Sorry for the clickbait subject line but it does succinctly describe my post.
I have been thinking about this subject for a week or so after reading some posts in another forum.
I consider myself an apprentice trader at best although I have been trading for a long time.
My number one reason that most traders fail is: They base their trades on the direction they think (or hope)
the market is going and not on the direction the market is telling them it is going. (Don't fight the trend!)
Interested in others thoughts on the subject.
Buck,
Wonderful topic to start here.
The trend is your friend for position traders for sure.
I think traders fail for tons of different reasons.
Lack of sufficient understanding/information of fundamentals can be one reason for fundamental traders.
Not staying discipled and sticking with a good trading strategy.....Using too much emotion...fear/greed.
Not having a good trading strategy.
Gambling/taking chances based on a desire to be in a market for “the action” instead of the market telling you to be in by triggering buy or sell signals based on a well thought out trading plan.
Like you said....using the emotion HOPE to affect their decisions.....getting married to a position and instead of cutting losses, hanging on and finding reasons to stay in after the price has violated expectations.
One question that a trader should ask every day is= If I did not have this current losing position on, would I put it on right now? If the answer is....heck no, then they should ask themselves, why are they risking even more money?
Sometimes getting out too early.
Some of my best trades were small losses, that would have been huge losses. Some of the worst were small profits that should have been huge profits.
The exit price should not be tied to entry price in most cases. If you are having a drawdown and your objective is for the price to just get back to where you got in, so you can get out there with no loss,then it’s messed up.
Get out when/where the market and your analysis tells you to get out, not based on hoping for a price to scratch the trade.
What do you guys Think?
Decide well before hand what you will do under every circumstance that you can think about....not waiting to see what the circumstances are THEN figuring it out on the fly.
This is actually ok in some cases if you are really tuned in and a huge piece of bullish/bearish news is released and is unable to generate a bullish/bearish price reaction by the market.
You may appreciate that it was already dialed into the price/expected or that....if the market can’t react to news the way it should,it’s time to adjust expectations.
In most markets, its best to have stop losses, especially on large positions.
There’s always the chance for shocking news to hit that results in a move that you never imagined in the wrong direction that results in a devastating loss.
If the market hits your target price, instead of exiting...consider putting in a tight, trailing stop to protect profits and let the market take you out when it goes the other way.
You only risk a small amount with high potential rewards if it keeps going in your favor.
you guys have covered it pretty well. Will say growers get too emotionally attached and do not use stops often enough.....probably would be better off playing it safer and using more options
I have traded nearly half of what is on the markets. Grains, metals, financials, softs, etc. It took me 2 decades to find my niche. A market that I can understand and even predict. And this is a key, in my opinion, that each trader has to evolve to, in order to be successful. Although there are some traders who will feel comfortable in multiple markets.
I do agree with Mike, in that "hope" is a losing position. One of the disciplines that a successful trader has to develop, is to cut losses early. It's not about the money you make, it's about the money you don't lose. Let your winnings run, but cut your losses off early. Take your lumps, and figure out why it was the wrong decision. What fundamentals did you miss? What signals in the market did you miss? Learn from your mistakes. Learn from other's mistakes.
Great comments, I'm sure there's more!
Good replies. Thx.
Something most mentioned, and I would add second on my list, I guess I call "money management".
This something I struggle with. When to cut my losses, when to let winners run, position size, etc.
metmike probably remembers a frequent poster from years ago, Jonah, not sure what his username was, wrote a little ebook on this subject. I dug it out and rereading it. Hopefully relearn something.
buck,
I think that you are referring to SAJ?
I had some wonderful conversations with him here.
SAJ ended up moving to Central America or some place like that I think it was.
One of his big things was options, especially selling options and he was huge into seasonals. Actually it's a wonderful strategy to take advantage of extremely favorable, profitable dynamics when applied consistently, with discipline and using the right protective strategies for the anomalies that can clean the clocks of options sellers, when a pseudo black swan event hits.....or rare spikes that take prices well outside of expected ranges...........that provide big pay days for those long options and can bankrupt unprotected options sellers because their risk is unlimited.
