Trading Mentor : How to choose and why?

“There are two ways to receive wisdom: mistakes and mentors” – Mike Murdock

Just ask yourself "Are you still willing to make more mistakes or its a time to choose right Trading Mentor?"

If you are willing to repeat the same mistakes over and over again you are free. But if you are looking for the second alternative then let us guide you on that.

If you look up “mentorship” on Wikipedia you will find the term defined as, “a developmental relationship in which a more experienced or more knowledgeable person helps a less experienced or less knowledgeable person—who can be referred to as a protégé, or apprentice — to develop in a specified capacity.” The advantages of learning any skill or trade from a mentor are numerous. Some of these include; a drastically reduced learning curve, faster achievement of long-term goals in the given skill or trade, reduction in time spent doing trial and error, more personal time, greater emphasis on the more important aspects of the given skill or trade, the list of benefits that you reap from employing an experienced, credible and knowledgeable mentor in any field are almost limitless. That being said, not all mentors are legit, especially in the world of trading, so when looking for a quality Trading mentor we need to look for specific characteristics that make them credible.

The value of learning a skill from a mentor

There are a few different ways that we as human beings learn a new skill or acquire more knowledge; one of these is self-education, many people teach themselves how to play an instrument or how to cook. Usually things that people self-educate themselves in are intrinsically satisfying, meaning they provide a person with an internal sense of gratification and achievement. Our natural talents in certain skill sets prime us to self-educate ourselves in skills that are most gratifying to us. Another way human beings learn is through a systematic education, via a public or private school. This type of learning is acquired from taking instruction from someone that is certified to teach material on a specific subject. Once we complete enough course work in a variety of subjects we attain a diploma or college degree that symbolizes our mastery in a particular field of knowledge. However, a college degree is not always synonymous with a specific industry-related skill.
It is the acquisition of a specific skill set that makes an individual employable, whether its employment with a company or self-employment. Even if you do have a college degree most job-specific skills are acquired via on-the-job training from a person who has the experience to train you in the specific job you are learning. A person who takes you under their wing and trains you for a specific skill is considered a mentor. Generally a mentor will train someone based on their own experience in the field, this means that a mentor has already made all of the mistakes any beginner will make and has learned the tough lessons that accompany any worth-while endeavor.

Why you need a mentor to help you learn how to trade

In trading, more so than other fields, there are numerous mistakes that most beginners make, and they usually end up making many of the same mistakes over and over. So by getting taught the intricacies of trading by someone who has already traveled down the rough and rocky road that all novice traders must take, you can essentially make your journey to  trading success a great deal smoother than those that refuse to get mentored by a Trading professional. In  trading, almost all of the early mistakes you will make result in you losing money, this is a big difference from most other professions, which is why having a credible and experienced mentor in the world of trading is so critical to your success as a trader.
Unless you are a total beginner to trading and this is your first day reading about trading strategies then you no doubt have realized that there is a jungle of stocks and other trading related information available for you to digest. Some of it is quality information; the great majority of it is someone trying to make a quick buck preying off of less knowledgeable peoples’ hopes at making money in the markets. The amount of trading information and different trading courses for sale by people of questionable credentials can actually seem quite over whelming to someone that is relatively new to the world of trading.
So, if we can agree that we definitely will greatly benefit from a mentor,then our next logical step would be to seek out a credible and experienced mentor, preferably someone who practices what they are preaching to you, offers on-going support, and is able to easily be contacted whether through email or phone. The bottom-line is that someone who is just out to make a quick buck and does not care about their own reputation or the morality of their actions will not have any of these previously mentioned characteristics. So let’s dive into what exactly you should expect from your Trading mentor.

What you should look for in a trading mentor

The first thing a mentor should do is help you believe in the trading method they are teaching and gain confidence that it’s worth learning, so that you can then commit to it and study it. You obviously want your mentor to fully believe in the method they are teaching you and to be an active trader of it. This is important, because if a mentor cannot properly describe his or her trading method to you and make you believe in it like they do, it pretty much shows that they don’t believe in it themselves, or trade it.

