20 ways to stop losing money

Like most businesses, stats suggest 80% or more of traders will do their cash. Here's another article from Hard Right Edge with a few handy tips on how to avoid joining them. For the most part I agree with them, but not No 20...I think trading is a heap of fun!

20 Ways To Stop Losing Money:

To state the obvious, the best way to start making money is to stop losing it.

In that regard, here are 20 ways to staunch the bleeding and get back into the winner's circle.

1. Don't trust the opinions of market gurus. Remember that it's your money at stake, not theirs. Listen to what they say, then step back and do your own homework.

2. Don't believe in a company. Trading isn't investing, so you need to focus on the price action and forget the balance sheets. Leave the American Dream to Warren Buffett.

3. Don't break your entry and exit rules. You made them for bad trades, just like the one you're stuck in right now.

4. Don't try to get even. This isn't a game of catch-up. Every action you make has to stand on its own merits. Take your losses with detachment and make your next trade with absolute discipline.

5. Don't trade over your head. If your last name isn't Kass or Cramer, stop trading like them. Just concentrate on playing the game well, and stop thinking about making money.

6. Don't seek the Holy Grail. There is no secret trading formula, other than good position choice and solid risk management. So why are you looking for it?

7. Don't forget your discipline. Anyone can learn the basics of the trading game. Sadly, most of us will fail because of a lack of self-control, not a lack of knowledge.

8. Don't chase the crowd. Tune out the groupthink and dance to the beat of your own drummer. Get out of the chat rooms and off the stock boards. This is serious business.

9. Don't trade the obvious. Everyone sees the most perfect-looking patterns, which is why they set up the most painful losses. Simply stated, if it looks too good to be true, it probably is.

10. Don't ignore the warning signs. Big losses rarely come without warning. Don't wait for a lifeboat before you abandon a sinking ship.

11. Don't count your chickens. That delicious profit isn't yours until you close out the trade. Trail stops, take blind exits and do everything possible to get that money into your pocket.

12. Don't forget the plan. Remember the reasons you took a trade in the first place, and don't get blinded by greed or fear when the position finally starts to move.

13. Don't have a paycheck mentality. You don't need to get paid every week or every month, as long as you take advantage of the opportunities as they come. Classic wisdom: traders book 80% of their profits on just 20% of the days the market is open for business.

14. Don't cut corners. There are very smart folks out there working full time to take advantage of your mistakes. Fight back by examining your results, updating your plan and finding working themes for the next session.

15. Don't ignore your intuition. Listen to that calm little voice that tells you what to do and what to avoid. That's the voice of the winner trying to get into your thick head.

16. Don't hate losing. The best traders lose money on most of their positions, so get used to the pain of losing. And there's a side benefit: the losing teaches more about winning than the winning itself.

17. Don't fall into the complexity trap. Traders who can't see the market are looking for it everywhere except in the price action. In truth, a well-trained eye will find more profits than in a stack of technical indicators.

18. Don't confuse execution with opportunity. Expensive software won't help you trade like a hedge fund. Pretty colors and flashing lights make you a more nervous trader, not a better one.

19. Don't project your personal life onto your trading. Trading gives you the perfect opportunity to find out just how messed up your life really is. Get your own house in order before you play the financial markets.

20. Don't think that trading is fun. The trading game should be boring the vast majority of the time, just like the real-life job you have right now.

Dealing with trading stress and anxiety

Well, I'm back on board after a refreshing week away from the markets. We had a fantastic time snorkeling and scuba diving on the Great Barrier Reef, and then a few relaxing days in the beautiful Daintree Rainforest.



I'm feeling far from stressed right now...the holiday has left me mentally fresh and ready to attack the market once again. I felt like I was still trading pretty well in the zone before I left, so I probably didn't really need the break, but hopefully I'll be better off for it anyway. In the past I probably haven't taken enough breaks from trading, especially when I was losing my edge...and trading when not mentally or emotionally "healthy" is a very dangerous thing in my opinion

I made a post here and on a public forum a few months ago in response to a question regarding trading stress. It was part of the blog that I accidentally deleted recently, so I thought I'd rehash it here:

For me the psychological and emotional side of trading is paramount...something I probably spend as much time on improving now as the technical and systematical side of trading.

I've been trading for a living full time now for around 8 years and for a few before that part time, and I'm sure during that time I've pretty much ridden all of the emotional roller coasters that trading can send you on. There's been times that just felt too easy, and others where nothing I did seemed to work and I questioned my ability to trade.

The stress that comes from trading though seems nothing to me compared with the prospect of a "real job", dealing with real customers, real bosses and real co workers. I control my stress, no one else. I can embrace it and learn from it when I want, and I can walk away from it and sit by the pool, or attack the punching bag until it subsides.

I also try to trade in a manner that keeps that stress to a manageable level. I trade a lot...I'm talking 20+ positions at a time, and often over 100 transactions in a session. To me this feels manageable...I like the hectic nature of my day, but that doesn't mean it's how anyone else should trade. If you don't feel comfortable with more than 1 or 2 positions at once, then that is right for YOU.

I try not to take position sizes that are so large that they trigger that stress attack. Similarly I try to keep my overnight exposure long or short, within my boundaries of acceptability.

I sleep like a baby at night (and I don't mean I wake up 3 or 4 times crying!). If you're unable to sleep at night, fretting over what the U.S will do, checking the market on your IPhone every 15 minutes, then chances are you are too heavily invested. OK I admit, I "might" check the DOW at 3am if I happen to wake up for a toilet stop, but I guarantee no matter what it tells me I'll be asleep again in seconds. Believe me though it wasn't always that way...I definitely learnt from my mistakes there!

