To be a successful trader means to find an approach with mirrors your own identity. That’s very hard, because the most traders start their career when they are young. Often they have not the needed self-awareness and are in the middle of the journey to find out more about themselves. How do you want to know what suits you at that point in time?

What’s my personality?

It all begins with some basic assumptions. Look into yourself and ask yourself:

• Do I have fun with analytics?
• Am I a solver of abstract problems and challenges?
• Do I like programming software or mathematical algorithms?
• Am I an artist and do I like music, arts or graphic design?
• Is economics and economic relations one of my favorite topics?

This is very basic, but a point to start with. You must find something which suits you and where you already have some experience with. From biologic point of view: Where did you already build paths in your brain?

In that situation books about success and self-improvement can help. They often contain methods to find your personal strengths.

If you don’t work on that topic, you will never become a successful trader because you will never find an approach which suits you.

Forget predefined trading methods

I am very sure that the most traders will fail if they use trading systems from other people. They don’t mirror your personality and that’s the point where you start to sabotage it.

It doesn’t matter if you use an automatic trading system or a discretionary trading approach. If you can’t accept the outcome and decisions you will start to sabotage it. That’s why it’s so important to find a compatible approach.

You must start the journey of finding your own approach. In that journey trading approaches of other people can be an inspiration. Sometimes they match your personality to a high degree and you only have to adjust just a small parameter. In other cases you have to develop a complete trading system by yourself to accept it completely.

There is no shortcut

Finding you own trading style is a difficult thing and there is no shortcut. Often it means to get familiar with yourself and your identify.

Mistakes are unavoidable on that path. But every frustration and mistake will bring you closer to your goal. It is important to reflect your mistakes and your actions to learn from them. And be sure: Your journey is never finished because your personality will change over time. I am sure that you will be a different trader in 10, 20 or 30 years.

There are some sources which helps a lot:

• Books and videos about success, psychology, motivation etc.
• Biographies of other people.
• Spiritual books, videos and courses.
• A good mentor or coach which helps you.

In a nutshell: Use everything which helps you to know more about yourself!

My personal experiences

If I look back I can’t say exactly where I started as a trader. My interest in trading got stronger over time until it started to be my passion.

At the beginning I struggled a lot and tried every approach and every trading instrument. One month I was a pure technical and the other I was a fundamental technical trader. The next months I traded stocks, the other I traded certificates (popular in Germany). I tried different subscriptions of German trader platforms and newsletter …

But when I look back, certain things always accompany my trading career:

• Cutting losses with a stop-loss order always made sense to me. Maybe that based on my thinking about a businesses. You must make bets, but the bets must be small enough not to lose everything you own.
• Trading stocks. Although I traded every trading instrument on earth, I tended always to trade stocks. I like to understand what the company is doing and I have a strong attraction to technology and innovation. I have a lot of knowledge in this field and can assess how important a special technology is.
• Technical analysis. I am a very visual person because I started in the graphic design business. That means I have a trained eye and can quickly find patterns inside a chaotic image. I also like music very much. That makes me familiar with patterns and rhythms.
• Rule based discretionary trading. Although I make some analysis, this is not my strength. I believe in experience, craft and rules. Rules helps me to improve my work and experience helps me to find rules. I can develop simple own screener and indicators, but I can’t develop automatic trading systems. That’s why I always used a rule based discretionary approach. I tried some more systematic approaches in the past but I can’t stick to them. It doesn’t feel right and was not compatible with me.

I never would say that I am at the end of the journey. I always have fields where I struggle with. In the last months I tried to find out how important fundamentals are in my approach. Today I can say: Not so much. But I am very sure that there will be some challenges in the future. As long as my personality growths and changes I will be in the journey to find my own trading style.

Recommended books

Here is a small list of recommended trading books about this topic.

[amazon box=”007174908X,1118273052,0062315005″]

Der Beitrag The Hardest Thing About Trading … erschien zuerst auf Trading Blog - Julian Komar.

What’s a trading mistake?

