Not many people define their trading rules. Worst still , many beginners traders have a beautiful set of trading rules written on paper , which they do not follow.

” The first rule of trading is to survive ; the second rule is that all rules can be broken if that supports the first rule ”

Life is a judgment call , but that call is based on having data and systems to make life work better ; so is with trading. We need a systematic approach to enter and exit trades. There is no holy grail in trading. A perfect system or perfect strategy does not exist. Never has , never will . Stop searching and work hard on other trading topics …

We need some form of judgment when we use our trading system , supported by your own set of trading rules and your own trading behavior or psychology.

Successful trading is an Art of using knowledge and systems at the right time. We do need systems and rules …

I came across this article about weight loss …

” It seems that overweight people never reach their goals of becoming thin , and that many thin people eventually become overweight. The diet industry and the medical care providers profit greatly from this problem.

There are many people who lose weight permanently through dieting , but they have to continue doing what made them thin for the rest of their lives. Most of us cannot imagine being on a permanent diet or extreme exercise program. That is why the diet industry is so huge - it’s a big merry-go-round. People finish one diet , gain back all the weight they lost , and jump onto the next diet fad.

We are all searching for the diet that will give us permanent weight loss. There is only one problem with that - it doesn’t exist ! There are only permanent diets ! It only makes sense that if you lost weight on low fat , low carbohydrate or low calorie diet , that you are going to …

Online trading is a risky business. Many of us were lured into this venture with promises of overnight richness and success. Yes , some made it big time. Seminars and gurus will tell you that they will reveal their trading secrets. As such , you bought a “trading system” , with the hope of making it rich one day. I bought many of these dreams too , one after another … ( Not any more now , of course ) Bottom line , I lost money during that education stage.

Bet you thought you didn’t need help in learning how to drop your hard-earned money trading. My bet is that you have no idea how to lose ; hence , you lose …

Anyone can win , and it takes no great feat to win in the stock market. Trading gurus will tell you how simple it is to win. Winning is a glorious feeling , hence something you can pretty well control , handle , or take care of in your own fashion. In the winning mode , everything seems beautiful.

But …

Does this heading sound familiar to you ? You must have heard it many times … ( I quoted this in my previous post too )

Please note that the statement is to sell the fact , not buy the fact. Implicit in this statement is the assumption that the rumor is bullish. Rumors , however , could be bearish too.

Bullish rumors are what we base our buying on. Once the bullish fact is known , then it is too late to buy because the bullish news would have been factored into the stock price. Instead it should be sold. The concept , then , is to buy in anticipation of bullish news and sell when the news is out. I used to monitor pre-earnings in some of my favorite stock picks. It has to be a fast game …

If the rumor you heard is bearish , leading to actual bearish news , then the statement , buy the rumor and sell the fact , does not hold. In fact , there …

Some traders love market news , because news often makes the market move , and these traders thrive on volatility. Other traders hate news. They feel that news cloud their views of chart patterns , technical indicators , cycles etc. At times I do not understand why markets seemed to move contrary to the news. Many experienced traders capitalize on the news by following the old adage ” buy the rumor , sell the news. ” Are you in this category ?

Some of my trading gurus ( teachers ) told me not to trade during news release or during earning seasons. This kind of advice is debatable. As I progressed and learned more about the impact of news on market , I begin to observe some cogent points to consider in relation to the news …

In trading , the market response to the news is even more important than the news itself. One would also wonder whether the market anticipates the news before the news is published. …

In ancient China , Sun Tzu guided his military generals to wars using timeless concepts such as :

“think before you act” and ..
“act only when you are sure of a favorable outcome”

Do you think the above statement is very applicable to trading ?

Much of Sun Tzu’s teachings are focused on “the enemy.” If there is an enemy for investment and trading , then it is likely to be the enemy within - your own human emotions , that is - yourself.

Sun Tzu believed that anger and greed are the fundamental causes of defeat. He taught his followers that it was the unemotional , reserved , calm , detached warrior who wins , not the hot-head seeking vengeance and not the ambitious seeker of fortune. The Stock Market is like a battlefield. There is no room for “gut-feel” when it comes to investing. It requires rational and logical thinking in the midst of chaos , and decisions based on probabilities , not emotion.

Investors and traders should benefit from developing an appreciation of the ancient …

In the stock trading and investment world , there are two opposing philosophical camps. The first camp subscribes to the notion that ” the trend is your friend ” and that you must identify the trend and ride it in the direction that it is moving. Most traders fall into this category. A trend-rider is an integral part of the crowd , sensing its direction and merging with it. There is a compelling logic to this philosophy because it works perfectly well in the right context. Trend riders can do very well when they buy into a rallying market.

The second camp subscribes to the notion that , in order to make real money , you must do what is contrary to the crowd. Thus , to be a contrarian in the market means that you identify the trend and trade in the opposite direction , buying on widely perceived weakness and selling on widely perceived strength. Do you have the guts to trade in this way ? Not for me … There …

The psychology of trading is about the psychology of beliefs , strategies and behaviors. Trading is a mental and physical game which provides an intellectual with physical and emotional challenge of the highest order. This is absolutely true …

What is your reason for trading ? How does losses affect you ? It all depends on your psychological make-up. If you have fear of losing or fear of failure , this may have built upon itself. On the other hand , if you are more resourceful in such circumstances , losses can be an excellent opportunity for learning.

Our psychology determines the way we trade , the way we handle risks , how we react to volatility , and how we deal with losses if they occur. It is between maximizing profits or minimizing losses. Trading is really about maximizing profits at a managed level of risk. Proper education and hard work as well as analysis can help us understand and minimize risk.

Psychological make-up does not only include emotion , but also philosophy of life. …

What are your top two goals in your life at this point of time ? Security and Sex ? Health and Security ?

Success and Happiness for me at this point of time as a trader. Many traders never achieve success and happiness simultaneously. Key reasons are :

We worry constantly about losing in the markets. Fear and confidence factors.
We need to feel excitement , which tends to create losses. Many people pay to get excitement from the market.
We set conditions on our happiness. Do you do that too ?
We focus on what we do not yet have. Day dreaming too much …

As traders become more successful , they have more to lose , more to worry about and more to achieve before they can become happy. Misery-thinking too often becomes a way of life for traders. Then they can never be happy …

Yes , this potent combination of trader success and trader happiness is rare. That is because so few traders understand the underlying forces in their profession which work against their happiness as they propel themselves toward success….

I was having breakfast with a an “old” friend ( I don’t mean age ) this morning. I was asked how I felt about the current market situation. Generally , world market has been bullish for quite a while. Is it time or is it too late to get into the market now ? Can I open an trading account now ? Will I missed the boat ? These are some of the common questions people tend to ask … especially when market peaks to tops or bottoms.

That brings me to my discussion topic here - Market Sentiment. Sentiment is just another word for “feelings”. It is amazing how public “feelings” tends to be closely correlated with stock market price. In other words , very negative opinions are usually predominant during the bottoming phase of a market move , and , very positive opinions are usually prevalent during the topping phase of a market move.

Market sentiment is not a trading method which can be used independently. However , it is a valuable ” …