Archives of “January 9, 2019” day

rss

The 7 Psychological Mistakes Traders make

  
  Education
#  #  #  #  #

  1. Trading too big to “get back to even”.

  2. Going “all in” on one trade that they believe they just can’t lose.

  3. Being on the wrong side of an asymmetric trade.  Being short options for possible small gains if right but big losses if wrong.  In the long term eventually this blows up.

  4. Fighting a trend over and over again, a trend that a trader or investor can not even believe is very dangerous because shorts look better the higher a stock goes and longs look like they are getting a bargain the lower the stock sinks.

  5. In a losing trade the trader starts thinking “add more to a losing position” instead of “I need to cut my loss short”.

  6. The trader believes they are right and the market is wrong.

  7. Traders are trading markets they do not even fully understand and a trader must fully understand the risk and leverage involved  in currencies, futures, options, and commodities to prevent possible blow ups due from ignorance.

If a trader can tightly control risk and position sizes this will get them closer to getting in the club with the 10% of winning traders.

The Win/Loss Ratio

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

42-21056354“One common adage on this subject that is completely wrongheaded is: You can’t go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits. The problem in a nutshell is that human nature does not operate to maximize gain but rather to maximize the chance of a gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance. … (more…)

Lessons From John Templeton

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

1. “I never ask if the market is going to go up or down, because I don’t know, and besides it doesn’t matter. I search nation after nation for stocks, asking: Where is the one that is lowest priced in relation to what I believe its worth?” Like every other great investor in this series of blog posts John did do not make bets based on macroeconomic predictions. What some talking head may say about markets as a whole going up or down was simply not relevant in his investing.  John focused on companies and not macro markets. He was a staunch value investor who once said: “The best book ever written [was Security Analysis by Benjamin Graham].

 2. “If you want to have a better performance than the crowd, you must do things differently from the crowd.  I’ve found my results for investment clients were far better here [in the Bahamas] than when I had my office in 30 Rockefeller Plaza.  When you’re in Manhattan, it’s much more difficult to go opposite the crowd.”  The mathematics of investing dictate that investing with the crowd means you will earn zero alpha, because the crowd is the market.  You must sometimes be willing to take a position that is different from the crowd and be right about that position, to earn alpha. John put it this way: “If you buy the same securities everyone else is buying, you will have the same results as everyone else.” 

 3. “The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.  Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria.  People are always asking me: where is the outlook good, but that’s the wrong question…. The right question is: Where is the outlook the most miserable? For those properly prepared in advance, a bear market in stocks is not a calamity but an opportunity.”   To be able to sell when people are most pessimistic requires courage.  Being courageous is easier if you are making bets with “house money.” Making bets with the rent money is always unwise.  Templeton believed problems create opportunity. For example, it was on the day that Germany invaded Poland that he saw one of his best buying opportunities since prices were so low and values so high.  Simply telling his broker that day to buy every stock selling under $1 yielded a 4X return for John.  (more…)

Go to top