A famous trader said that everything is a mistake until you follow your rules. Sounds simple, but it isn’t easy.

A losing trade is not automatically a mistake. Only if you broke your rules and the trade is a loser, it is a mistake. But winning trades can be a mistake, too. In that situation you only had luck.

In short: Trading mistakes are based on not following your trading rules. Besides that there are mistakes in order execution or technical mistakes. For example you can make a mistake while entering an order. But in that situation your process or routine is not good enough, because normally you should double check your orders.

Why reducing trading mistakes?

Mistake mostly cost money! It’s unimportant if it’s a losing trade or an execution error. If you reduce your mistakes, you will save money and improve your trading statistics.

In addition you will strength your mindset and improve your psychological situation. You gain self-esteem and you can rely on yourself.

10 tips to reduce trading mistakes

Here are a few tips how to reduce trading mistakes. They will help you to improve as a trader financially and psychologically.

1. Make mistakes transparent: Collect every trade in your trading journal and diary. Analyse them afterwards and find improvements.
2. Create a ruleset matching your personality: A lot of mistakes occur because the trading rules are not compatible with the trader. You have to change this! The rules must use your strengths and not your weaknesses.
3. Build and improve processes: Everything you do as a trader should be based on processes. Only if you have a defined process, you can repeat it again and again. Over time you must improve that processes with learnings and new information.
4. Use automation: You can automate a lot in trading, f.e. scanning for stocks, alarms or entering orders. This helps you to reduce mistakes.
5. Work on your mindset: A lot of mistakes are based on wrong imaginations or values. In example: If you think that a trader has to be in action all the time, you will force trades. Instead you could have a different picture of a trader as a focused and calm person.
6. Checklists: A checklist can help you to stick to your rules. It’s simple and very effective.
7. Use statistics to find mistakes: If you collected hundreds of trades in your journal, you can use this data to find mistakes. Often mistakes have something in common. Analyse your journal and find the commonalities of your mistakes regularly.
8. Score trades afterwards: If a trade is closed you should not only put it in your trading journal. Review the trade and score it: Was it a good trade? Was there a mistake? Were all rules fulfilled? Would you make this trade exactly again?
9. Review your trading journal with a second person: This helped me a lot! I sent my trading journal to a previous mentor and he reviewed my trades for me. He found a lot of things to improve and commonalities of bad trades.
10. Quality instead of quantity: Work on your quality everyday! If you improve your quality, it’s only a question of scaling to make a lot of money. Reduce bad trades, select the right time to trade and select only the best trading candidates. Then increase position size and use your edge.

Recommended books

Here is a small list of recommended trading books about this topic.

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Der Beitrag How to Reduce Trading Mistakes: 10 Tips erschien zuerst auf Trading Blog - Julian Komar.

If you do some research, you will quickly find out that all famous discretionary traders used volume: Livermore, Darvas, O’Neil and many more. But famous today’s traders use volume information, too: Minervini, Zanger, Ryan …

1. Volume shows greed and fear

The trading volume can give you clues about the greed and fear in a stock or any other trading instrument. An example of this trade model can be found on this BTC to USD website, live.

• If the volume is high on up-days it shows greed. Traders are heavily buying the stock and absorb all possible selling volume.
• If the volume is high on down-days people are fearfully. They sell a lot of stocks and throw their trading positions out of the window.

You can easily determine which side is in control if you look at the volume action. But the volume must be in synch with the price action.

2. Price and volume must be in synch

The best way to interpret volume is to look at the price simultaneously. Huge volume and huge price moves shows clearly which side is in control: Buyers or sellers.

If you see small price moves with high volume, you should be sceptical. Why? Because volume should be in synch with price! If this is not the case, volume should be seen as a warning sign. Maybe somebody is selling into strength or buying falling prices heavily.

Small moves and huge volume is NOT a selling signal, but you should monitor the stock closer.

3. Volume and small caps

Stocks with small trading volume are much more difficult to analyze. Sometimes there is one good volume day, but the other day the stock is crashing on low volume. This happens because there are not enough traders which trades the stock.