He and local(Mark Kinoff) were close friends. Local and I were friends for several years and he even came to my house in 2002.
local had been a floor trader(bonds I think) for several years and that's why he picked the handle "local".
You remember greenman(who lives in AL). greenman actually contacted me personally, then local to form a trading trio, where we shared our trading secrets and ideas in 2002/2003. Funny thing is that we all just kept doing our own thing and didn't follow the others advice.............which is how it should be if you have a very successful trading strategy.
I ended up having almost weekly phone conversations with greenman during that period shortly after that. One of the smartest people I've every known..........same with local. He also had a business.
One of the things that I learned from greenman(who posts here a few times a year) was the "gap and crap" buying or selling exhaustion pattern that was one of his favorite trading set ups. A market gaps higher or lower............then quickly fills the gap, suggesting it ran out of buyers or sellers. This is mainly good towards the end of a mature move. The trade is to take a position in the opposite direction of the original gap with a tight stop, in anticipation of a move in the opposite direction of the previous trend, since it appears traders pushing that move had run out of steam.....when prices got too high/low after the gap.
Trends higher or lower happen because traders on one side don't care as much about price as they do..........just wanting to get in by hitting bids or offers which forces the market to move in the direction of their aggressive market order. The only way they can stop going higher or lower is when those type of traders(wanting in, no matter what the price is) dry up............then, the market has to reverse to the opposite direction to find enough buyers/sellers based on better prices.............the market must always move to uncover resting orders based on price when one side exceeds the other. A quickly filled gap tells us of a shift in that dynamic to the opposite side.
He wrote a number of ebooks for us all here.
You know what, I just remembered that SAJ was somebody different.
I forget exactly what Jonah's handle was but its in my head............STIMPY! Yes, that's was it.
He was a young guy that may have died from a disease.
After MF Global(Jon Corsine) raided my 6 figure segregated account, on October 31, 2011(I know that date like 9-11-01 is for other people) he suggested that I open with PFG trading, where he was at.
He was right. They had the BEST platforms, prices and service.
So I borrrowed a ton of money and opened a new account there. Then, when the MFG money came back, I put it in that account.
Then, in July 2012, that company went bankrupt because that guy was committing fraud with the customers money. and I lost all that money which was the MFG money +the borrowed money +my profits up to that point that year that I had to pay taxes on.
After that, I had to take a low pay out offer from some firm for my shares of the money that would be returned from the bankruptcy court in the years ahead. I had no choice because I was using that money to pay bills and fund my trading.
I made a small amount of money for a few years after that, then had some horrible trading for numerous years after that and have been a crap trader compared to when I made 6 figures in numerous years.........turning a 2K account into more than a 700K account from 1992 to 2001. I lost some of it for several years but then got back on track in the late 2000's........when Corzine dealt me the big blow. .........and never really recovered.
I kept saying that I just wanted to hit 1 million, then I would pay off most of the mortgage on our 700K house.
Never happened and we still owe most of the money on the mortgage, after refinancing twice.
Oh well, money isn't everything and I still know how to trade and this thread will help me to concentrate on the things that allowed me to be extremely successful.
BTW, I use weather for all my trades.
WxFollower does the exact same thing. We are both skilled at following weather models and applying changes to certain weather sensitive markets..........like natural gas, which trades temperatures based on residential heating and cooling demand that is the main factor for price determination at many times...........especially with extreme heat and cold.
I also trade grains based on weather but he does not.
We both trade cotton, coffee and oj based on weather.
Sugar and cocoa are other markets that can trade on weather as are all the crops because weather determines SUPPLY.
In the energies, weather determines DEMAND.
I've traded cattle based on extreme weather in the S.Plains, where alot of the cattle is being raised.
I remember saj and stimpy now that you remembered
On trading weather.
When I was doing extremely well, the newspaper actually did a couple of stories on me(as a previous tv meteorologist that they were following) so numerous people wanted me to train them to do what I do.
I told them all..............hey, I wouldn't be doing this if I wasn't a meteorologist but I'll be glad to educate you with everything that I know, with my best advise.
So I had 5 people basically that I worked with.
One guy from the gym, had all these great ideas and did paper trading that seemed to have good results. I must have had 100 conversations with the guy and each time, I would ask "well, did you finally open an account and start trading with real money" He just could never do it because of fear. He was afraid to risk money/didn't have the confidence in himself.......even after several years.
