Living for a Trading – Life of A Successful Trader
Living Free. Work from anywhere in the World. No one to report to. Enjoy Freedom.
If you had enough money that you never needed to work again, what would you do with your time?
What is your relationship with money?
“Many aspire to this but few succeed. An amateur looks at a quote screen and sees millions of dollars sparkle in front of his face. He reaches for the money -and loses. He reaches again -and loses more. Traders lose because the game is hard, or out of ignorance, or lack of discipline. If any of these ail you, I wrote this book for you.”
The author gets ‘s into the intricacies of Trading Psychology explains how a woman on diet psychology is similar to that of a Stock Trader.
“The short-term pleasure of eating is stronger for her than the delayed pleasure and health benefits of weight loss”
The author focus on three most important things which even you should focus on. They are:
- Trading Tactics
- Money Management
This one post is not enough to summarise the entire 306-page book. There is no part of the book that should be missed out. It’s a very tough task to summaries this book. Trading for Living is my personal favorite book.
Even before we get down to the main points here are some aspects one should know as a trader.
“Shop for the lowest possible commissions. Do not be shy about bargaining for lower rates. I have heard many brokers complain about a shortage of customers – but not many customers complain about the shortage of brokers. Tell your broker it is in his best interest to charge you low commissions because you will survive and remain a client for a long time. Design a trading system that will trade less often.”
Slippages are not good for trading. Use a limit order to go long or short only when the market is calm. A thin and fast-moving market is traders enemy. The author is very clear about being clear about every stage. Manage money movement very clearly and also work out if the brokerage you are paying is what you are getting.
Lowest brokerage is as important as the cost of systems, broadband connection, and other computer peripherals.
One Big Reason why we do Trading at AlphaTrading is becuase you get an opportunity to earn in Bullish Market and Bearish Market.
At no point in time, no more than 15% of your total investment in the stock market should be invested in Stock Trading.
Trading For Living
Trading for Living reminds me of a famous saying, “[E]veryone wants to go to heaven but nobody wants to die”
Individual & Mass Psychology
Brain Myth – The author here says the trader who has lost money in the stock market would often go shopping for the “Trading Secret” in the stock market. Computerised trading system, specific manual of trading, stock market tips, and even to the extent of going to astrology for trading aspects. The author asks a very important question here why do the hard-working and intelligent people fail at stock trading?
Undercapitalization Myth – I am going, to be frank here I always use to think that I was short of capital to succeed. “If only I had a bigger account, I could have stayed in the market a little longer and won.” This never happens becuase if you had a lot of money your entire capital wipeout would have only been postponed. A loser is not undercapitalized – his mind is underdeveloped.
Autopilot Myth – If a system can trade successfully then human and human intervention would not be required. The author here gives a very classic example of airlines Airlines pays high salaries to pilots despite having autopilots.
Guru – “The public wants gurus, and new gurus will come. As an intelligent trade; you must realize that in the long run, no guru is going to make you rich. You have to work on that yourself.” The author says that every stock market cycle would have some guru walking in and walking out at the end of the stock market cycle. When guru is no more able to successfully predict the stock market he losses the faith of the public.
Self-Destructiveness – You often get the urge to keep trading in the stock market without planning and any indicators.
Trading Psychology – Author is very clear if you are frightened, arrogant, or upset you are going to make a loss in your trading account. Controlling your emotions or trading without emotions is very crucial. A trading plan is not as important as the emotional intelligence to manage the trade.
Behaviour – “Each price represents a momentary consensus of value between buyers, sellers, and undecided traders at the moment of transaction. There is a crowd of traders behind every pattern in the chartbook.”
Institutional Traders – Bulk of the volumes in the market are either for Institutional Traders or Algo Traders, they have several advantages such as infrastructure, low commissions, technology etc. [W]hen you are trading from your house or office watching the news on television or reading the newspaper you are not the first one to know the same. The intelligence network with the institutions is huge.
Crowd Mentality – “Your human nature prepares you to give up your independence under stress. When you put on a trade, you feel the desire to imitate others and overlook objective trading signals. This is why you need to develop and follow trading systems and money management rules. They represent your rational individual decisions, made before you enter a trade and become a crowd member.”
Independence – “You have to observe yourself and notice changes in your mental state as you trade. Write down your reasons for entering a trade and the rules for getting out of it, including money management rules. You must not change your plan while you have an open position.”
Managing Versus Forecasting – Managing your trade is more important than forecasting on the whole. People who go wrong on forecasting can succeed compared to those who go wrong on managing the trade. Analysing the power between the bulls and the bears. Money management is very important at this stage. Discipline to follow the trading plan.
Market Analysis & Trading System
Emphasis on this chapter will not be given much since most of the points covered here are already mentioned in Winning Trading Plan and Technical Analysis. Aspects which are otherwise not mentioned or have a different point of view or are extremely important will be mentioned here.
Technique – There is no one single technique or method for identifying trends or trading range. But combining multiple indicators will pay off in the long run.During the special situation when those indicators go against each other it is always better to pass the trade. During those times even if there is a very predictable and tempting opportunity it is always better avoided. “The angle between a trendline and the horizontal axis reflects the emotional intensity of the dominant market crowd.”
Trendline – “If volume expands when prices move in the direction of a trendline, it confirms that trendline; if volume shrinks when prices pull back to a trendline, it also confirms the trendline. If volume expands when prices return to a trendline, it warns of a potential break; if volume shrinks when prices pull away from a trendline, it warns that the trendline is in danger.”
Gaps – Gap forms a very crucial part of the strategy which cannot be ignored. It is important to understand the types of gaps.
Pattern & Indicators – Pattern and Indicator form the majority part of trading for a living. It is very important and cannot be covered in one post. A separate post would be needed just to cover the entire Pattern and Indicator. Every passing year there are new indicators and patterns that are discovered which has better success rate and more accuracy.
Lessor Know Indicators or Neglected Indicators – Indicators for trading for a living which are not given the right importance that is required such as Volume, and psychological indicator.
Risk Management evolves around emotions and probabilities. The rainfall example of probability explains the best way probability should be treated when you are trading for a living.
The lively book Innumeracy by John Allen Paulos is an excellent primer on the concepts of probability. Paulos describes being told by a seemingly intelligent person at a cocktail party: “If the chance of rain is 50 percent on Saturday and 50 percent on Sunday, then it is 100 percent certain it will be a rainy weekend.”
Risk management is when more importance is given to the quality of trade than the quantity of trade.
All other majorities of points are repeated and covered in winning trading plan which I would not be repeating here again.
Buy Now – Trading for a Living: Psychology, Trading Tactics, Money Management by Alexander Elder
Author’s Closing Notes
“Markets change, new opportunities emerge, and old ones melt away. Good traders are successful but humble people – they always learn. Being a trader is a lifelong challenge. I hope this book helps you to grow as a trader. If you have read this far, you must be serious about your work.
Take this book for what it is- a description of what’s on one trader’s mind and how he goes about solving problems that all of us face.
Take the ideas that appeal to you, and shape them to fit your style. If you believe that being a trader is worth the effort- as I decided years ago-my best wishes to you. I continue to learn, and like any trader, I reserve the right to be smarter tomorrow than I am today.”
Trading For Living is a Speical book to us because after reading this book our losses reduced drastically.
90% of the Stock Trader lose money in the stock market. If you are planning on Trading for a Living start early.
Come back here and tell us about the before-and-after. I bet you’ll have something to say!
If you enjoyed this post, I’d be very grateful if you’d help it spread by emailing it to a friend or sharing it on Twitter or Facebook. Thank you!