If You Learn Nothing Else.

[GlassOnion 12]

This was sent to me by my mentor. It's invaluable, but you really need to internalize it. One thing all good teachers know is that just because I show you something it doesn't mean you're going to learn it, nor does it mean you're going to learn it now. In my journey as a trader, a lot of things have taken quite some time for me to truly learn them. This is one of them.

 

 

If you learn nothing else, learn this:

 

Good Trade – A trade taken in accordance with your rules.

 

Winning Trade – A trade that makes money.

 

Bad Trade – A trade taken that is not in accordance with your rules.

 

Losing Trade – A trade that loses money.

 

 

The trading methodology that Richard Dennis taught his Turtles is arguably one of the most difficult trading methods for a typical trader to execute. Not only does it require the trader to hold on to winning positions for extraordinary lengths of time and profit, but also it requires continually adding to that position if the market moves in the direction of the trade. Since adding to positions raises the average price, the Turtles will often give back substantial profits on retracements and often be stopped out of a trade that rode a significant trend with no profit to show for it. While all trend traders play for the outlier, Turtles play for the outlier of the outliers—typically just one trend a year. How is it that they have the discipline to hold on to positions for so long, continually adding all the way? How is it that they can maintain this discipline after having watched so many profitable trades go bust? And how is that such a large percentage of the people Dennis taught were able to do this successfully when these qualities seem so rare?

 

The answer is that the Turtles learned very early the difference between a Good Trade and a Winning Trade and the difference between a Bad Trade and a Losing Trade. During the two-week training course, Dennis told the Turtles that he wasn’t evaluating them on whether they made money, but whether or not they stuck to the methodology. Since traders could lose money for long periods of time trading his method, it was especially important that they understand that as long as they took Good Trades, they would ultimately make money. Whether or not the trade was a Winning Trade was of no consequence. If these traders evaluated their performance in the short/medium term on profitability, they would have folded a long time ago.

 

For another example, let’s look at Mark Weinstein (also profiled in Market Wizards). Weinstein has an extraordinary win/loss ratio and has achieved this by being ultra-selective with his trades. As a result, Mark must necessarily pass on an enormous number of trades that subsequently go his way. What would happen to his trading if he lamented every missed opportunity and or lowered his standards every time he “missed” a trade so that it would meet his criteria next time? What would happen if he treated the next trade with a view to “not missing it this time?” I would imagine he’d be like the majority of the people—a losing trader.

 

Mark isn’t superhuman. He would probably lament the missed trade like anyone else if he actually saw it as a missed trade. But he doesn’t. Mark knows that his job is to take Good Trades. A trade not taken that ultimately “wins” doesn’t bother him because his final decision was that it wasn’t a Good Trade. Many rookie traders would beat themselves up about “missing a trade” and their trading would be negatively affected for the next series of trades, often disastrously.

 

 

Knowing the difference between a good trade and a winning trade, and a bad trade and a losing trade will be one of the most profitable, stabilizing, productive distinctions you will ever make in your career as a trader. For the rookie trader, “missing” a winning trade is more demoralizing than taking a losing trade. But by far the worst trade for a developing trader would be the Bad Winning trade. All it serves to do is reinforce behaviors that will ultimately ruin him/her. Many of the traders in Market Wizards made their greatest reforms after taking a disastrous Bad Losing trade. I really hope that all your Bad trades will be losers (though I don’t hope they’re as disastrous). Taking a Good/Bad trade is within your control, taking a Winning/Losing trade isn’t.

 

How do we best use this information?

 

1. Create a set of objective rules for determining what constitutes a Good Trade. If there is a discretionary range within the rules, and you were within the discretionary range, the trade is still Good.

 

2. By default, know that any trade that has yet to be classified as Good is Bad. If you’re still evaluating whether a trade is Good, it is still Bad. All trades are Bad until proven Good.

 

3. When you take a Good trade that loses, Stand Proud knowing you had the guts to take a small loss.

 

4. When you don’t take a trade that you had been considering that ultimately wins, Stand Proud and marvel at your ability to recognize the difference between a Good Trade and a Winning trade and act like the professional that you’ve obviously become.

 

5. Set a time limit within which you will not modify your rules for determining if a trade is Good. You must periodically evaluate your methodology but only at prescribed intervals. Proper risk management rules will prevent you from losing much money if your methodology has ceased working for you.

