In this Teaching Document, you will find the DollarBillionaire ™ Guidance Notes on Trading.
“Trading” is written by Barron Hall. Revised and Updated Saturday 03 August 2019.
Table Of Contents: [toc]
TRADING - definition
Trading is the process of building wealth by the buying and selling of financial instruments like Stocks, Shares, Bitcoin, and Forex. The idea is to capitalize on the volatility of the markets. The holding time frame is anywhere from 3 seconds to 3 months.
What is “Trading”
Trading is the process of trying to maximize wealth by the buying and selling of shares, Forex or other tradeable items found in the financial markets. This is generally done on a day to day basis, or perhaps on a slightly longer time frame. However, this is not a long term investment. The time frames involved are from seconds to around three months and everything in between. Anything much longer than three months starts to become investing and is no longer trading. People who buy to hold for the long term are called Investors. Traders seek to obtain higher returns than investors by their moving into and out of the market at selected opportune times. Traders incur greater brokerage fees due to their frequent buying and selling, compared to Investors. Traders seek to take advantage of both rising and falling markets. Traders take more frequent profits than investors. Traders seek to understand their markets by using Technical Analysis Tools and various charts showing price and volumes.
Different types of Traders have different holding periods. Day Traders for example generally buy and sell within the course of one single day. Position Traders take a position and can hold for months or even years. Scalp Traders hold for very short periods of time, even seconds or minutes. Swing Traders hold for the duration of a cycle of the underlying security. Traders often have stop losses in place to rapidly exit a play that is not working out for them.
There are two main parts to Trading. The first is selecting the trade. The second is risk management.
There are two main parts to learning Trading. Firstly, how not to lose money. Secondly, how to make money.
Habits, Thinking and Behavior Patterns of Wealthy Successful Traders
Habits. They have a great Morning Routine
Being a High-Performance Trader starts with the morning routine. Wake up at the exact same time every day and perform your morning routine. DollarBillionaire trains its mentees to develope at least 20 very important habits to include in the all essential morning routine.
Habits. They Nourish well, Detox and Exercise their bodies.
Top-performing traders eat plant-based diets, eat once only daily, detox to remove brain fog inducing toxins, and exercise for great vitality, creativity, and energy.
Top Traders clean up their emotional lives
Top traders have no room for toxic friends and bad relationships.
Top Traders avoid Decision Fatigue
If you are too tired or your personal life is too busy or disruptive, you can suffer decision fatigue and start making bad decisions leading to bad plays and capital erosion.
Emotional Control. Top Traders are totally in control of their emotions.
Top Traders eliminate emotions from trading. Winning or losing, the emotions that are normally attached to these events are destructive to remaining a good Trader. The natural human instinct is to take profits too early and to cut losses too late. A good Trader has to absolutely control the natural human emotions and be able to increase and decrease risk as needed. The Trader needs to cut losers quickly and let profits run. Trading with paper money is great for learning techniques but does nothing to teach you emotional control. Going live is the only way to exercise this skill.
Patience and impatience. Wealthy traders are patient with winning trades and are enormously impatient with losing trades. Cut losses quickly.
Often when a trade is going well poor Traders are impatient to get out to lock in profits. Poor Traders are also forgiving of movements in the wrong direction, hoping it will rectify. Successful traders are just the reverse. They are very impatient with a trade if it goes wrong, getting out fast. When a trade does well, they patiently let it run.
Routines for Winning and Routines for Loosing
Wealth Traders have a routine that they perform for wins and for losses. This is like a mental full stop. Absorb. Regroup Then move ahead. A winning routine might be to say out loud “Well Done Bob!”. Bob would be the trader’s name. Then stand up. Pump 30 press-ups and eat a bowl of blackberries. These routines are in addition to the regular journaling and post-play analysis that they do.
