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#41
Open OverWise board / Never Do These 5 Things in Tra...
Last post by Henrik Ekenberg - Dec 28, 2024, 12:41 PMNever Do These 5 Things in Trading
Trading success requires discipline, planning, and emotional control. Falling into bad habits can quickly lead to unnecessary losses and frustration. Here are five critical mistakes to avoid if you want to stay on the path to consistent profitability:
1. Decide Position Size Based on How Much You Want to Make
Why It's a Problem:
Position sizing driven by greed ignores risk management and can result in catastrophic losses. A single bad trade with oversized positions can wipe out your account.
What to Do Instead:
Example:
If your account is $10,000 and you risk 1% per trade, your maximum loss per trade should be $100. Adjust your position size accordingly.
2. Enter Trades Without Rules or a Plan
Why It's a Problem:
Trading without a plan leads to impulsive decisions driven by emotions rather than logic. This inconsistency makes it impossible to evaluate or improve your strategy.
What to Do Instead:
Key Insight:
A plan turns chaos into order. Without it, you're gambling, not trading.
3. Keep Averaging Down Without Cutting Losses
Why It's a Problem:
Adding to losing positions traps more capital in bad trades and increases your risk. This strategy often leads to massive losses when the market moves further against you.
What to Do Instead:
Golden Rule:
Cut losses quickly, let winners run.
4. Revenge Trading
Why It's a Problem:
Trading to "win back" losses clouds judgment and leads to impulsive, high-risk decisions. This emotional response often results in even greater losses.
What to Do Instead:
Mindset Shift:
Focus on executing your process, not recovering losses immediately.
5. Spend Money Expecting Success Within the Month
Why It's a Problem:
Trading success takes time, experience, and education. Expecting quick profits sets unrealistic expectations, leading to frustration and poor decision-making.
What to Do Instead:
Key Insight:
Trading is not a sprint; it's a marathon. Sustainable success comes from patience and discipline.
Final Thoughts
Avoiding these mistakes is crucial for long-term trading success. Focus on disciplined risk management, a solid plan, and emotional control. By eliminating these pitfalls, you'll give yourself the best chance to thrive in the markets.
Remember:
The market rewards patience, preparation, and discipline—not impulsive, high-risk behavior.
Trading success requires discipline, planning, and emotional control. Falling into bad habits can quickly lead to unnecessary losses and frustration. Here are five critical mistakes to avoid if you want to stay on the path to consistent profitability:
1. Decide Position Size Based on How Much You Want to Make
Why It's a Problem:
Position sizing driven by greed ignores risk management and can result in catastrophic losses. A single bad trade with oversized positions can wipe out your account.
What to Do Instead:
- Base your position size on how much you're willing to lose, not how much you want to gain.
- Use a percentage of your total capital (e.g., 1%-2%) to calculate risk per trade.
Example:
If your account is $10,000 and you risk 1% per trade, your maximum loss per trade should be $100. Adjust your position size accordingly.
2. Enter Trades Without Rules or a Plan
Why It's a Problem:
Trading without a plan leads to impulsive decisions driven by emotions rather than logic. This inconsistency makes it impossible to evaluate or improve your strategy.
What to Do Instead:
- Develop a detailed trading plan covering entries, exits, position sizing, and risk management.
- Follow your plan religiously to ensure consistency and discipline.
Key Insight:
A plan turns chaos into order. Without it, you're gambling, not trading.
3. Keep Averaging Down Without Cutting Losses
Why It's a Problem:
Adding to losing positions traps more capital in bad trades and increases your risk. This strategy often leads to massive losses when the market moves further against you.
What to Do Instead:
- Use stop-loss orders to exit losing trades at a predefined level.
- Avoid emotional attachments to trades—focus on minimizing losses.
Golden Rule:
Cut losses quickly, let winners run.
4. Revenge Trading
Why It's a Problem:
Trading to "win back" losses clouds judgment and leads to impulsive, high-risk decisions. This emotional response often results in even greater losses.
What to Do Instead:
- Step away from the market after a losing trade to reset emotionally.
- Stick to your plan and wait for setups that align with your strategy.
Mindset Shift:
Focus on executing your process, not recovering losses immediately.
5. Spend Money Expecting Success Within the Month
Why It's a Problem:
Trading success takes time, experience, and education. Expecting quick profits sets unrealistic expectations, leading to frustration and poor decision-making.
What to Do Instead:
- Treat trading as a long-term journey.
- Invest in your education, practice on demo accounts, and focus on building consistency over months and years.
Key Insight:
Trading is not a sprint; it's a marathon. Sustainable success comes from patience and discipline.
Final Thoughts
Avoiding these mistakes is crucial for long-term trading success. Focus on disciplined risk management, a solid plan, and emotional control. By eliminating these pitfalls, you'll give yourself the best chance to thrive in the markets.
Remember:
The market rewards patience, preparation, and discipline—not impulsive, high-risk behavior.
#42
Open OverWise board / How to 10x Your Trading Succes...
Last post by Henrik Ekenberg - Dec 26, 2024, 08:58 AMHow to 10x Your Trading Success: Focus on Risk, Not Money
Many traders make the mistake of obsessing over profits, aiming to "hit it big" with every trade. However, the real secret to improving your trading lies in shifting your mindset: stop focusing on the money and start focusing on managing risk. Here's why this approach works and how you can implement it effectively.
Why You Should Focus 100% on Risk
1. Risk Is Controllable
While market movements are unpredictable, your risk exposure is entirely within your control. By focusing on risk, you build a solid foundation for consistent and sustainable trading.
2. Protecting Capital Is the Priority
Without capital, you can't trade. By emphasizing risk management, you ensure that even during losing streaks, you have enough capital to recover and stay in the game.
3. Consistency Over Time
Focusing on risk removes the emotional swings tied to profit and loss. It allows you to think in probabilities and make rational decisions that lead to consistent performance.
Steps to Improve Your Trading by Focusing on Risk
1. Define Your Risk Per Trade
Why It Matters: Limiting your risk per trade ensures that no single loss can significantly damage your account.
How to Apply:
- Risk 1%-2% of your total trading capital per trade.
- Use position sizing to adjust your trade size based on the distance to your stop-loss.
Example:
If your account is $10,000 and you're risking 1% per trade, the maximum loss per trade should be $100. If your stop-loss is $5 away from your entry price, your position size would be 20 shares.
