Trading Formula

Extracted from the book: How to Trade in Stocks, Jesse Livermore

Market  Timing - When to enter and when to exit a market trade - "when to hold 'em when to fold 'em".

Money Management - Don't lose money - don't lose your stake, your line. A speculator without cash us like a store owner with no inventory. Cash is a speculator's inventory, his lifeline, his best friend - without it you're out of business. Don't lose your line.

Emotional Control - Before you can successfully play the market you must have a clear concise strategy and stick to it. Every speculator must design an intelligent battle plan, customized to suit their emotional makeup, before speculating in the stock market. The biggest thing a speculator has to control is his emotions. Remember, the stock is not driven by reason, logic or pure economics. It is driven by human nature which never changes. How can it change, it's our nature.

Most of the actions required to trade successfully are counter-intuitive

Extracted from the book: Trading in a Nutshell, Stuart McPhee

Like so many things in life, the path to success or the steps we need to take to achieve success are not obvious to us. So, if we don't take the time to learn the basic fundamentals of trading, we will most likely drift down the path of so many traders, which will result in frustration, emotional stress and almost certainly lost money.

The other thing to realise and appreciate is that so many decisions and actions that are required of us are counter-intuitive.

1. As we are trading to make money, it is intuitive to think about and focus on making money. It is counter-intuitive to focus on protecting the money that we have.
2. If we open a trade and it moves into a losing position, it is intuitive to hold on to that trade in the hope that it will soon return to break-even and we can close the trade with minimal loss. It is counter-intuitive to close that losing trade at a loss as it denies ourselves the opportunity of at least breaking even and getting our money back.
3. If we open a trade and it moves into a profitable position, it is intuitive to close that trade to realise the profit and keep the money or, at the very least, move our stop close to the price. It is counter-intuitive to hold off from closing the trade, providing it the opportunity to continue moving higher.
4. If we experience a losing streak of several losing trades in a row resulting in a decrease in our trading capital, it is intuitive to commit more money into the next few trades in order to win our money back sooner. It is counter-intuitive to scale back the size of your trades in order to manage your risks and protect your capital.
5. Finally, when you first start trading, it is intuitive to think that your decision to enter a trade, being the first decision you make, is the most important and will ultimately affect whether your trade is a winner or loser. It is counter-intuitive to think that other things like the size of your trade and where your exit is are more important.
   
   
   

Trading Basics

Extracted from the book: Trading in a Nutshell, Stuart McPhee

Trading can be a very exciting and worthwhile endeavour and there are several attractions for most people (not including 'making money' which is obvious).

Some of the advantages of trading include:

• Self employed – you are your own boss
• Geographical freedom – technological advances are making this easier every day
• Minimal capital outlay – compare this with purchasing a franchise or establishing a new retail store in your nearest shopping complex.
• Unlimited potential for profit – financial freedom is what most traders aim for
• Flexibility with time – you choose when you trade and when you don’t
• Almost anyone can do it – if you are old enough (usually 18 or 21), you can open a trading account and begin

There are of course some disadvantages which include:

• No guaranteed success – many people don’t make money trading
• Can be stressful and emotional – when you are ‘playing’ with your own money, this is almost inevitable
• Solitary existence – trading can be a very lonely profession
• Takes time – like many endeavours, consistently profitable trading takes time. I list this as a disadvantage because I believe many newcomers don’t recognise this, nor do they fully appreciate what is required to develop the skills and attributes for successful trading.

There is one thing you need to be aware of however. Trading has a greater potential for reward than investing but with that extra potential for reward is greater risk. Those who trade well have been well educated and prepared. Very seldom does somebody start trading and make money from day one. Often you will hear the saying ‘Only Educated Traders Survive’.