__________________

[DbPhoenix 42]

A man can't spend years at one thing and not acquire a habitual attitude towards it quite unlike that of the average beginner. The difference distinguishes the professional from the amateur. It is the way a man looks at things that makes or loses money for him in the speculative markets. The public has the dilettante's point of view toward his own effort. The ego obtrudes itself unduly and the thinking therefore is not deep or exhaustive. The professional concerns himself with doing the right thing rather than with making money, knowing that the profit takes care of itself if the other things are attended to. A trader gets to play the game as the professional billiard player does -- that is, he looks far ahead instead of considering the particular shot before him. It gets to be an instinct to play for position.

 

Jesse Livermore

[BlueHorseshoe 10]

Thanks for an interesting and useful post. I wanted to question the following points:

 

The trading methodology that Richard Dennis taught his Turtles is arguably one of the most difficult trading methods for a typical trader to execute.

 

Is it really? By all accounts, 'Joe Public' loves to buy breakout markets at new highs. Buying a falling market is surely much harder - you've only to take a look at people's thoughts in the 'Never Catch a Falling Knife' thread to see that.

 

While all trend traders play for the outlier, Turtles play for the outlier of the outliers—typically just one trend a year.

 

It's debatable whether 'Turtle' trading is true outlier trading. If you compare it to the sort of thing that JW Henry or Bill Dunn do, for instance . . . ? Theoretically, for true outlier trading, one would never be flat, and the Turtles were.

 

These points aside, I agree with what you're saying. I traded with a mechanical EOD strategy that wasn't automated, and I had someone else place the trades for me - this meant that I was pretty detached from the whole process and no possibility of lack of discipline could creep in. There was no early profit taking, and no discretionary impulse trades. Every trade was a 'good' trade. Of course, whether a trader makes money at the end of all that still depends on the rules by which they enter, exit, and size positions . . .

 

BlueHorseshoe

[bobcollett 10]

Thanks for an interesting and useful post. I wanted to question the following points:

 

The trading methodology that Richard Dennis taught his Turtles is arguably one of the most difficult trading methods for a typical trader to execute.

 

Is it really? By all accounts, 'Joe Public' loves to buy breakout markets at new highs. Buying a falling market is surely much harder - you've only to take a look at people's thoughts in the 'Never Catch a Falling Knife' thread to see that.

 

While all trend traders play for the outlier, Turtles play for the outlier of the outliers—typically just one trend a year.

 

It's debatable whether 'Turtle' trading is true outlier trading. If you compare it to the sort of thing that JW Henry or Bill Dunn do, for instance . . . ? Theoretically, for true outlier trading, one would never be flat, and the Turtles were.

 

These points aside, I agree with what you're saying. I traded with a mechanical EOD strategy that wasn't automated, and I had someone else place the trades for me - this meant that I was pretty detached from the whole process and no possibility of lack of discipline could creep in. There was no early profit taking, and no discretionary impulse trades. Every trade was a 'good' trade. Of course, whether a trader makes money at the end of all that still depends on the rules by which they enter, exit, and size positions . . .

 

BlueHorseshoe

 

Well done Mr Horseshoes.

regards

bobc

[Vince50 10]

Glass, with all due respect I think that is what is brainwashing a lot of people who are never going to be winning traders to keep sticking around, year after losing year. It gets to a point where the only, and I repeat ONLY thing that matters is that your account size increases every month, or even every week. Do you know how many traders open up demo accts on MT4 platforms that the FX brokerages give away like candy, and paper trade month after month, year after year,follow their rules and never make a dime.

 

I know Richard Dennis is Mr Supertrader and I have no great track record to speak of, but if he ever told that to me, Id give him 5 reasons why its crap. He might "think" that's the most important thing.....IF.....you already have a tested system back and forward tested by yourself, programmers and an army of employees. But what about the rest of us. Sorry guys, if reading Market Wizards would make you rich, There would never have been any need for any more books after that. As we all know every "pro" with a name, and many without one all for a mere $59.95 for their way overpriced book are going to teach us how to make money. NOT! Oh and if you want the weekend seminar so you can have the pro smile and reassure you while you are filling his pockets so he doesnt have to trade, that can be arranged too. BTW,....not about Richard Dennis, but always suspect anyone, I mean anyone who is spending a lot of time giving seminars and traveling all over. It shows definitively that speaking for that guy is more profitable than trading. Period! New guys: Dont fall for the" I love to help new traders succeed" pitch. I would have a chat room if I was a pro trader, this way I can trade my own stuff too. But do I want to be catching airplanes and taking off my shoes and belt every 2 days rather than sitting in my comfy house? NO! People always follow the money. Try to follow the guy who is hard to get a hold of, not someone who is available to you anytime "if: you buy his course. I almost paid 5k to a wonderful man on I think it was :daytradingcourse.com who claimed that for 5k he would not only set my computer up remotely but either let me come to his home or teach me all day on video from the comfort of mine and the sample video he showed me was very impressive. He uses no indicators! Then I asked myself, Vince, if you could trade and win every single day, would you stop trading to teach a stranger on a computer and lose a week of trade time for 5k? Answer was..."HELL NO!" 5K TIMES 50 IS $250,000. That tells us his method will never make more than that in a year. And he is supposedly the oldest daytrading teacher on the Internet. What will the rest of us make? So I never gave him my money and thats the closest I ever came. Am I still curious? You bet! But not $5,000 worth. -)