2. Set Logical Stop-Loss Levels
Why It Matters: A stop-loss that's too tight can cause unnecessary exits, while one that's too loose can lead to large losses.
How to Apply:
- Place stop-losses at levels where your trade idea is invalidated.
- Avoid arbitrary percentage stops; let the chart dictate logical levels.
Example:
If a stock's support is at $50, place your stop just below $50 rather than at a random percentage below your entry.
3. Maintain a Favorable Risk-to-Reward Ratio
Why It Matters: A good risk-to-reward ratio ensures that even with a modest win rate, you remain profitable over time.
How to Apply:
- Aim for a minimum R/R ratio of 2:1 (e.g., risk $1 to make $2).
- Avoid trades where the potential reward doesn't justify the risk.
Example:
If your stop-loss is $2 below your entry, your target should be at least $4 above your entry.
4. Limit Overall Portfolio Risk
Why It Matters: Spreading your risk across multiple trades prevents overexposure to a single position or market move.
How to Apply:
- Cap your total risk at 3%-5% of your account at any given time.
- Diversify across different stocks, sectors, or asset classes.
Example:
If you have three open trades, each risking 1%, your total risk exposure is limited to 3%.
5. Focus on Process, Not Outcomes
Why It Matters: Focusing on outcomes leads to emotional decisions, while focusing on the process ensures consistency and discipline.
How to Apply:
- Review each trade based on how well you followed your rules, not whether it was a winner or loser.
- Use a trading journal to track your adherence to your plan.
Example:
After a losing trade, analyze whether you executed it according to your rules. If you did, it's a successful trade regardless of the result.
6. Build Emotional Resilience
Why It Matters: Obsessing over profits creates fear and greed, which undermine rational decision-making.
How to Apply:
- Accept that losses are a natural part of trading.
- Trust your risk management system to protect you during drawdowns.
Example:
A trader focused on risk remains calm after a losing streak, knowing their system is designed to weather such periods.
Benefits of Focusing on Risk
- Consistency: Avoid wild swings in your account balance.
- Peace of Mind: Trade without fear of catastrophic losses.
- Longevity: Survive long enough for your edge to play out over time.
- Scalability: Once your risk management is solid, scaling up becomes straightforward.
The Key Takeaway
Successful trading isn't about chasing profits; it's about managing risk. By prioritizing risk, you gain control over your trades, protect your capital, and build a consistent foundation for long-term success.
Many traders make the mistake of obsessing over profits, aiming to "hit it big" with every trade. However, the real secret to improving your trading lies in shifting your mindset: stop focusing on the money and start focusing on managing risk. Here's why this approach works and how you can implement it effectively.
Why You Should Focus 100% on Risk
1. Risk Is Controllable
While market movements are unpredictable, your risk exposure is entirely within your control. By focusing on risk, you build a solid foundation for consistent and sustainable trading.
2. Protecting Capital Is the Priority
Without capital, you can't trade. By emphasizing risk management, you ensure that even during losing streaks, you have enough capital to recover and stay in the game.
3. Consistency Over Time
Focusing on risk removes the emotional swings tied to profit and loss. It allows you to think in probabilities and make rational decisions that lead to consistent performance.
Steps to Improve Your Trading by Focusing on Risk
1. Define Your Risk Per Trade
Why It Matters: Limiting your risk per trade ensures that no single loss can significantly damage your account.
How to Apply:
- Risk 1%-2% of your total trading capital per trade.
- Use position sizing to adjust your trade size based on the distance to your stop-loss.
Example:
If your account is $10,000 and you're risking 1% per trade, the maximum loss per trade should be $100. If your stop-loss is $5 away from your entry price, your position size would be 20 shares.
2. Set Logical Stop-Loss Levels
Why It Matters: A stop-loss that's too tight can cause unnecessary exits, while one that's too loose can lead to large losses.
How to Apply:
- Place stop-losses at levels where your trade idea is invalidated.
- Avoid arbitrary percentage stops; let the chart dictate logical levels.
Example:
If a stock's support is at $50, place your stop just below $50 rather than at a random percentage below your entry.
3. Maintain a Favorable Risk-to-Reward Ratio
Why It Matters: A good risk-to-reward ratio ensures that even with a modest win rate, you remain profitable over time.
How to Apply:
- Aim for a minimum R/R ratio of 2:1 (e.g., risk $1 to make $2).
- Avoid trades where the potential reward doesn't justify the risk.
Example:
If your stop-loss is $2 below your entry, your target should be at least $4 above your entry.
4. Limit Overall Portfolio Risk
Why It Matters: Spreading your risk across multiple trades prevents overexposure to a single position or market move.
How to Apply:
- Cap your total risk at 3%-5% of your account at any given time.
- Diversify across different stocks, sectors, or asset classes.
Example:
If you have three open trades, each risking 1%, your total risk exposure is limited to 3%.
5. Focus on Process, Not Outcomes
Why It Matters: Focusing on outcomes leads to emotional decisions, while focusing on the process ensures consistency and discipline.
How to Apply:
- Review each trade based on how well you followed your rules, not whether it was a winner or loser.
- Use a trading journal to track your adherence to your plan.
Example:
After a losing trade, analyze whether you executed it according to your rules. If you did, it's a successful trade regardless of the result.
6. Build Emotional Resilience
Why It Matters: Obsessing over profits creates fear and greed, which undermine rational decision-making.
How to Apply:
- Accept that losses are a natural part of trading.
- Trust your risk management system to protect you during drawdowns.
Example:
A trader focused on risk remains calm after a losing streak, knowing their system is designed to weather such periods.
Benefits of Focusing on Risk
- Consistency: Avoid wild swings in your account balance.
- Peace of Mind: Trade without fear of catastrophic losses.
- Longevity: Survive long enough for your edge to play out over time.
- Scalability: Once your risk management is solid, scaling up becomes straightforward.
The Key Takeaway
Successful trading isn't about chasing profits; it's about managing risk. By prioritizing risk, you gain control over your trades, protect your capital, and build a consistent foundation for long-term success.
QuoteRemember:
When you focus 100% on managing risk, the profits will take care of themselves. Stop obsessing over the money and start playing the real game of trading—mastering risk.
#43
Open OverWise board / Risk Management: The Fireplace...
