Trader risk management -9 Rules
Archives of “January 6, 2019” day
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10 Pitfalls of Trading & Answers
What are the 10 major mistakes that these traders make that cost them dearly?
- Having no trading plan
When you don’t have a plan, you don’t have a template to follow. It becomes very costly when your emotions are high and you have to make decisions on the fly.
- Using strategies that do not match your personality
You hear of a trading strategy that has worked very well and you are anxious to follow it. One important factor to consider is: does it match who you are and your lifestyle?
- Having unrealistic expectations
Most traders assume that it is very easy to make money in trading. They have unrealistic expectations with regard to their initial capital, their risk profile and how much money they can expect to make.
- Taking too much risk
Usually when traders are down, they want to make their money back very quickly. Therefore, they increase their position size without thinking about the risk/rewards.
- Not having rules to follow
Most traders think if they have rules to follow, they are restricting themselves. It is on the contrary. Having rules allows you to be more flexible since you have thought about lots of issues beforehand.
- Not being flexible to market conditions (more…)
Top ten reasons you know China has a financial bubble on its hands
Edward Chancellor, author of the seminal book on financial speculation and manias “Devil Take The Hindmost,” is now turning his eyes to China. He sees a number of red flags which point to excess in China.
Chancellor writes:
In the aftermath of the credit crunch, the outlook for most developed economies appears pretty bleak. Households need to deleverage. Western governments will have to tighten their purse strings. Faced with such grim prospects at home, many investors are turning their attention toward China. It’s easy to see why they are excited. China combines size – 1.3 billion inhabitants – with tremendous growth prospects. Current income per capita is roughly one-tenth of U.S. levels. The People’s Republic also has a great track record. Over the past thirty years, China’s Gross Domestic Product has increased sixteen-fold.
So what’s the catch? The trouble is that China today exhibits many of the characteristics of great speculative manias. The aim of this paper is to describe the common features of some of the great historical bubbles and outline China’s current vulnerability.
Everyone knows there is extreme levels of excess. The latest report from Andy Xie on local governments shows that governments are now depending on asset prices for revenue, much as they did in places like California during America’s housing bubble.
How can we identify a speculative mania? Chancellor says:
bubbles can be identified ex ante, as the economists like to say. There also exists an interesting, if rather neglected, body of research on leading indicators of financial distress. A few years ago, many of these indicators were pointing to rising economic vulnerability in the United States and other parts of the globe. Today, those red flags are flying around Wall Street’s current darling, The People’s Republic of China.
James Rickards thinks this is the greatest bubble in history. Even Sino-enthusiast Stephen Roach is pointing to a bubble in China. He just thinks the government will be able to prevent its dragging down the real economy.
That’s because Beijing was vigilant in preventing asset and credit bubbles from spilling over into the real side of the Chinese economy. This was very different from the Japan endgame of the late 1980s, where the confluence of equity and property bubbles led to a massive overhang of excess capacity.
Roach’s confidence sounds an awful lot like blind faith in the Chinese authorities to me – exactly the opposite of what Roach’s former colleague Andy Xie is saying.
Chancellor includes this blind faith in the 10 signposts of manias and financial crises (very reminiscent of Kindelberger, by the way).
- “Great investment debacles generally start out with a compelling growth story.”
100% yes. Check.
- “Blind faith in the competence of the authorities.”
See Roach’s comments above or read Goldilocks is not sleeping in America anymore; she’s now in China. Check.
- “A general increase in investment is another leading indicator of financial distress. Capital is generally misspent during periods of euphoria. Only during the bust does the extent of the misallocation become clear.” (more…)
Priceless Wisdom from Reminiscences Of A Stock Operator
“His name was Partridge, but they nicknamed him Turkey behind his back, because he was so thick-chested and had a habit of strutting about the various rooms, with the point of his chin resting on his breast. The customers, who were all eager to be shoved and forced into doing things so as to lay the blame for failure on others, used to go to old Partridge and tell him what some friend of a friend of an insider had advised them to do in a certain stock. They would tell him what they had not done with the tip so he would tell them what they ought to do. But whether the tip they had was to buy or to sell, the old chap’s answer was always the same.
The customer would finish the tale of his perplexity and then ask: “What do you think I ought to do?” Old Turkey would cock his head to one side, contemplate his fellow customer with a fatherly smile, and finally he would say very impressively, “You know, it’s a bull market!” Time and again I heard him say, “Well, this is a bull market, you know!” as though he were giving to you a priceless talisman wrapped up in a million-dollar accident-insurance policy. And of course I did not get his meaning.
One day a fellow named Elmer Harwood rushed into the office, wrote out an order and gave it to the clerk. Then he rushed over to where Mr. Partridge was listening politely to John Fanning’s story of the time he overheard Keene give an order to one of his brokers and all that John made was a measly three points on a hundred shares and of course the stock had to go up twenty-four points in three days right after John sold out. (more…)
"Let him that would move the world, first move himself." Socrates
95% of profits come from 5% percent of trades
A high return/high risk trader will have 95% of profits come from 5% percent of trades. What this is telling you is that there is no need to “overtrade” just for the action. The bulk of profits are made in the waiting, not the trading. This should free up your time for the more important things in life such as family, golf, Watching movies ,afternoon lapdances, etc.
What Most People Think
Japan Mar Retail Sales +4.7% Y/Y, Biggest Rise In 13 Years
– Japan Retail Sales Post 3rd Straight Y/Y Rise; Feb +4.2%
– Japan Mar Retail Auto Sales +19.6% Y/Y Vs Feb Revised +14.8%
– Japan Mar Retail Sales Also Pushed Up By Higher Fuel Prices
TOKYO (MNI) – Japanese retail sales surged 4.7% in March from a year earlier, posting the largest year-on-year gain in 13 years, data from the Ministry of Economy, Trade and Industry released on Wednesday showed.
It was the third straight year-on-year increase after an unrevised rise of 4.2% in February. (more…)
11 Things I’ve Learned About Markets
1. “There is no such thing as easy money”
2. Events that you think are affected by cardinal announcements like the employment numbers at 8:30 am on Friday are often known to many participants before the announcement
3. It’s bad to try to make money the same way several days in a row
4. Markets that have little liquidity are almost impossible to profit from.
5. When the stock market is way down, policy makers take notice and do what they can to remedy the situation.
6. The market puts infinitely more emphasis on ephemeral announcements that it should.
7. It is good to go against the trend followers after they have become committed.
8. The one constant, is that the less you pay in commissions, and bid asked spread, the more money you’ll end up with at end of day. Too often, a trader makes a fortune on the prices showing when he makes a trade, and ends up losing everything in the rake and grind above.
9. It is good to take out the canes and hobble down to wall street at the close of days when there is a panic.
10. A meme about the relation between today’s events and those of x years ago is totally random but it is best not to stand in the way of it until it is realized by the majorit of susceptibles
11. All higher forms of math and statistics are useless in uncovering regularities.