“I do not care if
it is a white cat or a black cat. It is a good cat as long as it catches mice.”
- Deng-Xiaoping
The message borne by the articles in this
series is that permanently successful traders have certain common traits. We’ve
a lot to learn from them. One of them is Mark Minervini, who started
speculating in the early 1980s. After several years of very poor trading
results, he began to trade successfully, especially after he’d gone through a
book titled: Superperformance Stocks (by Richard Love). This book wasn’t
popular, but it brought about the breakthrough Mark needed in his trading
career. It highlighted what winning stocks have in common. Mark sharpened his
trading skill and made compounded yearly profits of 220%, in a period of 66
months. That’s we can say that he turned $10,000 to $3,300,000, according to an
estimate. He’s become adept at risk control, as losing streaks don’t have any
significantly adverse effects on his portfolios anymore. Roughly 15 years ago,
he won a trading competition in the United States when he made 155%
profit. He was one of the interviewees in the popular book titled: Stock Market
Wizards (by Jack Schwager). He was also interviewed in TRADERS’ (July 2012). A
few of his quotes end this article.
Traits of
Successful Market Wizards
17. Victorious market wizards neither water
weeds nor uproot flowers: As old as this
saying may be: Cut your losses short and let your profits run, it’s a timeless
truth in the markets. It makes a perfect logical and rational sense. Sadly,
many traders cut their profits (for the fear that they might go negative) and
run their losses (for the hope that they might go positive). This is
counter-intuitive. Losses are weeds on your portfolios while profits are flowers.
You shouldn’t uproot the flowers and water the weeds. Allowing negative
positions to run is like watering weeds. Victorious market wizards do exactly
the opposite, reversing the wrong mindset. If one of their positions is
performing well and going as expected, they allow it to run for as far as
possible. When a position doesn’t go in a forecasted direction, they quickly
cut it short, and patiently search for another trade setup, based on their
rules. You must never widen your stop loss under any circumstances, even if a
position is moving against you. The price mayn’t come back to your entry level
again and this would have an adverse effect on your portfolio.
18. Victorious market wizards acknowledge that profits will take care
of themselves: You can’t force the markets to give you profits. You just
need to do what’s right; profits will come naturally. You’d seldom trade
flawlessly, though you can carry out your trading plan flawlessly. Neophytes
care more about huge profits than flawless execution of their trading plans.
Majority of speculators are opinionated against the realities in the markets -
they feel they are correct in their opinions. It’s one of the reasons many of
them don’t use stops. They want to be right. Neophytes tend to buy one new
trading system after the other, instead of sticking to a particular system. If
the new system experiences a losing streak (something normal for all strategies
under heaven), they abandon it and go for another new system. They are just
under illusion. Neophytes prefer instant gratification while brushing aside
important aspects of trading victory. I realize that no matter how much you
warn people, they’ll still prefer to do wrong things. Unless checked by grim
consequences, the human mind isn’t wired to do right things. For example, some traders
will continue to trade without stops, some traders will continue to use big
position sizes in the markets that they cannot predict with an utmost
certainty, etc. You need rock-solid discipline to follow time-tested trading
principles that can guarantee your permanent success. You need courage too. You just need to be
courageous in doing what’s right when using your trading approach
19. Victorious market wizards can pinpoint
high probability and low risk entries:
Winning trading methods enable speculators to enter the markets at better
prices. Victorious market wizards buy low and sell high, but they do it right.
This means that they buy low in an uptrend, and sell high in a downtrend. Even
if one is to sell an all time high, or buy an all time low, it’ll be after
there’s a confirmation that the trend has really changed. Market wizards have
various methods they use to achieve this.
20. They know where they will exit for a loss
and where they will take their profit: For
every trade they open, market wizards know where they’ll exit if it does not go
in their direction. They also know where they’ll take their profits and pat
themselves on the back, if they’re right. Every trade ought to be open with
hard, physical stop loss level and take profit level, while the loss from a
stop trigger would be smaller than the reward from a take profit trigger. Speculation
has to do with making average winners that are bigger than average losers, and
doing that consistently. Successful
traders have a deep love for trading, and as a result of this, they press on,
even in a difficult market condition.
Conclusion: This is the concluding article in this series. As from
next week, I’ll begin to feature renowned super traders the world over. Their
strengths, weaknesses, trading beliefs and lifestyles would be discussed. This
would encourage you; goading you towards your financial aims and ambitions.
Instead of allowing dread to paralyze your potential, do something to move
forward. Don’t be discouraged by dread. Rise up and become the master of your
own destiny. Ponder about victorious market wizards and sack you fear. If you
allow yourself to be discouraged from trading and investing, you might realize
that the outside world is harder than you think, and you’ll forfeit the
opportunities that markets offer you. Those
who stay in their comfort zones aren’t going anywhere. Discouragement
and dread would only leave you with no achievements. According to Dr.
Janice Dorn, if… you begin to move in the direction
of your fears - slowly and steadily - you will find that they have less and
less power over you. Your world begins to expand. You understand that fear is
really False Evidence Appearing Real (F.E.A.R.). You begin to see that you have
the power within you to face these fears and to control them. They are real
only if you allow them to be real.
This article is ended with quotes
from Mark Minervini:
1. “I dropped out of school in the eighth grade
to work as a musician playing the drums in the studio and performing live… Early
on, I made every mistake you can think of. For about five or six years I did
not make any money trading; in fact I was at a net loss. If there is such a
thing as a natural born trader, then I was an unnatural. Although I had trades
go my way from time to time, it was how I handled the trades that went against
me that created a problem and hurt my performance.”
2. “I do not avoid a
trade based on the time of day. I make a trade when the stock is set up and
starts to move in the direction of my trade… Probably the most important
turning point was when I started religiously cutting my losses short, keeping
them very small. I really started to focus on not losing as my Number One goal.
This is the most important area of speculation regardless of style or strategy.
To be successful, you simply must keep your losses smaller than your gains… I
am always thinking risk management first. I would rather have a small position
than no position or a position that I cannot get out of easily… My goal is to
control my drawdown and equity curve.”
Azeez Mustapha
Market Analyst, Trading Signals Provider and Coach
Copyright (C) ADVFN PLC
For more articles, go to: http://www.advfn.com/newspaper/azeez-mustapha-technical-analysis
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