#1 Piece Of Advice That Will Automatically Change The Way You Trade Forever

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This is probably the best advice I have ever gotten about trading that complexly changed the way I think when I enter a trade. If you are not thinking like this for your trading, it will automatically make you a better trader when you hear it.

What is this #1 piece of advice??

Trading in terms of probabilities instead of trading on a trade by trade basis.

This is from a YouTube video from Mark Douglas and the video is called “How to think like a professional trader”. I could ramble on for a long post, but I will try and keep this one short and sweet.

Many beginner traders trade on a trade by trade by basis. This means that when ever they put a position on, they are worried about this one trade there in. If they win, they get joyous, if they lose, they feel down.

And both will effect the way they think about there next trade.

However, what Mark Douglas says in the video is that..

Traders need to think about their next 20 trades instead of their next trade. 

This all starts with having your EDGE.

Your EDGE is whatever method you have that consistently puts the odds in your favor. For example,

If you have a chart pattern that you paper trade 50 times and it shows that it has a 66% rate when you trade it, that is an edge. Because you have something that puts the odds in your favor (66%).

Now when you have that edge, you are now aware that over 50 trades, you know you will be profitable over time. However, you don’t know which trades out of the 50 will be winners and which ones will be losers.

Therefore, you would no longer need to focus so much on winning the trade in front of you, and that sense of relief will also allow you to put on trades easily and effortlessly because you know overtime it will work.

Another question Mark Douglas asks is “If you know it will work overtime, why would you be afraid to put on the position/trade?”

The reason we get afraid to put on a trade is simply because we are too worried about what is going to happen in this trade.

Obviously there is more to trading, but to simplify it,to be profitable you need do 4 things…..

1. Find your edge; Something will will put the odds in your favor over time

 

2. Allow your winners to run, cut your losses short (so that even if you win percentage is 50%, you will still be profitable)

3. Test your edge before you take it to actual markets

4. Trade your edge with real money remembering that its not about the trade you are in now, but about the next 20,30,50 trades you are going to take.

When you think like this you will not have to struggle with cutting losses as much because you don’t see a need to hold on to losers if you know overtime you will win.

 

 

 

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2 Fatal Myths about Stock Trading

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When people start thinking about trading for extra income or for a living, their individual opinion of how long they have to trade for is often skewed.

On one end, you have the people who believe trading is this easy task that you can do almost everywhere comfortably beside the beach while sipping on your alcoholic drink. Not saying this can’t occasionally possible, but to trade like that the majority of the time is more unrealistic than you think.

The other side believes what they watch in stock trading movies. The pit like atmosphere, everybody yelling at each other across the room, taking phone calls for other people and putting there orders in.

Being in front of the screen for 8+ hours during the day is another thought that crosses their mind because they believe you must be present the entire time during market hours,

Neither of these beliefs are necessarily true. Lets start with myth number one. Continue reading 2 Fatal Myths about Stock Trading

What Is The Best Time Of Day To Trade Stocks?

A man looking shocked as he looks at the time  Good  Morning,

Like many tough decisions traders would have to make in their beginning stages of trading, choosing a time of day to trade can be a pretty difficult one.

What type of personality do you have?

Do you handle high stress situations well? Or are you more laid back?

Quick with your fingers? Do you naturally wake up early, or do you wake up later in the afternoon?

I am going to go through each option of time frames for trading and mention what type benefits each of them have.

Pre-Market: 4:00 Am – – 9:30 Am

Most people don’t consider this a real time frame to trade in particular because of the decreased activity. The stock market opens at 9:30 Am Eastern Standard Time so most of the volume comes in after that.

However, what I have noticed is that if you can catch breaking news early on, then you can kind of make trading pre-market your niche. The majority of people don’t do this, but i know enough to know its “a thing”.

This requires a broker that will allow you trade pre-market in the first place, as some brokers don’t allow trading until official market hours (9:30Am EST).

The broker I use allows to trade as early as 4 AM EST and as late 8 PM EST After Hours (Post-Market). This is extremely beneficial not only for trading pre-market, but in case you want to get out of a position late or early in the day for some reason.

There is also the benefit of getting in earlier than the rest of the crowd, especially on good news. How many times have you seen a stock have an insane gap up,but most up that gap up happened during pre-market?

The reason they have a gap up is because there are traders pre-market buying.

One of the benefits of trading pre-market is that, in my opinion, stocks have a bigger capability of running higher.

