The Disciplines Required To Become a Successful Share Trader.
The Disciplines Required To Become a Successful Share Trader.
The average person who begins trading in the share market often has little idea or knowledge as to what is required to become a profitable successful share trader.Due to this lack of knowledge they have unreal expectations of how much money can be made or lost depending which way the share market is currently heading.
Invariably they join in when the share market is in the middle of a bull run. (A Rising market.) They are spurred on by the media hype of rising share prices, the rumours of takeovers and rising company profits.
They experience early success and knowing no better assume that money is easily made. They are not prepared for the sudden downturn in the share market which inevitably happens. Only to see their profits suddenly evaporate and become large losses. Some become disillusioned and leave the share market never to return. While others hang on hoping for a return to the good times to return which sometimes can take moths and in some cases years.
The disciplined share trader realises that losses are perennial and are part and parcel of the behaviour of the stock market and have learnt, sometimes by bitter experience, to take the necessary steps to keep their losses to an acceptable level.
One of the first disciplines they have learned is patience. Because they have experienced first hand that impatience invariably loses them money, either in paying too much for a stock or a loss in profit because they sold too early.
They have learnt the difference between being a "day trader'' and other types of investors. They have found which sort of time factor suits their own personal trading pattern whether it is short or medium trading or when it is necessary to take a longer time frame. The patient trader realises that "Time" can be his friend or his worst enemy depending on the type of trade they have decided upon.
The second discipline is the setting up of a "Trading Plan" then once it is completed they stick to it religiously. The factors involved in their trading plan comprise of knowing in advance the amount they have to invest, the time frame involved and the amount they are prepared to lose if things do not go accordingly to plan.
They always employ stop losses (conditional orders) to either lock in their profits and to minimise any losses that might occur.
The percentage profit they expect to make is also worked out prior to the purchase of the stock.
They have already established a preset criterion of guidelines which their future prospect must pass before they will invest their time and money in them. These criteria will vary depending on what the guidelines the trader deems as important.
They have a ready made list of prospects usually around the 20 to 30 in number. This is updated regularly as names will always be deleted as they become unacceptable trades as they do not meet the preset criteria already formulated in their trading plan.
The disciplined trader realises that if nothing meets their criteria then it is not imperative to trade and they will patiently wait until an acceptable prospect shows itself before entering the market again.
They have the discipline of doing their own research and not relying on others for this. They invariably do "Fundamental Analysis" first then followed by ""Technical Analysis" if further research is needed.
Once the choice is made and the preset criteria's have been met then and only then will the trader enter the market.
Even though the choice of stock has been made the disciplined trader still will not buy if the price has risen above the price they wanted to pay. They have learned the folly of chasing prices only to see a reduction occur in the next couple of days.
Again they have learnt when to exit a trade once their preset exit price has been achieved. Even though the share price looks like that it might go higher yet. From past experience they have learnt not to be too greedy.
One of the most important disciplines is that they have realised that they "Don't Know it all!) And they have become aware of the importance of learning from their own mistakes and learning from the experiences of others.They have developed the mindset of always being on the lookout out for ways to improve their trading performance.
The disciplined trader has a definite edge over the average trader as they have become aware of the devastating effects of "Fear and Greed" and in doing so have guaranteed themselves a better than average chance of being successful and surviving the many traps and pitfalls that await the unwary trader.
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Humility's Role in Trading Success
Winning big feels great. In fact, isn't that the entire reason why you wanted to get into day trading to begin with? You figured that winning big, which is both a financial and emotional award, was the pinnacle of your success. We certainly don't engage in day trading to lose big on a regular basis. Your first big profit will probably be celebrated with a toast and perhaps even a private family celebration. This is fairly common and completely natural to celebrate the hard work, dedication, and the eventual pay off that can follow.
When you experience winning, especially when you start to experience a string of strong profits or you experience a very large profit, the emotional reaction can be just as defeating as a negative emotional reaction to large losses. If losing money is just educational feedback, then would it not stand to reason that large profits are the very same? I am not discouraging you from celebrating your achievement. I also encourage you to celebrate your losses as a fantastic education. When we feel as though our profit is the only cause for celebration, we also tend to allow that emotional high to get in the way of making strong and healthy decisions.
Let's say you experience your first seven day profit streak. On day eight, notice how you're feeling. Have you found a higher level of self confidence? Do you feel like you're really on top of your game? Are you experiencing a feeling of being totally kissed by Lady Luck and that you can push your personal envelope just a little further than usual?
These feelings have the potential to lead to careless investing. When you are too emotionally low you are bound to make serious mistakes based solely on your emotional presence. The same applies to emotional highs. When you are emotionally high, there is usually an element of self belief that borders on a feeling of invincibility. Of course, believing, even just a little bit in the very back of your conscious mind, that you are invincible will inevitably lead to a serious loss.
Tailoring our negative emotions is something that we are all told to do from a young age. Tailoring our positive emotions is something that might seem really foreign to some of us. It isn't that the emotion is a bad thing. It is how we allow the emotion to affect our ability to make clear and informed decisions. When we trade emotionally, we are setting ourselves up for loss. In many cases, humility is the key to having our emotions but trading with a clear and rational head. Humility helps us to hang on to the understanding that in the trading world, there are profits, there are losses, and there are break evens. And each one is absolutely going to happen to you many times over.