They realize that making money is more important than being right
Good Traders do not try and impose their will on the market. The market dictates truth. If the market is voting against the wealthy Trader’s beliefs, then the wealthy trader changes his belief. The market can stay wrong longer than any Trader can stay solvent.
They look at charts as a picture of where traders are lining up to buy or sell
The good Traders know that other Traders are glued to their charts. This is the same data, charts, and technical analysis that he has at his disposal. So the charts portray the feelings and potential actions of other Traders out there. The good Trader allows for this in his decision making and strategy setting. He pictures bunches of Traders out there lining up waiting at places along the timeline as demarcated by the charts. Charts are seen as a way to see where other Traders are standing and waiting to get in or get out.
Top Traders do not try to control the market. Rather they exercise Self Control.
Self-control for a Trader means following through on proper Emotional Control, Strategy Execution, Journaling, and Self Optimization.
Before they enter any trade they know exactly where they will exit for either a gain or a loss
Wealthy Traders have a predefined Trading Strategy and they abide by the strategy. Their entry and exit points are pre-set and they have very good reasons for choosing the entry and exit points.
Consistency. They approach any given trade with the same mindset they did on the previous losing trades, no matter how many in this losing streak
When a Strategy goes wrong a few times in succession, it is still maintained 100%. Many multiple failures might lead to strategy re-evaluation. But good traders do not alter strategy based on a losing streak.
Trade the best setup possible
Top Traders concentrate on only going for the best plays.
They use “naked” charts and focus on zones
Wealthy Traders do not flood their charts with countless indicators and trend lines. They focus on price primarily. The also watch volumes and a select few analytics. Remember that one of the chief values in indicators is to tell you what other Traders are thinking and planning to do.
Top Traders do simple plays
The best Traders stick to simple strategies.
Confidence. They realized a long time ago that being uncomfortable trading is OK
Wealthy Traders know that they do not know everything and never will and as a result, they always accept the unknown as being the norm. So for any single given trade, there is a feeling of uneasiness. However, for the basket of trades that they are playing, they are comfortable that given the laws of probability and given sound strategies, they will win more often than they will lose.
The markets are their workplace. They are a participant, not an on-looker
This boils down to self-esteem. A wealthy Trader has enough self-esteem to know that he totally belongs in the market as a Trader and that it is his area of expertise and wealth generation.
They stopped trying to pick tops and bottoms
It is really hard making profits by being right identifying tops and bottoms.
They stopped thinking about a security being “cheap” or “expensive”
Every security is priced exactly right by the market, given the collective of knowledge out there. There is a difference between a low priced stock and a cheap stock. Some stocks might be low priced at $1.00 and others high priced at $300.00 per stock. This does not reflect cheapness or expensiveness, however. The $300.oo stock might move to $400.00 tomorrow! So it was not “expensive” at $ 300.00. The real question is how will the price move as time proceeds.
Use Bollinger Bands
These are useful tools to assist in setting Trading Strategies and making decisions regarding
They are willing to change sides if the market tells them to do so
Look at what the market is doing and trade that. Do not look at what you think the market should be doing, and then trading that.
They trade aggressively when trading well and modestly when they are not
Good traders trade less when they are underperforming. Everyone has off days when you are not the high-performance individual that you normally are. Wealthy traders allow for their own humanity.
They realize the market will be open again tomorrow
If a good trader misses an opportunity, he knows that there will be more in the future.
Discipline. They never add to a losing trade… EVER
Get out at the pre-determined exit point. Do not ever say it cannot go higher, or it cannot go lower. It can. Never average down.
Cash is the goal, but never the measure of success
Wealthy Traders rather look at whether or not they implemented strategy correctly, knowing that the cash will follow.
They read books about mobs and riots
Psychology and crowd wisdom books make good reading. Understand the herd mentality. The wisdom of crowds by James Surowiecki. The Art of Strategy by Dixit and Nalebuff. Markets, Mobs, and Mayhem by Menschel.
