Secrets of Market Wizards

you guys are like white belts in karate trying to do black belt moves. almost all of you lack the basic fundamental skills of trading so whatever you copy from market wizards will likely end in failure.

 

great post. i think the younger, the better at pattern recognition. my 3-years young daughter can finish 150 puzzle in less than one hour, i challenge any adult can do that.

 

When it comes to tips on how to become a good trader, you have two choices: either generalities or specific instructions (e.g. systems).

The reason people become tired of generalities is that they seem to be the same things repeated over and over (to me that is an indication that they are right!). You are taught a principle, but figuring out how to apply that principle given your own personal proclivities IS THE CHALLENGE.

As for systems, well, I believe there are systems that work, but that there are very very very few systems that can work for extended periods of time because of "Reflexivity" (Soros' idea).

People think that a system makes it easy, but the irony is that the search for a system that works is itself very difficult and that is what becomes the hard work since you have to sift through a ton of cr@p.

 

Good post. I agree. Well said!

Search for system is the most painful endevor one can go through. Google "synthesis of trading systems" for remedies.

 

You more or less hit it on the head. Markets are like a boxer they react. just because his hands are down and he is violating every classic boxing rule in the book, doesn't mean if you are in the ring you are going to beat him. Outworking your competition is the only way to be successful. Most ET gamblers here would rather roll the dice though. Others just waste time hoping for that once in a lifetime event, which they'll probably still fuck up when and if it does come.

 

Considering the Meta Trader…

Meta Trader is the most popular trading platform among currency traders. If you are using one in your trading, congratulations! The author was about to write another helpful trading article when he was suddenly inspired to write a poem about this world-famous software.

Poem for Meta Trader

You connect me to a marvelous world
Where profits are gathered not with words
You enable me to engage and play instruments
You’ve features for me! Ideas inspired into men!
If an instrument looks sexy,
You show it to me, not being pesky,
You couldn’t care less about a trader
You show facts as put by your makers
You’re firm. You’re detached. You’re cute. That isn’t lowly!
Price changes are what drive you
(And the mastery inherent isn’t for fools)
Though I can’t see tomorrow, I’ll make the most of now
To do my best, and manage best, I vow
So that I go in the path of market wizards
So that I remain safe when prices are gripped by blizzards
This is the most popular trading platform! The most used trading software!
This is the trader-friendly means. This is what’s put in the hardware!
(Please listen great traders… Would you suppose I might abandon a means that’s helped me get attention?)
Going back to Meta Trader… I’m relentless
So as not to be any time defenseless
Then concerning the calls… when they get to us
…Oh! How about open orders as if in a bus?
Trading isn’t about avoidance of losses?
Speculation isn’t about leaving bosses?
Now. Great. I’m aware of this. But I trade for a reason
You’re great. And I cherish you. And my portfolios. And the season
And likely I’ve fallen in love for a reason
The Meta Trader… looks dense… Yes that’s me
To speculate and arrange my orders as I see
I expect we realize our aims together
(This is the ultimate aim… but I bet I’m tethered
Perhaps I’m a trader who’s metamorphosed
To call trades, to close trades, I’m not forced
With the cutting-edge tool, I’m hooked)
Congrats! Meta Trader users.

Source: Paxforex.com

 

A Trader’s Trick Entry Technique

The trading technique described in this article is one of the trader’s entry techniques available for traders. This one comes with the Simple Moving Average period 12 (SMA 12), and the Commodity Channel Index period 20 (CCI 20). Here, the way the CCI is used is unique because it isn’t according to the uses suggested by the conventional trading wisdom. Conventional trading wisdom suggests that any CCI reading above the +100 level is an overbought situation (which would make a trader seek short trades), and any reading below the -100 level suggests an oversold situation (which would make a trader seek long trades). However, with this strategy, the CCI overbought and oversold situations are done away with; only the level 50 is used with the idea that any reading above the level 50 means an uptrend and any reading below the level 50 means a downtrend. This is true no matter how far the CCI is above or below the level 50. In a strong uptrend, the price will be above the SMA. In a downtrend, the price would be below the SMA. When the SMA shows a strong uptrend and the CCI supports it - no matter the extremity of the CCI – then any transitory bearish correction that pushes the price towards the SMA is a high probability buying opportunity. When the SMA shows a strong downtrend and the CCI supports it - no matter the extremity of the CCI – then any transitory rally that pushes the price towards the SMA is a high probability selling opportunity.