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How to Trade Gaps.
How to Trade Gaps
GAP TRADING is usually done over a two to three day's trading duration.
I am usually buying in at around mid-point of the first day's trading. I usually sell at around the mid-point of the second day, occasionally in the third day of trading.
The "Selection Criteria" that I use for Gap Trading is:-
1. Volume. There must be good volume on the buying side. Volume is more important the day before the gap; it must not be last week's volume
2. Price pattern.
3. Trend pattern. There must be a definite trend line straight upwards.
(Peaks and troughs which are higher than the ones the days before.)
4. Multiple moving averages.
5. More buyers than sellers.
6. A reasonable spread between the "Bid" and "Ask".
7. Concerning entry price. I select the best stock with the most leverage available.
8.The Peaks and Troughs have to higher than the previous ones for at least the last three days
To let things stabilize and settle down, I check the selected stock at around 40 to 50 minutes after the opening of trading prior to buying in.
A lower share price now means more opportunity for a substantial price rise today and tomorrow. This also obviously increases the profit for the trade.
A higher risk applies to these trades as well.
IF my reselected profit level is reached quickly on the first day, I then have the option of selling today or putting in a stop loss
(Conditional Order.) at that level to lock in the profits and let it ride into the second day's trading. This choice is yours.
Very rarely am I in for three days as the share price invariably recedes in these "gaps".
Price gaps usually happen when the trading public realizes (wake up) that a price shock has occurred.
A tip here "Chasing gaps is a great way to throw away money."
A gap occurs when today's open share price is higher than yesterday's closing high, this confirms a surge in buying activity.
And also the opposite happens when the open share price is lower than yesterday's low price. This of course confirms a surge in selling activity.
The bigger the gap the stronger the buying/selling pressure. Gaps are very significant in stocks with a steady volume of sales.
The price gap remains "Bullish" if these two conditions are met.
1. The opening price is higher than the high price of the previous day and continues to climb above the open price.
2. The share price does not fall below yesterdays low share price.
Of course if the opposite is happening (bearish) then the share price is obviously declining.
Classic gap activity shows a dramatic change in investor sentiment. Stocks with a high number of trades confirm a "Crowd" has gathered and herd action is developing.Which of course is to your advantage.
Gaps indicate significant changes in stock valuations. Either up or down.
Gaps also show overnight and in weekend volatility.
Be aware that these gaps always appear after the first 30 minutes in trading.
Personally I am always interested in gaps of more than 3%. These typical rallies usually last only at most 3 to 5 days maximum.
Another tip, "A failed gap on or around day 4 invariably signals it is time to take your profits and run.
All of the above information will help you to better understand how important gaps can be in your daily profitable share trading.
Happy Trading.
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Import Letter of Credit.
Import Letters of Credit provide importers the most widely used and accepted international trade payment mechanism and finance instrument. By structuring Letter of Credit terms to allow Deferred Payment or Trade Acceptance a Letter of Credit can be utilized to provide financing to the importer. It guarantees payment, provided the seller complies with the terms and conditions within the Letter of Credit. An irrevocable letter of credit cannot be canceled or varied without the consent of all parties. A bank issue an import letter of credit on the behalf of an importer or buyer under the following Circumstances a) When a importer is importing goods within its own country, b) Any act of merchandise where goods from the country is sold to another commercially, c) When an Indian exporter who is executing a contract outside his own country requires importing goods from a third country to the country where he is executing the contract. The first out of these three is the most common reason to get a letter of credit in modern day trading.
There are certain fees and reimbursements associated with this kind of trading though. The issuing bank charges the applicant fees for opening the letter of credit. The fee charged depends on the credit of the applicant, and primarily consists of: A) Opening Charges, which comprises of commitment and usage charges for the period of the letter of credit, B) Retirement Charges: This is to be paid when the period of letter of credit terminates. The bank providing the letter scrutinizes the bill according to UCPDC (Uniform Customs and Practice for Documentary Credits), and levies charges based on value of goods. There are certain risks also that are associated while opening this kind of account. Basic risks include: Financial Standing of the Importer, the goods involved, the exporter and country risk and foreign exchange risk. Price risk is another crucial factor associated with all modes of international trade. All banks need to evaluate their strategies on the mentioned criteria?s prior to issuing the letter of credit.
Import Letters of Credit provide importers the most widely used and accepted international trade payment mechanism and finance instrument. By structuring Letter of Credit terms to allow Deferred Payment or Trade Acceptance an L/C can be utilized to provide financing to the importer. With the amount of influx creeping in the Indian Market, people primarily into forex business or into international trading will value this document. Most importantly international trading has a whole lot of money involved and if done properly could accumulate a turnover capable of running a state?s budget; hence it is important that it is handled with care.