Last post by Henrik Ekenberg - Dec 23, 2024, 03:31 PMRisk Management: The Fireplace Analogy
Risk in trading is much like a fire in a fireplace—it requires balance. Manage it poorly, and you'll either burn everything down or fail to generate enough warmth to make it worthwhile. The key is to maintain just the right amount of risk to keep your trading system efficient, sustainable, and rewarding.
1. Too Much Risk: The Overloaded Fireplace
- The Problem:
Adding too much wood (or risk) can cause the fire to rage uncontrollably, leading to a dangerous situation. Similarly, taking on excessive risk in trading can lead to catastrophic losses that wipe out your capital.
Signs of Excessive Risk:
- Oversized positions relative to your account size.
- Overleveraging to chase large profits.
- Ignoring stop-losses or moving them further away to avoid small losses.
The Consequences:
- Emotional Stress: Large losses often lead to panic or revenge trading.
- Account Destruction: A single trade or series of bad trades can deplete your account.
- Loss of Confidence: Over-risking leads to fear, eroding trust in your system.
Example:
A trader with a $10,000 account risks 20% ($2,000) on a single trade. A few consecutive losses at this level can bring the account to near-zero, leaving no room for recovery.
2. Too Little Risk: The Cold Fireplace
- The Problem:
Adding too little wood (or risk) means the fire won't generate enough heat to warm the house. In trading, being overly conservative can limit your growth and make trading feel unproductive.
Signs of Insufficient Risk:
- Taking extremely small position sizes that barely impact your account.
- Closing trades prematurely due to fear of small losses.
- Failing to capitalize on opportunities during favorable market conditions.
The Consequences:
- Missed Potential: Gains are so small that they fail to offset transaction costs or occasional losses.
- Frustration: Lack of meaningful progress can lead to overtrading or abandoning the system.
Example:
A trader risks just 0.1% of their $10,000 account ($10 per trade). Even with a winning streak, the returns are negligible, failing to justify the time and effort invested.
3. The Balance: A Well-Managed Fire
- The Goal:
Like maintaining a steady fire, risk management in trading involves finding the sweet spot—enough risk to generate meaningful returns but not so much that a single loss becomes disastrous.
How to Balance Risk:
- Set Risk Limits: Risk 1-2% of your total account per trade. This ensures that no single loss can significantly harm your portfolio.
- Position Sizing: Adjust your trade size to match your risk tolerance and the distance to your stop-loss level.
- Diversify: Spread your risk across multiple trades or instruments to avoid overexposure.
Example:
A trader with a $10,000 account risks 1% ($100) per trade. If their stop-loss is set 5% below their entry price, they adjust their position size to ensure a $100 maximum loss. This approach balances growth potential with capital preservation.
4. Maintaining the Fire: Consistency and Discipline
- Monitor the Risk: Regularly review your trades to ensure you're sticking to your risk management plan. Adjust your strategy as needed to align with changing market conditions.
- Keep Emotions in Check: Avoid the temptation to add too much wood during a winning streak or hold back too much during a losing streak.
- Focus on the Process: Trust your system and maintain consistency, knowing that balanced risk management is the key to long-term success.
Final Thoughts
Risk management is the art of maintaining balance—keeping the fire warm enough to drive growth while preventing it from raging out of control. Treat risk as your most valuable tool, not your enemy. With the right balance, you'll keep your trading "fireplace" burning efficiently, providing the heat you need to succeed.
Remember:
Too much risk can destroy your trading account, while too little may never let it grow. Strike the balance, and let your system thrive.
Too much risk can destroy your trading account, while too little may never let it grow. Strike the balance, and let your system thrive.
#44
Open OverWise board / Who Should You Study as a Trad...
Last post by Henrik Ekenberg - Dec 23, 2024, 07:41 AMWho Should You Study as a Trader?
Great traders constantly seek to refine their craft, and one of the best ways to do so is by studying other successful traders. Each legendary trader offers unique insights into strategy, psychology, and risk management. Whether you're into technical analysis, swing trading, or macro investing, there's a wealth of knowledge to gain.
Here's a breakdown of some iconic traders and the lessons they offer:
1. Jesse Livermore (The Speculator's Edge)
Why Study Him: Known as one of history's greatest speculators, Livermore's trend-following and breakout strategies remain timeless.
Key Lessons:
2. Paul Tudor Jones (The Contrarian Macro Trader)
Why Study Him: Famously profited from the 1987 crash, combining macroeconomic trends with technical analysis.
Key Lessons:
3. William O'Neil (Growth Stock Innovator)
Why Study Him: Creator of the CAN SLIM methodology for identifying high-growth stocks.
Key Lessons:
4. Mark Minervini (Swing Trading Mastery)
Why Study Him: A master of momentum and swing trading with a focus on risk management.
Key Lessons:
5. Richard Dennis (Trend-Following Pioneer)
Why Study Him: Co-creator of the Turtle Trading experiment, proving trading success can be taught.
Key Lessons:
6. George Soros (The Reflexive Macro Trader)
Why Study Him: Known for high-conviction macro trades, including shorting the British pound in 1992.
Key Lessons:
Final Thoughts:
Studying great traders isn't about mimicking their style—it's about learning their principles. No one-size-fits-all strategy exists, but by analyzing the strengths and mistakes of these legends, you can refine your own approach.
Who inspires your trading journey? Let's discuss!
Great traders constantly seek to refine their craft, and one of the best ways to do so is by studying other successful traders. Each legendary trader offers unique insights into strategy, psychology, and risk management. Whether you're into technical analysis, swing trading, or macro investing, there's a wealth of knowledge to gain.
Here's a breakdown of some iconic traders and the lessons they offer:
1. Jesse Livermore (The Speculator's Edge)
Why Study Him: Known as one of history's greatest speculators, Livermore's trend-following and breakout strategies remain timeless.
Key Lessons:
- Patience: "Be right, and sit tight." Wait for the right setup.
- Market Psychology: Understand emotional extremes and crowd behavior.
- Risk Management: Avoid overleveraging.
2. Paul Tudor Jones (The Contrarian Macro Trader)
Why Study Him: Famously profited from the 1987 crash, combining macroeconomic trends with technical analysis.
Key Lessons:
- Risk Control: Always have a stop-loss.
- Contrarian Thinking: Look for opportunities where the crowd is wrong.