A cold hard fact of trading is that whether you are trading Forex, stocks, or commodities, trading is one of the most difficult endeavors to properly wrap your mind around. Many so called “market gurus” or “mentors” do not actually trade for themselves, they have long since given up on trading and decided instead to take the low road and sell something to people that they themselves do not believe in. If your Trading mentor is truly a trader him or herself, they will have no problem discussing specific trades with you via email, answering your questions about specific trading setups, or giving you their current view on a market.
The next big question we need to ask about our mentor is do they practice what they preach? Do they trade the same exact way they are teaching people to trade? A mentor that provides their students with a trading discussion forum or daily market commentary where they give you regular market insights and updates, is definitely something any legit mentor should do. This shows that they are currently active in the market and connected to it with passion, any trader or mentor worth a grain of salt will provide this service or something similar. The bottom line here is that any credible and legitimate mentor will be trading the same way they are teaching, if their strategy is truly effective and worth learning.

In closing

The importance of finding a credible and experienced Trading mentor can not really be emphasized enough. There is so much misleading information in the Trading world that it really can be a chore just to separate the genuine mentors from the charlatans trying to take your money and run. If your Trading mentor meets all of the criteria discussed in this article then they are most likely legit and will help you get on the road to consistent profits much faster than if you go it alone. At Dev Advisory Services, we believe we fulfill these important requirements that are crucial to a trader’s learning experience and trading career in general. Don’t take our word for it..just check out our consistency and accuracy on our Facebook Page Dev Advisory Services where we keep posting our views and also on twitter @devadvisory9939.

The 7 Habits of Highly Profitable Traders

Here are seven simple ways to move into the top 10% of traders that are profitable long term. 90% of traders do not do these seven things, you can start to do them tomorrow with the right homework and diligence.

1. Profitable traders are trading a winning system based on buy signals and sell signals that create good risk/reward ratios based on historical price patterns.
2. Profitable traders have trading plans. They know where they are going to buy and sell if they have the opportunity before the trading day begins.
3. Profitable traders trade with a position size that does not put their trading account or lifestyle in danger if it is a losing trade.
4. Profitable traders are always looking to go in the direction of the trend for their time frame, the path of least resistance to profits is their goal.
5. Profitable traders are able to be contrarian and buy breakouts and sell breakdowns short They can also buy fear and sell greed when their system says it presents a good trade opportunity.
6. Traders that trade price action instead of their opinions can be very profitable because they are not trying to beat the market they are trying to follow it.
7. Traders that trade their predictions, opinions, and egos for listening to what the market is saying through price action can make money over the long term.

Profitable traders trade profitable systems with discipline and the right position sizing while unprofitable traders look for predictions and trade too big, too much, and too randomly.

The Psychology Behind Casinos And The Stock Market

Traders don’t like it when their profession is compared to gambling (and vice versa) because they believe that in trading skills determine if you come out ahead, whereas gambling is seen as a pointless endeavor where skills do not exist and only the desperate people are hoping to hit the jackpot.
However, in today’s world, the stock market has become a topic that you can read about in the news daily or watch 24/7 TV coverage of what is happening in the markets around the world. The way the stock market and trading is displayed and talked about has shifted significantly from sophisticated investing to sensation driven entertainment.
The implications of such a presentation and the impacts on the mindset and on the trading approach can be significant, without people even knowing how and why their trading decisions are being manipulated and impacted. The following article has been inspired by a chapter from the book “The indomitable investor : why a few succeed in the stock market when everyone else fails” where the parallels between the world of casinos and the stock market are compared.

Casino vs. Stock Market

Casinos:
When people go to the casino, they often have a very detailed game-plan about how disciplined they are going to play, what their risk limit is, how much they are willing to lose at most and plans about leaving with more than what they came with. However, the casino managers are aware of the ‘preparation’ of the average gambler and they found ways to trick them into abandoning their good intentions.