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The Role of Risk Management in Trading
After reading and participating in the investing and trading forums on the internet over the years, I have come to the conclusion that the vast majority of beginning and intermediate investors and traders fail to realize the important role that risk management plays in successful trading. It does not matter whether they trade stocks, Forex, commodities, or other instruments, they tend to have the same attitude.
In my experience, most questions posed by inexperienced investors focus on finding the next hot stock or the best trading system for trading stocks, forex or commodities. They are all hoping to catch a few big winners just by scouring the internet for some hot tips. Or, they think there may be a hot trading system out there that will make them a millionaire in no time. Or, if they are focused on short-term trading, they are hoping to learn that one trading system that will give them 90% winners, and profits month after month.
Therefore, the financial industry continues to prey on these attitudes with countless books and trading systems. The brokerage houses want you to open an account so they can sell you the latest and greatest ideas in the stock market, while padding their accounts with your commissions. The discount brokers will sell you on the idea that you can make big profits just by using their trading platforms and using a couple technical indicators.
And, of course, the biggest fraud is put on by professional money managers, who promise consistent profits to unaware investors. We have just realized the biggest fraud of all, with a potential $50 billion Ponzi scheme run by formerly reputable money manager Bernie Madoff.
Because he was so well known on Wall Street, Madoff was able to convince hundreds of investors that he could be profitable every month. All the while, he was simply soliciting new money to pay off the original and oldest investors. There have been plenty of examples like this, but the Madoff scam is clearly the biggest fraud of all time.
The bottom line is, there is no such thing as the Holy Grail of trading! There is no one trading method or system that will generate huge returns for anyone, year after year. History is wrought with hundreds of examples of trading legends who made it big, then crashed and burned.
The best traders go through periods of underperformance, and they accept this, because they know, that in the long run, their trading methods will provide strong returns. However, they don't expect to make 100% on their money every year, and they don't expect to make money every day, every week, or even every month. Very few are capable of such returns, and those that are, will not share their strategies with the public!
Professional traders are also not worried about having a trading system that is right 100% of the time. They know that this is impossible. All they are concerned with is finding an EDGE that, over time, will be profitable. On the other hand, most amateur traders are worried about being RIGHT all the time, rather than being profitable. They can't stand the thought of having a losing trade. Professional traders know that losing trades are part of the game.
One thing all of the best traders DO have in common, however, is that they know how to manage risk! Because they know that the markets can turn on them at any time, they are more focused on managing the risk in their portfolios, rather than on specific entries and exits in their trading models.
Most amateur traders can not seem to get past the idea that the initial trade entry, or stock selection, is the NOT the most important part of any trading model. It is what you do AFTER you enter a trade that is more important. And even more important than knowing when to exit a position is learning how to manage your risk.
One popular concept in the trading world is the idea of minimizing your risk to 1% or 2% of the equity in your account on any given trade. For example, if you have $100,000 in your account, then you would only risk $1,000 or $2,000 on any particular trade. If you want to buy XYZ stock at $20, and you have determined that you will exit the trade if it goes down to $19, then you will trade no more than 2,000 shares.
This is a good start, but is not the end of managing your risk. You can limit your risk to 1% if you like, but if you do not have the discipline to stick to your trading rules, and you take trades that you should not, you will still lose, and lose quickly! That is just one example of not controlling your risk. The following is a list of do's and don'ts when it comes to managing risk.
1. Do not over trade. This can mean risking too much on any one position, or trading too much, simply for the thrill. With that in mind, once you have developed the entry and exit rules for your system, STICK to them! Don't take trades that are not signaled just because you feel the need to trade!
2. Don't trade markets that are highly correlated at the same time, unless you are doing some sort of spread trade by buying one market and shorting the other. Also beware of markets that are inversely correlated. For instance, if the Japanese Yen is going up while the Nikkei index is going down, don't buy the Yen and short the Nikkei! You are simply doubling your bet!
3. Don't add to positions when the markets become more volatile! Some trading systems look to capitalize on long term trends and will pyramid positions to achieve greater profits. Only the skilled trader should attempt this, because normally when trends are in place for a while, the volatility tends to increase.
4. If the volatility in your trading position increases dramatically, consider exiting some of your position.
5. Don't begin hoping that one position will turn into a big winner. You must check your emotions at the door when you enter your trading room. Never marry yourself to a position. If you have a profitable strategy, it is many trades over time that will bring those profits, not one big winner.
6. Absolutely, positively know where you will exit a position BEFORE you enter a new trade!
7. Absolutely, positively know how you will trail your stops on your positions!
8. If you are having a bad trading day, trading week, or trading month, TAKE A BREAK! When have not taken a break for a long time, our trading judgment can become clouded, and we begin to break Rule #1. Once you find yourself breaking that rule, it is time to step away from the trading desk for a while.
9. If you are on a losing streak, and your equity has declined, reduce your risk!
10. Finally, when you do take some profits, take them out of your trading account and diversify your investments! Even though you may have a diversified portfolio traded by your trading system, you still should invest in completely different markets, such as real estate, bonds, art, commodities, or even another business.
If you can learn how to manage risk properly, you will be on your way to becoming a successful trader and investor.
Copyright (c) 2009 Scott Cole
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