The difference between my trading now, and when I started full time, is that I can now start to recognise when I'm falling into the habits that destroy my discipline and my profits, and cause me that anxiety. The longer I trade, and the longer I practice, the quicker I recognise the signals that the wheels are threatening to fall off. I then make a concious effort to get back to basics. This may include reducing the frequency of trades I make, sticking more tightly to my ideal trading set ups, and concentrating on being ultra disciplined. I may also start trading smaller position sizes when I do trade.

I focus on the process not the outcome, knowing that if I do so, the result will eventually look after itself.

Want to work on the psychological side of your trading?

As many of you may know, improving the psychological and emotional side of my trading has always been a key focus.

One site that I find incredibly helpful in this regard is Brett Steenbarger's TraderFeed. Brett is no longer actively posting on this site, but there are a wealth of articles on market psychology and enhancing trading performance. Some of it is pretty heavy going, but it's an absolute must read site for me...especially if I find my trading edge or discipline slipping.

Another large stash of articles written by Brett can be found at www.brettsteenbarger.com

Happy reading!

Alan

Learn from your mistakes

Continuing to repost some of my old lost posts from my blog mishap last week. Here is one from Alan Farley at Hard Right Edge. Some good articles here.

It appears he wrote this one back in 2006, but there's still some very relevant and timeless points in here:

Alan

LEARN FROM YOUR MISTAKES

Neophytes think their trading flaws will vanish after they get a few years of experience under their belts. But nothing could be further from the truth. In reality, even market professionals make costly mistakes that could have been avoided.

On Wednesday I made 17 trades and cashed in a series of big winners. It was a good day, but it would have been better if I didn't throw money away with stupid trading mistakes. But I rarely lose sleep about these errors, because it's hard to play the game with perfect discipline, day after day.

The market forgives traders' mistakes in easy times, letting us profit despite bad judgment and poor timing. But it's a different story when no clear trend guides the price action. In choppy and confused markets, a big loss can follow every small error.

It's natural to make a few mistakes each day, because trading requires a thousand real-time decisions. Often the best we can do is to limit damage and understand the types of brain cramps that rob our pocketbooks.

These popular errors run the gamut from mental blunders to misguided opinions. Not surprisingly, the most common ones also cause the most damage. For example, consider how much money your blind love of tech stocks has cost you in the last six years.

We can't eliminate trading mistakes, but we can limit their destructive power. Start by listening to the little voice in your head, and let it question every trading decision you make. In no time, you'll find a dozen ways you're losing money for no reason.

Let's start with the trader who should have just taken the day off. There's nothing worse than trading trends in a choppy market, or choppy conditions in a trending market. So make sure you know the type of environment you're trading in before you hit the enter button.

Most traders feel compelled to be in the market each day, even when we have absolutely no edge to play. This common impulse is also a major trading mistake, because it forces us into bad positions just for the thrill of being in the action.

The solution: Learn to sit on your hands when the trading gods have nothing to offer.

Traders hate to lose money and don't want to admit it when they're wrong. So they press on with bad positions rather than cut their losses, trying to turn lemons into lemonade. Invariably this triggers a bigger loss than they would have incurred if they had just admitted the mistake right away."

Starting the new with some extracts from the old....Trading Discipline

As some of you may have read on my Twitter, this morning I accidentally deleted all of my old posts while doing some spring cleaning on the blog. With many thanks to "edwardsmatt" I have been able to recover some posts. Thank you!

I'm going to take advantage of the clean slate by reposting some of the older posts that might hopefully still be of some interest to readers. This first one covers my thoughts on what I believe is the single most important key to success in trading....DISCIPLINE. So here it is:

Fundamental or technical analysis, short or long time frame, mechanical or discretionary. There are countless different ways to trade, all with the potential of success, provided you can develop one skill - DISCIPLINE. A trader's ability to become and remain successful is pretty much dependant on it......

I'm not sure that there are any short cuts to gaining this magical ability, it's a habit that you need to practice over and over in your trades until it becomes an ingrained part of your trading psyche.

What is discipline in trading? Well of course the obvious one is cutting losses early. Protecting your capital is the key to staying in the game. When you enter a trade, and it doesn't perform as you had anticipated, once it hits your stop, cut it..you were wrong, accept it and get out. Losses are part of our expenses of running a business. Keep them down!

Discipline should also extend to position sizing, trade frequency, the reason for entering a trade, and even pre market preparation (scanning charts, setting alerts, etc).

Once you've decided how you are going to trade, try to stick to it. Trade the style that you have decided suits your personality and situation, don't start trying to instantly emulate others just because they seem to be doing better than you. Evolve your trading style and try new things, but do it in a discipline and structured manner.

As you start on this journey, start small and grow. Maybe set targets to earn yourself the right to trade larger positions once you've shown consistent success and discipline. Don't let greed or jealousy cloud your judgment.

In the past I've found that I could be very disciplined for a long period of time, and then all of a sudden it deserts me, for what at the time seemed to be for no logical reason. But many things can and do cause a loss of discipline:

* Environmental distraction - crying kids, renovations, computer problems
* Fatigue / mental overload / boredom
* Overconfidence / loss of confidence
* Personality traits / trading beyond your ability / trading a style that doesn't suit your personality.

If you wake up and find that your discipline has taken a short break, first try and determine the cause. If you can establish and accept the cause, you should find it much easier to eradicate it.

But in the meantime here are a few things you could try until your discipline returns:

* Trade smaller positions with tight stops
* Trade less frequently
* Only enter trades that meet the legitimate conditions of your trading style.
* Keep a trading log. Make notes on every trade, especially those that were unsuccessful. See if you can identify a pattern in your larger losses.
* Lock in some small wins to give your self confidence a boost.

Hopefully you'll soon be back on the long, straight, disciplined road again in no time. The road to success.

A