95% Traders Don't Know This Thing.
Archives of “January 5, 2019” day
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Surfer vs Gambler
The ocean and the markets have many things in common. For one, they are both a dynamic event that is constantly in flux, and from the average traders point of view, beyond any possibility of manipulation. It is what it is; it will go where it goes.
This analogy works if we consider the mindset of a surfer. He knows that he is in a passive relationship to the sea, yet he also knows that he can develop a skill in relationship to its ever changing movements in order to reward himself. The surfer cannot demand anything from the sea, he can only wait for it to present him with an opportunity and engage it when the time is right. To go in during a total calm or a tsunami would be both equally foolish; he must wait for the conditions to be right. (more…)
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'Monkeys' beat the stock market
Ten million portfolios containing stocks randomly selected as if by monkeys managed to produce better profits than a tracker fund over 40 years, academic research has concluded.
The tracker fund was made up of stocks weighted according to their share of the market, thus raising the question as to whether this is an appropriate strategy to build passive investment funds.
The majority of passive tracker funds are constructed this way. A tracker aims to mirror or “track” the performance of any of a number of worldwide stock market indexes, such as the FTSE 100.
A FTSE 100 tracker is proportionally invested into the 100 companies in the index based on how large those companies are – their market capitalisation. But the new research, conducted by Cass Business School and sponsored by Aon Hewitt, questions whether there is a better way to construct indices and the funds that track them. (more…)
Coach Yourself as a Trader
What are the three things (i.e. courses of action, strategies, resources) that you’ve found most helpful in mentoring/coaching yourself as a trader?
And here is how I answered:
- 1. Understand me. The most powerful tool I have found in life and in this specific case, the market, is what I, as a person, am capable of doing as a trader. I finally understand that personal characteristics that are engrained in my DNA will only allow me to trade successfully under specific circumstances. For example, I am much more consistent and profitable as a medium term and longer term trend trader than as a day trader (even more so on the long side). I don’t need to be everything, all the time as long as I continue to focus on the areas that bring me the greatest success. Understanding “me” has been my holy grail of understanding how to trade the market with some type of consistency and profitability.
- 2. Learning to cut losses. It’s almost cliché but not many people can do it (in any aspect of life). I have learned to cut losses in my trading, my career, my hobby of competitive poker and everything else in life where the rule applies. Without this rule, there wouldn’t be a third rule.
- 3. Study and work hard. Sounds so simple but we live in a very lazy society. It is extremely important to my success for me to continuously study the markets on a fundamental and technical level and learn from my successes and mistakes. If you think about it, we would all start at square one on every trade if we didn’t learn from past situations where we succeeded or failed. Applying the knowledge gained from past experiences allows me to properly analyze similar situations in the future with slightly greater odds of success (or at least I would like to think). Never stop learning is a phrase that I will never stop saying as it proves to be truer the older I get.
The Fed Flashes the Nuclear QE
Of ten people who hear the same story or speech, each one might understand it differently. Perhaps, only one of them will understand it correctly. Bernanke acknowledged that the US-economy faces an “unusually uncertain time,” but if necessary, he hinted the central bank would resort to “Quantitative Easing,” (QE), or printing vast quantities of US-dollars, in order to prevent a deflationary spiral.
George Soros – "It's not whether you're right or wrong…"
The full quote – “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”
Soros’s style of trading is very unforgiving and he is always ready to admit when he is wrong and cut his losses. Admitting one’s mistake is one of the key things to successful trading – he or she will be psychologically prepared to take action to reduce their losses without much delay.
How many of us always hold on to unrealized losses, and hope or even believe that the stock will regain its price? I guess many of us are guilty of that. Some stocks drop in price for a reason and there are even more reasons for them to drop further until you realize how bad your unrealized losses are!
As Soros take huge positions and high leverage in his trades, he has to be decisive to cut loss so as to lose as little as possible when he is wrong. On the other hand, when he is right, he make sure his profits can more than overcome his losses several folds. He understands he cannot be right all the time – the principle is to minimize your loss when you are wrong and maximize your profit when you are right.
You are already complete. You just don't know it. To want enlightenment is already a big mistake. Just do it