If only one mutual fund wants to buy a position in a smaller stock, there is not enough buying power for big trends. As soon as the mutual fund completed the position, the price and volume collapse.

A solution is to wait until there is enough interest and volume in the stock.

4. Everyone can see “monster volume”

You will not believe it, but there are traders out there which buys a ton of stocks in a second without looking at the price. Why? Because it’s their job! If a fund wants to buy a position and makes only money by fees, they can buy without looking at the price. In that situation a stock can explode to the upside with high volume.

Everyone can see “monster volume” in the chart. A 5x, 7x, 10x or 20 times the average volume is clearly visible and shows high demand or selling pressure. If you do some research, you will see that the most powerful trends started with more than 10 times the average volume. Screen for such situations and put the stocks on your watchlist.

5. Excessive volume

Volume is good, but too much volume can be a problem. It’s like a motor which is out of control …

In some special situations all outstanding shares are trades multiple times per day in a stock. That shows a high focus of all traders on that stock. And if a stock is highly in focus and everyone knows about it, there will not be enough buyers left. It maybe will work for some days or weeks, but then the stock has no fuel left and collapse.

6. One day wonders

Besides excessive volume there is another type which I call “one day wonders“. A stock explodes to the upside with huge volume and price action. The next day the stock is doing like if nothing happened: No volume, no price action anymore.

Such situations should make you sceptical. If that stock is the best stock in the world, where are the buyers? Maybe there was just one buyer and you. Normally such a stock will return to the level before the huge price move or collapse if no one is there to support higher prices.

7. Volume in ETFs

ETFs and volume is a different thing as stocks and volume. The reason is that ETFs are based on price movements of a basket of stocks. Even the ETF is traded on piece a day, it can explode to the upside. The underlying stocks determines the price movement of the ETF.

But the volume of an ETF can give you clues about the demand of the ETF or sector. If a sector ETF is traded with high volume, it can show you that the whole sector is on demand.

Of course this is not true in every situation. Sometimes there are large short-sellers in ETFs which hedges their portfolios.

8. Options expiration

A lot stocks are traded by options, too. You know that options have an expiration day. On that day, options are exercised and the option holder has to deliver.

The trading volume is very high on such a day, but price movement can be “normal”. You should know these days and ignore it. Of course this effect can have implications on a stock or the price move, but normally this is just intraday.

9. You don’t see all volume

Today there are a lot of ways to trade stocks. Especially market participants with huge volume uses different stock exchanges as you and I. There are market like OTC, Dark Pools or ECNs. The volume of such exchanges is normally added to the main volume after close.

10. Volume on news and earnings

News and earning reports can influence prices heavily. Sometimes this can be good for you and sometimes bad. But you should watch price and volume closely on such days.

If there is a great earnings report and nobody reacts with price and volume action, you should be sceptical. On the other side, if the market reacts strongly I can give you a clue that maybe more price and volume action will follow.

You must always have in mind that huge and smart market participants are not willing to buy their whole position in one day.

Recommended books

Here is a small list of recommended trading books about this topic.

[amazon box=”0471668265,0735201811,1118443926″]

Der Beitrag 10 tips to work with trading volume erschien zuerst auf Trading Blog - Julian Komar.

Normally new traders start trading in bull markets. Bull markets attract people to get involved in the stock market because everything looks easy. The markets only know one way and every pullback get bought. It’s easy to buy a stock and the gains flow into your account …

But if the first correction of the market starts, the most new traders lose all their gains and more. Why? Because they did not learn anything about the markets, position management and risk management. You cannot get enough experience in just one market cycle.

I personally get involved in the markets around the 2008 crash and earlier. After some years I started to get seriously interested in the stock market. I know what it means to get trough difficult periods. But my experience is just a blink in the eyes of market participant with 20, 30 or 40 years experience.

