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Traders and Drinkers…Are We Different After All?

  
  Education
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If you find this post offensive, relax. This post is not intended to offend, only to discuss more trading psychology. I pass no judgments on this topic because I have lived through this subject in different aspects myself. I came across an article that correlates destructive trading to destructive alcohol consumption. Take a quick look at this questionnaire that professionals use to determine the severity of alcohol abuse…

1) Have you found that your drinking is bringing unwanted, negative consequences?

2) Have you recently felt guilty over the way you have been drinking?

3) Do you find you need to drink more just to get the good feeling?

4) Do you find that your personality changes when you drink excessively?

5) Do you find it difficult to take a break from drinking, even when part of you knows that this would be best for you?

6) Do you find yourself drinking to feel good about yourself?

7) Do you sometimes feel that you cannot control how much you drink?

8) Do you find yourself getting angry when someone close to you questions your drinking?

9) Do you find yourself vowing to limit your drinking, only to slip back into overdrinking?

10) Do you find it difficult to not drink given the opportunity, even when the occasion is not really appropriate?

Like I mentioned, these were questions that are typically asked by a psychologist when confronting someone struggling with alcohol consumption. You can apply this to any substance abuse, addiction, or whatever struggles you cope with. The question is “What about trading?” Take a look at the modified questionnaire…

1) Have you found that your trading is bringing unwanted, negative consequences?

2) Have you recently felt guilty over the way you have been trading?

3) Do you find you need to trade more just to get the good feeling?

4) Do you find that your personality changes when you trade excessively?

5) Do you find it difficult to take a break from trading, even when part of you knows that this would be best for you?

6) Do you find yourself trading to feel good about yourself?

7) Do you sometimes feel that you cannot control how much you trade?

8) Do you find yourself getting angry when someone close to you questions your trading?

9) Do you find yourself vowing to limit your trading, only to slip back into overtrading?

10) Do you find it difficult to not trade given the opportunity, even when the occasion is not really appropriate? (more…)

What to Monitor During a Correction

  
  Education
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  • Bull market correctionReversed for bear market correction.
    • Support below
    • Fibonacci retracement levels of prior uptrend
    • Bottoming price action
    • Positive divergence — index vs. indicators
    • Positive divergence — index vs. internals
    • Bullish candlestick pattern or western reversal bar
    • Notable change in scan hits
    • Break of resistance (downward sloping) trendline

Classifying Bull Market Declines

  • 1 to 3% – Market pullback
  • 3 to 5% – Minor correction
  • 5 to 8% – Standard correction
  • 8 to 12% – Deep correction
  • 12 to 16% – Very deep correction
  • 16 to 20% – Minor bear market
  • More than 20% – Bear market

Wisdom from The New Market Wizards

  
  Education
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Here are the excerpts from “The New Market Wizards” which are very useful tips from the top traders:

Randy McKay

“One very interesting think I’ve found is that virtually every successful trader I know ultimately ended up with a trading style suited to his personality… My trading style blends both of these opposing personality and put where it belongs: trading. And, I take the conservative part of my personality and put it where it belongs: money management. My money management techniques are extremely conservative. I never risk anything approaching the total amount of money in my account, let alone my total funds.”

William Echkardt

“What really matters is the long-run distribution of outcomes from your trading techniques, systems, and procedures. But, psychologically, what seems of paramount importance is whether the positions that you have right now are going to work. Current positions that you have beyond any statistical justification. It’s quite tempting to bend your rules to make your current trades work, assuming that the favorability of your long-term statistics will take care of future profitability. Two of the cardinal sins of trading – giving too much rope and taking profits prematurely – are both attempts to make current positions more likely to succeed, to the severe detriment of long-term performance.”

“Since most small to moderate profits tend to vanish, the market teaches you to cash them in before they get away. Since the market spends more time in consolidations than in trends, it teaches you to buy dips and sell rallies. Since the market trades through the same prices again and again and seems, if only you wait long enough, to return to prices it has visited before, it teaches you to hold on to bad trades. The market likes to lull you into the false security of high success rate techniques, which often lose disastrously in the long run. The general idea is that what works most of the time is nearly the opposite of what works in the long run.” (more…)

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