Archives of “January 5, 2019” day

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When does trading become gambling?

  
  Education
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When does trading become gambling? There is a very thin line. I maintain that most traders ARE gamblers. They use markets as a substitute for a casino. Here are some of the sign posts that you have crossed the line. I love Jeff Foxworthy so I will steal his “you just might be a redneck.”

1. IF you enter trades without a clear trading plan, you just might be a gambler.

2. IF you trade just to be trading, you just might be a gambler.

3. IF your bored and enter a trade, you just might be a gambler.

4. IF you look at potential profit before assessing potential loses, you just might be a gambler.

5. IF you have no impulse control, you just might be a gambler.

6. IF you have no methodology, you just might be a gambler.

7. IF you rely on others for your trading decisions, you just might be a gambler.

8. IF you do not take full responsibility for your trading outcomes, you just might be a gambler.

9. IF you increase your risk due to losses, you just might be a gambler.

10. IF you do not use stop losses or do not adhere to them, you just might be a gambler.

And my all time favorite

11. IF you get an adrenaline rush when your entering trades, you just might be a gambler.

Oil crisis in INDIA

  
Analysis, Education

India runs the risk of a crude oil shortage next month that could spill over to its 36,000 petrol pumps after the Reserve Bank of India stopped payments in US dollars and the euro through the traditional mechanism to pay for imports from Iran.

The central bank took the sudden decision last week under American pressure without consulting local crude oil importers or putting in place an alternative method for making payments.

Iran accounts for 12 per cent of India’s crude oil imports of roughly 160 million tonnes a year.

In Delhi, a petroleum ministry official tried to play down the possibility of a crisis by saying the country had crude reserves to support 74 days of consumption. However, he admitted that it could snowball into a full-blown crisis if no solution was found to the payment problem.

The official said the oil ministry had not been consulted before the RBI ordered the halt to payments through the Asian Clearing Union (ACU), an arrangement allowing participants in an intra-regional transaction to settle payments.

The decision will immediately affect 10 million barrels of crude oil from Iran that have been contracted for delivery in January.

RBI officials are due to meet their counterparts from Iran in Mumbai in the next few days to hammer out an alternative mechanism.

“If they fail to come up with alternative mechanism quickly, there would be a surge in world crude oil prices which have already topped $ 94 a barrel,” said a petroleum ministry official.

An RBI spokesperson said no date had been fixed for the meeting and declined to speculate about the options that two sides could discuss.

The RBI decision was taken after the European Central Bank asked it to certify that none of the payments routed through the ACU, established by nine nations, including India, Pakistan and Iran, was meant for items on a list of American sanctions. (more…)

The story of 2 monks and the power of letting go

  
  Education
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I believed you have heard of many versions of the story about 2 monks. No? Let me refresh your memory, and explain to you how it is applicable to trading.

There were two Buddhist monks walking along the bank of a river, making their way to back to the temple.

As they were walking, they came across a beautiful lady standing at the side of the river. She stopped them and asked if one of them is willing to help her across the river. The junior monk did not bulge but the senior monk without any doubt, carried her on his back and across the river. The senior monk put her down on the other side and she thanked him profusely and hurried off. The junior monk was taken aback by the gesture but kept to himself. The senior monk returned and they carried on with the journey.

As they walked, the junior monk kept brooding about the incident until it was unbearable and broke the silence, “why did you carry that woman across the river? Knowing that our religion forbid us to touch women!”

The senior monk replied peacefully, “I put her down a moment ago and you are still carrying her.” (more…)

There’s Only 2 Kinds of Traders Making Money

  
  Education

The First Kind

Starting with the mechanical or algorithmic side, I see so many traders, especially on the forex side, buying systems. Systems that are back-tested for years and can supposedly bring great consistent profits. Let me tell you from now, if you’re one of those traders that’s always searching for a great system, it’s never going to happen for you. Why not? That brings us to our first type of profitable trader. You see, the consistently profitable mechanical trader is someone who is extremely versed in programming, math, and statistics. First and foremost, he knows how to back-test correctly, and how to avoid the multitude of statistical biases and errors that can arise. Even traders who aren’t looking for a magic system often make the mistake of thinking that their back-testing has any merit. More often than not, it’s mired in numerous statistical errors that leave it not only incorrect, but worse yet dangerous to their trading account. Trust me when I tell you the math and statistics of correct back-testing and system building are extremely complicated. Unless you’re a math and statistics whiz, you don’t stand a chance.

But there’s another quality that the profitable mechanical trader has that separates him from the rest. And that’s that he truly understands the markets in a deep way. This is of vast importance because market conditions (like volatility and directional conviction) are cyclical and they go through different kinds of patterns over time. So even if you were given a solid algorithmic system by a great mechanical trader, you still wouldn’t be able to make money from it over long periods of time because it would need to be fine-tuned to adapt to changing conditions. Also, the great mechanical traders will often have several systems and they’ll choose which ones to employ at what times based on their deep understanding of market behavior. Not as easy as it seemed is it? (more…)

Ten Rules of Trading from Bernard Baruch

  
Analysis, Education
  • Don’t speculate unless you can make it a full-time job.
  • Beware of barbers, beauticians, waiters- of anyone- bringing gifts of “inside” information or “tips”.
  • Before you buy a security, find out everything you can about the company, its management and competitors, its earnings and possibilities for growth.
  • Don’t try to buy at the bottom and sell at the top. This can’t be done — except by liars.
  • Learn how to take your losses quickly and cleanly. Don’t expect to be right all the time. If you have made a mistake, cut your losses as quickly as possible.
  • Don’t buy too many different securities. Better have only a few investments which can be watched.
  • Make a periodic reappraisal of all your investments to see whether changing developments have altered their prospects.
  • Study your tax position to know when you can sell to greatest advantage.
  • Always keep a good part of your capital in a cash reserve. Never invest all your funds.
  • Don’t try to be a jack of all investments. Stick to the field you know best.

I hope the above rules could be helpful for the ones of you that are still lacking discipline in trading. I still find them extremely relevant and believe that they are a great piece of trading/investment wisdom.

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