based on a small sample size because, in the short run, your results are random.
Instead… you need a minimum of 100 trades to find out whether your trading strategy has an edge in the markets.
6. A trading plan makes you a more disciplined trader
One of the biggest reasons why you fail as a trader is because you don’t have a trading plan.
You’re trading decisions based on your emotions, subjectivity, and opinions of the market.
Getting into trades because:
Of an “insider tip” you heard from a friend
You think price can’t go any lower
You’re bored
And here’s the thing…
If you have an inconsistent set of actions, how do you expect to have a consistent set of results?
Here’s the thing:
The only way you’re going to achieve consistent trading performance is by having a consistent set of actions, and this can be achieved by following your trading plan.
If you want to learn how to develop your trading plan, read this post here.
7. Risk 1% on each trade to prevent your own destruction
Imagine:
You have a trading system that wins 50% of the time with 1:2 risk reward.
And you have a hypothetical outcome of L L L L W W W W
It’s a profitable system, right?
It depends.
If you risk 30% of your equity, you’d blow up by the 4th trade (-30 -30 -30 -30 = -120%)
But…
If you risk 1% of your equity, you’d have a gain of 4% (-1 -1 -1 -1 +2 +2 +2 +2 = 4%)
Having a winning system without proper risk management isn’t going to get you anywhere.
You need a winning system with proper risk management.
And not forgetting…
The recovery from the risk of ruin is not linear, it could be impossible to recover if it goes too deep.
risk of ruin
If you lose 50% of your capital, you need to make back 100% to break even.
Yes, you read right. 100%, not 50%.
That’s why you always want to risk a fraction of your equity, especially when your winning ratio is less than 50%.
So, how much should you risk exactly?
This depends on your winning ratio, the risk to reward, and your risk tolerance. I would advise risking no more than 1% per trade.
8. You don’t need to know everything to be a profitable trader
Why do I say that?
Because I made the mistake of thinking I needed to know everything, in order to make money from trading.
And my turning point was when I realized that, less is more.
Simplicity is the ultimate sophistication - Leonardo Da Vinci
CLICK TO TWEET
Now, I’m here to tell you this:
You don’t need to know any fundamentals of the market you’re trading
You don’t need to know what the big players are doing
You don’t need to know what is pivot point
You don’t need to know what is a Crab pattern
You don’t need 6 monitors to trade
You don’t need to purchase any proprietary software, tools or indicators
And you can still be a consistently profitable trader.
Now you’re probably wondering:
So, what do I need?
A trading strategy that has an “edge”
Proper risk management
The right trading psychology
Go watch this training video below as I’ll explain further:
9. Keep a trading journal if you’re serious about trading
Do you recall the past trades you’ve taken?
Perhaps there’s a chart pattern that is showing a high probability of success.
Perhaps your trading strategy that isn’t working well in current market conditions.
Perhaps you’re not following your trading plan which is causing your performance to deteriorate.
Now, if you don’t have a trading journal…
How do you know what you’re doing wrong?
How do you know what you’re doing right?
How do you know what can you improve on?
Get my point?
So, if you’re serious about trading, you must have a trading journal. And you can learn how to create one here.
10. One “trick” to improve the returns of your trading performance
No, it’s not adding another “filter”.
No, it’s not adjusting the parameters of your indicator.
Its… knowing when to stay out of the markets.
Here’s an example:
Let’s assume a trend following strategy would make 20% in a trending market, and lose 15% in a range market.
In a given year, the market was in a trend once, and in a range once. Thus netting a return of 5% (20 – 15).
Now, what if you can identify the range market, and stop trading during that period, would your returns improve?
You bet.
Instead of earning a return of 5%, you made 20% because you stopped trading when the markets weren’t favorable.
The takeaway is this…
You need to know when to stay long.
You need to know when to stay short.
And you need to know when to stay out.
Have you heard of the “Pareto principle”?
It’s known as the 80-20 rule, where 80% of the results is due to 20% of the effort.
So, what does this mean?
For a business, 20% of its clients produce 80% of its revenue.
For a software, 20% of its features cause 80% of its usage.
And for a trader, 20% of your actions produce 80% of your results.
Now… there are so many things a trader can focus on. Entries, exits, risk management, position sizing, fundamentals etc.
But the question is…
Which are the 20% that you must focus on, to deliver the biggest results?
So, this is what you’ll be learning today…
The 10 best forex trading tips that you can learn in 10 minutes, that will improve your trading immediately.
Are you ready?
Then let’s begin.
10 trading tips
Best forex trading tips #1: Don’t scare yourself out of a trade by going into lower time frames
Look:
If you enter a trade on the daily time frame, then manage that trade on the daily time frame.
A big mistake you can do is, drilling down into a lower time frame, and scare yourself out of the trade.
Here’s what I mean…
micro manage1micro manage2micro manage3
The takeaway is this…
If you enter off the daily time frame, you set your stop loss and manage your trade on the daily time frame.
If you enter off the 1-hour time frame, you set your stop loss and manage your trade on the 1-hour time frame.
If you enter off the 15 minutes time frame, you set your stop loss and manage your trade on the 15 minutes time frame.
Get it?
2. Place your stop loss at a level where your trading setup is invalidated
Don’t set your stop loss based on a dollar amount you’re willing to lose.
Instead…
Set it based on the structure of the markets, where if your stop loss is triggered, you know you’re wrong.
For example, if you’re long at support, then a break of support would mean you’re wrong…
support
Or if you’re trading a breakout, then a close back into the range would mean you’re wrong…
breakout
If you want more examples… go watch this training video below:
3. Trading with the trend increases the probability of your trades
When the market is trending, it has an ebb and flow with two different “legs” in it.
