Cut Losses Short

Cut losses short is the sister rule to the let profit run, and is usually just as difficult to implement. In the same way that profitability comes from a few large winning trades, capital preservation comes from avoiding the few large losers that the market will toss your way each year. Setting a maximum loss point before you enter the trade so you know before-hand approximately how much you are risking on this particular position is relatively straightforward. You simply need to have a exit price that says to you this trade is a loser and I will exit before it gets any bigger. Due to gaps at the open, or limit moves in futures we can never be 100%
certain that we can get out with our maximum loss, but simply having the rules, and always sticking to it will save us from the nasty trades that just keep on going and going against our position until we have lost more than many winning trades can make back.

If you have a losing position that is at you maximum loss point, just get out. Do not hope that it will turn around. Given that trades are either winners or losers, and this one is shouting Loser at you, the chances that it will turn around and become a large winner is tiny. Why risk any more money on this losing trade, when you could simply close it out (accept the loss) and move on. This will leave you in a much better place financially and mentally, than holding the position and hoping it will go back your way. Even if it did do this, the mental energy and negative feelings from holding the losing position are not worth it. Always stick to your rules and exit a position if it hits your stop point.

When To Sell A Stock

It’s time to sell a stock when:

1. It reaches its target price—however, be sure to adjust the target price as company fundamentals evolve.

2. It makes you an offer you can’t refuse—such as a sudden price rise on news that may or may not pan out.

3. You realize you made a mistake—even diligent analysis can turn out to be wrong.

4. You find a better relative value elsewhere— a stock trading at a smaller percentage of estimated value provides a better margin of safety than a stock you own that has already risen and is close to its estimated worth.

What do I need to know about Spreads?

A spread refers to the price difference between a nearby (spot) contract month vs. the next closest (or more distant delivery months) in the same commodity. The nearby month of a contract is usually cheaper than the distant month (this is due to the "Cost of Carry" - insurance, storage and interest for distant months and is known as a "discounted" market). Occasionally a market may "invert" and the nearby month will sell for more money than the distant months. This is known as a "premium" market. Commercial buying causes this phenomenon because of an urgent need for the commodity. The "cross" from a normal or "discounted" market (for the nearby or spot month) to an inverted or "premium" market is bullish. Below are some things to keep in mind when evaluating spreads:

1. It is bullish when a premium occurs, but it is very important to look at the relationship of the premium to the market itself. In other words, how is the spread performing with respect to price? You can time your entry into the market by looking for divergence between the spread and market price.

2. A declining market may also have an increasing premium in the spread, which can indicate that a bullish condition may be developing, even though price is declining.

3. If spread premium falters while a market rallies, it can be an indication that the market is nearing a top and is bearish.

Positive Expectancy Systems

If you have a positive expectancy trading system, the only factors that determine how much money you will make per year are the number of trades the system generates, how much capital you allocate to the system, and how accurately you implement the trading signals. If you do not know whether your trading system is positive expectancy then why are you trading it? Expectancy is calculated using the profit or loss on each trade (net of trading implementation
costs) divided by the initial risk (using your stop loss) and then taking the average of this number of a series of trades. Systems that have positive expectancy will make money on average and those with negative expectancy will lose money.

Successful traders only trade systems where the odds of success are in their favor (i.e. the system is positive expectancy) so they know that making money is the result of accurately implementing the system and not just pure luck.

Perfectionism in Trading

There are only a few ways to work to change the habit to a favorable habit to trade successful...
Almost everyone carry over from their life’s knowledge and experience to trading and quickly find out that these don’t work so well in trading. Traits that made these traders in their daily lives successful and respected are little useful. The need to win every trade is a weakness must be addressed.

There are 2 types of perfectionism: one that would work in trading and one that doesn’t. The difference is simple: perfectionism in flawless executing of the rules and trading plans and perfectionism in having all winning trades or perfect record. These two perceptions make important differences in trading. If a perfectionist cannot change, at least he can change in more constructive way to help him succeed.

What is the difference and how does it affect trading? When a trader decides and expects a perfect record in winning trades, this is a setup for failure. Why? Because no trade is perfect and no trade will result in a winner. This is uncertainty and no can predict the next trade will be a winner.

