Archives of “January 6, 2019” day

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Secret Trading Ingredient

  
Education, Video
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A lot of new traders are always looking for the secret sauce in trading, they go from blog to blog, new idea to new idea, strategy to strategy, searching for a system that will only give them winners without experiencing any draw-downs.  This is especially the case after they go through a period in which they are struggling.  And due to world wide web you will find endless information on so called “proprietary list”, “proprietary indicator”, “buy green sell red, we have never missed a bottom or a top”, etc…  But until you realize that losing is part of the game, and that you are not going to make money day in and day out in all market conditions you will continue to search for the secret trading ingredient.  However, thanks to my son your search is done, we found the secret ingredient.

Skip to the 2:40 mark
 
 

Fear

  
  Education
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  fear-daytrading
 

One of my favorite bits of trading advice was given 85 years ago by Jesse Livermore in Reminiscences of a Stock Operator: 

“The speculator’s chief enemies are always boring from within.

“It is inseparable from human nature to hope and to fear. In speculation when the market goes against you, you hope that every day will be the last day and you lose more than you should had you not listened to hope… to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and you get out too soon. Fear keeps you from making as much money as you ought to.

The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit. It is absolutely wrong to gamble in stocks the way the average man does.” (more…)

Speculators, Skeptics & Suckers

  
  Education
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  • Speculators jump into stocks in the late stages of a Bear market and into the early stages of the Bull market; they are the gamblers; and they are willing to accept higher relative risk to capture the largest price movements that occur later, when the Skeptics and Suckers are buying in larger numbers.
  • Skeptics wait for the Speculators to make the first move and to see real evidence of economic recovery before buying into a Bull market. Skeptics don’t jump in; they move in increments; and they usually miss the biggest price movements, both up and down. Put simply, Skeptics make their money when neither fear nor greed are at peak levels.  There is also a sub-category of Skeptic, which are the Contrarians, who are skeptical to the degree that the most prudent position is the opposite of the herd.
  • Suckers will buy or sell at any point during a market cycle but tend to buy more at higher price levels and sell more at lower price levels; therefore, as a whole, Suckers are the last to join a Bull market and the last to abandon it.

These are generalizations and most investors will exhibit characteristics of all three types at various points of a market cycle.  For example, at the market cycle extremes–the highest and lowest points–many Speculators and Skeptics become Suckers.  Also, there are hybrid forms (e.g. Speculative Suckers, Skeptical Speculators, Perma-Suckers, and so on).

Using Hope & Fear Correctly in Trading

  
  Education
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In trading most new traders allow hope and fear to dictate their trading. They have a losing trade and instead of selling it and getting out they instead hope it will come back to even allowing the loss to grow. Another error  for new traders is that when they have a winning trade they fear that the profit will disappear so they sell for a small gain and miss the big trend in their favor. When hope and fear controls the trader they end up with big losses and small gains. A formula for ruin.

Instead the rich trader is fearful of losses getting bigger so they sell quickly when losing, risking a maximum of 1% of their capital on any one trade. Rich traders are able to think clearly and trade rationally knowing exactly what they are risking, when their stop is hit, they get out. This enables them to keep all their losses small.

When a trade is immediately a winner for a rich trader they hope it will run 100 points in their favor. Rich traders enable this to be possible with a trailing stop, they do not get out of a winning trade until a key price reversal has happened that tells them that the trend is actually reversing.

Rich traders are fearful of losses growing bigger and hope that their winners will continue on a monster trend. This mindset allows  them to be on the right side of trends and avoid any huge losses. This is why the best traders in the world are trend followers and win consistently. Do you want to join their club? Then do not let fear and hope dictate your trading decisions use them correctly.

$60 Trillion Of World Debt In One Visualization

  
Analysis, Economy, Education
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Today’s visualization breaks down $59.7 trillion of world debt by country, as well as highlighting each country’s debt-to-GDP ratio using colour. The data comes from the IMF and only covers external government debt.  

It excludes the debt of country’s citizens and businesses, as well as unfunded liabilities which are not yet technically incurred yet. All figures are based on USD. 

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