 

good luck all,

Vince

 

This was sent to me by my mentor. It's invaluable, but you really need to internalize it. One thing all good teachers know is that just because I show you something it doesn't mean you're going to learn it, nor does it mean you're going to learn it now. In my journey as a trader, a lot of things have taken quite some time for me to truly learn them. This is one of them.

 

 

If you learn nothing else, learn this:

 

Good Trade – A trade taken in accordance with your rules.

 

Winning Trade – A trade that makes money.

 

Bad Trade – A trade taken that is not in accordance with your rules.

 

Losing Trade – A trade that loses money.

 

 

The trading methodology that Richard Dennis taught his Turtles is arguably one of the most difficult trading methods for a typical trader to execute. Not only does it require the trader to hold on to winning positions for extraordinary lengths of time and profit, but also it requires continually adding to that position if the market moves in the direction of the trade. Since adding to positions raises the average price, the Turtles will often give back substantial profits on retracements and often be stopped out of a trade that rode a significant trend with no profit to show for it. While all trend traders play for the outlier, Turtles play for the outlier of the outliers—typically just one trend a year. How is it that they have the discipline to hold on to positions for so long, continually adding all the way? How is it that they can maintain this discipline after having watched so many profitable trades go bust? And how is that such a large percentage of the people Dennis taught were able to do this successfully when these qualities seem so rare?

 

The answer is that the Turtles learned very early the difference between a Good Trade and a Winning Trade and the difference between a Bad Trade and a Losing Trade. During the two-week training course, Dennis told the Turtles that he wasn’t evaluating them on whether they made money, but whether or not they stuck to the methodology. Since traders could lose money for long periods of time trading his method, it was especially important that they understand that as long as they took Good Trades, they would ultimately make money. Whether or not the trade was a Winning Trade was of no consequence. If these traders evaluated their performance in the short/medium term on profitability, they would have folded a long time ago.

 

For another example, let’s look at Mark Weinstein (also profiled in Market Wizards). Weinstein has an extraordinary win/loss ratio and has achieved this by being ultra-selective with his trades. As a result, Mark must necessarily pass on an enormous number of trades that subsequently go his way. What would happen to his trading if he lamented every missed opportunity and or lowered his standards every time he “missed” a trade so that it would meet his criteria next time? What would happen if he treated the next trade with a view to “not missing it this time?” I would imagine he’d be like the majority of the people—a losing trader.

 

Mark isn’t superhuman. He would probably lament the missed trade like anyone else if he actually saw it as a missed trade. But he doesn’t. Mark knows that his job is to take Good Trades. A trade not taken that ultimately “wins” doesn’t bother him because his final decision was that it wasn’t a Good Trade. Many rookie traders would beat themselves up about “missing a trade” and their trading would be negatively affected for the next series of trades, often disastrously.

 

 

Knowing the difference between a good trade and a winning trade, and a bad trade and a losing trade will be one of the most profitable, stabilizing, productive distinctions you will ever make in your career as a trader. For the rookie trader, “missing” a winning trade is more demoralizing than taking a losing trade. But by far the worst trade for a developing trader would be the Bad Winning trade. All it serves to do is reinforce behaviors that will ultimately ruin him/her. Many of the traders in Market Wizards made their greatest reforms after taking a disastrous Bad Losing trade. I really hope that all your Bad trades will be losers (though I don’t hope they’re as disastrous). Taking a Good/Bad trade is within your control, taking a Winning/Losing trade isn’t.

 

How do we best use this information?

 

1. Create a set of objective rules for determining what constitutes a Good Trade. If there is a discretionary range within the rules, and you were within the discretionary range, the trade is still Good.

 

2. By default, know that any trade that has yet to be classified as Good is Bad. If you’re still evaluating whether a trade is Good, it is still Bad. All trades are Bad until proven Good.