Perfectionist must have complete control and this plays a major conflict with an uncertain outcome of the market. It’s a fact of life. No winningest team ever had a perfect record. Understanding this and accept failure as a process will lead to the second and better part of perfectionism: that is perfecting the execution of entries and exits and in following the rules. Once he has a winning method, it’s only a matter of executing the entry correctly, that is, getting in at the right price and not chasing or not hesitate and let the entry go when the signal is given. Perfect execution also means exiting at the right time and price; not waiting to get one more point due to wanting more or take exit early just to record that profit or not wanting to lose more when the stop has not been touched yet. By deviating from the rules and plans, sloppy execution is sure to follow. Perfectionism requires discipline and for perfectionists, discipline is the major positive attribute to success in trading. So perfectionists in many ways have the right mindset to succeed but he must channel that mindset in a correct way.

There are few ways to work toward channeling the actions properly. Here are a few suggestions:

1) Forget about performance and results numbers (i.e. P/L, Wins vs. Losses). These numbers only blur the plan and increase the anxiety on not losing on next trade. This aggravates the proper mindset to prepare to trade properly. Perfectionists will not execute well and will try to focus on buying low (bargain hunting to win) when the entry is not right.

2) Create the trading plan and write it into details to avoid ambiguity. This helps prevent loosely interpreted actions and end with too much leeway and perfect execution won’t be successful.

3) Focus on the charts and work toward identifying and preparing the entry and exits. Having these numbers in mind will keep the focus on the executing at the right prices.

4) Focus on the Risk:Reward ratio in mind. Having this ratio will keep the execution precise because any miscue will change the ratio in negative way. If the ratio is set, chances of the making the perfect entry and exits are higher.

5) Be picky with trades. Perfectionists love the trade to go right. Waiting for the right setup to come will reinforce good habits: perfect plan and execution.

These are only a few ways to work to change the habit to a favorable habit to trade successful. Exercise it with vigor and the payoff will be seen almost immediately.

Process and Outcome

Individual decision can be badly thought through, and yet be successful, or exceedingly well throught through, but be unsuccessful, because the recognized possibility of failure in fact occur. But over time, more thoughtful decision-making will lead to better results, and more thoughtful decision making can be enouraged decisions on how well they were made rather than on outcome.---Robert Rubin, Harvard Commumencement Address, 2001.

Entries, Exits, Emotions and Trading Profitably

By: Brian McAboy

Entries & exits, emotions and making money.

Do you have difficulty or challenges with any of these?

It's understandable if you do. These are the most common challenges for traders, and the most burning questions that are brought up on a very regular basis. I know exactly how you feel. The frustration of knowing that you're smart enough to make it work, yet losing money or just breaking even really is nerve-racking.

Seeing your money disappear with trades where the market moves against you and you hang on to it, hoping that it will turn around, then having it turn into a sizable loss is just gut-wrenching.

Even worse is when you miss out on one that you pick right or either act too late or hang on to it too long and watch your profits vaporize.

Then the confusion sets in. You get gun-shy about even entering trades and your confidence is circling the drain. It's a downward spiral that is totally opposite of what you expected when you got into trading.

There is hope, though.

You are definitely smart enough, and have what it takes. I know that because you would never have been in a position to even consider trading if you hadn't already proved it.

You're experiencing challenges with the entries and exits, emotions and making money because those challenges are the result of what happened when you first started trading. Nobody told you about it because they didn't know.

What happened is a series of events that seem perfectly normal and logical, on the surface. But when you look deeper, you see that these events actually set people up to do things that they wouldn't do otherwise.

Like jump into a treacherous endeavor unaware of what they're in for and unprepared to deal with the traps and pitfalls that await them.

Like putting substantial sums of money at high risk, without properly planning the trades out and having an exit strategy fully in place.

Like I said, I know how you feel. I've been there and felt the anguish of watching my money disappear in trading. Like you, I got lured into trading naive of what really happens and what it takes to truly trade profitably.

Fortunately, after considerable research and reflection, I was able to see the forest for the trees and discover the truth of what happens and why so many smart people don't make money trading.

