Archives of “January 1, 2019” day

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The Wit and Wisdom of Mark Douglas

  
  Education
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TRADINGINZONE

“I know it may sound strange to many readers, but there is an inverse relationship between analysis and trading results. More analysis or being able to make distinctions in the market’s behavior will not produce better trading results. There are many traders who find themselves caught in this exasperating loop, thinking that more or better analysis is going to give them the confidence they need to do what needs to be done to achieve success. It’s what I call a trading paradox that most traders find difficult, if not impossible to reconcile, until they realise you can’t use analysis to overcome fear of being wrong or losing money. It just doesn’t work!”

“If you really believe in an uncertain outcome, then you also have to expect that virtually anything can happen. Otherwise, the moment you let your mind hold onto the notion that you know, you stop taking all of the unknown variables into consideration. Your mind won’t let you have it both ways. If you believe you know something, the moment is no longer unique.”

“There is a random distribution between wins and losses for any given set of variables that defines an edge. In other words, based on the past performance of your edge, you may know that out of the next 20 trades, 12 will be winners and 8 will be losers. What you don’t know is the sequence of wins and losses or how much money the market is going to make available on the winning trades. This truth makes trading a probability or numbers game. When you really believe that trading is simply a probability game, concepts like “right” and “wrong” or “win” and “lose” no longer have the same significance. As a result, your expectations will be in harmony with the possibilities.” (more…)

Hemline Theory

  
Analysis, Education, Uncategorized
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I don’t believe in the trivial Hemline Theory and its effect on the stock market.
SKIRT
But if I did, I would say we’re headed for a raging bull market, in Nike (NKE) …because tennis star Serena Williams is going beyond hemlines. She’s now on the cover of a magazine, in a slippery pose.
swten

The Development of Mindfulness Skills Helps the Trader

  
  Education
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  • Reduce stress
  • Tame the fear response
  • Counter the strong tendency toward loss aversion
  • Strengthen decision making
  • Strengthen internal emotional regulation
  • Improve and develop emotional intelligence
  • Reduce the dominance of intuitive decision making and cognitive error
  • Increase deliberative attention
  • Better see the market and its trading opportunities
  • Stay on task
  • Overcome the negative‐reinforcing properties of ineffective trading
  • Enhance overall psychological well‐being.

3 Hard Questions

  
  Education
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Markets are highly random and are very, very close to being efficient.

If you are a new trader, trading is probably harder than you think it can be. If you’ve been trading a while, you know this. Financial markets are one of the most competitive environments in the modern world. New information is quickly processed and incorporated into prices. This means that you cannot outsmart the market consistently. You cannot invest based on what you think makes sense or should happen because you are up against investors with superior access to information, knowledge, experience, capital and other resources. Most of the time, markets move in a more or less random fashion; you can’t make money if market movements are random. (“Efficient”, in this context, is an academic term that basically means that all available information is reflected in prices.)

It is impossible to make money trading without an edge.

There are many ways to create an edge in the markets, but one this is true—it is very, very hard to do so. Most things that people say work in the market do not actually work. Treat claims of success and performance with healthy skepticism. I can tell you, based on my experience of nearly twenty years as a trader, most people who say they are making substantial profits are not. This is a very hard business.

Every edge we have is driven by an imbalance of buying and selling pressure.

The world divides into two large groups of traders and investors: fundamental traders who base decisions off of financial analysis, understanding of the industry and a company’s competitive position, growth rates, assessment of management, etc. Technical traders base decisions off of patterns in prices, volume or related data. From a technical perspective, every edge we have is generated by a disagreement between buyers and sellers. When they are in balance (equilibrium), market movements are random.

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