Another guy that I coached baseball with would only buy way out of the money, distant call options because he too was afraid to risk money. He basically refused to listen to everything that I told him which was NEVER do this. If I was trading options, I would have SOLD him those options to take his money.
A 3rd lady came to fix/tune out electronic keyboard/grand piano. She was interested just because it sounded like a great way to make a bunch of money real easy. After a couple of discussions with her, she lost interest.
A 4th young lady, I could tell from the beginning just had the totally wrong mentality to trade and I basically told her that. You have to be extremely analytical. If you have trouble objectively analyzing data to use in seeing patterns and set ups and understanding what makes the markets tick(especially if you pick just a couple to specialize in) and projecting that into future price reactions...... then trading is the WRONG place for you.
A 5th guy worked for the post office. His name was Mike too. He new I traded but only wanted to share his trading plans and results with me, not asking for advice. He was a math genius and had figured out his own trading program for short term trades of the S&P using extremely sensitive signals and triggers with algorithms that he explained to me and I understood but his computer had to identify them for mostly day trades.
He was the quintessential example of discipline. When his system said buy or sell, he just did it....like a robot. No emotions.............well not on the decisions for entry or exit but he was lacking the confidence and had too much fear to trade more than 1 contract.
I just kept telling him, Mike, you are the best trader I've ever known(except for me at the time) but you will never make a living at it until you start increasing size.
He had built up his starting equity from 5,000 to 50,000 in less than 2 years(something like that). Around 15 years ago the last couple of times I talked to him, he said he was ready to trade 2 contracts each time instead of 1. Unlike the others, I knew that once he decided, he would just do it, then apply it like a robot/computer into his trading.
That was around 15 years ago and I haven't seen him since. Somebody new replaced him at the one person post office and they told me that he had retired.
Mike was not that old so I knew what his new career was.
Professional trader!
Fighting personal emotions is a big issue for many traders.
I have seen traders move along, doing fine, taking some profits and taking some losses…. and then comes a typical losing position, and they say “maybe tomorrow, it comes back up”. The next day, the loss gets bigger, and they say “I should have gotten out. When it comes back to break-even, I am out”. A few days later: “the loss is too big, I can’t get out now. Maybe on a small rally I take a smaller loss”
I have literally seen traders who stayed into one losing trade, day after day, till it wiped out their account.
Before you take a trade, decide how much you want to risk, and place a stop order.Change that stop only to follow the trade on the upside… don’t change the stop order to accept a larger loss.
****
At the same time, you have to take statistical realities into consideration.
When trade #! loses 50% of your account, then trade #2 needs to double your now reduced account to get back to where you started.
Traders who manage large trading pools, often risk only 1% or 2% of their account on each trade. When trade#1 loses, they still have 98% or 99% of their account, to continue without problems.
Unfortunately, not every trader has an account big enough to use such procedures. Therefore most traders are forced to take larger risks per trade, and this makes success more difficult
****
All this being said, I once had a client who started out with 50K in January, and by September he had taken approximately $1 million in profits out of his account, and his account was still in excess of $1 million
And he didn’t do this by hitting one lucky trade.No, he traded very actively, using many different commodities.
And he did exactly the opposite to what I just wrote above.
He always traded “pedal to the metal”, taking positions as big as what margin requirements allowed him to do And he never used stops (made me, as his broker, very nervous). He had some big losses, on the way up… but they never seemed to bother him.
This shows that there are always exceptions to the rules.
Yep Stimpy was it. Very intelligent trader.
Your mention of greenman and his discussion of order volume made me think of RS. I always thought his thoughts on trade bulk was very informative but I always had trouble understanding it completely and figuring out how to use it in my trading.
Great points Gunter!
Yes, Stimpy was extraordinarily bright. He and local (Mark Kinoff) were close friends for years.
Man, they hated Susan with a passion, mainly local as Stimpy seemed to try to stay out of it most of the time.
Joe K and Susan would go after each other all the time. Susan was the most prolific poster of all time.
There were some days when she would make many dozens of posts and they actually were pretty insightful.
