Trading Lesson of the Week

Check back weekly for another free trading lesson:

The Importance of Trading Less

In This Week’s Issue:

  • Stockscores Free Webinars –Important Webinar next week
  • Stockscores’ Market Minutes Video – Expect Failure
  • Stockscores Trader Training – The Importance of Trading Less
  • Stock Features of the Week – Abnormal Breaks

 

Stockscores Free Webinars

What are the Economics of Stock Trading?

Nov 15, 2017 6:00 PM PST

Click here to Register

Whether you are a long term investor or a short term active trader, it is essential to understand the economics of trading. How should you measure your returns? What are the risks? How much capital does it take to trade? What are the potential gains? These questions and more will be addressed during this webinar. I will show performance data for my day, swing and position trading over the last few months.

 

Stockscores Market Minutes – Expect Failure

Whether it is the development of a new trading strategy or just the trades you make day to day, expect to fail often. Trading is simple, but it is not easy. Learn from your mistakes and don't let failure stop you from achieving success. That plus this week's Market Analysis and the trade of the week on RLOG.

Click here to watch

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Trader Training – The Importance of Trading Less

It's better to miss a good trade than to take a bad one. Missing a good trade doesn't deplete your capital-it only fails to add to it. A bad trade will not only reduce the size of your trading account, it will eat up emotional capital and your confidence. 

A losing trade is not a bad trade. Bad trades are simply taking the trade that doesn't meet your requirements. Bad trades come from working hard to see something that's not there, guided by your need to trade rather than the market offering a good opportunity.

I have read very few books about the stock market, but one that I've read more than once and that I think is a must-read for every investor is Reminiscences of a Stock Operator by Edwin Lefevre. Here is a wonderful quote from that book that captures the essence of what this chapter is about:

"What beat me was not having brains enough to stick to my own game-that is, to play the market only when I was satisfied that precedents favored my play. There is the plain fool, who does the wrong thing at all times everywhere, but there is also the Wall Street fool, who thinks he must trade all the time. No man can have adequate reasons for buying or selling stocks daily-or sufficient knowledge to make his play an intelligent play." 
-Reminiscences of a Stock Operator

I advise all my students that they will make more money by trading less, at least so long as trading less is the result of having a high standard for what they trade. If you tell yourself you're limited to only making 20 trades a year, you're probably going to be very fussy about what trades you take. With less than two trades to be made each month, only the very best opportunities will pass your analysis. All of the "maybes" or "pretty goods" will get thrown out.

We take the pretty good trades because we're afraid of missing out. It's painful to watch a stock you considered buying but passed on go up. You remember this pain and the next time you see something that looks pretty good, you take it with little regard for the expected value of trading pretty good opportunities.

Pretty good means the trade will make money some of the time and lose some of the time, and the average over a large number of trades may be close to breaking even. The fact that one pretty good trade did well is reasonable and expected. In the context of expected value, taking those pretty good trades many times will lead to less than stellar results when the losers offset the winners.

You shouldn't judge your trading success one trade at a time. You must look at your results over a large number of trades. To maximize overall profitability requires you to have a high standard for what trades you make. Maintaining that standard will be easier if you take the trades that stand out as an ideal fit to your strategy, not by taking those that are marginal and require a lot of hard work to uncover.

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Past Trading Lessons

November 12, 2017The Importance of Trading LessAPTO
October 30, 2017When to Say No to the TradeT.PGF | T.CPG
October 22, 2017How to Find Hot Stocks EarlyV.NGC | T.PAY
October 15, 2017How I Have Earned 33% Since AugustPLG | XNET | HRG
October 9, 2017Data Based InvestingT.SIS | BPTH | NTNX
October 1, 2017Emotion is Your EnemyCRMD | OPTT
September 24, 2017Return on CapitalT.XIU | T.XEG
September 18, 2017The Economics of TradingLLNW | DHT
September 10, 2017Money Clouds Your JudgmentATOS | GNW
September 4, 2017Key Concepts for Reading Stock ChartsT.NGD | V.GUG | ABCD
August 27, 2017Work Hard When the Market is EasyNTLA | T.AR
August 22, 2017How to Trade and Sleep Well
August 14, 2017Fear or Fact, What Drives Your Trades?
August 7, 2017Fooled by Randomness
July 24, 2017The Danger of Knowing Too Much
July 17, 2017An Important Announcement
July 10, 2017How to Measure Trading Success
June 26, 2017Fussy Traders Make More
June 19, 2017Stop Trading Sense
June 12, 2017NoNo FOMO
June 5, 20178 Emotional Trading Mistakes
May 23, 2017Care Less, Make More
May 15, 2017Most Traders Gamble, Do You?
May 8, 2017Trading the Opening Hour
May 1, 201710 Ways to be a Better Investor
April 24, 2017My Approach to Day Trading
April 17, 2017Traders Should Not Think Like This ...
April 10, 2017Bat and Balls
March 27, 2017Drunken Trading
March 20, 20177 Ways to Take the Emotion out of Trading
March 15, 2017The Trader Laptop
March 6, 2017The Stock Cycle
February 27, 2017Why Winning Traders Win
February 21, 2017Do You Try to Agree with Yourself?
February 13, 2017Never Fall In Love
February 6, 2017Stop Trading Recklessly
January 30, 20176 Concepts for Analysis
January 23, 2017Chart Reading Essentials
January 16, 2017Be Afraid of the Fear of Missing Out
January 9, 2017Strength in Weakness
December 12, 2016How Much Can a Day Trader Make?
November 28, 2016Checking the Charts
November 28, 2016Checking the Charts
November 21, 2016Trade Less, Make More
November 14, 2016You Are the Enemy
November 7, 2016The Power of Trading Statistics
November 1, 2016Trading a Correction
October 24, 2016Trading the Opening Hour
October 17, 2016What Keeps You From Trading Success
October 11, 2016What Scientists Say About Traders