- Flexibility: Adapt quickly to changing markets.
3. William O'Neil (Growth Stock Innovator)
Why Study Him: Creator of the CAN SLIM methodology for identifying high-growth stocks.
Key Lessons:
- Combine Fundamentals & Technicals: Strong earnings + technical breakouts.
- Cut Losses Quickly: Exit when a stock drops 7-8%.
- Focus on Leaders: Trade stocks in leading industries.
4. Mark Minervini (Swing Trading Mastery)
Why Study Him: A master of momentum and swing trading with a focus on risk management.
Key Lessons:
- Risk-Reward Ratios: Take trades with significantly higher upside than downside.
- Tight Risk Control: Keep losses small and let winners run.
- Study Price Action: Time entries and exits with precision.
5. Richard Dennis (Trend-Following Pioneer)
Why Study Him: Co-creator of the Turtle Trading experiment, proving trading success can be taught.
Key Lessons:
- Follow Trends: Trade with the prevailing trend until it ends.
- Simple Systems Work: Complexity isn't necessary for success.
- Risk Management: Position sizing ensures survival.
6. George Soros (The Reflexive Macro Trader)
Why Study Him: Known for high-conviction macro trades, including shorting the British pound in 1992.
Key Lessons:
- Reflexivity: Prices influence fundamentals, not just vice versa.
- Aggressive Conviction: When confident, size up.
- Risk Management: Cut losing trades ruthlessly.
Final Thoughts:
Studying great traders isn't about mimicking their style—it's about learning their principles. No one-size-fits-all strategy exists, but by analyzing the strengths and mistakes of these legends, you can refine your own approach.
Who inspires your trading journey? Let's discuss!
#45
Open OverWise board / Amateur vs. Successful Traders...
Last post by Henrik Ekenberg - Dec 22, 2024, 03:14 PMAmateur vs. Successful Traders: The Key Differences
The path to becoming a successful trader starts with understanding the habits that separate amateurs from professionals. While amateur traders often rely on complexity, emotions, and external validation, successful traders prioritize simplicity, discipline, and risk management. Let's explore these key differences and how you can adopt the mindset and practices of successful traders.
Amateur Traders: What Holds Them Back
27 Indicators
Why They Do It: Amateurs often believe that more indicators equal better analysis. They overload their charts with technical tools, trying to find a "perfect" signal.
The Problem: Too many indicators create conflicting signals, leading to confusion and paralysis. Complexity often masks a lack of confidence in a trading plan.
Tip for Improvement: Strip your charts down to the essentials. Focus on one or two key indicators that align with your strategy.
Other People's Opinions
Why They Do It: Amateurs seek reassurance by following the advice of social media influencers, news channels, or chat groups.
The Problem: Relying on others creates dependency and undermines confidence. You end up chasing trades that don't align with your own analysis or plan.
Tip for Improvement: Develop your own trading system and trust it. Use others' opinions as supplementary information, not your primary decision-making tool.
Trade Emotions
Why They Do It: Emotions like fear, greed, and impatience drive impulsive decisions. Amateurs struggle to detach their feelings from their trades.
The Problem: Emotional trading leads to inconsistency, overtrading, and poor risk management.
Tip for Improvement: Stick to a predefined plan. Use tools like stop-loss orders to remove emotional decision-making during trades.
Stupid Risks
Why They Do It: Amateurs often risk too much capital on a single trade, hoping for a big win. They underestimate the importance of proper risk management.
The Problem: A single loss can wipe out their account, leading to frustration and the inability to recover.
Tip for Improvement: Never risk more than 1-2% of your account on a single trade. Small, calculated risks are the foundation of longevity in trading.
Successful Traders: Habits That Lead to Consistency
Price Action
Why It Works: Successful traders focus on price movement and patterns, the purest form of market data. They understand the story the market is telling through price.
How to Do It: Master concepts like support, resistance, trends, and candlestick formations. Price action simplifies decision-making by cutting out unnecessary noise.
Following Plans
Why It Works: A solid trading plan defines when to enter, exit, and manage trades. Successful traders follow their plans with discipline, removing emotional guesswork.
How to Do It: Write down your trading rules, including entry/exit criteria, risk limits, and position sizes. Review your plan regularly and refine it as needed.
Trade Systems
Why It Works: Systems provide a consistent framework for making decisions. They help traders remain objective and execute trades based on probabilities, not emotions.
How to Do It: Backtest and optimize a trading system that suits your style and goals. Stick to the system even during drawdowns to let the edge play out over time.
Calculated Risks
Why It Works: Successful traders manage risk carefully, ensuring that no single trade can significantly harm their account. They prioritize capital preservation over quick gains.
How to Do It: Use position sizing and stop-loss levels to limit risk. Always know your maximum potential loss before entering a trade.
How to Transition from Amateur to Successful Trader
- Simplify Your Approach: Focus on price action and a few core indicators. Less is more in trading.
- Develop a Plan: Write and follow a detailed trading plan tailored to your system and psychology.
- Control Emotions: Practice emotional discipline through mindfulness, journaling, and detachment from outcomes.
- Prioritize Risk Management: Treat every trade as a calculated bet, with defined risk-reward ratios and strict capital limits.
Conclusion
Amateur traders often rely on complexity, external opinions, and emotions, which lead to inconsistent results. Successful traders, on the other hand, focus on simplicity, discipline, and risk management. By adopting the habits of successful traders, you can shift your mindset and practices to achieve consistent profitability.
Remember: Trading isn't about being right all the time—it's about managing risk and executing your system with discipline. The path to success begins with mastering the basics and sticking to them.
The path to becoming a successful trader starts with understanding the habits that separate amateurs from professionals. While amateur traders often rely on complexity, emotions, and external validation, successful traders prioritize simplicity, discipline, and risk management. Let's explore these key differences and how you can adopt the mindset and practices of successful traders.
Amateur Traders: What Holds Them Back
27 Indicators
Why They Do It: Amateurs often believe that more indicators equal better analysis. They overload their charts with technical tools, trying to find a "perfect" signal.
The Problem: Too many indicators create conflicting signals, leading to confusion and paralysis. Complexity often masks a lack of confidence in a trading plan.
Tip for Improvement: Strip your charts down to the essentials. Focus on one or two key indicators that align with your strategy.
