We force the market to come into our zone or level before taking a trade. We wait. It is worth it.

Some lessons learned in 2009

I am still managing a couple of opened positions, and unlikely to open any new position next week. So, it is almost time to call it a year. And what a year! This post is not meant to be another “how many thousands of pips I’ve made in 2009′. Who cares?coffee

I am �thinking of writing up a summary of lessons I’ve learned from experience, books or interactions with other traders over the year. You might agree or disagree, again…that’s not my problem. Most of these are quotes from books or articles which I’ve collected. By no means, I am claiming my own.

  1. You have to be able to lose in order to win.
  2. Always be realistic with your monthly target.
  3. It is absolutely OK, and most of time, helpful to shutdown all social networking such as twitter, stocktwits, facebook. Think about it, if your friend is affecting your work, tell him to come back later. Trading is about�concentration, and definitely a personal and lonely business. To be a successful trader, we must walk alone in our days and do it alone.
  4. If you are really seriously addicted to twitter, try to challenge tweets who call trade, instead of following them. Always assume these people on twitter(including me) are wrong. The key is to NEVER FOLLOW A CALL on twitter.
  5. When your position is right, you have to do nothing instead of doing nothing when you are wrong! [constantly taking early profit will do you more harm than good]
  6. You must keep your losses small and take more small losses than small winners to come out ahead. You will become the best trader you can be by being wrong small, not right small.
  7. It is your job to know your are wrong and not the market’s job.
  8. You have to press your winners if you really consider yourself to have the ability to make a living or extra income from trading.
  9. When you place a trade, don’t ever think this is the only trade to make. There are thousands of trades you can make. You aren’t going to miss a move for long if you trade correctly. You aren’t going to chase markets if you trade correctly. You must have a plan to enter positions based on each market’s criteria.
  10. When a market doesn’t go up anymore, somewhere it isn’t correct to stay in the position, regardless of the expectations.
  11. Your trading career should be a long-term expectation on your part. You must look beyond one day in your trading career.
  12. We should concentrate on protecting what we have rather than what we expect to make first.
  13. If you want to win, you’ve got to known the rules; and also, you can’t win if you are not at the table.
  14. Gambling is taking a risk when the odds are against you; Speculating is taking a risk when the odds are in your favor.
  15. In order of importance: Preservation of capital. Consistent profitability. and the pursuit of superior returns.
  16. It is always better off to learn from observed mistakes.
  17. Traders have a choice: Either face the truth of trading or look for the nearest exit.
  18. The best loser is the long term winner

The list can go on to hundreds..I am just quoting the lines I found to be helpful to me over the past year.

On personal note, the most significant event I have observed this year is my active involvement in Twitter. There are times, reading tweets are a pure disturbance. And there are times, gems are found while interacting with some traders. So I’ve learned to shutdown twitter at certain time when I am trading or making decision.

2009 has been an eventful year to me, on both personal life and trading. 2010 is definitely not going to be a dull year, and I am looking forward to another exciting and challenging year.

Here is to a great 2010.

Worth noting

Joe Ross posted a link on twitter with title ‘A simple Idea to improve your trading’. I thought it is a good reminder to all my readers here.  And I certainly agree with the quote below, and being disciplined in trading methodology execution was and is the key of my consistency.

I feel certain that my discipline in executing each and every trade according to my trading methodology is the secret to my success. If you want to improve your trading, what you need to do is very simple. Before you enter any trade, imagine that you will have to explain this trade to a panel of your peers, by explaining to them the reason for your entry, your money, trade, and risk management guidelines, and why you exited the trade. Imagine having to explain why you chose this particular market and this particular time frame, along with how you set objectives for the trade, and how you determined where your initial protection would be. If you can truly do this, I strongly believe that you can be successful.

Quote from Interview with Tom Basso

Here is an important note quoted from Van. Tharp’s Trade Your Way To Financial Freedom, 2nd Edition. Just to note it down here, and hopefully it helps some of the 12 readers.

Given your goals in terms of returns and drawdowns, what kind of initial risk stop do you want? If it’s close, will you be able to get right back into the market so that you will not miss a move?

Stops, in my opinion, should be a violation of the reason why I wanted to get into the trade in the first place. And yes, I always have a way to get back into the trade.

My stop is a function of the market and what it’s doing. It’s only in directly related to risk – unless the risk is too big for me to even take a position. I control risk as part of my position sizing.

Have good trading week ahead.

Rules for Forex Trading

It is time to read some rules again. While working on my Forex trading strategies, I visit forums regularly. There are indeed some brilliant people out there sharing their work and ideas (though there are garbage and nonsense as well). In Forex Factory, user lever70 caught my attention when he/she shared his/her own compilation/e-book freely. The book is called Rules for Forex Trading. I decided to quote the summary of his rules here, since I found it to be useful and interesting. For details, please check out his e-book. Credit goes to lever70.

  • Define your long-term goals
  • Treat trading as a business
  • End every day in profit
  • Every trade must conform to objective criteria
  • Never force a trade
  • There’s nothing wrong with getting out early if you are in profit
  • Always have a profit target for the day
  • Always stick to a small daily profit target
  • Your initial trading stake should be small
  • Do not enter a trade without a profit target
  • Always set a hard stop
  • Do not trade unless you are nearly 100% certain about what will happen
  • Do not trade when signals are mixed
  • Follow your system
  • Don’t lose your head
  • Identify key support and resistance levels
  • Look at longer timeframes for both support and resistance, and for clues regarding future price direction
  • Be aware of peak market times
  • Be careful when trading in the Asian session
  • Don’t trade thin or directionless markets
  • Be careful when trading forex on non-news days
  • If you trade intraday, don’t enter a trade unless you can actively focus on it
  • Avoid reversing trades
  • Stay out of the market near news release time
  • Watch your broker like a hawk
  • Don’t go crazy with leverage
  • Stop trading after two consecutive losses
  • Take profits quicker after a losing streak
  • Don’t gloat over your winners
  • Be wary of chat rooms and online forums
  • Don’t buy systems
  • Stay healthy
  • Don’t give up

Quote from Tony Saliba

Tony Saliba discussed the elements of good trading in Market Wizards: Interviews with Top Traders.

Clear thinking, ability to stay focused, and extreme discipline. Discipline is number one: Take a theory and stick with it. But you also have to be open-minded enough to switch tracks if you feel that your theory has been proven wrong. You have to be able to say, “My method worked for this type of market, but we are not in that type of market anymore.”

He continued to discuss trading rules he lived by

Always respect the marketplace. Never take anything for granted. Do your homework. Recap the day. Figure out what you did right and what you did wrong. That is one part of the homework; the other part is projective. What do I want to happen tomorrow? What happens if the opposite occurs? What happens if nothing happens? Think through all the “what-ifs.” Anticipate and plan, rather than react.