• Free alcoholic drinks to seduce people to take more risk than what they had planned
• Women and other attractions to create arousal and to stop people from thinking too much about risk and potential losses
• Bright and flashy lights and sounds to create a casual atmosphere with lots of excitement
• Everything in a Casino is designed to make you want to spend your money, often created by professionals with a psychological background, including odors, sounds, patterns of the carpets, etc.
• Casino chips are used to make you forget you are actually playing with real money

The Stock Market:
Although trading and investing is a very hard thing to do successfully, the way the media presents investing in the stock market is comparable to a large scale casino where the only goal is to create attention, excitement and awaken the hopes of people who are looking for a fast buck. The following attributes of the mainstream media and trading websites often create a wrong impression of trading and can be the cause of a negative trading performance:

• TV channels and newspapers use attention grabbing headlines and slogans to attract people
• Pictures and photos of young , rich men are used to awaken hopes and dreams of a certain clientele
• The hosts of investing shows have often little to do with sophisticated investors, but are very emotional to draw a lot of attention
• If there are extreme rallies you can read and hear about it everywhere and you can witness that even  ‘the average Joe’ now suddenly sees himself as an investor

Research on investor behavior and media coverage

The fact that financial media and the media coverage is impacting investor behavior is widely researched and 3 findings stand out which highlight the impacts of financial media:
1) Attention-grabbing events lead active individual investors to be net buyers of stocks.
2) Individual investors are more likely to trade an S&P 500 index stock after an earnings announcement if that announce­ment was covered in the investor’s local newspaper.
3) Investors who have never previously owned a stock are more likely to buy when stocks reach upper price limits such as all-time highs.
You can read more about research findings and find the respective references in our other article.
Taken together, these three findings show that the media has a big influence on how the average investor makes his decisions. Furthermore, even if you think that you make your decisions completely independent, being exposed to very emotional and convincing reports or announcements can lead to trading decisions that deviate from your original plan. The next points will show how a trader can protect himself from such negative influences.

Implications for your own trading and tips to counteract the outside influence

#1 “Think slow to think at all”

Before you make a decision, think about what caused to you think in a certain way. Before entering a trade, ask yourself whether the trade idea is based on sound principles and your trading rules,or did get you the idea from an outside source? To be profitable over the long-term, a trader has to make his decisions self-determined and based on his own research.
“Give a man a stock tip, and you feed him for a day; show him how to trade, and you feed him for a lifetime.” – Modern_Rock

#2 Who do you engage with during trading?

It is OK to interact with other traders and talk about experiences or personal views. But during trading sessions, traders should be somewhat isolated. Being active in forums, trading chat rooms or listening to financial news can influence your own decision making process. Amateur traders often look for outside confirmation when a trade goes against them and then they ask other traders, often with completely different trading methodologies, why a trade is still good.
“When a trade goes wrong if you’re looking for confirmation bias instead of hitting stops, you don’t have the mental strength to be a trader.” – Assad Tannous

#3 Check your surroundings

As we have seen above, the atmosphere in casinos can have big impacts on how we perceive risk and act in situations. Therefore, be aware of the music you play while trading and avoid anything that is too arousing – some traders report that they listen to classical music during trading sessions to keep their level of arousal low. Do you really need to have CNBC running at all times? To bypass periods where nothing happens, do you watch funny YouTube videos or engage in any other activity that could have an impact on your mood?
This point might sound over the top, but everything around us, and the activities we engage in have a direct impact on how we perceive risk and make our decisions, even though we might not be aware of it at first glance.

#4 The colors on your chart

Although I wasn’t able to find a piece of research about this topic, it can be assumed that the colors we use in our trading platforms impact how we perceive the current price development. All our lives we are primed to respond to the two most commonly used signal colors red and green. Whenever we see green, it means go and everything is good, whereas red signals an immediate stop or danger.
Are traders more likely to engage in impulsive trading decisions when they are currently faced with a big green or red candle? Very likely. Are you more likely to close a buy trade when the current candle is red? Possibly. Even if the impact is minor, a trader should grab every possibility to put the odds a little more in your favor should be embraced.

The Real Reason We Trade Emotionally

 We'll give you a view you won't hear from any mentor, coach, guru, or furu.

