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Betting as seeing by stock operator

There is a story I heard long time ago

horse_betting

“A man comes to the race track and bets $10 on a horse.He wins, and bet entire amount again.He wins, and bet entire amount again.He wins, and …you know the drill by now.

So winning he keeps and finally has huge amount …and he bets it again And he loses, loses obscene amount of money.When he walks toward the exit of race track his friend stops him and asks: How did you do today?

Man answers: Not bad, I only lost $10.

 The moral of the story (beside of always setting aside part of your winnings ) is that you can only lose your initial stake and you have to be able to stay with the working trade.

The Probabilities Win Every Time

Columnist David Brooks wrote an interesting article in the New York Times on how to effectively use probabilities:

In 2006, Philip E. Tetlock published a landmark book called “Expert Political Judgment.” While his findings obviously don’t apply to me, Tetlock demonstrated that pundits and experts are terrible at making predictions.

But Tetlock is also interested in how people can get better at making forecasts. His subsequent work helped prompt people at one of the government’s most creative agencies, the Intelligence Advanced Research Projects Agency, to hold a forecasting tournament to see if competition could spur better predictions.

In the fall of 2011, the agency asked a series of short-term questions about foreign affairs, such as whether certain countries will leave the euro, whether North Korea will re-enter arms talks, or whether Vladimir Putin and Dmitri Medvedev would switch jobs. They hired a consulting firm to run an experimental control group against which the competitors could be benchmarked. (more…)

Method-Pyschology-Risk Management for Traders

METHOD:

  1. I am a trend hunter I want a stock that has the potential to move 10-20  points in my favor.
  2. My top pivot points for trades is the 5 day EMA  (3 & 7DEMA for NF )
  3. I play the long side in bull markets primarily and the short side in bear markets primarily.
  4. I go long the top monster stocks in up trending markets.
  5. I never short a monster stock above the 50 day moving average.
  6. I short the biggest  junk stocks in down trends, the ones that are unprofitable and made major missteps with customers and investors.
  7. I like to trade with all time highs or all time lows in stocks with in striking distance.
  8. Moving averages are my best indicators.
  9. I never have targets, I let a trend run until it reverses.
  10. My watch list for longs is the Investor’s Business Daily IBD50.
  11. I use Darvas Boxes at times to trade stocks.

PSYCHOLOGY:

  1. I am not trying to prove anything about myself I am only trying to make money.
  2. I will quickly admit when I am wrong when a stock moves against me enough to show me I am wrong.
  3. I trade my own method, I do not trade others advice.
  4. If I am losing and very unconformable with a trade I get out of it.
  5. I trade position sizes I am mentally comfortable with.
  6. I do not try to predict the future I look for what the chart is telling me.
  7. I trade the chart not my personal opinions.
  8. I am not afraid to chase a trending stock.
  9. I understand that I chose my entries, exits, risk, and position size and the market chooses when I am profitable.
  10. I do not worry about losing money I worry about losing my trading discipline.
  11. I have faith in myself and my method.
  12. I do not blame myself for losses.
  13. I do not blame myself for losses where I followed my rules.

RISK MANAGEMENT:

  1. I attempt to never lose more than X % of my total capital on any one trade.
  2. I NEVER add to a losing trade.
  3. I use trailing stops to get out of winning trades.
  4. I use mental stop losses to get out of losing trades.
  5. I use position size to limit my risk.
  6. I use stock options to limit my risk.
  7. I know my biggest advantage in trading is small losses and big profits.
  8. I never expose more than X % of my capital to risk at any one time.
  9. I understand the market environment I am trading in.
  10. I understand the volatility of the stock I am trading.

Two masters

Always smile 

Someone said to William James, an American philosopher and psychologist: “You are the only happy person I know: you always have a smile on your lips, even when facing great difficulties.”

“I am not always smiling because I am happy,” answered William James. “I am happy because I am always smiling.”

Wise man’s answer 

A king asked Saadi of Shiraz: “While travelling through the cities of my country, do you use to think of me and about my works?”

“Oh King, I think of you, whenever I forget about God,” was the wise man’s answer.

Best Practices for Traders

1) Preparation to start the day and week: Having a clearly formulated strategy to guide trading decisions;

2) Keeping score: Using a trading journal to structure learning, document progress, and sustain positive motivation;

3) Managing risk and maximizing opportunity: Trading with more risk/size when trading well and clearly seeing opportunity and pulling back risk when drawing down, trading poorly, and perceiving little opportunity;

4) Taking breaks: Stepping back from markets periodically to gain fresh perspective, reformulate views, and tweak strategies;

5) Treating trading as a business: Limiting overhead, having a clearly defined plan to move toward profitability, focusing on distinctive areas of strengths and opportunity.

So much of what makes traders great is what they do between market sessions, how they do it, and how much of it they do.