Impulse move – Longer “leg” that trades in the direction of the trend
Corrective move – Shorter “leg” that trades against the direction of the trend
By trading with the trend, you’ll get a bigger bang for your buck as the impulse move is stronger than the corrective move. This gives you greater profitability for the same amount of risk.
Here’s what I mean:
most-bangmost-bang-for-buck-2
The trend is your friend… right?
4. You need to find a trading method that suits you
If you love watching the markets and have all the time in the world, then a long-term trend following approach will not suit you. You’d micromanage your trades on the shorter time frames, and miss the longer term trend.
Or…
If you have a full-time job and can’t afford to watch the markets, then intraday trading will not suit you. You’d miss trading opportunities because you do not focus on the trading session.
Or…
If you love to build systematic trading systems, then learning how to read chart patterns and price action will not suit you. You’d be frustrated because there are some things in the market that can’t be quantified.
So whats my point?
My point is… you need to find a trading approach that suits you, yourself.
Here’s how you can increase the odds of your success:
Adopt a trading method that fits your belief about the markets (if you don’t believe in trends, then trying to be a trend follower is ridiculous)
Find a trading time frame that suits your schedule (if you have little time to trade, stick to the higher time frames)
Don’t hop from one trading system to the next, just because you see another trader having success with it (that’s a sure fire way to remain a consistently inconsistent trader)
5. Don’t abandon your trading strategy after a few losing trades
Why?
Because no matter how good a trading strategy is, in the short run your results are random.
And this can be explained using the law of large number…
If you take a coin and toss it 1000 times, you’d get close to 50% heads and 50% tails.
However, if you toss it 10 times only, it’s unlikely to be 50% heads and 50% tails due to the small sample size.
And its the same in trading…
You cannot conclude a trading strategy doesn’t work based on a small sample size because, in the short run, your results are random.
Instead… you need a minimum of 100 trades to find out whether your trading strategy has an edge in the markets.
6. A trading plan makes you a more disciplined trader
One of the biggest reasons why you fail as a trader is because you don’t have a trading plan.
You’re trading decisions based on your emotions, subjectivity, and opinions of the market.
Getting into trades because:
Of an “insider tip” you heard from a friend
You think price can’t go any lower
You’re bored
And here’s the thing…
If you have an inconsistent set of actions, how do you expect to have a consistent set of results?
Here’s the thing:
The only way you’re going to achieve consistent trading performance is by having a consistent set of actions, and this can be achieved by following your trading plan.
If you want to learn how to develop your trading plan, read this post here.
7. Risk 1% on each trade to prevent your own destruction
Imagine:
You have a trading system that wins 50% of the time with 1:2 risk reward.
And you have a hypothetical outcome of L L L L W W W W
It’s a profitable system, right?
It depends.
If you risk 30% of your equity, you’d blow up by the 4th trade (-30 -30 -30 -30 = -120%)
But…
If you risk 1% of your equity, you’d have a gain of 4% (-1 -1 -1 -1 +2 +2 +2 +2 = 4%)
Having a winning system without proper risk management isn’t going to get you anywhere.
You need a winning system with proper risk management.
And not forgetting…
The recovery from the risk of ruin is not linear, it could be impossible to recover if it goes too deep.
risk of ruin
If you lose 50% of your capital, you need to make back 100% to break even.
Yes, you read right. 100%, not 50%.
That’s why you always want to risk a fraction of your equity, especially when your winning ratio is less than 50%.
So, how much should you risk exactly?
This depends on your winning ratio, the risk to reward, and your risk tolerance. I would advise risking no more than 1% per trade.
8. You don’t need to know everything to be a profitable trader
Why do I say that?
Because I made the mistake of thinking I needed to know everything, in order to make money from trading.
And my turning point was when I realized that, less is more.
Simplicity is the ultimate sophistication - Leonardo Da Vinci
CLICK TO TWEET
Now, I’m here to tell you this:
You don’t need to know any fundamentals of the market you’re trading
You don’t need to know what the big players are doing
You don’t need to know what is pivot point
You don’t need to know what is a Crab pattern
You don’t need 6 monitors to trade
You don’t need to purchase any proprietary software, tools or indicators
And you can still be a consistently profitable trader.
Now you’re probably wondering:
So, what do I need?
A trading strategy that has an “edge”
Proper risk management
The right trading psychology
Go watch this training video below as I’ll explain further:
9. Keep a trading journal if you’re serious about trading
Do you recall the past trades you’ve taken?
Perhaps there’s a chart pattern that is showing a high probability of success.
Perhaps your trading strategy that isn’t working well in current market conditions.
Perhaps you’re not following your trading plan which is causing your performance to deteriorate.
Now, if you don’t have a trading journal…
How do you know what you’re doing wrong?
How do you know what you’re doing right?
How do you know what can you improve on?
Get my point?
So, if you’re serious about trading, you must have a trading journal. And you can learn how to create one here.
10. One “trick” to improve the returns of your trading performance
No, it’s not adding another “filter”.
No, it’s not adjusting the parameters of your indicator.
Its… knowing when to stay out of the markets.
Here’s an example:
Let’s assume a trend following strategy would make 20% in a trending market, and lose 15% in a range market.
In a given year, the market was in a trend once, and in a range once. Thus netting a return of 5% (20 – 15).
Now, what if you can identify the range market, and stop trading during that period, would your returns improve?
You bet.
Instead of earning a return of 5%, you made 20% because you stopped trading when the markets weren’t favorable.
The takeaway is this…
You need to know when to stay long.
You need to know when to stay short.
And you need to know when to stay out.
Labels: Forex, Investment Quote, Stock Trading System