Why do so many traders talk about trading being a mental game and making bad trades because of emotions? Why do you find yourself making the same mistakes again and again, making money only to lose it?
Is it because you lack discipline? Is it because you cannot control your emotions? Is it because you don't stick with a trading process?
No.
You have emotional problems in markets because you're the market's bitch.
You heard me right, Mr. Independent Trader who doesn't want a 9 to 5 job and wants to only work for himself. You're the market's bitch.
From open to close, you're hanging on every market tick, letting it sway your thoughts and feelings.
When the market treats you well, you feel good. When it treats you poorly, you feel like crap. When the market's not moving, you don't know what to do.
If you behaved that way in any relationship--with your boss at work or your spouse at home--everyone would see that you're someone else's bitch. But with markets, you tell yourself it's dedication, it's a passion for trading.
Bullshit. You the market's bitch.
You have a relationship with the market and anytime you're controlled in a relationship, you're the bitch.
The only way to have an even relationship with the market is to control when you play, so that you don't get played.
That takes rules, that takes finding and sticking to edges--and it takes the willingness to not play when your edges aren't screamingly apparent.
What you got ain't passion for trading; it's a need to play.
If you need to play, you're going to get played. You're going to be controlled by market behavior. You're going to be the market's bitch

A simple hack for better trading decisions

What separates the professional trader from the amateur? It is not that the professionals use better indicators, they don’t have a secret method to time entries or know how to call tops and bottoms perfectly. In fact, the difference between good traders and struggling traders usually comes down to a few, very specific points. The concept that can help improve the trading performance of amateur traders significantly is called “Ask yourself: What would the professional do now?”
Just think about all those trades you KNEW you shouldn’t be in, but you entered anyway. Or, how often did you do something with your trade and deep inside knew that it wasn’t the right thing to do? Most of the time, traders would be much closer to profitable trading if they could just stop making bad trading decisions and repeating mistakes.

Before doing anything, ask yourself…

…what would the professional do? The next time you want to break your trading rules and open a trade early, ask yourself if a trader who consistently makes money would do the same. Or, when you see price approaching your stop loss order, would the professional and winning trader really widen his stop loss and risk taking a much bigger loss instead of just accepting that his trade idea was wrong and it’s time to move on to the next trade?
Traders who start operating in such a mindset question their trading behavior constantly and are able to differentiate between positive and negative trading behavior. It is obvious that a professional trader would often act completely different from you and by consciously questioning your trading decisions, you will be able to avoid many of the common mistakes.

Before making a trading decision, pause and reflect. Ask yourself: What would the professional trader do now? Should I really do what I am about to do? Will it help me become a profitable trader?

The 6 deadly sins of amateur traders

It is not a secret why the majority of traders struggle. After you have acquired a good understanding of how trading mistakes manifest in your trading, you have a greater chance of avoiding them in the first place. The following points describe the 6 greatest error sources for traders:

#1 – Breaking entry rules
It all starts here. Even when following precise entry criteria, traders often enter trades too early and don’t wait for confirmation. Or, they enter trades too late and chase price because they did not trust their method when the signal occurred.

#2 – Violating risk management principles
Taking positions that are way too big is a very common problem among traders. When your position is so big that a loss would have a significant impact on your overall account, you are more likely to make emotionally caused mistakes.

#3 – Bad in-trade decisions
Once in a trade, the problems don’t end. The most common trade management errors are trailing stop loss orders too close behind current price, watching your floating P&L constantly with every tick and randomly moving around your target and stop orders without following a clear plan.

#4 – Exiting without a plan
Trade exits are often neglected and traders don’t understand the importance that trade exits have on their performance. The most costly trade exit mistakes are closing winning trades too early and missing out on potential profits, closing a winner too late and giving back profits or letting a loss run beyond the original stop loss. Trade exits are an important cornerstone of profitable trading. Interfering with exits usually costs traders a lot of money.

#5 – Not learning from mistakes
Be honest to yourself and think about how often you repeat the same trading mistakes over and over again? But why is it that traders don’t learn from past mistakes? Most traders just close their trades and will never look at them ever again. Without a review process in place, improvement is almost impossible. If you are not aware what you did wrong and what caused your loss, how can you expect to become a better trader? Professional traders operate in a growth mindset and they are constantly looking to improve.

