7 Things You Need As A Trader

Posted by Joe Fahmy

on February 20th, 2014

This is in no particular order, as they are ALL important.

1) Strategy – There are so many different strategies: value, growth, momentum, short selling, etc. Find one that fits your personality and do your best to master it. The fastest way to learn is to study success. In other words, find someone who is successful at the strategy you like, and then mimic them with your own style. Another key is to recognize when the market environment is not conducive to your strategy, and make the proper adjustments.

2) Confidence – If you don’t have confidence, you have very little chance of succeeding. This doesn’t just apply to trading, it applies to EVERYTHING in life (business, athletics, relationships, etc.). With regards to trading, you have to believe in what you are doing and not be afraid to make mistakes. The key is to learn from them, make adjustments, and constantly reevaluate your progress.

3) Product Focus – There are so many different trading vehicles: futures, commodities, currencies, stocks, bonds, options, etc. It’s ok to dabble in a few things at first, but eventually you need to find out what product works best for you, focus on it, and MASTER it. As they say, don’t be a “jack of all trades and master of none.”

4) Know Your Time Frame – You must find a time frame that fits your personality. If you are too nervous, maybe short-term trading isn’t for you. Everyone wants to make tons of money in the market really fast, but keep in mind that is not a healthy approach. Most people with this mindset tend to be “boom and bust” traders. They make a bunch of money and eventually blow up. If you are truly passionate about trading and hope to be in the game for a long time, I recommend focusing on a slow and steady approach.

5) Ability to make decisions – If you go to McDonald’s, stare at the menu for 10 minutes, and still can’t decide what to order…then you have NO shot as a trader. You HAVE to be able to make decisions. You can’t hesitate all the time and trade with fear. Who cares if you make a bad decision, just MAKE ONE!!! If you are wrong, you’ll learn from it and make a better decision the next time. As Tony Robbins says: “Good decisions come from experience, and experience comes from bad decisions.” The key is to stop trading with so many fears and MAKE a decision. Who knows? You might end up making the right choice, which will increase your confidence and enhance your ability to make sound decisions in the future.

6) Conviction – This is very similar to confidence, but what I’m referring to specifically is to have conviction in your ideas. It amazes me how many people will buy a stock just because someone on TV or Twitter mentions it. Don’t get me wrong, I love to listen to ideas, but it has to fit my strategy in order for me to buy it. Same thing applies when someone says something negative about a stock that you own. Don’t be so easily swayed or talked out of your positions. Have conviction and let the MARKET prove you right or wrong!

7) Ability to cut losses – I’ve studied the best traders in history and they all have the same number one rule: CUT YOUR LOSSES! As a trader, think of your cash as your inventory. If you can’t cut losses quickly, eventually they get bigger and bigger, and you’ll have no inventory left to work with. I have strong conviction in my ideas but when the MARKET proves me wrong, I let go of my ego, cut my loss, and move on.

Tip Alert: Long Gold

Entry: 1258
Stop: 1254
Target: 1266
Note: Let's see if it's going to work

Overnight Gold 'Digging'

Gold was on the upswing the past few days and was able to make a decent trade Friday in the overnight (early) session. Entered at the 1260 area (lower arrow) and exited at the upper arrow because of that 'dangerous' bar (is that a gravestone? or what?, whatever, but that's not a good sign bar). Also was closely paying attention with the levels (S/R), and the way it pulls back (rectangular area), and the % retracement, the ema/ma's formation, in that way I can have an idea how to formed my 'triangle' trade, that's my 'patented' trade idea. My 'patented' triangle trade idea just came through my years of observation in trading the market (or through 'losing' in the market, if I may say, because in trading you learned by losing, isn't it?), so through my engineering ingenuity, and through my own experimentation, I find my 'patented' triangle trade works...below is just one of the example...

Crude's 'Irrationalistiscm'...

