my RULES

1. "MUST" take every signal shown by system
2. "NEVER" invest > 30% out from capital, balance capital for backup
3. "INCREASE" position only after 20-30% increase in capital

*Futures Crude Palm Oil: current position for GT2
Step 1: Holding> February contract LONG 3053 (01.12.11)
Step 2: Stop> i dont use STOP!!
Step 3: Entry> No SAR signal yet..

*Futures Kuala Lumpur Index: current position for RJ1
Step 1: Holding> LONG 1436 November (24.11.11)
Step 2: Stop> i dont use STOP!!
Step 3: Entry> No SAR signal yet..

*will be updated after market

*PLEASE SCROLL DOWN DOWN DOWN TO VIEW MY GT2 SYSTEM PERFORMANCE

Wise Words from Ed Seykota

If I am bullish, I neither buy on a reaction, nor wait for strength; I am already in. I turn bullish at the instant my buy stop is hit, and stay bullish until my sell stop is hit. Being bullish and not being long is illogical. ~ "Market Wizards, Interview with Top Traders - Jack D. Schwager"

Thursday, November 11, 2010

The Number One Rule of Trading

By Craig Turner

If there is one thing I've learned in all my years in the financial markets, it is never add to a losing position. That means never "average down" a losing long position or "average up" a losing short position. This is even more important when using leverage. There is a very well-know saying, "your first loss is your best loss". What this means is you are best served taking a small loss before it becomes a larger loss, or even worse, a loss that eats up a majority of your trading capital. In order to avoid this major trading mistake, we must first understand why traders add to losers, why traders should not do this, and what they can do to stop it from happening.

Why Traders Add To Losing Positions

Traders stay in losing positions for only two reasons. Either they don't want to be wrong about the market or they don't want to lose money on the trade. Sometimes it is a combination of both. Regardless of which one it is, it causes traders to stay in positions that are going against them.

As traders are losing money, they figure that if they add to the losing position, they can bring the average cost of the position down. For example, let's say a trader wants to be short Crude Oil and he sells 1 contact of Crude Oil at $75.00. Crude is now trading at $80, and the trader is down $5 in crude ($5000). The trader then decides to sell short an additional 2nd crude oil contact at $80. The average short position is $77.50 (the average of $80 and $75).

The trader now only needs Crude Oil to go $2.50 in his favor to get to breakeven at $77.50, instead of $75.00. However, every tick Crude Oil goes against the trader past $80.00 a barrel is going to count twice a much, eating up available capital a double the rate. To make matters worse, markets that are trending in one direction, tend to continue to trend in that direction.

Why Traders Should Not Add To a Losing Position

When a trader is in a losing position, the market is telling him he is wrong. The market is the total sum of psychological, technical and fundamental knowledge. The market is the total sum of all investor knowledge and market opinions. It includes institutional money, sovereign wealth funds, hedge fund managers, trend following funds, commercial hedging interest, and every other participant, large and small.

If a trader continues to hold onto a losing position after the market says he is wrong, the trader is basically saying he is right, and the collective sum or the rest of the market is wrong. In other words, the global consensus is telling the trader the world is round while the trader insists the world is flat. This will almost always lead to larger losses. Bullish markets tend to trade higher, and bearish markets tend to trade lower. It takes something significantly fundamental or technical to occur in that market to change the trend.

Not only is the trader wrong shorting Crude at $75, he is twice as wrong shorting the market again at $80. The losses are now piling up exponentially if he continues to add on to a losing position. Plus, he has now doubled his leverage on a bad trade. Meanwhile, if the trader had just had a $1 or $2 stop on the crude oil position, he would have taken his loss and been done with the trade. He would have been able to admit he was wrong and move onto the next opportunity, instead of creating larger losses and letting other opportunities go by while he was in a losing trade.

Wait Just A Second, I Have "Averaged Down" and Made Money!

If you have averaged down losing positions before, chances are it may have worked in your favor. The problem is, the one time it does not work in your favor you will blow out your account. Every time you "average down" and succeed you are cheating trading death. It is almost like a game of Russian roulette. It only ends once, and when it does, it's over.

"Markets Can Remain Irrational Longer Than You Can Remain Solvent" - John Maynard Keynes

When it comes to leveraged trading, there have never been truer words said. Traders who want to hold onto losing positions "until they come back" to the price they entered may never see it happen. A trader who has a $10K acct short 1 crude at $75.00, only has $10 of room before the account is drawn down to zero. Most people think they will never let a position go against them that far, but it does happen, and there is no assurance that the market will come back to $75 before it gets to $85, causing the trader to liquidate the position for a very large loss.

THE SOLUTION

The simple solution is to never add to a losing position. However, as an experienced broker, analyst, trading newsletter publisher and individual trader, I know that is easier said then done. Here are a few rules to live by in order to help you stop adding to losing positions.