Other People's Opinions
Why They Do It: Amateurs seek reassurance by following the advice of social media influencers, news channels, or chat groups.
The Problem: Relying on others creates dependency and undermines confidence. You end up chasing trades that don't align with your own analysis or plan.
Tip for Improvement: Develop your own trading system and trust it. Use others' opinions as supplementary information, not your primary decision-making tool.
Trade Emotions
Why They Do It: Emotions like fear, greed, and impatience drive impulsive decisions. Amateurs struggle to detach their feelings from their trades.
The Problem: Emotional trading leads to inconsistency, overtrading, and poor risk management.
Tip for Improvement: Stick to a predefined plan. Use tools like stop-loss orders to remove emotional decision-making during trades.
Stupid Risks
Why They Do It: Amateurs often risk too much capital on a single trade, hoping for a big win. They underestimate the importance of proper risk management.
The Problem: A single loss can wipe out their account, leading to frustration and the inability to recover.
Tip for Improvement: Never risk more than 1-2% of your account on a single trade. Small, calculated risks are the foundation of longevity in trading.
Successful Traders: Habits That Lead to Consistency
Price Action
Why It Works: Successful traders focus on price movement and patterns, the purest form of market data. They understand the story the market is telling through price.
How to Do It: Master concepts like support, resistance, trends, and candlestick formations. Price action simplifies decision-making by cutting out unnecessary noise.
Following Plans
Why It Works: A solid trading plan defines when to enter, exit, and manage trades. Successful traders follow their plans with discipline, removing emotional guesswork.
How to Do It: Write down your trading rules, including entry/exit criteria, risk limits, and position sizes. Review your plan regularly and refine it as needed.
Trade Systems
Why It Works: Systems provide a consistent framework for making decisions. They help traders remain objective and execute trades based on probabilities, not emotions.
How to Do It: Backtest and optimize a trading system that suits your style and goals. Stick to the system even during drawdowns to let the edge play out over time.
Calculated Risks
Why It Works: Successful traders manage risk carefully, ensuring that no single trade can significantly harm their account. They prioritize capital preservation over quick gains.
How to Do It: Use position sizing and stop-loss levels to limit risk. Always know your maximum potential loss before entering a trade.
How to Transition from Amateur to Successful Trader
- Simplify Your Approach: Focus on price action and a few core indicators. Less is more in trading.
- Develop a Plan: Write and follow a detailed trading plan tailored to your system and psychology.
- Control Emotions: Practice emotional discipline through mindfulness, journaling, and detachment from outcomes.
- Prioritize Risk Management: Treat every trade as a calculated bet, with defined risk-reward ratios and strict capital limits.
Conclusion
Amateur traders often rely on complexity, external opinions, and emotions, which lead to inconsistent results. Successful traders, on the other hand, focus on simplicity, discipline, and risk management. By adopting the habits of successful traders, you can shift your mindset and practices to achieve consistent profitability.
Remember: Trading isn't about being right all the time—it's about managing risk and executing your system with discipline. The path to success begins with mastering the basics and sticking to them.
#46
Open OverWise board / 5 Habits That Are Killing Your...
Last post by Henrik Ekenberg - Nov 30, 2024, 06:13 PM5 Habits That Are Killing Your Trading Productivity
As traders, success isn't just about market knowledge—it's about cultivating the right habits to stay disciplined, focused, and effective. Here are five habits inspired by timeless Stoic wisdom that might be holding you back, and how to overcome them.
1. You Don't Start Your Trading Day Early
"The morning hours are when you have clarity and focus—don't waste them."
If you're not waking up early to prepare for the market, you're already behind. The pre-market hours are critical for reviewing charts, analyzing setups, and setting your trading plan. Trading without preparation is like entering a battlefield without a strategy.
Fix:
Wake up at least an hour earlier than usual. Use this time to review your plan, study market news, and mentally prepare for the day ahead. A calm and focused morning can set the tone for better decisions.
2. You Focus on What's Outside Your Control
"Markets are beyond your control; focus only on how you respond to them."
Spending time worrying about market conditions, news events, or unpredictable price moves wastes mental energy. Traders lose productivity when they obsess over outcomes they can't control instead of focusing on executing their plan.
Fix:
Shift your focus to what you can control—your risk management, trade execution, and discipline. Accept that the market will do what it does, and your job is to adapt, not predict.
3. You're Surrounded by Negative Influences
"The crowd you follow determines the quality of your journey."
Hanging around traders who constantly complain, chase trades, or ignore their rules can rub off on you. Surrounding yourself with the wrong crowd will drag you into unproductive habits and poor decision-making.
Fix:
Join communities of disciplined, successful traders who focus on continuous improvement. Surround yourself with mentors or peers who inspire you to be better, stick to your strategy, and avoid impulsive decisions.
4. You Don't Know How to Say "No"
"Every trade and opportunity isn't worth your time."
Overtrading or jumping on every potential setup leads to burnout and poor results. Saying "yes" to too many trades spreads your focus thin and increases the likelihood of mistakes.
Fix:
Learn to say "no" to trades that don't align with your strategy or risk tolerance. Focus only on high-quality setups that meet your criteria. Remember, fewer trades with better execution often yield better results.
5. You Think There's Always More Time
"Time is the only resource you can't replenish—use it wisely."
Procrastinating on reviewing your trades, refining your strategy, or learning from mistakes robs you of progress. Many traders delay the hard work, believing they can "get to it later." But in trading, delays often lead to missed opportunities or repeated errors.
Fix:
Take action today. Review your trade journal, study the market, and refine your strategy. Treat each day as a valuable opportunity to grow and improve your skills. The market waits for no one, and neither should you.
Final Thoughts: Master Your Habits, Master Your Trading
Productivity in trading isn't about working harder—it's about working smarter and cultivating habits that align with your goals. By waking up prepared, focusing on what you can control, surrounding yourself with the right influences, learning to say no, and valuing your time, you'll set yourself apart as a disciplined and effective trader.
As traders, success isn't just about market knowledge—it's about cultivating the right habits to stay disciplined, focused, and effective. Here are five habits inspired by timeless Stoic wisdom that might be holding you back, and how to overcome them.
1. You Don't Start Your Trading Day Early
"The morning hours are when you have clarity and focus—don't waste them."