When I first made the discovery and thought on the matter, it almost sounded like a mental and emotional trap that would be part of a conspiracy, although it could never be proved.

It sure does seem like a lot of good people get sucked into trading and their money taken by a very small few.

If you're considering trading or if you've already begun and you're finding difficulty, then you'd better get your guard up and think twice before continuing.

You have real money at stake, and the odds are more against you than you realize. You can turns those odds around, if you can get out of the "get rich quick" frame of mind and take a more realistic look at trading, with some good guidance from someone who's already been down that road.

Fibonacci - Who Was He And How Could He Improve My Stock Trading Profits?

By: Chris Towland

[Word Count: 612 words] [Viewed: 129 time(s)] [Don't forget to rate this article]


The word Fibonacci means a lot of things to a lot of different people. For mathematicians, Fibonacci is an important number sequence. For some painters, sculptors, and other visual artists, Fibonacci is a principle theory of the arts. For traders, businessmen, economists and the like, Fibonacci is a system that can efficiently predict market trends. Yet, for most of us, Fibonacci sounds incredibly complex and something that we'd rather not discover. But what exactly is Fibonacci? What does it mean and for what is it used?

Fibonacci, which means son of Bonacci, is actually a nickname used by the famous Italian mathematician and businessman Leonardo Pisano. Bonacci, on the other hand, is the nickname of his father and it means 'good natured' or 'simple'. While Fibonacci was born in Italy, he spent most of his childhood years in Bugia (now Bejaia), a Mediterranean port in Algeria where his father, Guilielmo, worked as a consul for the merchants of Pisa. It is in Bugia where he learned the Arabic numeral system, and later as he traversed the rest of the Mediterranean world, he learned more of the Arabic mathematical system and its practical uses.

In 1200, Fibonacci ended his travels and returned to Europe. There he wrote a number of books that disclosed the mathematical skills he had learned in his Mediterranean travels. Among his works that were published are the Practica Geometriae, Flos, Liber quadratorum, Di minor guisa, and his commentary on Book X of Euclid's Elements; the last two mentioned, unfortunately, are already lost. His Liber quadratorum, or Book of Squares, is probably his most magnificent book, but it was not his most popular work. His most popular work was rather the Liber Abaci, his first book that was written in 1202 where he introduced to the Europeans the Arabic numerical and mathematical system. In this book, he also taught the Europeans how to use such mathematical system in accounting and in trading. Most importantly, it is in the Liber Abaci where he introduced the Fibonacci numbers and sequence for which he is best remembered today.

The Fibonacci numbers, or sequence, was first used in Liber Abaci as a solution to a problem regarding the ideal population of rabbits. It is a recursive number sequence that starts with 0 and 1, and the succeeding numbers being the sum of the two numbers preceding it. This number sequence efficiently predicted the ideal growth of the population of rabbits. Later, mathematicians and scientist discovered that the Fibonacci number sequence has a lot of other uses aside from just predicting the population growth of rabbits. They have discovered that the Fibonacci sequence, in fact, occurs in many various patterns of nature.

What started out as a way of counting rabbits has now found a large number of other uses and applications. And as our present day scholars continue to study about the Fibonacci sequence, more and more uses for it continue to be discovered. Today, there are a variety of applications where the Fibonacci sequence, and its derivatives, are being used. It has found use in many computer programs. A ratio derived from the Fibonacci sequence, called the Golden Mean, has been considered by ancient Greeks to be the ideal aesthetic ratio and is now being widely used by many visual artists in their works. The Fibonacci trading system, which is an efficient way of predicting future trends in the world financial markets, has also become popular to expert traders and aspiring traders as well.

Who in the past might have known that such a simple number sequence like the Fibonacci numbers would have a great impact on a lot of things today? Maybe, not even Fibonacci himself.


