Trading Habits Part II

I had a timely comment on my blog today. The comment was on my Trading Habits post from last month and it's timely because today I'm going to go through the last ten habits from this month's Trading Magazine.

h haller wrote:

Hi there.
"1. Wealthy traders are patient with winning trades and enormously impatient with losing trades.
Nothing new here. This is a well-worn motto about letting winning positions run and cutting losing positions quickly."

I'm still quite new to all this. Already managing to make some profit, but still testing the waters so to speak. I'm curious as to what 'let winning positions run' really means... how does one know how long to let them running? I mean, let for long enough, there's always the chance that a winner becomes a loser right? Or am I misunderstanding what a 'winning position' really is?

It's a good question. How exactly do you know in the first place that you should keep a trade going? Unfortunately I don't think there is a straightforward answer to this question. Largely it comes with experience, but it's also down to self-recognition. If you are in a winning position in a trade, what is your reaction? Are you looking at the trade dispassionately, looking at the angles? Are you looking at the optimum exit position, and determining what you will do if the trade starts to turn against you? Or are you doing none of these things, but are instead feeling anxiety? You have to be honest with yourself here. Are you sweating on the money that you think you're winning, and thinking to yourself that you must get out to ensure at least some kind of win? If you are, then you're probably the type of trader that does indeed cut short winning positions.

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Okay, onto Part II of Trading Habits from the magazine. 

11. Wealthy traders realise the market will be open again tomorrow.
This is something that Peter Webb has spoken about on a number of occasions, and it's all about not stressing or worrying that you're missing out on something good, or admonishing yourself because you have missed out on something good. A new opportunity is always just around the corner.

12. Wealthy traders never add to a losing position. Ever
Self-explanatory. Don't pile misery onto misery - and always protect your bank.  Don't add to losing positions, hoping it will turn, and don't allow losses go beyond your stop loss.

13. Wealthy traders judge their trading success on anything but money.
This doesn't mean the money is irrelevant. It is of course what it's all about. But when trading, don't consider the money, and don't set money goals. Make your goals compliance with all your trading rules, or make it successfully spotting a pattern in a trade. Anything but the money.

14. Wealthy traders read to improve.
Read as many good trading books that you can get your hands on. Some are more concerned with psychology rather than trading in itself, but all can help to improve you as a trader. Some of the books mentioned in the article are "The Wisdom of Crowds, by James Surowlecki, "The Art of Strategy" by Avinash Dixit and Barry Nalebuff and"Markets, Mobs and Mayhem" by Robert Menschel.

15. Wealthy traders see themselves as market makers.
This is a rather subtle point, but even if you're not physically a market maker, the point is to try and influence and manage any market you trade differently to all the sheep out there who are jumping on a so-called winner. Try to take charge and view things in a different light. Be the actor, not the reactor.

16. Wealthy traders practice reading the right side of the chart, not the left.
Not particularly relevant to me, but perhaps it is to all pre-event horse racing traders. For those who like a good candlestick pattern, it's quite easy to look at what's gone before and see the pattern of the race... but how good are you at determining what's about to happen? Money is made AS the pattern is developing, not afterwards.

17. Wealthy traders have an "edge" in the market.
'Nuff said.

18. Wealthy traders determine position size based on risk, not round number.
Don't say, "Oh, I'll whack a ton on this", but instead work-out what is the maximum exposure that you are comfortable with and then work backwards from there. Just using round numbers could mean that you are taking on more risk than you are really prepared to handle.

19. Wealthy traders buy strong markets and sell weak markets.
I like this one. Basically it's saying that you shouldn't be looking for "tops" or "bottoms" of a market, don't look for the trend change, but instead trade the trend itself. The peaks and troughs may only be 20 per cent of the chart, whilst 80 per cent is the trend in between. While this is strong, trade it. Stop looking for reversals.

20. Wealthy traders play the reaction, not the news.
Don't try to predict the way the market will react to certain news, but instead trade the reaction itself.

Okay, well, I've cut the shit out of the article just to give you the bullet points, but hopefully at least one of these will be helpful to you in your trading.

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I traded the correct scores in a couple of the Europa games tonight. There were always going to be plenty of goals so it was quite a relaxed evening. If I'd been more in the mood, I could have probably done a lot better than I did. Still relatively happy though.

Soccer: £107.96 | Tote: |  Total P&L:  £107.96 

 

Soccer Showing 1 - 3 of 3 markets

Market Start time Settled date Profit/loss (£)
Soccer / Metalist v Sp Lisbon : Correct Score 05-Apr-12 20:05  05-Apr-12 21:58  50.73
Soccer / Hannover v Atl Madrid : Correct Score 05-Apr-12 20:05  05-Apr-12 21:57  50.51
Soccer / Ath Bilbao v Schalke : Correct Score 05-Apr-12 20:05  05-Apr-12 21:55  6.72