Trading mottos – Techniques of tap reading.
- Do not lose our House in Kanata Lake, apply a tight stop loss religiously.
- Do not catch the falling knife. (hnu.to, esol). Do not to average down, not to justify a loss, not to chase the market. Averaging down, justifications, and turning intraday trading strategies into long-term investing strategies are just another way to rationalize a losing position.
- The more significance that is placed on each separate trade, the more difficult it is to admit defeat. This leads to "blown stop". No single trade is so important that it would be worth tying all my thoughts, time and money to.
- Trade what you see, not what your think.
- PROS ASSESS RISK; AMATEURS ASSESS POTENTIAL: Professionals take the trade when they are comfortable with the risk, while amateurs do it when they like the potential profit. For professionals, risk evaluation always comes first. If you are uncomfortable with the risk on any particular stock or trade, just stay away from it. The skill of staying away is one of the most important one could learn. Furthermore, if the market presents movements that are not readable by the system we use, any trade would be just gambling.
- News has no absolute value. People's perception of the news is what affects the stock price.
- I never relate the outcome of a single trade to who I am. I do not feel foolish when I take a predetermined loss. This trade is not who I am. What is it we really want? To be right or to be profitable?
- I always have my risk defined, and trade according to it. ( If risk is defined as $250, and I can keep a 50 cent stop with confidence, then my share size on this stock is 500 shares.)
- Each trade can turn out to be a loser. It is normal because of the uncertain nature of the market – it works on probabilities, not on certainties.
- Discomfort and profit go hand in hand ( for initial stage only.) If the trade went against me, then I have to cut off my loss to prevent it from getting bigger. The other’s opinion will bring me relief, anger, secret hope and eventually big money loss.
- Trading with no solid system is like trying to build a house without a foundation. The most successful students are those who find their own slant on the approach they are being taught. They apply their personality to the system they study and produce their own version of the system. That’s their edge and a comfort zone for them.
- If I don’t learn from my losses, it’s money wasted, and I am doomed to repeat the same mistakes. Do not pay more than we can afford! It is not a loss if we revise the criteria and avoid the same mistake the next time.
- Be a contrarian. The stock market apparently works in a way that would allow the minority to take the money from the majority. News does not govern price, and fundamentals do not either. It is supply and demand that impacts the stock price.
- The subject of our job is market movement. The market doesn’t care if we loss or how much we lose. Focusing on the money just takes us farther from emotional balance while clouding our judgement.
- We don’t feel like a fool/loser when the market goes against us. The ego has no place here.
- The market is an ocean. When we find that the current is taking us in an undesirable direction, we swim out of it and look for another current, instead of waiting for it to reverse.
- Slowing down and decreasing activity when I was experiencing a setback and pushing harder when I was hot.
- What doesn’t kill you make you stronger!
- Pure followers of stock pickers will never be around long. Traders have to be their own leaders in order to survive. Be aware: “If I can’t make money using it, I can make money selling it”.
- I decide my own fate; the market doesn’t. Emotional trading is a killer of traders. (wnr, oncy, aig). Please distance my trading decisions from my emotions. I can use my emotions as a mirror to reveal what the majority thinks and feels, thus effectively allowing me to exploit the fear and greed of others.
- If we make a choice in entering a trade, knowing that the market cannot hurt us outside of our predefined risks, then we shouldn’t let an outside (others) opinion change our minds so fast.
- Trading is NOT a need-to-know business, because there is no way to know it. Trading is not about knowing, figuring things out, and so forth. Trading is about acting in familiar situations on familiar signals.
- Every time we put on a trade, we accept that this trade and any other can be a loser no matter how good it looks. If the loss is assumed and accepted in advance, it comes as no surprise. Instead of thinking that the market is definitely going to do this or that, think in terms of IF the market does this, THEN I will do that. No prediction – no surprise – no frustration. For me, this is the only way to approach trading. Never think, “I know what the market is going to do.” You don’t. Nobody does. Think, “I know what I am going to do in any scenario the market presents.”
- Trading is not pure mechanical, it is also an ART. The goal of the trader is to develop an unemotional, egoless, and clear perception of stock market reality. One of the things that contributes to the success of members of the minority is that they don’t think like the majority.
- There are four stages – newer traders, developing trader, striving trader, and reality trader – that take you from majority thought to minority success.
- Newer traders falsely thinks:
l Day traders ran that stock past our stop
l When you think a stock is too high, then it’s time to short (HNU.to)
l Market makers are a conspiracy group existing to take a stand against my position
l If you want to make money, just do the opposite of what I do.
l Do not stop out. A loss is a loss only if you take it. (HNU.to)
- Developing trader: I become that detached observer, and that detachment is essential to a trader’s state of mind. Since then, emotion and ego have ceased to be part of my trading plan.
- Striving trader: To think the way the minority thinks, to profit off the majority and to position myself on the side of smart money.