Details of the Strategy
Strategy name: A Trader’s Trick Entry Technique
Time horizon: 4-hour charts
Suitability: Good for both part-time and full-time traders
Indicator 1: SMA 12
Indicators 2: CCI 20, level 50
Instruments: Use any pairs and crosses whose spread is not more than 15 pips each.
Long entry rule: Buy when the price dips and touches the SMA 12, while the SMA is sloping upwards and the CCI is above 50 (no matter how far above 50). The long trade is best opened as soon as there is a bullish candlestick which follows the scenario above.
Short entry rule: Sell when the price rallies and touches the SMA 12, while the SMA is sloping downwards and the CCI is below 50 (no matter how far below 50). The short trade is best opened as soon as there is a bearish candlestick which follows the scenario above.
Stop loss: 100 pips
Take profit: 250 pips
Risk-to-reward ratio: 1:2.5
Lot sizes: Please use 0.01 lots for each $2000 (and thus making it 0.1 lots for $20000); or 0.1 lots for each 20000 cents in a cent account (making it 1.0 lots for each 200000 cents)
Trade management rule: Move your stop loss to breakeven after you’ve gained up to 70 pips or more on a trade. Lock about 100 pips of your profit thru a custom-set trailing stop after you’ve gained up to 200 pips or more.
Maximum trade duration: 2 weeks

A Trading Instance
There are numerous trading examples that can be taken in bull and bear markets. In order to prove that the strategy also works in bear markets, the trading instance shown here is a short trade. The vertical red line on the left pinpoints where the trade was entered, and the vertical red line on the right pinpoints where the trade was exited. On the attached chart, it would be seen that both the SMA 12 and the CCI 20 show a Bearish Confirmation Pattern on the chart while the price was trading below the SMA. On February 22, 2013, the price rallied in the near-term and pushed against the SMA. Then it traded in a range, showing indecisive candles. We wouldn’t have taken this trade if the price crossed the SMA 12 to the upside and closed above it. If that happened, we’d not take the trade. But in this particular scenario, the SMA 12 was acting as a kind of barrier to the bulls’ interests. That same day, there came a bearish engulfing candle and the opportunity was quickly taken: going short. The spread wasn’t considered here.
Instrument: GBPJPY
Order: Sell
Entry date: February 22, 2013
Entry price: 142.207
Stop loss: 143.207
Trailing stop: 141.202
Take profit: 139.707
Exit date: February 25, 2013
Exit price: 139.707
Status: Closed
Profit/loss: 250 pips


When It Goes Out of Sync with the Markets
The only thing that can go wrong is when we’re on a wrong side of a trade. When this happens, the instrument that has been going up for several months (even years) would just hit a great distribution territory and begin to fall from the pinnacle of its strength, just like Napoleon after Moscow. Stop Loss limit assists in checkmating risk, but since we’re not 100% sure whether or not a particular trade would be positive, the strategy trades each valid signal until there is a winning trade. But that’s part of the probabilistic win-loss proportion that must be agreed with from the outset. There’d be losing orders, but we’ve confidence in the expectancy ratio that confirms that the strategy would soon become profitable again and recover some recent negativity. One needs not get mad because of a losing trade. Even Market wizards also sustain negativity, yet they beat the markets on annual basis. It’s too bad to take some negativity too serious and quit an activity that could ultimately give you some decent returns in a foreseeable future. Therefore the more stable (that is, the more vivid) a winning or a losing period is, the more dependable the strategy could be, especially, in those periods that a market type is not favorable to it. If negativity and positivity are statistically weighed the strategy would possibly appear more effectual and perhaps might be more profitable or the returns would be increased, irrespective of some uncertain assurance for tomorrow. A protracted winning or losing period would proffer vivid indications when a market type is not favorable to it, as those periods materialize. Conversely, the alternate losing and winning periods is enhanced in favor of the trader, portending a more robust strategy.

