Three Essential Components Of Trading

Every winner needs three essential components of trading: a sound individual psychology, a logical trading system and a good money management.

These essentials are three legs of a stool – remove one and the stool will fall together with the person who sits on it.

Losers try to build a stool with only one leg, or two at the most. They usually focus exclusively on trading systems.

Your trade must be based on clearly defined rules.
You have to analyze your feelings as you trade, to make sure that your decisions are intellectually sound.
You have to structure your money management so that no string of losses can kick you out of the game.

Dr Alexander Elder, Trading For A Living

Source: Options Trading Beginner

Trading Plan & Discipline

Just remember, without discipline, a clear strategy, and a concise plan, the speculator will fall into all the emotional pitfalls of the market and jump from one stock to another, hold a losing position too long, cut out of a winner too soon and for no reason other than fear of losing the profit.

Greed, Fear, Impatience, Ignorance, and Hope will all fight for mental dominance over the speculator. Then, after a few failures and catastrophes the speculator may become demoralized, depressed, despondent, and abandon the market and the chance to make a fortune from what the market has to offer.

Jesse Livermore, How to Trade in Stocks

Source: Solitary Trader

Positive Expectancy & Position Sizing

Your trading style forms a basis for your beliefs about how to enter the market.

This is important because you really only trade your beliefs about the market. It’s very hard to trade something that’s going up if you believe it is overvalued.
Similarly, it’s very hard to trade something that’s considered undervalued, if you believe (because it is going down) that it will continue to go down.

But it really doesn’t matter what framework you select for picking your trades or investments. That’s only the starting point for real success.

What’s really critical is that you understand that you make money by cutting losses short and letting profits run. This will give you a positive expectancy system.

And if you can do it in such a way so as to develop a good system, then you can probably achieve your objectives through the appropriate use of position sizing.

And if you can continue to do this without making many mistakes, then you’ll probably be happy with the results.

These are the real keys to investment success.

Van K. Tharp

Source: IITM Weekly Update

Perfect Speculator

Perfect speculator must know when to get in;
More important he must know when to stay out;
And most important he must know when to get out once he’s in.

Unknown

Trading System Helps Control Your Emotion

The trading system gives the trader the ability to control his or her emotional states rather than allowing them to control him. A system is a disciplined method for organizing dynamic, ever-changing market phenomena.

Bill Lipschutz

Golden Rules of Investing

Three Golden Rules of Investing:
1) Buy strong stocks in the strong sectors in an upward trending market.
2) Short weak stocks in the weak sectors in a downward trending market.
3) Stay out of the market and in cash when there is no definable trend

Peter Navarro

Money Management

Traders and investors spend all their time in search of the ultimate trading method. They have no clue that the road to stock market riches ultimately lies in sound money management.

David W. Aloyan

Follow Your Rules

As a trader it is more important to know that you will always follow your rules than it is to make money, because whatever money you make, you will inevitably lose back to the markets if you can't follow your rules.

Mark Douglas

Trading Plan

Plan your trade and trade your plan.

A Wall Street axiom

Disciplined Trader

The best trading system in the hands of an undisciplined trader is a losing system.

Jake Bernstein

Source: Options Trading Beginner