I have yet to see a trading halt in pre-market, so this makes it easier for those huge run ups to occur. Also because there is less volume overall in pre-market, if the consensus is that this is a buy, it causes the stock to skyrocket a lot quicker because there are not that much sellers yet.

Now I would never consider using big size during pre-market because the price can fluctuate a little too much.

9:30 AM –11:00 / 11:30 AM Regular Hours

This is the time frame that most traders choose to be active strictly due to the amount of volatility that occurs.

This time frame is the most active during the whole day. More specifically the first 15 minutes after 9:30 Am. After 11:00 Am/11:30 Am there tends me be less volume because traders start trading less, taking off positions, waiting through positions, or going out for lunch.

Trading during this time means that the biggest moves usually happen during this window, so traders are desperate to take advantage.

Another added benefit is that the increase volatility makes it easier for traders with bigger size to enter and exit positions smoothly.

Like I said in the pre-market section, you can’t really use huge size during pre-market (most of the time).

2:30 PM – 4:00 PM “Power Hour”

This basically heading towards market close, and traders start to log back onto there computers and see what they can get before for a quick scalp or for an overnight position.

Also, the added anticipation of knowing that so many other traders are becoming eager to find another scalp gives an extra urgency to this time frame and cause some pretty decent percent gainers to occur as it gets closer to market close.

This time frame one that I would more recommend for swing traders, as its the best time to see which stocks are finishing strong, which ones are finishing weak, and how that may affect the open the next trading day.

No Time Of Day At All??

I also want tot remind traders that you may not have to choose any specific time frame and stock with it depending on what type of trader you are.

For example, if you are a swing trader, you could be entering positions during power hour, and exiting them during pre-market.

Or even entering during regular hours, and adding more towards power hour. It really depends on what type of trader you are.

However if you primarily a day trader, it is beneficial that you pick a primary time frame that you are most comfortable with. God Bless.

 

Stop Trying to Predict Stocks

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“What if i bought Amazon and held when it was a dollar? I would be a billionaire.”

We are all millionaires and billionaires in hindsight. It all sounds so simple when we look back at it. But in reality, in the moment, it almost never works out that way we make it sound.

How much of us look back at a daily chart and see a stock we missed out and say,

“Aww man, if I put X amount of shares at dead bottom, and sold right at the top, I would have killed it”

This type of thinking is not necessarily bad. It helps you see the possible potential in some of stocks we play. But there is a downside to thinking like this as well..

TRYING TO PREDICT STOCKS

When we constantly see plays we missed it can create F.O.M.O (Fear OF Missing Out)

Since all these perfect scenarios are playing through our minds, it far too often leads to us pulling the trigger too fast on the next “opportunity”

We think, “Ok , this is gonna be the big one”, and before you know it..

The stock is tanking on you, you sized in too big, no news, no volume..

Anything can happen when you are too eager to find the next stock. I always preach the importance of getting early. However, that’s after you do your research and the stock meets your criteria of type of stocks you trade.

SOLUTION? FOCUS ON REACTING RATHER THAN PREDICTING.

This is what most of the best traders do. When you react instead of predict,

You are allowing for confirmation to take place and then quickly hopping on for the easy ride, instead of trying to anticipate it and letting that “ride” take you somewhere you don’t want to go.

You don’t want to be the trader that sees positive news and starts buying instantly. To some people they ask why would you not do that? Its positive news. Its because..

Not all good news influences the stock to go up, and not all bad news influences the stock to go down.

The news that comes out could sound soo sweet to the point where you think “There is no way this doesn’t go up.” But what controls the stock price at the end of the day?

News…? or Buyers and Sellers?

News and catalysts mean nothing unless the traders trading it view the news and worth buying or selling more. Once you as a trader understand that concept,

It will be very hard to continue attempting to predict stocks.

But will be easier to lock in profits after reacting. Good luck.

 

 

 

 

Risk Vs Reward Misconception

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Risk Vs Reward is a concept that many beginner traders think they understand, but in turn do not truly understand. Even professional traders often forget the underlying meaning of risk vs reward. When we bring up risk vs reward, we often only think of a 2:1, 3:1 or 7:1 scenario, or in a currency based example, risking $100(risk) to make $300 profit(reward) would be an example of a 3:1 Risk/Reward ratio.

There are a couple problems when discussing Risk/Reward with beginner traders as well as others, even in business or real estate. Number 1 Problem is..