Conclusion: Mature traders exude rectitude when it comes to being loyal to their trading plans. In this aspect, mature traders aren’t remiss. This is one of the keys that can make us stay long in trading, for this is our major aim. Any temporary loss that’s encountered won’t deter us from taking new trades that could possibly go in our favor. So we’re advised to:
1. Speculate only on what we see, not what we want.
2. Use small position sizing so that we’d only have small losses which can be recovered quickly. This idea is very helpful to the trader’s mindset.
As emphasized in this conclusion, if we’re faithful to our trading rules, we’ll end up being victorious in the markets.

The article is concluded with a quote from Dr. Van. K. Tharp:

“I think the most important trait that all top traders have (or top people in any field) is the ability to assume total responsibility for what happens to them. And for top traders and investors, this means that they assume total responsibility for their investments results.”


Disclaimer: This is not a trading recommendation. The article in this piece is just about what the author is doing, not what he wants others to do. There’s risk of loss in trading.

Source: Paxforex.com

 

Patience Bears Rewards in Trading

Why aren’t we patient while trading? Why do we prefer instant results always? We’ve become an immediate gratification culture, and we expect profits to come quickly, efficiently in the way we want. When that doesn’t happen, we tend to become increasingly frustrated and irritable - a sign of impatience. One source says that, for one thing, in trading, impatience is linked to frustration, irritation, and even anger. Such emotions can raise our stress level, which in turn can harm our health. Impatient isn’t harmful only in trading, it’s also harmful in other areas of life. Author Marvin Lewis writes: “In an act of impatience, a man in San Francisco, California, tried to beat traffic by swerving around a lane of cars that had come to a stop. However, the lane he pulled into had just been laid with fresh cement, and his Porsche 911 got stuck. The driver paid a high price for his impatient.” (Our Daily Bread, February 19, 2012).

Impatience Can Be Harmful
These are some of the adverse effects of impatience in trading.

1. Dithering: Impatience eventually leads to ironical procrastination in making trading decisions. Could it be that they felt compelled to postpone financially risky and highly competitive tasks of playing the markets, because they don’t have the patience needed to work on themselves until they become an expert?

2. Bad Trading Decisions: Certain good strategies require patience before you can find the best setups. If one is impatient, one can make hasty trading decisions that violate one’s rules and later regret it. When some orders are also still open, an impatient trader can make some unwise adjustments to the open orders. It’s been found that impatient speculators often make hurried, dismal speculation choices.

3. Margin Calls: The fate of most people in the financial markets is the consequence of undue patience, coupled with inordinate avarice. Lack of patience in trading has led numerous traders to overleverage their portfolio excessively (instead of using high leverage judiciously) because they want to turn a small portfolio to 5-figure income as soon as possible. Newbies who make huge gains and huge losses are less happy than those who go for small losses, and consequently small profits. The use of small position sizing and safe risk control doesn’t appeal to those who want instant gratification. According to Clem Chambers, you should strive to get rich slowly rather than to get rich quickly. Looking for instant riches tends to satisfy human emotions, but it can lead to quick penury.

4. Loss of Reputation: No-one wants to be identified with failures. If you can keep your investors’ portfolios safe, even in spite of small profits, you’ll still be popular with them. But if you go after the biggest possible profits within the shortest possible time (this target is attainable, but rarely leads to everlasting success in the markets), and you happen to lose your investors’ portfolios, you’ll lose your popularity. Once one’s popularity is lost, it’s extremely difficult to gain it back. It’s better to be safe than to be sorry. Some gurus were popular yesterday, but because of impatience, they lost their reputation. I’ve always featured profitable generals of the markets, and will still feature many more. However, I’m not interested in market wizards that crashed and got burned. I’m only interested in those that are permanently successful. These successful trades have protracted periods of flat performances, followed by protracted periods of roll-downs, followed by protracted periods of consistent profits. The great thing about all these periods is that these generals of the markets remain patient throughout the successive periods, and they survive the markets in the long run.