 

3. When you take a Good trade that loses, Stand Proud knowing you had the guts to take a small loss.

 

4. When you don’t take a trade that you had been considering that ultimately wins, Stand Proud and marvel at your ability to recognize the difference between a Good Trade and a Winning trade and act like the professional that you’ve obviously become.

 

5. Set a time limit within which you will not modify your rules for determining if a trade is Good. You must periodically evaluate your methodology but only at prescribed intervals. Proper risk management rules will prevent you from losing much money if your methodology has ceased working for you.

__________________

[jefftimothy 10]

The same thread I have seen in other forum.:spam: Anyway I have read the useful lesson given in the thread. It is experience which helps a beginner trader to become a successful trader and we can learn many thing practically from our experience besides theoretical learning.

[Vince50 10]

Good attitude Jeff. Let me leave you with a wise remark one of the market wizards said in the book:" If you cant describe your trading system so simply that it would fit on the back of an envelope, something is wrong." Can you Jeff or anyone on this thread describe their method or system in one or 2 paragraphs that we'd all know how to use it and make money? Maybe we should start a thread just for that.

 

 

You see I dont believe that trading is 90% psychology. Thats the crap supposed "pros" tell you when they dont have a winning system, or they are in a losing mode. I ask all of you this: Is there any trader, even most of the undisciplined ones that if you told him:

 

THIS IS FOR ANY MAJOR FOREX PAIRS WITH A SPREAD UNDER 3.5 PIPS

 

1-Take a 60 min chart and buy every time the candle closes thru the 8sma but there has to be candle on both sides of the sma line.Your stop is the low of the previous candle before entry.

 

2-Take profit when a bar/candle closes back under the 8sma. Once you have 3 candles or more of profit, move stop loss to break even.

 

Same but in reverse for shorting!

 

 

Now is there anyone who would need a coach, more discipline, more sleep, fix the sysyem, tweak it, make it better if you knew that every week you could make 50-60 pips per week, per pair. So if you are making 200 pips a month and you use 3 major pairs, thats 600 pips a month. You mean you would try to change that or not use it to the letter eventually. Im sure after getting out too early and missing that home run just once or twice, three times at most, you wouldnt need any more discipline articles or coachinbg or books. Every one agree? Now Im not saying that this system will do that, its just an example. I will say I would bet money if this system is profitable after a month, its profitable every month! Why? Its simple!!!

[Vince50 10]

Nip, I dont buy it.Not 100% anyway.Many guys following rules still lose year after year, in boxing they still get the crap kicked out of them ...year after year...in tennis they lose all the time cause they are too slow. There are soooooo many ways to lose when you are too stubborn to break your rules.For me the most important rule of going over every trade I made after the day was over, took me out of trading. I was way too stressed to force myself to do that after 4pm and i did it anyway. I was blown out mentally for over a year!

 

But..does breaking your rules mean, paper trading another system and going sim for a couple of weeks, or does it mean you went on tilt and are now doubling up on size on each losing trade. Big difference between how you break the rules. one can take you out, the other is a fun learning experience. And that leads me to say: I never want to have a system that is too stressful or not fun to trade. You are going to be using it for years, maybe your whole career, if it aint fun and interesting...well you arent a trader, you just have a job,thats all! Look at what happened to richard dennis. I didnt even know he got back in a second time and lost 8 figures. but just on my experience alone, i can say that my strength is my discipline. I dont know coding, I dont have the mathematical mind to construct harmonic structures like garleys in my head, I just know when something isnt working to have the discipline to get out of the game. And as a reward, I DEFINITELY WILL take a trade if i sat for 2 hours and really need to be in something. many times these "dun" trades helped to keep me alert for the next move that came later.Truthfully, there will always be both discretionary and rule based traders. One will never go away. And of course you have hybrids of the 2.

 

For me personally:when i was trading equities, if i had a rule to never add to a losing position but then a small bar appears in my direction, would i place another order with a stop right under that small bar if im risking 5 cents per share to make 50 cents. All day long, regardless of if its in my plan. I will also break my rules in reverse and feel the market is going my way but its just too whippy for me and i feel"uncentered" for some reason. I may turn my computer off with a trade that could make my whole day in 30 min if the movement or tempo seems "off" to me. I also dont believe in the old saw, a trader never lost money by sitting on his hands. Whoever made that rule up didnt have bills to pay and likely lived with his mother,rent free. To me, personally, a trader has to have money working for him as much as possible. period. But in equities its harder which is now why I am in forex and trading completely different rules than my equities tactics, using no moving averages at all which I thought id never do. In fact le t me end with that, as I grow as a trader, I want to be able "and" comfortable doing things I would never have thought of doing the year or the month before

 

But Im really addressing the newbies more than you. I can tell youve been thru a lot of what I speak. You didnt start trading last week. Youre a sharpie. -)

 

Happy trading guys!