Crude was also on the watch list of this trade observer, but this 15 minute chart from Crude in today's market is one example of market's 'irrationalistiscm'. I place a trade within the pointed arrow and put a stop price within the 50% retracement from the green long bar (horizontal arrow), but got stopped out. It drops so hard and got hit hard (like a falling knife). My mistake is putting a late trade, I could have place an overnight trade (which I usually do), but this one is a product of my own irrationalistic behavior/action from the irrationalistic market behavior, it so happen I acted at the wrong time at the wrong side of the market.

Tip Alert: Stopped Out

Long trade entry got stopped out.

Tip Alert: Long Gold

Entry: 1255
Stop: 1251
Target: 1262
Note: First alert for 2014 trades. Holiday by tomorrow, but putting a long entry at 1255, let's see how it goes.

Nine Surprising Things Jesse Livermore Said

• Joshua M Brown
• December 24th, 2013

There are those who would convince you that it is somehow smart or in your best interest to be manically switching your investments around, back and forth, long and short, on a daily basis. To pay attention to this kind of overstimulation is the height of madness, even for professional traders.

The most storied and important trader who ever lived, Jesse Livermore, would be tuning these daily buy and sell calls out were he alive and operating today. Because while he was a trader, he was not of the mindset that there was always some kind of action to be taking.

Jesse Livermore’s legacy is a bit of a double-edged sword…

On the one hand, he was the first to codify the ancient language of supply and demand that is every bit as relevant 100 years later as it was when he first relayed it to biographer Edwin Lefèvre.

Livermore himself sums it up thusly: “I learned early that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again. I’ve never forgotten that.”

On the other hand, Livermore’s undoing came at precisely the moments in which he ignored his own advice. After repeated admonitions about tipsters, for example, Jesse allowed a tip on cotton to lead to a massive loss which grew even larger as he sat on it – violating yet another of his own cardinal rules.

And of course, other than for a few moments of temporary triumph in the trading pits and bucket shops of the era, Jesse Livermore was not a happy man. “Things haven’t gone well with me,” he informed one of his many wives by handwritten note, before putting a bullet through his own head in the cloakroom of the Sherry-Netherland Hotel.

But he did leave behind a wealth of knowledge about the art of speculation. His exploits (and cautionary tales of woe) have educated, influenced and inspired every generation of trader since Reminiscences was first published in 1923.

In my opinion, some of the most useful bits of knowledge we get from the book concern Jesse’s discussion of timeframes and patience. Many traders, particularly rookies, approach the game with the idea that they’re supposed to be constantly doing something - in and out, with a trembling finger poised to click the mouse again and again.  Consequently, they get on the treadmill of booking wins and losses without ever really moving the needle. They end up with tons of brokerage commissions and taxes to show for their efforts, but not much else.

Being a trader doesn’t mean one must always be executing a trade, just as being a house painter doesn’t mean that every surface needs an endless series of coats.

Many rookies are surprised to learn that Livermore, the idol of so
many great traders, advocated a lower maintenance, higher patience approach as he matured. In his early days, Livermore was dependent on the short-term funding and scalping activity of the bucket shops. Once he graduated and had his own capital, he was able to lengthen position holding times and could even afford to do nothing for extended periods.

Here are nine surprising things Jesse Livermore said regarding excessive trading:

1. “Money is made by sitting, not trading.”

2. “It takes time to make money.”

3. “It was never my thinking that made the big money for me, it always was sitting.”

4. “Nobody can catch all the fluctuations.”

5. “The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money everyday, as though they were working for regular wages.”

6. “Buy right, sit tight.”

7. “Men who can both be right and sit tight are uncommon.”

8. “Don’t give me timing, give me time.”
and finally, the most important thing:

9. “There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. Not many can always have adequate reasons for buying and selling stocks daily – or sufficient knowledge to make his play an intelligent play.”

Jesse was a trader but he knew the value of staying with positions and sometimes not trading at all. Once he began to follow tips from others or trade when he should have abstained, all of his progress had come undone, and with it, his sanity.

We are fortunate to be able to learn from his mistakes and to sidestep the errors that eventually cost him everything.