Saturday, January 06, 2007

Some Thoughts About Trading

I've always felt that the market had a secret code and if I could crack this code I would do well. I figured the holy grail is out there, all I had to do was find it and I would make lots of money. Well let me be the first to admit that I haven't found the holy grail and I suppose I never will. But that's ok because it doesn't exist.

What does exist is the market, the participants in the market and myself. I can't control what the market does but I can control what I do. So doesn't it makes sense to study ourselves as much as we study the market?

I've learned over time that less is more. Less information has actually been more profitable for me than too much information. When we have too much information what happens is it will invite confusion and plant seeds of doubt in our mind which will cause us to not have confidence in what we are doing. I try to keep this very simple. The key is to know what information is important to us and then use that information to make trading decisions. I'm always very clear on what I am doing. I don't mind being wrong about the market, I just don't want to be confused about being wrong if that makes any sense.

Another thing I have learned is that markets are forever changing. What worked well in the past will not work well in the future and what is not working now might one day be a very profitable approach to the market.I really think the ability to change or adjust your trading with the market is what separates an average trader from a super trader. I know guys back in the late 1990's who would buy the open and exit on the close..That worked well when we had a runaway bull market but if you were to try that strategy now it would mostly likely lose alot of money. The reason for this is because the market has changed. I also knew people who played the stockmarket from the long side on Mondays because of the tendency for stocks to rally on Mondays. Well that appraoch doesn't work anymore either. So the market is constantly changing and we must always be aware of this if we are to succeed as a trader.

I also believe that how we manage our money is more important than how we analyze the market. I've seen profitable trading systems lose money because of poor money management. I've seen poor trading systems lose very little money because it was traded by a trader who had excellent money management skills. So money management can make all the difference in the world when it comes to trading performance.

The last thing I would like to say is that it's important to become balanced. Every now and then we need to step away from the market, look around and enjoy life. Most people who have a passion for trading tend to spend all their time studying the market and not enough time with their family and friends. Just like the market seeks balance we must seek balance in our lives which means being able to walk away from trading for a few days. This has been one of my biggest problems but I'm working on it!


chronictown said...

kevin,Good stuff, Thanks

zentrader said...

Great observations Kevin. I'm printing it out and posting it up on the wall next to my computer!


Kevin said...

Thanks guys

h. lovil said...

Kevin- you posted your Ten Ways to Lose Money Trading which I have read several times.

Now would you post Your Ten Rules to Make Money Trading!

Kevin said...

Hi Lovil...If you avoid what is on that list you probably will make some money.

I'd like to post my rules for making money but there is one problem.....what works for me will most likely not work for you. What works for you most likely wouldn't work for me...etc

I post my observations on this blog along with a few trading systems that I follow ..Hopefully they will continue to work so we all can make some money.

If I ever do decide to post the top 10 ways to make money in the market, it would probably be just a few simple rules like...find an advantage in the market that fits your personality, apply money management, remove all emotion and be consistant.. That really is all you need,.... Find an edge that works for you and just trade it.

el said...

well said - now off to the skatepark.

ezekel2517 said...

I'm a new reader to your blog and I appreciate your insightful posts.

You wrote:
"The key is to know what information is important to us and then use that information to make trading decisions."

In your opinion, what is the 'key' or 'important' information you use to make your trading decisions? I realize you've stated each person trades differently, but are there a few 'standard' items you always look at when trading equities? Thanks.

Kevin said...

Well I like to look at intermarket relationships, cycles, seasonality,a few simple chart patterns, market sentiment...etc

D TradeIdeas said...

I think the 'less is more' mantra is such a good philosophy in trading. It marks the rise of the calm and experienced trader and the passing of an amateur. You just can't tell that to someone starting out and expect them to know this important aspect of trading. I speak from the perspective of modeling trading plans and it is this principle that I continually come back to. Nice post

dps said...

simpler is better - but I am just looking for a little luck ;-)

dps said...

by the way Kevin - nice to have you back! (though I am glad to see you are not killing yourself)


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