Place Stops Just Outside Normal Trading Ranges

When entering a position, traders need to give their positions enough room to work in their favor, but they also must have stops if the market moves decidedly against them. For a swing or position trader, this means having stops just outside the most recent trading ranges. It could be the previous day's low/high, the past week, or right outside the natural support and resistance lines for the markets. Traders need to define this risk parameter BEFORE they enter the trade. Traders need to know what the risk is and make sure they are comfortable with the risk if they are wrong about the direction of the market.

Mental Clarity Can Only Be Achieved After the Losing Position Is Exited

When a trader is in a losing position and the market keeps on going against them, it is very difficult to approach the situation with a level head and clear mind. The fear of losing money can be the greatest factor in the psychology of trading. It causes traders to see things irrationally, as they do everything possible not to take a loss. This leads to poor decision-making and bad judgment. This is why it is so important to define the stop loss parameters before you enter the market and stick with it.

Unfortunately, sometimes traders get into a trade without a stop or let the position run too far against them. If possible, try to imagine you are flat instead of in the position. Then ask yourself, if you were flat, would you get back into the position? If not, you need to get out, and get out fast. If the trader can't honestly say what he would do, or can't detach from the situation, the best thing to do is exit. Getting out of a loser relieves stress and allows the trader to approach things with a level head. Once the trader is out of the position, he can always get back in if he feels it is the right move. Some traders don't like this method because they don't want to spend the extra commission for getting out and getting back in. However, the clarity that is gained from exiting a losing position is invaluable compared to the extra transaction costs. Don't worry about a few dollars when thousands are at stake.

You Must Be Able to Admit When You Are Wrong and Take a Loss

Being able to admit you are wrong and take a loss is the first step in the journey of successful trading. No one is perfect in trading. Taking a small loss is a minor victory in trading. Being able to let winning trades run and exiting losers for a small loss is what it is all about. However, you can't get to the winners if you take large losses.

It is OK to be wrong. Actually, it is great to be wrong. Why? Because if you can't be wrong, you'll never be right about the markets. Trading is about taking risk and managing risk. The trader who can exit a position going against him early is giving himself the change to win big on the next opportunity.

The Best Traders Add to Winning Positions & Use Stops to Protect Profits

The most successful traders I've seen not only cut their losers quickly, but they let their winners run and add on as they go in their favor. They never average down losers, but they will certainly average up on winners. While some might not want to trade multiple lots, I think the concept is very important. When you have a winning position, the market is telling you that you are correct. The collective sum of all knowledge in the market place is in total agreement with you. This is the perfect time to add on another lot if you have the available capital without over-leveraging your account.

Some traders don't want to add on at higher prices because it adversely affects their dollar cost average. However, what traders need to realize is that markets trading higher tend to trend higher, and the opposite is true for bear markets. If you find yourself in a great winning trade, and you see no reason why it should stop, that is a great time to add on. When it comes to trading, you want to buy high and sell higher, or sell low and buy lower. We are not in the business of picking bottoms and tops. It is a one-way ticket to trading failure.

Successful traders also use stops. As the market moves in their favor, they move their stop up to where they feel is below a reasonable support level. They are comfortable with the losses or profits they will take if they get stopped out. They let the market tell them if they are right or wrong and they accept the market's decision!

Find a Broker Who Can Help You When You Need It Most

If you are having difficulty with adding to losing positions, you need to talk to your broker about it. Regardless if you are a self-directed online trader or broker-assisted, you need to have a talk with your broker. If you don't have access to a broker with your current trading arrangement, consider finding a firm that will allow you to access to one regardless of whether you are a self-directed online trader or broker-assisted trader.

As a Senior Broker at Daniels Trading, I can honestly tell you from first hand experience how important it is to be able to work through these situations with someone who has an interest in the success of your trading. Sometimes we are able to offer valuable advice about not adding to losing positions. Sometimes it just helps for the trader to talk about the trade the same way a person tells their psychologist their problems. In the end, it is the trader who works out what needs to be done just by communicating the situation aloud to another human being. Either way, having a trained professional in the weeds next to you during battle can make a huge difference in your most difficult trading periods, and help you make sure you never return to that place again.

#Article from FutureSource.com

1 comment:

kanneenah said...

Hah! At last, you put in a good usable and practical article!

