(NOTE: This article is the first in a new series about vital lessons from the world’s greatest traders and how these lessons are not only essential to your success as a trader, but will also lead you to success in most other areas of life.)
Paul Tudor Jones II, one of the most successful traders ever.
Paul Tudor Jones II:
“The most important rule of trading is to play great defense, not great offense. Every day I assume every position I have is wrong. I know where my stop risk points are going to be. … If they are going against me, then I have a game plan for getting out.
“Don’t be a hero. Don’t have an ego. Always question yourself and your ability. …
“My guiding philosophy is playing great defense. If you make a good trade, don’t think it is because you have some uncanny foresight. Always maintain your sense of confidence, but keep it in check.” [Source]
Paul Tudor Jones II is one of the wealthiest men in the world. Forbes says he’s worth $4.6 billion. He started out as a broker in the late 1970s and earned $1 million in his second year on the job. He decided he wanted to be a self-reliant trader instead. [click to continue…]
Trading the Trend in 2014. (Click on the chart to enlarge.)
The Darvas System is a trend following system. As trend followers, we know we can make big money during Uptrends and big money during Downtrends. Sounds simple enough.
But then, there are Neutral Trends.
Neutral Trends are those tricky “consolidation” periods between Uptrends and Downtrends. They are a necessary part of the market’s ongoing cycle as they give quality stocks the opportunity to form new sound bases and they allow the general market time to digest recent up (or down) moves before continuing in the same direction or reversing course.
Neutral Trends are a constructive and necessary part of trend following. They usually represent the “calm” before the storm. The lull before the next big trend, when the big money can be made.
The most frustrating Neutral Trends are those that are exceptionally choppy. This past year, we saw several of those choppy market periods.
The good news is that these choppy periods always come to an end. Eventually. The trend follower must be patient and disciplined as they wait for that new trend to emerge.
As an example of trend following in action, let’s take a quick look back at 2014. [click to continue…]
Jesse Livermore, the legendary trader who started from scratch and traded his way to a fortune of more than $100 million by 1929, offered traders many invaluable lessons on discipline, focus, and following the market’s trend. Livermore would admit that he ultimately had trouble following his own advice, which makes it all the more important that traders today continue to remember his lessons.
One of my favorite stories from Livermore was included in his classic book, How to Trade in Stocks. If only more people would follow this advice today… [click to continue…]
I like to keep things simple. As Albert Einstein said, “Everything should be made as simple as possible . . . but not simpler.”
With that in mind, here is a list of 12 simple rules that I have found to be the key to successful trading. If you’re not getting the results you want as a trader, you’re breaking one or more of these rules.
Rule No. 1: Follow YOUR Dreams
The dream of being a successful trader, especially someone who trades for a living, is one of those “big” dreams that naysayers love to squash. Don’t listen to these cynics. There are too many examples of people who have started with very little and made fortunes trading. You can be certain they’re glad they didn’t listen to the naysayers. On the other side of the coin, make sure that you really enjoy trading before committing to it. All the great traders I know have a true PASSION for the game of trading. If you don’t have a passion for trading, you won’t last long. [click to continue…]
Over the past seven years, I’ve been coaching stock traders from all over the world. I sort of stumbled into this career as a trading “coach.”
After updating and revising the legendary Darvas Trading System for modern market conditions, I started a small little newsletter to share my implementation with those who were interested. This service grew faster than I expected and I now teach fund managers, financial advisors, and independent traders from all over the globe. Some of these traders are beginners, some are managing small personal accounts, and some are rich enough to have stadiums named after them.
While my newsletter is a how-to guide with predetermined buy points and exit points for every stock trade that fits the strategy, I also make it a point to answer every email I receive from my readers. This is where I went beyond simply writing about the Darvas System and became more of a trading “coach”.
I love being a coach for other traders. I love teaching and interacting with ambitious individuals. I learn so much from our interactions and it helps me become a better trader in the process.
Not surprisingly, after years of doing this, I’ve started to see some common recurring problems emerge. Regardless of background or experience level, some traders will struggle with the exact same issues again and again. [click to continue…]
I spend a lot of time talking about the psychological side of trading. My recent interview in Traders Magazine focused solely on the mindset necessary for successful trading.
Why do I spend so much time and energy discussing the psychology of trading? Because the longer I’m involved in this game, the more convinced I am that having the right mindset is the most important aspect of succeeding as a trader.
Learning how to trade a proven trading system is relatively simple. The rules laid out in a quality system should dictate the vast majority of your trading decisions. A successful system, with predetermined buy points and sell points, should take the guesswork out of your trades.
Having the mental discipline to FOLLOW a proven trading system is where most people get tripped up. Trading is an emotional battle and when emotions are involved, dumb mistakes get made.
My experience as a trading coach, where I work with traders from all over the world, has hammered home the importance of one’s mindset. [click to continue…]