Trading stocks that are not even worth trading just because you have a good Risk/Reward Ratio. I see this far too often. A beginner will often say something like “I took that trade because of the risk/reward. IT WAS A 6:1 Ratio!! ” The problem is not the ratio, in fact that ratio is beautiful. The problem is when traders decide to buy or sell a stock based on the risk/reward as the primary factor. There are a multitude of points traders should be looking at before getting into the trade that should be treated like a checklist. For example,

*Volume

*Catylist

*Chart Pattern

*Fundamentals

*Time of Day

There are more points to look at, but the point is that just because there is a good risk/reward ratio doesn’t mean that the stock is going to have a good chance of reaching that reward area. The focus should be on choosing a trade that shows the best probability of going in your favor, THEN you apply risk/reward.

Which would you rather?

#1) A stock that has a 2:1 Risk/Reward but has great news out and good amount of volume coming in

Or

#2) A stock that has 7:1 Risk reward but has no catalyst and trades 100K volume which a huge spread

Obviously this example is exaggerated but lets hope you picked #1. Picking stocks with more likely hood of going in your direction will always help your trading career flourish more than picking and trading stocks strictly off risk vs reward.

The Number 2 Problem with beginners and Risk/Reward is

Truly being able to to RISK the money you say you are willing to lose. When we say “only put in money your willing to lose”, traders and others alike often agree to do so without really understanding the extend of what that phrase means. If you have a $1000 small trading account, and you’re risking $100 dollars to make 2x, 3x or 4x, it doesn’t matter what it is. What often happens is when you take that $100 dollar loss, it is a big loss relative to the account. As a result of this it often will make you hesitate or over think you’re next trade simply because fear of losing another 10% of your account. I’ve definitely been there before. So in this case you should lower the amount your willing to lose, which in turn will lower the amount you are willing to make.I know , I know, we all want those $300+,$500+,$1000+ winners, but you have to think first about how to preserve your account until you are in a position to take bigger hits. If you take 1 $400 dollar loss on a $2000 dollar account because you were trying to hit the lotto on that one trade, I can almost promise you wont feel like trading the rest of the day. Even if you do, the mindset of someone losing 25% in there account in one trade often calls for revenge trading afterwards. Bad idea. Bad,bad idea.

 

 

Why Every Single Trader Needs A Big Loss

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As a rookie trader we often believe that we can maneuver easily through all the obstacles that experienced traders went through when they first began their journey in trading.We hear stories of blown accounts, over-sizing, fear, greed and any more reasons to lead to failure early on in their career. New traders often get told that when we start, we are going to go through the same things. Maybe not as aggressive as them, but for some maybe more aggressive. Some will have struggles early on, some may have success early on.

I was someone who had mild success early on, and as a result I believed that i would never be one of those guys who lose a ton of money while trading. Some money, yes, but a lot, hell no.

Until one morning I was in my living room sitting in front of my laptop ready for the market to open at 9:30 Am (I’m in Ontario, Canada). I held a position overnight and was ready to get out. When 9:30 Am hit I clicked the “Sell” button but i never got filled. I was confused, “why am I not getting filled?” It took about 3 minutes to get filled. My small overnight profit of $40 something dollars 3 minutes after open was now -$20 loss. Now when i look back on it that wasn’t the worst thing that could have happened, but being a new trader at the time and not knowing how much a role my emotions played in trading, I got furious and frustrated. I was upset that my order didn’t fill when I wanted it to. So i quickly took another trade so that I could make back the money I lost, and maybe more. Big mistake.

That day i ended up being down about -$500 dollars on a $1100 dollar trading account. I did exactly what some professional traders said they did; I revenge traded, didn’t cut losses quickly, used hope as a strategy and basically blew up half of my account. I was so emotional afterwards. I was crying and I was getting depressed. It felt so bad because they were my decisions, my stupid decisions. I still remember physically punches myself in the face. Like, literally, punching myself in the face. I felt like its what i needed to feel at the time for being so reckless. I barely left the house that day, and even when I did, I just wanted to go back inside and hide under the sheets. I got a random call from the bank later and all I could think was “How do they know I lost money”? They actually called to try and sell me some type of injury insurance but I straight up told her , “I lost a lot of money today, so i don’t want to talk about money at all”. The conversion went left and we ended speaking for about 30 minutes about what happened and why it was hitting me so hard. She gave me a bit of motivation to stay on track, and we said goodbye. I got off the phone feeling refreshed. I felt refreshed because after talking to that women at the bank, I realized that this was what I needed.

