Archives of “January 7, 2019” day

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Intuition & Vision in Trading

  
  Education
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 Intuition – A qualitative virtue recognized by few and held by even less. Our intuition is the byproduct of the analysis performed by our subconscious. It acts much like a muscle and requires exercise to develop and grow. Like a muscle, neglect can cause atrophy. Traders with a strong intuition built on a strong trading strategy put themselves in an ideal position to achieve consistent success in the market. Over time, traders can feel the energy a market gives off and can execute trades from this. It is an invaluable tool in one’s trading arsenal.

Vision – While total clairvoyance as to future price movement is unrealistic. It is my goal as a trader to assimilate as much information as possible with the goal of playing out scenarios that tie in together. It’s not always easy to do, yet understanding trading does not occur in a vacuum and markets do exhibit funny things get you mentally prepared to deal with these outlier events. Those that can think for themselves and need not rely on templatized news releases for their ideas usually put themselves in a position to benefit from their forward thinking.

We have heard many times about leaders who saw an industry trend before it happened. This was no accident. It came as a result of their understanding of their field and what could change it for the better. Traders who gain an understanding of how things can potentially play out and factor that into their trading strategy go a long way to keeping their objectivity when things unfold in a fast and volatile market.

Chemistry and Markets

  
  Education
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Since the topic of chemistry/market analogies has come up, I’m reminded of something I noticed while studying economics. Anyone else notice some resemblance between stoichiometry and the Cobb-Douglas production function?

Stoichiometry and the reaction rate equation: r = k(T) * A^n * B^m

And the Cobb-Douglas production function: Y=AL^{\beta}K^\alpha

What kind of “chemical” reactions can we find in the markets?

Something like this?

Trader-Cash_p + Stock <-> Trader-Stock + Cash_p

An important difference with this “reaction” is that _p, which is price, fluctuates; whereas chemical reactions always have the same stoichiometry. So, are there any useful analogies?

THREE LEGS OF SUCCESSFUL TRADING

  
  Education
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If you ever read any book on trading you would notice that every author our there talking about three most important things of successful trading and investing are:

  1. Trading edge
  2. Money management
  3. Discipline or psychology

Depending on the book one is reading one of those three are emphasized more or less. If you read book on technical analysis author will say that having edge is most important, and even if you have PhD in psychology if you don’t have proper edge you will not be able to make money.

If you read book on psychology again author will tell you that you can have best trading system on the world if you are not able to take signals you will not be successful trader and that you must make system that will suit your personality.

Finally if you read book on money management, author will tell you that even if you have best system in the world and having best discipline in the world if you risk too much of your capital on each trade you will probably ruin your account and the game will be over.

To answer I would ask you following: What is more important heart or brain? Eyes or ears? Legs or Arms?
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What We Can Learn From Bamboo

  
  Education
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A problem many market participants encounter is that they hold rigid views and systems which, just like the strongest steel and concrete, are destroyed under the right conditions.

It is nature that produces the strongest products of all, and we can learn from nature how to handle our trading. Take bamboo, for example: “the plants endure cold winters and extremely hot summers and are sometimes the only trees left standing in the aftermath of a typhoon. They may not reach the heights of the other trees, but they are strong and stand tall in extreme weather.”

This article “10 Simple Life Lessons from Bamboo” provides many lessons for us all.

Here are a few amazing things I have learned about bamboo over the years:

1. The young can grow very fast – 3 feet in a day.

2. Thickness of the young and the mature is about the same.

3. Most grow on barren land.

4. A whole forest of bamboos can come from a single root.

5. They blossom once about 60 years, after which they all die and allow new seeds to grow. (more…)

Becoming a Mature Trader

  
  Education
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Growing up (which takes a lifetime) is like finding out what kind of canoe you’re in – and learning how to row it safely and effectively – and learning to accept yours is not the best in the race.

The genetic factor in IQ is well established, which doesn’t (and shouldn’t) stop anyone from attempting to improve their knowledge and skill at reasoning. That said, people with no facility at math shouldn’t aspire to be physicists, and good-looking, loquacious, charming people shouldn’t sit all day behind a computer.

There is evidence that this analysis pertains to optimism/pessimism. Some investors may find they do very well in exuberant bull markets but crash when things go bad; others miss out on “irrational” bull runs, but cautiously avoid crashes. How would society look if everyone had the same rosy disposition, and philosophy that everything bad is temporary and will ultimately and triumphantly reverse by dint of inherent human goodness, the American way, and our G-dly chosen-ness amongst a universe of 10^100^100 habitable planets?

Pessimism (skepticism, risk-aversion, worry, etc) has its place. Some fraction of Jews living in pre-Nazi Europe fled at a time when others deemed flight too fearful and overwrought, with well known results. The survival/perpetuation of fear and pessimism in the population is evidence that it has value. And the difficulty buying when the world is on fire, and holding when money is free illustrates why the rich are in the minority, most heroes are dead, and Gini ratios naturally go up until acted on by the hands of governments or G-ds.

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