Joe K also posted alot but stated some things that were not always right. He was obsessed with Wyckoff trading principles(he got alot of it from Gary Fullett). Wyckoff has come great stuff but Joe. K was convinced that's all a person needed.
Susan hated Wyckoff with a passion and ran it and him down all the time.
One year, Joe K was really getting carried away, shooting his mouth off and saying weather trading was crap and nobody could do it and totally knocking and being skeptical of all the weather trades that I was posting(back when I was actually posting trades).
I finally got ticked off and challenged him to send Alex his account statement for that year or any year and I would send him my statement for just that year so far and we'll let Alex be the judge of whether weather trading was crap or not.
So he wouldn't do it but I did anyway in June because I was getting ticked off at him.
My statement showed I made 120,000 thru June and Alex confirmed the number right down to the penny. Afterwards, local told me that wasn't the smartest idea in the world to send out a statement, even though I blocked off the account number on it. He and Joe were actually friends too.
And this didn't stop Joe. One time, I got really ticked off at Joe and said something to him on the forum that I felt bad about and realized it was all negative energy being wasted and figured out the best way to handle it.
I asked Alex for his email address and reached out and contacted him, with an invitation to be my friend and shared some personal things with him about me and my trading.
Joe was always doing things to an extreme. And he responded wonderfully as a new friend that changed his tune about weather trading(after he opened his mind) and wanted to also share with me all of his stuff.
He was subscribing to a couple of trading advice services and would send me those updates every day for many months. I found the info interesting and liked reading it but I was trading on my own thoughts.
Turned out that the real Joe K. if he's your friend will go overboard to do everything that you'd expect from a best friend. All you had to do was take the first step to sincerely extend the hand of friendship and he went from being an adversary to a friend because of just one email.
It's amazing how that would also work in so many other adversarial relationships.............if just one person, decided to extend friendship and show love instead of hate. It's natural for somebody to react to an attack by attacking back. It's almost impossible to attack somebody that is showing you love.
Minimizing hate in our lives can also clear our minds of unproductive thoughts and help us to be at peace and focus much better on being in tune with the authentic world and objective truths that define it......... and the markets.
It helps us to be more open minded, which allows things to get into our brains that hate rejects. This is how we learn. Hate requires closed mindedness and subjective judgmental-ism. Recirculating old things that we think that we know already.
Love lets all the good things in and results in good things coming out of us.
Hate it the most damaging emotion of all.
https://patternswizard.com/wyckoff-method/
https://www.wickedlocal.com/article/20150123/news/150127922
Yessir
Stimpy was rather mystical.
He showed mathematically in an ebook of his how cutting losses early allowed one to profit.
Essentially he showed the discipline of keeping your losses at 1/2 of your profits and assuming you've got a 50/50 chance (not quite that simple but good enough for argument) being right, then that equated to over all profit.
I always looked forward to his posts and for some reason believed him to be in poor health also.
I struggle with all thats been said above but Im getting better.
How 'bout that Dave La'Buda too
And wasnt there a Brian Watt nut case too?
And Eddie down in the Keys- I used to call him Eddie Wheat-n-Beans cause thats all he talked about and traded.
'Ole times, eh?
John
Because they are unable to admit that they are wrong.
Thats a great one joj, like what Gunter mentioned.
https://www.warriortrading.com/blog-know-when-to-fold-em-cutting-your-trading-losses/
Good thread here. More comments welcome.
Thanks again for getting it started buck!
A major key to being a good largely fundamentals based trader is to get a good feel for what is largely “dialed-in” to the latest price as that helps for both good entry and exit points. Met Mike is an expert at this like few others imo.
Thanks Larry, excellent point.
WxFollower picked a great name since he's developed tremendous, self taught skills at using his statistics background/natural analytical abilities to apply to meteorology............a field that he can hold his own in compared to any meteorologist.
He treats MarketForum to some of the most incredible, profoundly relevant/insightful analytical posts that you wouldn't get anywhere..........even at a site that charges money for their service!
He and I are weather traders. tjc also trades weather.
Every producer, everywhere also trades weather but its actually not speculative trading. They are always LONG their growing crop or stored crop.
Although it's not a current practice of mine, but does anyone still use stops to get into a market?