#6 – Changing systems
Imagine Paul Tudor Jones, Marty Schwartz or Jesse Livermore and think about their approach to trading. How likely is it that those top traders would jump from system to system week after week, try a new indicator every few days or buy trading robots or EAs that promise making money effortlessly? It is absurd to think that the professional got to where they are by jumping from one system to the other without ever really committing to one thing. Do you still think that you will stumble over the one system that will just work miraculously?

We suggest you write down the phrase “What would the professional do now?” and put it next to your trading desk. The next time you are about the make a trading decision that you think you shouldn’t be making, take a look at the phrase and re-evaluate your action.

How far has breaking the rules and repeating the same old mistakes brought you so far? If you are still not seeing the results in your trading you are after, it is time to take a different approach. No professional trader got to the top by breaking his rules, manipulating his orders or gambling with risk.

Why Bear Markets Steamroll Bulls

Having a bull mindset in a bear market is not profitable. Bear markets have no long term support, they can make lower lows for a long time. Buying pullbacks is not profitable in bear markets because pullbacks turn into downtrends, and old support becomes the new resistance.

1.  Buying dips stops working. Bulls end up getting trapped at higher price levels, unable to profit from rebounds because they are waiting to break even.
2. Momentum entries fail to be profitable. Rallies are usually chances for shareholders at higher prices to sell their shares and short sellers to take new, short positions.
3. Perma-bulls confuse short covering rallies for bounces off a bottom. They are dead cat bounces that will later make lower lows.
4. Perma-bulls stay long into 10% corrections and think the sell-off is over, but end up staying long through the 20% upcoming bear market.
5. The perma-bulls fail to understand that when equities are under distribution, all stocks go down regardless of the underlying business and fundamentals.
6. Stock markets go down when the majority is primarily long and the market runs out of new buyers.
7. 10% corrections and 20% pullbacks into  bull markets are normal; 2012 – 2015 price action is abnormal.
8. All markets can trend in two different directions; you must stay flexible. Perma-bulls only think that stocks will go higher.
9. Margin debt and leverage are great vehicles for creating bubbles, but they have their limits.
10. The central bank can create bubbles, but they can’t sustain them forever.

Advanced Stop Loss Guide

Why you should not trade without a stop loss order

The stop loss order is not only completely misunderstood, but also has a much worse reputation than it should have. Here are only 4 of the many reasons why a stop loss should be valued highly by any trader and a trade should not be entered without one:

1) It helps you to determine position size

After you have identified the stop loss price level for your trade, you can measure the distance between your entry and the stop loss to determine the potential loss and then figure out the position size. It sounds more complicated than it is; take a look at our position size calculator to test it out. Without a stop loss, it’s impossible to determine the accurate position size.

2) It defines the worst-case scenario

The stop loss order makes sure that your trade will be closed when price reaches the level (although events might occur where your stop isn’t filled). Thus, with your stop loss order and the correct position size you can pre-determine how much you are willing to lose on any particular trade. Only risk what you can lose comfortably and there will be no surprises anymore with a stop loss in place.

3) Defining the reward:risk ratio

The reward:risk ratio is the figure that calculates how much you can potentially win on a trade and compare it to the potential loss. But, the risk reward ratio does much more for a trader. As you will learn in the advanced section, the reward:risk ratio helps you understand your performance much better and even allows traders to estimate the expectancy of their methodology before they enter the trade. To sum it up, the reward:risk ratio is among the most powerful trading concepts.

4) Protect your profits

Once a trade has moved in your favor, you can move your stop loss behind current price, to secure unrealized profits. More to that later.

Tips for better stop loss placement

The majority of traders only spends little thoughts about stop loss placement. Usually, traders don’t even have a thought-out plan or concept when it comes to placing stop loss orders, but they just arbitrarily place stop loss orders at random levels.  The following 3 concepts help you improve your stop loss approach:

1) The correct process of placing stops

Most traders have good intentions, but often execute it the wrong way.  It is important that you identify the price level for your stop loss level first. Most traders just think about how big their position should be and then try to find a stop loss price. Why this is wrong, we will investigate in the next point. It’s essential that you stick to the following process:

Additional tip: After identifying your stop loss level, look for the price to place your take profit order at. After knowing where you place your orders, determine the reward:risk ratio. If the reward:risk ratio does not match your criteria, skip the trade and do not try to modify your orders to achieve a better reward:risk ratio. This is a common beginners mistake.