If you're not waking up early to prepare for the market, you're already behind. The pre-market hours are critical for reviewing charts, analyzing setups, and setting your trading plan. Trading without preparation is like entering a battlefield without a strategy.
Fix:
Wake up at least an hour earlier than usual. Use this time to review your plan, study market news, and mentally prepare for the day ahead. A calm and focused morning can set the tone for better decisions.
2. You Focus on What's Outside Your Control
"Markets are beyond your control; focus only on how you respond to them."
Spending time worrying about market conditions, news events, or unpredictable price moves wastes mental energy. Traders lose productivity when they obsess over outcomes they can't control instead of focusing on executing their plan.
Fix:
Shift your focus to what you can control—your risk management, trade execution, and discipline. Accept that the market will do what it does, and your job is to adapt, not predict.
3. You're Surrounded by Negative Influences
"The crowd you follow determines the quality of your journey."
Hanging around traders who constantly complain, chase trades, or ignore their rules can rub off on you. Surrounding yourself with the wrong crowd will drag you into unproductive habits and poor decision-making.
Fix:
Join communities of disciplined, successful traders who focus on continuous improvement. Surround yourself with mentors or peers who inspire you to be better, stick to your strategy, and avoid impulsive decisions.
4. You Don't Know How to Say "No"
"Every trade and opportunity isn't worth your time."
Overtrading or jumping on every potential setup leads to burnout and poor results. Saying "yes" to too many trades spreads your focus thin and increases the likelihood of mistakes.
Fix:
Learn to say "no" to trades that don't align with your strategy or risk tolerance. Focus only on high-quality setups that meet your criteria. Remember, fewer trades with better execution often yield better results.
5. You Think There's Always More Time
"Time is the only resource you can't replenish—use it wisely."
Procrastinating on reviewing your trades, refining your strategy, or learning from mistakes robs you of progress. Many traders delay the hard work, believing they can "get to it later." But in trading, delays often lead to missed opportunities or repeated errors.
Fix:
Take action today. Review your trade journal, study the market, and refine your strategy. Treat each day as a valuable opportunity to grow and improve your skills. The market waits for no one, and neither should you.
Final Thoughts: Master Your Habits, Master Your Trading
Productivity in trading isn't about working harder—it's about working smarter and cultivating habits that align with your goals. By waking up prepared, focusing on what you can control, surrounding yourself with the right influences, learning to say no, and valuing your time, you'll set yourself apart as a disciplined and effective trader.
#47
Open OverWise board / Re: Trading: A Journey of Hard...
Last post by Investgbg - Nov 30, 2024, 02:08 PMGreat thread 👍
#48
Open OverWise board / Trading: A Journey of Hard Wor...
Last post by Henrik Ekenberg - Nov 30, 2024, 10:33 AMTrading: A Journey of Hard Work, Dedication, and Study
Make no mistake: trading is not an easy path. It demands consistent effort, unwavering dedication, and a commitment to lifelong learning. While many are drawn to the idea of quick profits and financial freedom, the reality is that successful trading is a craft—one that requires discipline, focus, and relentless self-improvement. Here's a closer look at why trading is challenging and how you can overcome its difficulties with the right mindset and approach.
1. The Reality of Trading
A Game of Skill, Not Luck
While luck may play a role in isolated trades, consistent success in trading comes from skill. This skill isn't inherent—it must be developed through time, effort, and experience. Markets are dynamic, influenced by countless factors, and navigating them requires more than intuition or gut feelings.
Emotional and Psychological Challenges
Trading is as much a mental game as it is a technical one. Greed, fear, and impatience can cloud judgment, leading to impulsive decisions that undermine even the best strategies. Managing these emotions and staying disciplined is often the hardest part of trading.
A Steep Learning Curve
Mastering trading takes time. Understanding technical analysis, interpreting fundamental data, and recognizing market patterns are just the beginning. The real challenge lies in applying this knowledge consistently in live markets under varying conditions.
2. Why Hard Work Matters
Continuous Learning
Markets evolve. Strategies that worked in the past may not work in the future. Staying ahead requires a commitment to learning—studying charts, refining techniques, and keeping up with economic trends.
Example: Successful traders like Paul Tudor Jones and Mark Minervini constantly analyze past trades, tweak their strategies, and adapt to changing market conditions. They understand that trading success isn't static; it's an ongoing process.
Building a Routine
Consistent results require consistent effort. This means developing a routine that includes pre-market preparation, detailed trade planning, and post-trade reviews. Without hard work, even the most promising strategies can falter due to poor execution.
3. The Role of Dedication
Resilience in the Face of Losses
Every trader experiences losses. What separates successful traders from the rest is their ability to learn from these setbacks and keep moving forward. Dedication means not giving up after a string of losses but using them as stepping stones toward improvement.
Example: Jesse Livermore, one of history's most famous traders, faced multiple bankruptcies but remained dedicated to his craft, eventually making legendary comebacks.
Time Commitment
Dedication means putting in the hours. Whether it's analyzing market data, reading trading books, or practicing strategies on a demo account, time spent sharpening your skills pays off in the long run.
4. The Importance of Study
Mastering the Basics
Before diving into live trading, it's essential to understand the fundamentals:
Learning from the Best
Read books, attend webinars, and follow the teachings of successful traders. Study their strategies, mistakes, and lessons to accelerate your learning curve.
Recommended Resources:
Analyzing Your Trades
Your trade history is one of the most valuable learning tools. Keep a journal detailing:
5. Overcoming the Challenges
Discipline Over Impulse
Stick to your trading plan. Avoid chasing trades or deviating from your strategy due to emotions. Discipline is the backbone of long-term success.
Focus on Risk, Not Rewards
Professional traders prioritize protecting their capital over chasing profits. By managing risk effectively, you ensure that no single loss wipes out your account.
Celebrate Small Wins
Progress in trading is incremental. Celebrate the small victories—whether it's a profitable trade, adhering to your rules, or learning from a mistake. These steps build the foundation for larger successes.
6. Final Thoughts: Trading is a Craft
Trading is not a get-rich-quick scheme—it's a craft that requires mastery. The journey is challenging, but for those willing to put in the hard work, dedication, and study, it can be immensely rewarding.
Approach trading with humility, respect the markets, and commit to self-improvement. As the saying goes, "The harder you work, the luckier you get." Trading is no exception. The path is tough, but the rewards are there for those who persevere.