Stop Being Impatient!
It does little good to worry over things you can’t control. The more patient you’re in the markets, the more likely you’re to have better results, make better decisions, and progress in your career. Instead of losing patience over circumstances that are beyond your control, try to identify things you can control as a trader, e.g. Have a realistic view of trading. First of all, in reality, things don’t often transpire as we want. Don’t forget that you can’t control everything that happens to you in life. Accept that time moves at the speed of time and not at the speed of your expectations. Accept that the markets cannot be forced to give you profits; you simply need to do the right things as a trader, and profits would take care of themselves. That’s patience. Study the secrets of market wizards and learn how you can trade less anxiously and more patiently. In time, patience can become a quality that comes naturally to you.

Conclusion: Most persons would attain their goals in life if they learn from their initial errors and try never to repeat them again. With step by step assimilation of the realities of their chosen endeavors, they master their various careers. The problem is that, most persons don't apply the principles of success to their speculative activities. They approach trading with levity. They simply dash into trading and see it’s not that easy. They may stay away from trading briefly, only to come back and experience the same results, repeatedly. During this experience, they still fail to use it as leverage to trading mastery. They can use that experience to become astute speculators. Can that be the best thing to do? We approach university studies and professional courses with utmost seriousness, persevering in spite of obstinate hurdles. We approach highly competitive sports and other forms of commercial activities with staunch determination and unflinching commitment. But we tend to approach trading with levity. Trading is a very serious profession which we should approach with staunch determination and unflinching commitment.

A quote from Richard Russell ends this article:

“And if no outstanding values are available, the wealthy investor waits. He can afford to wait. He has money coming in daily, weekly, monthly. The wealthy investor knows what he is looking for, and he doesn't mind waiting months or even years for his next investment (they call that patience).”

Source: Paxforex.com

 

Lessons From Expert Traders

The tactics, behaviour and mindset that can be learned from the world's most successful financial traders

I’ve got to stick to your own rules, even if they make me look stupid sometimes. That’s the fact for survival. Irrespective of some negativity that may come my way in a month or, even on a quarterly basis, I know I’d be triumphant in the end. Any temporary negativity I may be experiencing right now has little or no effect on this fact. My expertise is measured by my faithfulness to my trading ideas. That’s the most important factor. If I follow my rules, then I’m making progress, but if I breach my rules, I need to go for psychological help. This has nothing to do with whether there is an ongoing positivity or negativity.

The game of speculation usually entails emotional hurdles to overcome. Going against the herd mentality can’t be over-emphasized. Speculating triumphantly needs self-awareness and the knowledge of how the markets work and positive expectancy systems. There is negativity now and then in trading; yet positive expectancy systems have enabled expert traders to enjoy everlasting success in the markets, whereas majority of traders cannot achieve this.

Following on from a popular blog on ADVFN.com, in Lessons From Expert Traders Azeez Mustapha brings you concise and digestible lessons from 20 of the world's most successful traders.

By learning what these super traders did well, what techniques and attitudes drove them towards success, and the mistakes that they have made, you can take a step forward in your own trading.

For each personality profiled here, the author includes a short biography, the primary lessons that can be learnt from this trader's career, and words of wisdom from the traders themselves.

Traders featured include: Alexander Elder, Benjamin Graham, Anton Kreil, Jesse Livermore, Adrian Manz and Lex van Dam, etc.

Approach your trading by first discovering how the most successful people in the field have operated - you are sure to pick up some invaluable lessons to improve your method.

Here are the ground-breaking lessons from expert traders: http://www.harriman-house.com/experttraders

 

Can Stunning Accuracy Help Your Trading?

Do you know how top traders handle their positions? Schools encourage us to multi-task flawlessly. The more errors a student makes, the worse the marks awarded and therefore less the commendation, for many errors. Mistakes are frowned on in the medical world, business world and the engineering world. Indeed, the willingness to be perfect in all fields of human endeavors is acknowledged – an inborn tendency.

The tendency to be perfect has made neophytes believe that good traders should never lose; or should rather have 85% - 95% probability. They think they need to win always in order to make gains. After a losing streak, some swear never to trade again. The fact is that people will do things that increase their enjoyment and refrain from what tends to aggravate their pains. People try to escape negativity by failing to trade new signals, since – psychologically – it’s thought that more loss is avoided if new signals are not traded. You would need to do away with bad thinking that has adverse effect on your trading. When you have a negative trade, try to find out why and how you could improve your trading. Do not dwell on your past bad experience since this does not help you. You would need to focus on more opportunities ahead of you, and not weighed down by the forgone events.