About the Author:

To learn more about how you can use Fibonacci to accurately predict major stock market turning points, visit Fibonacci Trading at http://www.fibonacci-trading.com

More Trading Hints and Tips

By Christopher Strudwick

1. OPPORTUNITY. There are dozens of these every day, unfortunately you can’t buy them all, so only pick the top 10 and then narrow them down to 2 to 3.
This is done by using your buying criteria which is part of your trading plan which you already have written down. (Hopefully you have one?)
2. BUYING and SELLING. I have a pre planned strategy which I have developed by trial and error; this was achieved by learning by my trading mistakes and the mistakes of others.
3. PATIENCE.This is definitely a virtue worth developing. Sometimes the market is going up in the right direction, but is not going as fast upwards as you would like.
Be patient and use a “stop loss” to lock in those profits. However small they may be.
Also don’t always be in a hurry to “buy that next share” just because you have that money burning a hole in your pocket.
Do your homework and then you have chosen the right share for the right reasons and not just because it looked good
4. STRESS.If it is hurting! Don’t do it, cut your losses or be content with a small profit and get out.
5. THINK and PLAN AHEAD. After I have bought a stock and once it has been cleared. I immediately put a sell order in at the price/ percentage that I had previously worked out using my trading plan.
This trading plan is not set in concrete as it is revised usually on a monthly basis. And always be prepared to improve on it where necessary.
Depending on the volume and the stock’s volatility I occasionally vary my profit margin upwards. If I do this, I always keep a watchful eye on its movement and put in a stop loss to lock in those precious profits.
6.HOPE.This has no place in a trader’s plan, as Hope leads to procrastination (putting thing off).And this will lead to losses which you can ill afford.
7. WORRYING. The same thing applies as above; if you are worrying about a stock then it is time to sell it.
8. FUN. You should enjoy trading for if isn’t fun then it’s time to put your money into managed funds and quit trading.
9. RESPONSIBILITY. Take responsibility for your trading mistakes and learn from them. No one else made you buy that stock.
10. CONFIDENCE.Have faith in your abilities. At all times be a “Student” for you never know it all. And the minute you become complacent, something nasty comes along to bring you back to earth with a thump. I hope these tips will give you some assistance in finding you profitable shares and improves your trading skills.

Day Trading Systems - Why You Will NEVER Win Day Trading

By Sacha Tarkovsky Platinum

Not a day goes by without me seeing yet another day trading system with claims that it can make me huge gains. I normally for fun ask for the real track record and of course don’t receive one. Fact is day trading systems will lose you money as by their very nature they can’t work here’s why.
Firstly
If you are ever considering buying a day trading system ask for the real time track record over the long term ( this means 2 years + ) don’t accept a hypothetical track record! Let’s see we know the prices in hindsight can we make a profit?
Of course we can! Anyone can win with a hypothetical track record, they're worthless, so ask for the real time record and you won’t get one here’s why.
1. Short term moves are random
The currency markets trade trillions of dollars per day and short term moves within any daily period are random. You could flip a coin or use a day trading system your odds of winning are the same.
2. Volatility
Is random in short time frames and prices can simply go anywhere. As most day trading systems bang on about keeping losses small, stops are normally taken out creating a loss. Furthermore, your chances of losing are greater as the odds of being taken out are high.
3. Day trading systems never run profits
A day trading system keep your losses small (albeit you have massive odds of being stopped out) but they never seem to do the other essential of making money in FOREX and that’s run profits. Day trading systems normally have short term profit targets and are grateful for any profit they can get.
So what do you have? Lots of small losses and no real profits to make up for them. This means you get wiped out and normally wiped out quickly.
The Myth and The Reality
The myth is that day trading systems make money, the reality is day trading is one of the best ways to not only lose your equity, but lose it quickly. People day trade because they are greedy or simply fools. When I read a lot of the sales blurb of day trading systems its obvious these vendors have never traded, they make their money selling courses.
They make money from book sales not from trading, so they win you lose. Saw one promising me 90% successful trades for a few hundred dollars. Well if I had one of those, would be making millions and certainly wouldn’t sell it I would be to busy enjoying my riches.
Finally
If you want to trade currency markets you can make money, but be realistic and sensible and make sure that you don’t fall for the hype of day trading systems.
If you do get ready to lose your equity and lose it quickly.

Trading With Discipline Key To Market Timing Success

By Frank Kollar Platinum Quality Author

It is not enough to have a successful market timing strategy if that strategy is not traded with discipline. It is also not enough to trade with discipline if you are overly aggressive with those funds allocated to market timing, and cannot handle the resulting volatility.