Make no mistake: trading is not an easy path. It demands consistent effort, unwavering dedication, and a commitment to lifelong learning. While many are drawn to the idea of quick profits and financial freedom, the reality is that successful trading is a craft—one that requires discipline, focus, and relentless self-improvement. Here's a closer look at why trading is challenging and how you can overcome its difficulties with the right mindset and approach.
1. The Reality of Trading
A Game of Skill, Not Luck
While luck may play a role in isolated trades, consistent success in trading comes from skill. This skill isn't inherent—it must be developed through time, effort, and experience. Markets are dynamic, influenced by countless factors, and navigating them requires more than intuition or gut feelings.
Emotional and Psychological Challenges
Trading is as much a mental game as it is a technical one. Greed, fear, and impatience can cloud judgment, leading to impulsive decisions that undermine even the best strategies. Managing these emotions and staying disciplined is often the hardest part of trading.
A Steep Learning Curve
Mastering trading takes time. Understanding technical analysis, interpreting fundamental data, and recognizing market patterns are just the beginning. The real challenge lies in applying this knowledge consistently in live markets under varying conditions.
2. Why Hard Work Matters
Continuous Learning
Markets evolve. Strategies that worked in the past may not work in the future. Staying ahead requires a commitment to learning—studying charts, refining techniques, and keeping up with economic trends.
Example: Successful traders like Paul Tudor Jones and Mark Minervini constantly analyze past trades, tweak their strategies, and adapt to changing market conditions. They understand that trading success isn't static; it's an ongoing process.
Building a Routine
Consistent results require consistent effort. This means developing a routine that includes pre-market preparation, detailed trade planning, and post-trade reviews. Without hard work, even the most promising strategies can falter due to poor execution.
3. The Role of Dedication
Resilience in the Face of Losses
Every trader experiences losses. What separates successful traders from the rest is their ability to learn from these setbacks and keep moving forward. Dedication means not giving up after a string of losses but using them as stepping stones toward improvement.
Example: Jesse Livermore, one of history's most famous traders, faced multiple bankruptcies but remained dedicated to his craft, eventually making legendary comebacks.
Time Commitment
Dedication means putting in the hours. Whether it's analyzing market data, reading trading books, or practicing strategies on a demo account, time spent sharpening your skills pays off in the long run.
4. The Importance of Study
Mastering the Basics
Before diving into live trading, it's essential to understand the fundamentals:
- Technical Analysis: Learn how to read charts, recognize patterns, and use indicators like moving averages and RSI.
- Risk Management: Understand position sizing, stop-loss placement, and how to protect your capital.
- Market Psychology: Study how market participants behave during bullish, bearish, and volatile conditions.
Learning from the Best
Read books, attend webinars, and follow the teachings of successful traders. Study their strategies, mistakes, and lessons to accelerate your learning curve.
Recommended Resources:
- "Trade Like a Stock Market Wizard" by Mark Minervini
- "Reminiscences of a Stock Operator" by Edwin Lefèvre
- "Market Wizards" by Jack D. Schwager
Analyzing Your Trades
Your trade history is one of the most valuable learning tools. Keep a journal detailing:
- Your reasoning for entering a trade
- The setup, entry, and exit points
- What went right or wrong
5. Overcoming the Challenges
Discipline Over Impulse
Stick to your trading plan. Avoid chasing trades or deviating from your strategy due to emotions. Discipline is the backbone of long-term success.
Focus on Risk, Not Rewards
Professional traders prioritize protecting their capital over chasing profits. By managing risk effectively, you ensure that no single loss wipes out your account.
Celebrate Small Wins
Progress in trading is incremental. Celebrate the small victories—whether it's a profitable trade, adhering to your rules, or learning from a mistake. These steps build the foundation for larger successes.
6. Final Thoughts: Trading is a Craft
Trading is not a get-rich-quick scheme—it's a craft that requires mastery. The journey is challenging, but for those willing to put in the hard work, dedication, and study, it can be immensely rewarding.
Approach trading with humility, respect the markets, and commit to self-improvement. As the saying goes, "The harder you work, the luckier you get." Trading is no exception. The path is tough, but the rewards are there for those who persevere.
#49
Open OverWise board / Canslim - MindMap -
Last post by Henrik Ekenberg - Nov 24, 2024, 01:43 PMCanslim in image
#50
Open OverWise board / How to Become Rich According t...
Last post by Henrik Ekenberg - Nov 11, 2024, 06:21 AMHow to Become Rich According to Mark Minervini
Mark Minervini, a highly successful trader, has developed a philosophy on wealth-building that extends beyond trading. His approach emphasizes a disciplined, long-term commitment to excellence, knowledge, and strategic financial management. Here's a breakdown of Minervini's advice for those seeking to build wealth and achieve financial independence.
1. Go Where the Money Is
Minervini chose Wall Street for its limitless earning potential. His key takeaway is to pursue a career or field that aligns with your financial goals and offers ample growth opportunities, such as finance, technology, or real estate.
Example in Practice:
In the 2000s, Minervini focused on high-growth tech stocks, aligning with the booming technology industry. By working in a field that offered high returns, he capitalized on massive gains, which would have been harder to achieve in a low-growth field.
2. Focus on Being the Best, Not on Money
Minervini emphasizes striving for excellence rather than obsessing over income. When you concentrate on mastering your craft, financial success often follows naturally as a by-product of your skill.
Example in Practice:
Steve Jobs, co-founder of Apple, exemplified this approach by focusing on creating innovative, high-quality products rather than solely on profit.
3. The Path to Wealth: Knowledge, Experience, Skill, Money
Minervini advocates a step-by-step path: Acquire Knowledge, Gain Experience, Develop Skill, and then Earn Money. Financial success follows once you achieve a high level of expertise.
Example in Practice:
In the early 1990s, Minervini dedicated years to studying market patterns and refining his trading strategy, eventually developing the skill to capitalize on his insights.
4. Think in Decades, Not Years
Minervini advises thinking in terms of decades instead of years. Wealth-building requires patience, as people tend to overestimate short-term achievements but underestimate the power of sustained effort over time.
Example in Practice:
Warren Buffett became one of the world's wealthiest individuals through decades of investing, benefiting from compounding gains over time.