CPO 2011 (GT2 System Performance)

MAY 2011 contract
1)17.02>LONG 3729-SELL 3623 = -106 (21.02)

2)21.02>SHOT 3623-BUY 3538 = +85 (23.02)

3)23.02>LONG 3538-SELL 3518 = -20 (28.02)

4)24.02>SHOT 3506-BUY 3413 x 2lots = +186 (24.02)

5)28.02>SHOT 3518-BUY 3525 = -7 (01.03)

6)01.03>LONG 3525-SELL 3625 = +100 (08.03)

7)08.03>SHOT 3625-BUY 3598 = +27 (09.03)

8)09.03>LONG 3598-SELL 3406 = -192 (11.03)

9)10.03>SHOT 3501-BUY 3473 x 2lots = +56 (10.03)

10)11.03>SHOT 3406-BUY 3347 = +59 (14.03)

11)14.03>LONG 3347-SELL 3371 = +24 (15.03)

JUNE 2011 contract
12)15.03>LONG 3360-SELL 3434 = +74 (21.03)

13)21.03>SHOT 3434-BUY 3347 = +87 (23.03)

14)23.03>LONG 3347-SELL 3425 = +78 (11.04)

15)24.03>SHOT 3287-BUY 3249 x 2lots = +76 (24.03)

16)31.03>SHOT 3302-BUY 3343 x 2lots= -82 (31.03)

17)05.04>SHOT 3368.5-BUY 3365 x 2lots= +7 (05.04)

18)07.04>SHOT 3339-BUY 3342 x 2lots= -6 (07.04)

19)11.04>SHOT 3425-BUY 3344 = +81 (13.04)

20)13.04>LONG 3344-SELL 3307 = -37 (14.04)

21)14.04>SHOT 3307-BUY 3269 = +38 (18.04)

JULY 2011 contract
22)18.04>LONG 3253-SELL 3355 = +102 (25.04)

23)19.04>SHOT 3220-BUY 3240 x 2lots = -40 (19.04)

24)25.04>SHOT 3355-BUY 3334 = +21 (26.04)

25)26.04>LONG 3334-SELL 3290 = -44 (27.04)

26)27.04>SHOT 3290-BUY 3320 = -30 (28.04)

27)28.04>LONG 3320-SELL 3243 = -77 (04.05)

28)04.05>SHOT 3243-BUY 3277 = -34 (05.05)

29)05.05>LONG 3277-SELL 3175 = -102 (06.05)

30)06.05>SHOT 3175-BUY 3203 = -28 (09.05)

31)09.05>LONG 3203-SELL 3264 =+61 (10.05)

32)10.05>SHOT 3264-BUY 3252 = +12 (13.05)

33)13.05>LONG 3252-SELL 3370 = +118 (19.05)

AUGUST 2011 contract
34)19.05>LONG 3339-SELL 3388 = +49 (23.05)

35)23.05>SHOT 3388-BUY 3385 = +3 (24.05)

36)24.05>LONG 3385-SELL 3370 = -15 (25.05)

37)25.05>SHOT 3370-BUY 3386 = -16 (25.05)

38)25.05>LONG 3386-SELL 3418 = +32 (26.05)

39)26.05>SHOT 3418-BUY 3439 = -21 (26.05)

40)26.05>LONG 3439-SELL 3405 = -34 (26.05)

41)26.05>SHOT 3405-BUY 3442 = -37 (27.05)

42)27.05>LONG 3442-SELL 3440 = -2 (30.05)

43)30.05>SHOT 3440-BUY 3373 = +67 (02.06)

44)02.06>LONG 3373-SELL 3441 = +68 (03.06)

45)03.06>SHOT 3441-BUY 3254 = +187 (13.06)

46)13.06>LONG 3254-SELL 3256 = +2 (16.06)

SEPTEMBER 2011 contract
47)16.06>SHOT 3254-BUY 3215 = +39 (20.06)

48)20.06>LONG 3215-SELL 3212 = -3 (22.06)

49)22.06>SHOT 3212-BUY 3178 = +34 (23.06)

50)23.06>LONG 3178-SELL 3144 = -34 (24.06)

51)24.06>SHOT 3144-BUY 3121 = +23 (24.06)

52)24.06>LONG 3121-SELL 3076 = -45 (27.06)

53)27.06>SHOT 3076-BUY 3080 = -4 (28.06)

54)28.06>LONG 3080-SELL 3113 = +33 (30.06)

55)30.06>SHOT 3113-BUY 3071 = +42 (04.07)

56)04.07>LONG 3071-SELL 3054 = -17 (04.07)

57)04.07>SHOT 3054-BUY 3046 = +8 (06.07)

58)06.07>LONG 3046-SELL 3074 = +28 (08.07)

59)08.07>SHOT 3074-BUY 3045 = +29 (12.07)

60)12.07>LONG 3045-SELL 3115 = +70 (15.07)

61)15.07>SHOT 3115-BUY 3134 = -19 (18.07)

OCTOBER 2011 contract
62)18.07>SHOT 3125-BUY 3082 = +43 (19.07)

63)19.07>LONG 3082-SELL 3140 = +58 (21.07)

64)21.07>SHOT 3140-BUY 3100 = +40 (25.07)

65)25.07>LONG 3100-SELL 3115 = +15 (28.07)