10 rules and experiences for difficult market environments

Here are 10 rules and experiences which I think are important in a volatile and difficult market environment:

1. Cash is a position: To stay in cash and on the sidelines is a deliberated position. It’s a tool in the traders toolbox to avoid losses. Of course you cannot make any money, but you will easily outperform the markets.
2. Going short is different than going long: Emotions in volatile and difficult markets are different. The fear of losses are different from the greed of gains. The rules to play the short side are different and maybe you need different strategies. Fast snap back rallies will throw you out of your position. In addition the chance-risk-ration of the short side is limited: A stock cannot go down more than 100%.
3. Not all stocks are a good short: Shorting stocks can be dangerous. Imagine you short a biotech company and good news appear on the screen. The stock opens with a gap of 85% or 120%. The loss you realize is terrific. The same happens if a company get bought out. Especially if you short a cheap stock and another company pays a high premium. My rule: Avoid cheap stocks and biotechs, trade small short positions.
4. Inverse ETFs helps to spread the risk: To decrease the risk of a single stock you can trade ETFs. There are inverse ETFs which follows a basket of stocks or an index with a negativ correlation. That means that if f.e. the S&P 500 falls 1%, the inverse ETF will rise 1%. There are inverse ETFs on the most sectors, forex and commodities. But make sure that the ETF you buy is liquid enough (>25k volume in average per day).
5. Look at other markets: If you are an experienced trader and you know your edge, you either stay out of the market or you look at other markets. There are several markets out there: Forex, commodities, bonds. Some of them have a correlation to the stock markets, others are independent.
6. Monitor your trading journal: You will not perform superb in any market cycle. The trading journal and your taken trades shows how your strategy performs. If you see that you have a negative outcome of the last 20 trades, scale back. You approach seems not to be working in the current environment. That’s why monitoring your equity curve and trading journal is essential.
7. Find a mentor: There are a lot of traders out there which have long experience in the markets. They went trough multiple market cycles and are still here today. Find such a person and apply to a mentoring program. Even if you will not make any profits, you will profit a lot from the thoughts and tactics of the mentor. My two mentors in the past and today were the best investments I took!
8. Defend your equity agains draw downs in any dimension: The most important thing is that you defend your equity curve against a big draw down! If you equity goes down 5% or 10% it is possible to get to new highs quickly. But if you have a draw down of 30% or 50%, it is very difficult. You will need a long time to see new highs. That’s why it’s important to have the most possible small draw down. Do anything what’s necessary: Small position sizes, stay out of the market, sell quickly or give up trading until a better environment appears. But never let your capital erode!
9. Never buy bottoms: After weeks or months out of the market, it will start to itch in your fingers … You may think that some stocks are oversold or see bottom formations. But I can say from my experience that from one night to the other a gap down of 5% or more is possible. If big funds must liquidate their positions, they sell without any other thoughts. You have to be patient until a lot of stocks build strength, make new highs and the bias in the markets changes. That needs time!
10. Do something else: I have some other activities besides trading. I also think that this is very important. If you look at the markets all the time, you will do stupid things. It’s much more effective to make a plan and execute the plan. So go out and find other activities to spend you time … As Jesse Livermore famously said: There are times to be in the markets and there are times to go fishing.

The 11. rule …

There is one hidden rule I want to write about: Psychology. The most new traders fail because they think trading is easy and get punched in the face if the time gets difficult. In that second they learned that the markets are bad and no one can win.

The thing that they don’t grasp is that successful traders started out the same way. The only difference is that they react different to the hurt they got from their first punch.

Unsuccessful traders give up quickly because they are only interested in excitement and the money. Successful traders are interested in the challenge and the game itself. That’s just a different view of the same thing. But the first trader will never get back to the markets like a child bitten by a dog, the second will return because he is interested in animals and learned that they are not always kind and cute.

So ask yourself: What type of trader do you want to be? I can give you a tip: Be the second, buy a lot of self-help and motivation books and bridge the time between the end and start of a bull market.

Recommended books

Here is a small list of recommended trading books about this topic.

[amazon box=”007174908X,0735201447,1118273052″]

Der Beitrag 10+1 rules for the current market environment erschien zuerst auf Trading Blog - Julian Komar.