5. Leverage Yourself
Expand your reach beyond your immediate capabilities. Minervini recommends using platforms like social media, blogs, and books to reach a broader audience, opening up additional income streams.
Example in Practice:
In 2013, Minervini published his book Trade Like a Stock Market Wizard, expanding his income opportunities through speaking engagements, courses, and coaching.
6. Live Modestly Until You're Financially Secure
Minervini emphasizes living below your means until you achieve financial security. Keeping expenses low allows you to reinvest earnings and accelerate wealth accumulation.
Example in Practice:
Early in his career, Minervini reinvested his profits instead of splurging on luxuries, which helped him build his capital base faster.
7. The 10% Rule for Depreciable Assets
Minervini limits spending on depreciable assets, like cars and luxury goods, to no more than 10% of his net worth. This discipline focuses spending on appreciating assets that build wealth.
Example in Practice:
Instead of buying a luxury car early on, Minervini invested in appreciating assets, directing more capital toward his investments.
8. Only Lend What You're Willing to Give Away
To avoid conflicts with friends and family over unpaid debts, Minervini's rule is to only lend what you're comfortable considering a gift.
Example in Practice:
Minervini once lent an amount he was comfortable considering a gift to a friend, preventing tension when repayment took longer than expected.
9. Always Seek Favorable Odds in Business and Investments
Minervini's investment philosophy centers on finding opportunities with favorable risk-to-reward ratios, maximizing potential returns while minimizing risks.
Example in Practice:
In 2018, Minervini achieved significant returns by focusing on stocks with favorable risk-to-reward setups.
10. Treat Savings as Untouchable
Minervini treats his savings as "at zero," meaning they're untouchable except in emergencies. This discipline preserves capital for long-term goals.
Example in Practice:
When faced with unexpected expenses, Minervini avoided dipping into his savings, preserving a financial cushion.
Final Thoughts: Discipline, Patience, and Strategic Thinking
Mark Minervini's wealth-building philosophy is rooted in discipline, patience, and strategic financial management. By focusing on self-improvement, pursuing excellence, and maintaining strict financial discipline, you set yourself on a path toward financial success. Minervini's principles show that wealth is the result of sustained effort, strategic thinking, and a long-term commitment to your goals. With discipline, patience, and a commitment to excellence, you can apply Minervini's approach to build wealth and achieve financial independence.
Mark Minervini, a highly successful trader, has developed a philosophy on wealth-building that extends beyond trading. His approach emphasizes a disciplined, long-term commitment to excellence, knowledge, and strategic financial management. Here's a breakdown of Minervini's advice for those seeking to build wealth and achieve financial independence.
1. Go Where the Money Is
Minervini chose Wall Street for its limitless earning potential. His key takeaway is to pursue a career or field that aligns with your financial goals and offers ample growth opportunities, such as finance, technology, or real estate.
Example in Practice:
In the 2000s, Minervini focused on high-growth tech stocks, aligning with the booming technology industry. By working in a field that offered high returns, he capitalized on massive gains, which would have been harder to achieve in a low-growth field.
2. Focus on Being the Best, Not on Money
Minervini emphasizes striving for excellence rather than obsessing over income. When you concentrate on mastering your craft, financial success often follows naturally as a by-product of your skill.
Example in Practice:
Steve Jobs, co-founder of Apple, exemplified this approach by focusing on creating innovative, high-quality products rather than solely on profit.
3. The Path to Wealth: Knowledge, Experience, Skill, Money
Minervini advocates a step-by-step path: Acquire Knowledge, Gain Experience, Develop Skill, and then Earn Money. Financial success follows once you achieve a high level of expertise.
Example in Practice:
In the early 1990s, Minervini dedicated years to studying market patterns and refining his trading strategy, eventually developing the skill to capitalize on his insights.
4. Think in Decades, Not Years
Minervini advises thinking in terms of decades instead of years. Wealth-building requires patience, as people tend to overestimate short-term achievements but underestimate the power of sustained effort over time.
Example in Practice:
Warren Buffett became one of the world's wealthiest individuals through decades of investing, benefiting from compounding gains over time.
5. Leverage Yourself
Expand your reach beyond your immediate capabilities. Minervini recommends using platforms like social media, blogs, and books to reach a broader audience, opening up additional income streams.
Example in Practice:
In 2013, Minervini published his book Trade Like a Stock Market Wizard, expanding his income opportunities through speaking engagements, courses, and coaching.
6. Live Modestly Until You're Financially Secure
Minervini emphasizes living below your means until you achieve financial security. Keeping expenses low allows you to reinvest earnings and accelerate wealth accumulation.
Example in Practice:
Early in his career, Minervini reinvested his profits instead of splurging on luxuries, which helped him build his capital base faster.
7. The 10% Rule for Depreciable Assets
Minervini limits spending on depreciable assets, like cars and luxury goods, to no more than 10% of his net worth. This discipline focuses spending on appreciating assets that build wealth.
Example in Practice:
Instead of buying a luxury car early on, Minervini invested in appreciating assets, directing more capital toward his investments.
8. Only Lend What You're Willing to Give Away
To avoid conflicts with friends and family over unpaid debts, Minervini's rule is to only lend what you're comfortable considering a gift.
Example in Practice:
Minervini once lent an amount he was comfortable considering a gift to a friend, preventing tension when repayment took longer than expected.
9. Always Seek Favorable Odds in Business and Investments
Minervini's investment philosophy centers on finding opportunities with favorable risk-to-reward ratios, maximizing potential returns while minimizing risks.
Example in Practice:
In 2018, Minervini achieved significant returns by focusing on stocks with favorable risk-to-reward setups.
10. Treat Savings as Untouchable
Minervini treats his savings as "at zero," meaning they're untouchable except in emergencies. This discipline preserves capital for long-term goals.
Example in Practice:
When faced with unexpected expenses, Minervini avoided dipping into his savings, preserving a financial cushion.
Final Thoughts: Discipline, Patience, and Strategic Thinking
Mark Minervini's wealth-building philosophy is rooted in discipline, patience, and strategic financial management. By focusing on self-improvement, pursuing excellence, and maintaining strict financial discipline, you set yourself on a path toward financial success. Minervini's principles show that wealth is the result of sustained effort, strategic thinking, and a long-term commitment to your goals. With discipline, patience, and a commitment to excellence, you can apply Minervini's approach to build wealth and achieve financial independence.