They provide liquidity to the markets while watching price and volume
They have a way to gauge fear, greed, and speed of the markets
Wealthy Traders have a portion of their screen monitoring activity levels, fear and greed. This is very different from prices and volumes. Feel the frenzy, smell the fear, sense the rush of the speed. Make use of Tick Charts like 233 and 612 tick charts.
They practice reading the right side of the chart, not the left
Use the full hidden depth of your brain to look at a chart and see the future movements. You do not need to know how you do it, just do it.
Every wealthy trader has an “edge” they can explain to their mothers
Being able to explain something simply and concisely is a true reflection of mastery.
Their position size is calculated exactly on risk tolerance
See our article on Day Traders for a full explanation here. In essence, determine how much you can afford to lose as a percentage of your capital, say 2%. Divide this by the variation in price from the purchase price to the exit point. This gives you how many shares you can trade in the play. Some very easy mathematics:
CRP = Captial Risk Percentage = 2%. CRA = Captial Risk Amount = Capital x CRP. The CRA is the maximum loss that you should be prepared to take on a trade.
Assume that you buy a stock at PP, the Purchase Price. Assume that you set a Stop Loss Price as well, called the SLP. This SLP should generally be wide enough to absorb the daily range unless you are a Day Trader in which case you might be thinking differently.
So, for every 1 share, you can loose up to PP-SLP, the Maximum Loss Per Share, the MLPS. MLPS = PP – SLP
Maximum Loss Per Share = Purchase Price – Stop Loss Price. Note, this is for one share, not for the whole play.
Maximum Loss Per Play (MLPP) = Maximum Loss Per Share (MLPS) x Number of Shares (NOS) in the play.
MLPP = MLPS x NOS which must be less than or equal to the CRA, the Capital Risk Amount.
Define Play Count or PC as the maximum number of shares that you can buy to keep your total losses for this play within your Capital risk Amount.
Given that you do not want to lose more than CRA per play, then you can only purchase PC = CRA / (PP – SLP) = CRA / MLPS shares.
So PC = CRA / (PP – SLP) = CRA / MLPS
This needs to be calculated for every single play. You do not want to blow up your account.
Top Traders select plays where the potential gain is far greater than the potential loss
The juice must be worth the squeeze. The potential gain must be far more than the potential loss. Trading is a probability game.
Profit targets are based on average range or something objective
One needs to know the average fluctuation levels and take these into account setting the Stop Loss Price, the SLP.
One or two trades a month make their month
Wealthy traders make it big on a handful of excellent trades. All of the many other trades are stopped out to cut losses.
Confident decision-makers in the face of incomplete information
A wealthy Trader operates in a world where there is always uncertainty. That said, he manages his risk and is still able to make his plays with the confidence that in the long run, he will profit.
Confidence. A losing trade does not mean they are a loser
Wealthy Traders know that losing trades is part of the game, and they accept this the norm, knowing that the winning trades will also be there.
They buy higher highs and sell lower lows
It is a good idea to buy higher highs and sell lower lows. Things that are getting higher tend to continue getting higher and securities that are getting lower priced tend to keep getting lower priced.
Their business isn’t trading, it’s finding the right trades
Finding the right trades, and then executing on those trades according to predefined strategies, is what wealthy traders do. They are not traders, they are more like hunters, seeking the correct prey, and then going for the kill. They are not killers. They are hunters who kill.
Discipline. They journal every trade, price, thought, news, attitude
Wealthy traders keep a trading journal. Categorize everything. Winners. Losers. Strategies. Learn from the mistakes and learn from the wins.
Their conviction on an active trade remains unless something major changes
Set it and forget it. Make the play and ride it out.
A winning trade does not result in taking on more risk for the next trade
Wealthy Traders do not allow wins to blow up their heads. This can blow up the account too.
They trade the reaction, not the news
The news creates a reaction from the herd. Wealthy traders monitor and act on the reactions of the herd, once the news is out there.
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