Trading Educators Blog

Sometimes I write a soundbyte that elicits a good response from our readers. A recent soundbyte was one of those, so I blended together the gist of what some of you wrote, and many thanks to those of you who did. The article itself is posted below in blue italics. "Why are losses such a big deal? I can tell you why. In your book Trading Is a Business, you said that once we enter the market, we are...

Here's a question that came from one of my students, "Joe! Have you ever found a mechanical system that really works?" Most traders move from trading system to trading system, and trading method to trading method. Over a period of time, they may find one that suits them--one that is comfortable to run, and tests well either via back-testing, or in real-time. Some traders never stop looking for the...

This is an oldie, but goodie recollection from my trading days. Over a three-day weekend, Waldo received a call from his friend Jim. "Hi Wally, did you take a look at Google last week?" Waldo replied, "It was a rough week for my short positions. I didn't anticipate the buying surge and it hurt me a little. No, I didn't look at Google closely. I was caught up trading my own positions." Excitedly, J...

I have been corresponding with a mathematically oriented gentleman who is quite brilliant in his approach to the markets but who is very close to going off the deep end. He wrote me the following email: "I have given the 45 degree - phenomenon a lot of thought. I pretty much would like to know how you figure out the inner workings. "What I think is: "(a) The route of the 45 degree cuts the Elliot ...

This "brilliant" strategy stems from the idea that selling a market at limit up, may result in the trader gaining two limit moves in his favor while theoretically not losing any money the day of entry. I think is that this is an absurd idea. I don't advise this high risk approach as a trading tactic. Keep in mind that most markets that remain limit up on the close, will open sharply higher the nex...

Only 27% of all visitors gamble in Las Vegas to make money. What percentage of market traders have a similar attitude about trading stocks or commodities? It may be very close to 27%. Anything less than the best effort to win is unacceptable. If traders want entertainment they should go to a good movie, or buy a cat. Traders should stay out of the market unless they are totally comm...

Hey Joe! Has anyone that you know put together a compendium of what to look for when you first start out trading? Not that I know of. But consider the following: As a trader you are in a contest. Your strongest opponent has plenty of capital. He follows a program and he does it without emotion. He is totally aware of the fact that no one knows where the next tick will fall. Whereas he usually...

When traders are overconfident, they falsely believe that they can trade beyond their skill set. Overconfidence in trading usually reflects an exaggerated view of one's abilities, which can be fatal. Trading is an area in which accurate and realistic perceptions of one's skill levels are crucial. It's interesting to observe that traders can be especially overconfident when they feel uncertain abou...

What are your worst losing trades? Do they haunt you? It may be difficult at times, but you have to forget about the past and think only of tomorrow. Make sure you keep a trading log. It's important to learn from your mistakes, and to the extent that you can do that objectively and unemotionally, you don't need to worry much about past losing trades influencing your current trading decisions in ne...

I think you would agree that most traders are risk averse. We don't like losses, and we'll do almost anything to avoid taking them. Losses are painful, and there's a strong need to seek out pleasure and avoid pain. It is easier to avoid admitting a loss, and traders tend to come up with many ways of denying they have a loss, such as holding on to a losing trade and hoping it will turn around, or k...

You've done your homework. Countless hours of seeking out the right guru (or piecing together your own system). Weeks of monitoring your guru's daily trade picks (or paper-trading and back-testing your homemade system). You've done it by the book. No seat of the pants trading for you! OK, now you're confident. It's time to put your money where your homework is. You've had your coffee and your firs...

Taking an honest evaluation of your own strengths and weaknesses is crucial to becoming a consistently profitable trader. If you can't identify those habits which continually make (or cost) you money, then you're just shooting in the dark. It's extremely important that you know things about yourself such as: * The time of day you are most profitable. * The position size that works best for you. * ...

Three psychological traits prevent traders from becoming consistently successful: fear, anger, and guilt. Fear blocks the trade decision-making process due to worry about negative events that may or may not occur in the future. Guilt blocks the trade decision making process with unresolved concern about something that happened in the past. Anger is an emotional response to guilt, fear, the indecis...

How a market does what it does, is just as important as what it does! When day trading, watch closely the way prices tick. If ticks are jumping, someone may be taking the market up or down. If the market ticks fast, it may be a clue to an upcoming fairly good-size move. Watch volume in conjunction with tick speed and direction. Fast ticking is often accompanied by an increase in volume. If prices ...

Joe! Is it true that selling a market when it is limit up is usually a great strategy? This "brilliant" strategy stems from the idea that selling a market at limit-up, may result in the trader gaining two limit moves in his favor while theoretically not losing any money the day of entry. I think is that this is an absurd idea. I don't advise this high-risk approach as a trading tactic. Keep in min...

Hi! Can you give me some principles to determine how long I should set an expiry for in a pending order? Should it be a multiple of the time frame (e.g., 12 X 15 minutes)? If so, what multiple would you recommend? Some other method? You sent an interesting question, but no detail as to what you are trading. In any event, I know of no formula regarding how long to wait for an order to be filled. In...

Hey Joe! Has anyone that you know put together a compendium of what to look for when you first start out trading? Not that I know of. But consider the following: As a trader, you are in a contest. Your strongest opponent has plenty of capital. He follows a program and he does it without emotion. He is totally aware of the fact that no one knows where the next tick will fall. Whereas he usually has...

Once prices have broken out, look for a retracement. Successful retracement trading can lead to very nice short-term profits. When prices finally do overcome resistance or support, penetrate a psychological barrier. or break out of a formation or trading range, it tends to do so boldly at first. But after their initial thrust, prices often seem to need reassurance. It's as if prices need to reconf...

There is an old saying that when day trading positions have had negative open equity most of the day, and an opportunity arises to exit the market at break-even with less than 30 minutes of trading rises, go ahead and exit the market. Unless the market is moving rapidly in your direction with expanding-in-length bars, and no more than 5 minutes left, exit immediately and consider the opportunity t...

I don't write much about investment. I'm a trader. But I did come across something I am happy to share. I'm a long-time subscriber to the Stansberry Alliance, and this comes from an email article. The 10 Ways to Find Your Next Great Investment Opportunity Finding great investment ideas is hard work. They don't just drop from the sky and say, "Here I am!" You have to uncover them. Today, I'd like t...