I needed that big loss because it put me in a mindset of figuring out what I did wrong and fixing it. You could say “Oh, why didn’t just follow those rules in the first place”? Its easy to say that, but some of the best lessons, and the lessons that stick with you are those that have pain memory attached to it. Now when i feel like I am not following my rules I remember the feeling that day I took that big loss, and it almost always steers me back in the right direction.

My advice is if you are new or even intermediate, embrace the losses. I promise you that most of your trading knowledge will come from those losses.  I always tell people around me “I’m glad I took those losses early on. I’d rather lose -$500 and learn those lessons rather than losing -$50,000, only to learn those lessons afterwards”.The sooner you lose, and focus on improving after, the better.

4 Things New Traders Don’t Understand About Commission

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I couldn’t wait until I opened my first trading account like most traders. I still remember my first trade like it was yesterday, SINO. By accident I had gotten in SINO at around $6.20 for 100 shares. I only realized that my position filled about an hour later, and immediately i said “NO, I DON’T WANT TO BE IN”. There was 1 problem. Actually more than 1 problem, but the main problem was that my commissions were $10 per trade. So instead of getting out right away, I thought ” if i get out now, then i will automatically be down $10 dollars”. This leads to the first problem….

1) When A Broker Says $10 Dollars Per Trade, That means $10 dollars to Buy AND $10 Dollars to Sell.

I had no problem signing up with my broker initially because I thought “$10 dollars to buy and sell combined? Not Bad , not bad.” Wrong, Wrong, Wrong. In my personal opinion, I think they do this on purpose because they know new traders or investors interpret a “trade” as a full round trade, buy AND sell”. If someone said ” Ya, I took a trade on AAPL today” most of us will assume that the position is closed. It would be different if that person said ” Ya, I bought some AAPL shares today”. From this, you understand that the person most likely has not sold yet. However it is still the job of the trader to find out how their commission structure is set. There is always to find out before you ever have to place a trade.

Now some people might wonder, “well whats the problem with $10 dollar trade commission even if i’m OK with paying it?” Here is reason #2..

2) High Commissions Destroy Your gains, Your Capital, And Make your Losses Worse

I had to learn this the hard way. One day I went through all of my trades just to see my over losses and wins, but I decided to calculate my commission total as well. Why not right? Well Holy hell. I had only made about 29 full round trip trades (Buy + Sell=1 Round Trip) and my total commission I paid so far was almost $600 dollars!! On a $1000+ dollar account…. that is absolutely ridiculous!! Not only did I realize I was paying way too much to be a day trader, but it meant that anytime I just wanted to take $10-$15 dollars profit, i would end up with nothing, which is very frustrating. It also meant that if I lost money, you can go ahead and slap a $20 dollar commission loss on top of my trade loss. Paying these kinds of commissions are preparing you for failure as an active trader.

3) Not Being Able to Scale In and Out of Positions

A major advantage you will have as a trader is to throw out what some traders call a fishing order. So if I want to going into a stock with 500 shares but i’m not that certain just yet, I will often put in 150 shares, just to test the waters. This way if it turns against me, I have a smaller loss that if I had put in all 500 shares. And if the stock goes in your favor, then you can buy more shares to build your position. The problem is, this only can work if you have a much cheaper commission. Imagine try to build a position with a $10 per trade commission structure. If you split your 600 shares into 3 separate buys of 200 shares to scale in, it would cost you $30 dollars…no thank you. Also, what if you also wanted to scale out? The stock goes in your favor, and you want to take some shares off the table, and still leave a little bit just in case it continues to run. Just selling half your position now, and selling the rest later will cost you $20 dollars combined. So this entire trade, just commission, costed you $50 dollars. Not a good look.

4) Fear/Hesitation

One thing I learned after switching to a much cheaper broker is how much more free i was to jump in a stock right away If i liked the stock. I could do this because i wasn’t worried about paying an extra $20 dollars just in case I lost money on the trade, or break even. You see, when your commissions are high, you often hesitate your trades because you second guess and third guess them. The setup can be there, but you are worried about losing that extra money. You will often see opportunities pass by like I did, because I couldn’t just pull the trigger when it needed to be. What happens if you’re too early on your trade. You get in, take a loss, but your stock is still in play. You just need to re-enter. a trader with a smaller commission has way more freedom to go in and out of stocks because he/she isn’t severely penalized for it. It will be almost impossible to be an active trader with an expensive commission structure. Please do me a favor and search for a better broker that has cheaper commissions so that you are putting yourself in a position to win long term. You won’t regret it.