[straddle 10]

a good trade is not necessaraly a winning trade . You can make a trade for all the righ reasons and still lose .

 

I dont believe in invidual trades but overall stategy whih has more wins than losses and a posive dollar result .

 

Anyone can make a winning trade by pure luck its the strategy that matters .

 

On the other hand if someone has a series of good trades by pure luck its not bad either .

[SIUYA 11]

I also dont believe in the old saw, a trader never lost money by sitting on his hands.

 

I think it comes more from the idea that when you have winning trades going your way you should sit on your hands......given most traders (especially new ones) over trade, sitting on their hands is the right advice.

 

Reminiscences of a stock operator.....

 

"It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine--that is, they made no real money out of it. Men who can both be right and sit tight are uncommon."

 

"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 favoured 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."

 

"They say you never go broke taking profits. No, you don’t. But neither do you grow rich taking a four-point profit in a bull market."

[Vince50 10]

No nip, I understand you aren't telling me to buy it.You do make a good point,though. -) But.................your post gave me a great chance to explain some of the terrible things that happened to me in my trading career. I once made a mistake (or the keyboard was broken) and put 2 more zeros on my order and I wound up with 100 contracts of something instead of 1. And I don't know why the firm allowed it because I didn't have nearly enough money to cover it! I got out very fast with a small loss.

 

As Oliver Velez the author of Trading tactics for the Day Trader said to me once-"He said, when you are really in the zone, when you have your trading plan polished up, when you are feeling good about your life, when you are making money almost every day....your cat could jump across your keyboard and buy you something and you come back an hour later and see you made $20,000 by accident! But when everything you do is wrong, that cat will always jump on the wrong button and wipe out your account.! Its just the way life works." YOU STILL NEED SOME LUCK! But, the longer you can hang in, the more time you give for luck to find you. This increases your odds tremendously. What i have learned

is:

 

THE MINUTE YOU FEEL STRESS WHEN YOU GO TO CLICK THE MOUSE, YOU SHOULDN'T BE TAKING THAT TRADE!

I would bet my money on a guy who made 35% in one year but has enough to open 3 more accounts the same size if he goes broke, than to bet on a guy who made 70% in the last year, and he needs that money to pay his rent. We all have heard the story that "MONEY COMES TO MONEY." Why do traders think they are exempt from that rule. Besides, when you play with scared money, you are afraid to take time off and relax again when you have to. You are afraid to miss anything,right? That creates so muchy stress. And I dont ever want to go thru that again. Thats why IMHO, over 50% of traders probably shouldnt even be trading, because they cant afford to lose everything. And statisitics show you will probably go broke, blow up an account at least once. Many of the great traders have blown up their whole account 8 or 10 times. Anyone agree with me on that? And many of us cannot take that kind of stress. I cannot. So I always under trade my account.

 

 

My opinion nip, the bottom line of all this that I learn, that I now make my NUMBER 1, NUMERO UNO RULE! :Always trade less than you can afford. When you trade so little that you dont even care if you win or lose, thats the first step to getting into that zone or that groove. I tell every New Forex Trader I know, if there is a secret to Forex,unless you are already a millionaire.... it would be to start with a micro account and trade 1,2,or 3 lots maximum. Its only 10 cents per pip, but even if you hold overnight , even if you bought at the top for the day, your downside shouldnt be more than 20 dollars! But if you win, its not 20 dollars you are winning, it is confidence you are winning. And that is much ,much nicer than a few dollars won or lost on any trade. Confidence stays with you. The money is soon spent.

 

 

"The truth for me, may not be the truth for you."-Bruce Lee

[obradovicmilica 10]

A good life is when you assume nothing,do more,need less,smile often,dream big,laugh a lot,and realize how blessed you are

[andrei_lint 10]

Strongly agree with first post. What i think is important but nobody mentions is:

 

- a strategy won't work for eternity, and it probably will never make as much money as an experienced trader just following his gut-feeling and having a great period, but it will surely give way more consistent results over time;

 

- nobody says to trade just one strategy, you can build and trade as many as you can keep track of. Some will be discarded, others improved, others added.