Many market timers think that the more they trade, the better they will do. But in reality, market timers do not need to trade aggressively to do well. There are four critical issues market timers must deal with; strategy, discipline, money management and diversification.

Market Timers Must Have An Edge

At FibTimer, our "edge" is trend trading. We know that the financial markets are usually in a trend, either up or down. In fact, our research, going back many years, tells us they are in trends over 80% of the time.

This knowledge is our edge. We know there are times that the markets are not trending, but that these times do not last long. We keep our losses small during non-trending markets using disciplined risk management. And, by trading every trend that occurs, we know absolutely that we will "never" miss a trend.

With the markets trending 80% of the time, we are profitable 80% of the time. This does not mean we are profitable on 80% of our trades. It means that because 80% of the time the markets are trending, and because we trade all trends, we will be making money in those trends.

By limiting losses, and allowing profits to ride, we use our edge to time the markets with great success.

Disciplined Execution

Once you have an edge, you have to be able to execute. Some common trading errors; not taking trades until you see if they are profitable, or jumping the gun and taking trades ahead of time because you "think" a signal will be issued soon, can be a disaster to your profitability.

By not sticking to a plan, you allow emotions to rule your finances, and that places you right in with the majority of investors. Those who are the cause of the market's volatility.

The "herd" followers.

At FibTimer, all of our strategies are non-discretionary. Emotions are not allowed. Our strategies offer disciplined execution of non-emotional buy and sell signals.

The reason for following any timing strategy is to remove yourself from making emotional trades. To remove yourself from the herd, which is often headed in the wrong direction. Towards the nearest cliff.

If you are concerned that following a disciplined non-discretionary timing strategy can result in small losses at times, just try trading the markets using your instincts. The deadly results of emotional trading are usually evident quickly.

A second reason for following a non-discretionary timing strategy is, it gets you out of losing buy and sell signals fast while limiting draw downs. You are not subject to the emotional pitfalls of trading, such as holding onto a trade in hopes it will come back to profitability, then finally making a panic exit after taking a large loss.

The disciplined execution of a timing strategy avoids all of these pitfalls. You just follow the buy and sell signals with the absolute assurance that your losses will be limited and you will never miss a trend. Over any fair time frame, you will beat the markets.

Diversification... Not Just A Word

Many times impulses are difficult to control because of emotional states.

Overly aggressive investment allocations can ruin even a good timing strategy with excessive drawdowns, while overly conservative allocations of capital will not optimize your total returns.

If you are a conservative investor who wishes to use market timing to protect against losses in a bear markets, do NOT invest 100% of your funds in an aggressive bull and bear strategy that you are not prepared for. Yes, they make a great deal of money over time, but aggressive timing strategies do have more frequent buy and sell signals, and more frequent small losses.

If, as a conservative investor you are unable to handle those losses, you are likely to exit the trade, thus locking the losses in at just the wrong time!

Stick to strategies that fit your emotions. Market timers should know themselves and use timing strategies that they will be able to stick with over long time frames. Patience is the market timing key to success!

Even aggressive market timers should not time 100% of their funds in a single aggressive strategy. Diversification is not just a word, it is a prerequisite to having a successful timing strategy.

At Fibtimer, we rarely invest more than 20-30% of our own funds in bull and bear strategies. The rest is diversified in sector funds (Sector Timer), a small percentage in the Gold Timer, Bond Timer and Smallcap Timer.

Using at least some diversification takes the stress out of investing, and makes it much easier to follow buy and sell signals with discipline.

Conclusion

At FibTimer, we never question buy and sell signals and follow them faithfully. Over the years, our disciplined approach has resulted in excellent gains, year after year. We hope that we can instill this disciplined trading into all of our subscribers.

It does not take blind faith. What it takes is a realization that our own emotions and instincts are usually wrong, and that a non-discretionary timing strategy that trades all trends and limits losses in non-trending periods, is the most successful approach to profiting in the stock market.

Once you realize this, you will relax and allow the strategies to successfully grow your investments as they are designed to do.