Those who wish for perfection while speculating would be quick to truncate their winners because they don’t want them to revert to negative territory. As a result of this, a trading system that has more than 70% should be evaluated in the context of the mean equity curve and drawdowns. Someone with 95% accuracy can receive a margin call on his account, if his position sizes are too big, and no stops are used, or the stops are too wide and take profit zones are too tight. Someone with less than 33% accuracy can become a permanent victor in the markets, if his position sizes are very small, and he uses stops, and rides his winners or he sets tighter stops and wider take profit zones. You can win 3 trades, lose 7 trades, lose another 7 trades and win additional 3 trades and still be a winner. Conversely, you can win 8 trades, lose 2 trades, win another 8 trades and lose additional 2 trades and eventually receive a margin call. It all boils down to money management, golden rules of trading and risk control. Therefore, in spite of being inborn, perfectionism doesn’t work in trading.

With much experience as a trader and trading systems developer shows that over a very long period of time, one would hardly be right far more than half of the time (if many signals are generated on monthly or yearly basis), even if it appears that one achieves 100% accuracy under certain market conditions. Very soon, a winning technique would undergo some losing streaks, whether on a monthly basis, or quarterly basis or yearly basis. There aren’t many speculators who can boast of more than 65% probability in many years. These traders are geniuses and would often apply common sense with any trading methodologies they use. There’s not much psychological benefit from a winning trade that’s realized when we violate our rules. That winning trade is only realized out of luck. We should accept that fact that we’re the ones that opened a losing trade as well as a winning one. This is a fact.

Are market wizards (generals of the markets) achieving 90% - 100 % probabilities consistently? If we analyze their trading performances since the beginning of their various careers, we’d see that this is far from being true. Think of Dr. Brett N. Steenbarger, Dr. Alexander Elder, Philip Fisher, David Harding, Adrian Manz, John Templeton, Michael Covel, Tim Knight, etc., these are successful names in the trading world. Yet, they got no 100% accuracy. With being right less than half of the time, they still achieve decent percentage returns. They simply make more money than they lose. You see, the market presents equal opportunities to everybody on earth. Everybody competes in the market, but only the skillful and the disciplined come out home and dry. How many percentage returns do you think Warren Buffet make on annual basis? Did you think he doubles his accounts every year? Even there are years in which Warren doesn’t even make a profit. There are also traders who perform better than him, only that they have smaller portfolios.

How could you end up winning with lower hit rate? That’ll be explained in another article. Wasn’t it 40% accuracy that gave me nearly 12000 pips (49%) in the year 2011? Wasn’t it only 35% accuracy that gave me 4500 pips (21%) in the year 2012? Isn’t less than 40% accuracy that has given me over 2200 pips (10.2%) so far in this year? Even with this, I usually have more than a few months of losses in a year. Sometimes, I even lose more than 10 or 5 trades in a row, and yet I don’t go down more than 5% or 8%. This is possible because of my very small lot sizes and risk control techniques. I got to cut my losers, or else I’m in trouble. I just make the losses to be so small, so that whenever the market conditions become ok for me, I shoot ahead. For example, if I win 10 or 15 trades in a row, I gain about 10% or 16% or even more.

Conclusion: It’s common that certain traders don’t consider exotic pair and crosses when they trade, because they’re not as popular as majors and because their spreads aren’t tight as those of majors. Should you trade on an instrument with a higher spread when the spread on the GBPUSD is much lower? Why would you trade the GBPCFH when the EURUSD is readily available? Some think that low spreads matter and that high spreads could magnify losses and reduce gains. This is true. But there are many wonderful opportunities on those exotic crosses as well, especially if you’re using a trend-following strategy. If the GBPNZD moves by more than 500 pips in one week, would it matter much if the spread on it is 20 pips?

This article is concluded with a quote from George Soros:

“I’m right in arguably no more than half of all cases, but I just make a lot of money whenever I’m right, and lose as little money as possible when I’m wrong.”

Source: Paxforex.com