- Reality trader: My unemotional and egoless self allowed me a true and clear perception of market events and created the edge needed to trade profitably.
- This trading circle should never be closed and we should never stop learning. If we do this, then we are right back at the new trader stage. This often leads to drawdown periods as our ego becomes more pronounced and our reality becomes distorted again. If we ever close the circle, we go right back to ego, misperceptions, and mistakes that new traders make.
- First, traders have to form realistic expectations about their gains. Established traders know that their primary purpose is to preserve their trading capital. In order to do so, they have to limit risk. However, limiting risk also limits profit potential.
- All stocks move. But you don’t have to trade them all, especially ones that trade in dollars a minute. It is hard to imagine anything more risky than this monster with a huge spread and almost no volume. Of course there was opportunity to profit, but this is what amateurs go after. As a trader, I know to manage my risk first, and there was no way to do it on that stock at that time.
- YOU DON’T HAVE TO BE IN THE MIDDLE OF EVERY BATTLE: It’s not necessary for traders to trade everything. In fact, stocks that grab the most attention are often the most dangerous. An urge to trade just for trading’s sake can lead to big losses in the worst case or to slow bleeding with many stops in the best case.
- The hottest market action is where the biggest risk is. Don’t trade for action; trade for profit. But keep in mind that profit always goes with the possibility of loss. Evaluate the loss you might take if things turn nasty and decide whether you can afford the risk and whether you want this risk and/or reward.
- Whatever we do and however strongly we feel about a trade, we must never risk our entire capital on one trade. This doesn’t mean that we should ignore any opportunity in which the risk is too big, even if the reward/risk ratio is great. We do have the ability to decrease the risk by decreasing our share size. By decreasing our share size, we limit our profit potential. That’s the price of risk control. Limiting risk and capital preservation go first. I never feel that I have to trade.
- The market wants to show me one thing and hammer me with the opposite. What many fail to realize is that what seems really obvious usually is a trap.
- “buy high, sell higher” and “sell low, buy back lower” is a style that matches trading to the trend. An uptrend is a series of higher highs and higher lows. As long as the trend is intact, you are safe buying every high, and you will be wrong only once at the very top. Even when you buy the pullback bottom on an uptrending stock, it’s not really buying the low—it’s just a particular detail of your timing, your micro-strategy of entry.
- Buy high and sell higher in an uptrend. Sell low and cover lower in a downtrend. Buy low, sell high in a range.
- Traders try every next top to short or every next bottom to buy. In doing so, they try to identify the point of a trend reversal. There is only one of these reversal points. By doing this, traders try to find that one reversal point that is going against the prevailing trend. It just doesn’t make sense.
- Find my own edge. There is one and only one way to find my edge: experience.
- You can always reenter a position, but you can never get back your loss. Each loss carries a lesson, and it’s up to you to assign the price to that lesson.
- Trading is the ultimate exercise in self-control.
- Tape readers see price movement in relation to the rate of volume and can determine when the footprints of stock action are made. Tape reading allows one to understand the actions of the minority and eventually the majority when it climbs in. These principles are applied to an individual security’s behavior and to the broader market trend’s behavior.
- At some point the correlation between those who want to take a position and those who have already taken it creates an imbalance to such a degree that potential sellers outweigh potential buyers at any given price. That’s where expectations of the buyers are no longer valid and trend reversal occurs. The same mechanics work with setups that become too popular. They cease to work when they are followed too widely.
- Evidence of accumulation and distribution in the market at levels where the minority (smart money) is participating to a greater degree is often masked to the public until the time is right. Then positions are unloaded as the majority catches on. This can be seen in numerous examples in any given week or month. The market is a discounting mechanism by which the majority usually enters and exits at the wrong time. The major idea is that the public is the last to participate, so when the public comes to buy, there is no one left to buy from them. Thus, majority participation creates the final stage of the movement, which is followed by a reversal.
- As a rule, smart money action can be seen as a slow, gradual price movement with steady or slowly increasing volume. The public’s action is characterized by hysterical and parabolic price spikes, almost vertical movement with a sharp volume increase.
- 1. Trend Beginning (Aggressive Accumulation): a slow, steady movement upward with consistent volume that indicates so-called good buying and means the start of upward momentum. Those who are accumulating need to be very careful in such situations. They are buying enough shares to support the stock’s direction, but they aren’t buying so much that it attracts the majority. This is often a tough game to play because any hint that the footprints are being seen by the majority will initiate a price and volume spike, thereby ruining the intention of the smart money to establish a position at better prices. This is why we often laugh about upgrades and downgrades of stock picks. The movement of stock being quietly accumulated is slow and often accompanied by nasty pullbacks. Those pullbacks are caused by smart money desire to keep the upward movement in check. Switching the sides, using ECNs (Electronic Communications Networks) to hide the buyers’ identity, showing sizes that are intended to scare traders into taking certain action rather than getting that size filled, and many other tricks were and still are being used to mask real intentions.