2) Use reasonable price levels

Most traders misunderstand what a stop loss really is. At its core, the price level of your stop loss order is the price where your trade idea is no longer valid. It is O.K and normal if price goes against you on your trade, but at some point, a price movement against your trade makes your trade idea invalid.
Therefore, it is important to use reasonable price levels for your stop loss order. Traders who use random stop loss orders tend to re-enter and revenge trade more often because they still believe that their trade idea is still valid.

3) Don’t personalize losses and stick to your stop!

Realizing a losing trade is normal in trading and it is unavoidable. Most traders know this concept and understand that you just cannot trade with a 100% winrate. BUT! But, when it comes to dealing with losses, traders are particularly bad. When price hits your stop loss, it is not  (necessarily) a sign that you are a bad trader, or that you have done something wrong, but just that your trade idea did not work out.
As a trader you have to make sure that you can come back tomorrow and not lose all your money, or an unnecessarily large amount, on a single trade. For this reason, you have to live by this concept: Don’t personalize losses. If you ever find yourself widening stop loss orders or taking them off completely because you want to give your trade the chance to turn around, think twice and really evaluate your objectives and reasonings.

5 Common mistakes about stop loss orders

By following the previously laid out plan, traders can already make their stop loss placement much more professional. But there are a handful of concepts that can help traders even further improve the way of placing and executing their stop loss orders.

1. The hindsight fallacy – think long-term

Once price hits your stop loss order and moves on, it’s very easy to find reasons if you should have stayed in that trade or whether you should have used a different stop loss approach.
When traders see that their stop was set too far away, they will use a smaller stop on their next trade which will make them more vulnerable to volatility. On the other hand, if traders notice that they should have used wider stop loss order, they will reduce the reward:risk ratio of their system by using larger stop loss orders.
As a trader it is important to think ‘long-term’. Do not make adjustments to your approach on a trade-to-trade basis. Follow your rules, evaluate your data and then try to find ways to improve your trading.

2. The break-even trader

Moving a stop loss to the point of your entry (break even) is a great amateur mistake when done with the wrong intentions. The point of your entry, especially if you trade the obvious moving averages or support & resistance levels, is very evident and the smart traders will know where amateur traders get into their positions and that they move stops to break even. This makes stop hunting very easy. As you can see, brokers do not have to read out their customers’ order information because the average trader makes it too easy and obvious how they execute their trades in the first place.

3. Not using a stop gives you flexibility and avoids stop hunting

The myth that not using a stop loss provides you with some kind of flexibility to react to sudden price moves is one of the worst things common trading knowledge suggests to traders. Not using a stop means that you risk being wiped out in one single trade, or at least lose so much money that it cancels out months of good and consistent trading.  Furthermore, it is impossible to use a sound money and position sizing strategy if you don’t use a stop loss order.

4. Adapt to natural price behavior

The majority of trades doesn’t just take off and run straight into your take profit, but moves back and forth. Whereas trailing a stop behind the current price to protect your position can be a good thing, the way traders execute this concept will ruin every profitable system.
It is therefore important to give your trade room to breathe and not move your stop loss to close to current price. Spend some time observing how price moves back and forth and you will be able to spot the wavelike price behavior. The screenshot below illustrates how in a long-term uptrend, you will get frequent retracements.

5. Volatility and changing stop loss orders

Financial markets are constantly changing, the volatility changes and also how price reacts to certain conditions varies a lot. Traders, on the other hand, use a fixed and always constant approach when it comes to placing stop loss orders. Often, traders, even use the same stop loss approach across different financial instruments or timeframes.
Being a trader means adapting to changing market conditions. By tracking volatility and how price behavior changes over time, you can improve your order placement by adjusting your stop loss approach.
In times of higher volatility, use a wider stop loss and take profit method. In times of low volatility, use smaller orders. Tools to measure volatility and changes are the ATR indicator, Bollinger Bands or the VIX.