66)28.07>SHOT 3115-BUY 3123 = -8 (28.07)

67)28.07>LONG 3123-SELL 3086 = -37 (29.07)

68)29.07>SHOT 3086-BUY 3100 = -14 (29.07)

69)29.07>LONG 3100-SELL 3120 = +20 (02.08)

70)02.08>SHOT 3120-BUY 3137 = -17 (03.08)

71)03.08>LONG 3137-SELL 3116 = -21 (04.08)

72)04.08>SHOT 3116-BUY 3050 = +66 (05.08)

73)05.08>LONG 3050-SELL 3033 = -17 (08.08)

74)08.08>SHOT 3033-BUY 2959 = +74 (09.08)

75)09.08>LONG 2959-SELL 3004 = +45 (12.08)

76)12.08>SHOT 3004-BUY 3054 = -50 (15.08)

77)15.08>LONG 3054-SELL 3057 * = +3 (15.08) *sell because chart hang from 3pm.

NOVEMBER 2011 contract
78)16.08>SHOT 3019-BUY 3025 = -6 (17.08)

79)17.08>LONG 3025-SELL 3003 = -22 (19.08)

80)19.08>SHOT 3000-BUY 3045 = -45 (23.08)

81)23.08>LONG 3045-SELL 3051 = +6 (24.08)

82)24.08>SHOT 3051-BUY 2978 = +73 (26.08)

83)26.08>LONG 2978-SELL 3037 = +59 (05.09) #NO TRADE because raya holiday!!

84)05.09>SHOT 3037-LONG 3007 = +30 (06.09) #NO TRADE because of Bursa feed problem!!

85)06.09>LONG 3007-SELL 3032 = +25 (08.09)

86)08.09>SHOT 3032-BUY 3055 = -23 (09.09)

87)09.09>LONG 3055-SELL 3021 = -34 (13.09) *

88)13.09>SHOT 3021-LONG 3023 = -2 (14.09)

89)14.09>LONG 3023-SELL 2993 = -30 (14.09)

90)14.09>SELL 2993-BUY 3009 = -16 (14.09)

91)14.09>LONG 3009-SELL 3038 = +29 (19.09)

DECEMBER 2011 contract
92)19.09>LONG 3038-SELL 3028 = -10 (22.09)

93)22.09>SHOT 3028-BUY 2915 = +113 (26.09)

94)26.09>LONG 2915-SELL 2886 = -29 (28.09)

95)28.09>SHOT 2886-BUY 2898 = -12 (29.09)

96)29.09>LONG 2898-SELL 2826 = -72 (04.10)

97)04.10>SHOT 2826-BUY 2775 = +51 (06.10)

98)06.10>LONG 2775-SELL 2783 = +8 (07.10)

99)07.10>SHOT 2783-BUY 2866 = -83 (12.10)

100)12.10>LONG 2866-SELL 2838 = -28 (13.10)

101)13.10>SHOT 2838-BUY 2876 = -38 (14.10)

102)14.10>LONG 2876-SELL 2824 = -52 (18.10)

JANUARY 2012 contract
103)18.10>SHOT 2832-BUY 2874 = -42 (19.10)

104)19.10>LONG 2874-SELL 2986 = +112 (27.10)

105)27.10>SHOT 2986-BUY 2947 = +39 (02.11)

106)02.11>LONG 2947-SELL 2937 = -10 (03.11)

107)03.11>SHOT 2937-BUY 2970 = -33 (03.11)

108)03.11>LONG 2970-SELL 2993 = +23 (04.11)

109)04.11>SHOT 2993-BUY 3018 = -25 (04.11)

110)04.11>LONG 3018-SELL 3030 = +12 (09.11)

111)09.11>SHOT 3030-BUY 3085 = -55 (10.11) ##

112)10.11>LONG 3085-SHOT 3163 = +78 (14.11)

113)14.11>SHOT 3163-LONG 3199 = -36 (15.11)

114)15.11>LONG 3199-SELL 3188 = -11 (15.11)

FEBRUARY 2012 contract
115)15.11>SHOT 3188-BUY 3230 = -42 (16.11)

116)16.11>LONG 3229-SELL 3239 = +10 (17.11)

117)17.11>SHOT 3239-BUY 3261 = -22 (18.11)

118)18.11>LONG 3261-SELL 3216 = -45 (21.11)

119)21.11>SHOT 3216-BUY 3182 = +34 (22.11)

120)22.11>LONG 3182-SELL 3147 = -35 (23.11)

121)23.11>SHOT 3147-BUY 3130 = +17 (24.11)

122)24.11>LONG 3130-SELL 3080 = -50 (25.11)

123)25.11>SHOT 3080-BUY 3053 = +27 (01.12)

124)01.12>LONG 3053-SELL ?? =


TOTAL POINTS = From 1st Jan 2011>> +1273 points