Archives of “January 13, 2019” day

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Minimize The Impact Of A Setback!

  
  Education
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SportFirst, minimize its symbolic importance. Many people over interpret setbacks by imbuing them with more emotions than are warranted. They view setbacks as a form of punishment, as if a teacher or parent is punishing them for doing something wrong. Take the setback in stride and move on to the next winning trade.

Second, don’t confuse trading outcomes with personal significance. If you lose big, for example, the loss may have great financial significance but it doesn’t need to have great personal significance. You can wipe out your entire account, but that doesn’t mean you are diminished in the eyes of friends and family. You don’t need to let a loss or setback make you feel less worthy as a person.Ironically,  when you psychologically minimize the impact of a setback, and treat it as if it isn’t important, you’ll stay calm, free, and objective. And when you feel this way, you’ll trade profitably.

The Essence of a Trading Process

  
  Education
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At the broadest level, trading consists of analyzing, synthesizing, and doing.

Analyzing is extracting information from markets, immersing ourselves in data.  It is our look through the microscope.

Synthesizing is assembling those data into a coherent picture, extracting pattern and meaning from the reams of market information.  It is our telescopic view.

Doing is taking action on the meaning we have extracted from studying markets.  It includes everything from determining the best expression of a view to managing risk and reward once the view has become a position.

In trading, the microscope and telescope of viewing are transformed into real world doing.

At the end of a trading day, week, or month, we repeat the process–only we turn the lens inward.

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Must see 4 Charts

  
Analysis, Education
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There’s a reason why I warn you to get out of a bubble a little early rather than a little late. It’s because the first wave down tends to happen in a matter of a few weeks or months, sometimes days. It’s fast and furious.

I know this because I’ve studied every major bubble in modern history – all the way back to the infamous tulip bubble in 1637, when a single tulip cost more than most people made in a single year! And what I’ve seen in each case, without exception, is that bubbles do not correct in nice stair steps when they’re coming off their highs. They burst, crash, collapse, clatter, clang – however you want to say it!

When the bubble deflates, it typically crashes 50% minimum to as high as 90%. But it’s that first wave down that can wipe out 20% to 50% right off the bat!

Below I have four charts that make the argument for me.

They show the 1929 bubble burst… the 1987 crash… the 2000 “Tech Wreck”… and the latest of 2015 from the Red Dragon itself – China’s Tsunami.

In each case, the fact that these bubbles were destined to burst were only obvious to the few that weren’t in denial. Most give into the bubble logic that new highs are the new norms. They think: “This time is different.” It’s not! It never is.

It’s always hard to predict exactly when bubbles will peak and crash. It’s like dropping grains of sand on the floor. A mound will build up – becoming like a Hershey’s kiss that grows more narrow at the top. At some point, one grain of sand will cause the avalanche. Who knows which grain of sand that one will be!

Here are those charts. Like I said, they speak for themselves! (more…)

More Research Confirms The Benefits Of Overconfidence

  
  Education
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over-confidenceOverconfidence may cause people to invest too much in volatile stocks because such stocks have a greater diversity of beliefs, and so if people dismiss the objectively bad odds of beating the market, such people will be drawn to stocks where they are in the extremum, and highly volatile stocks have the most biased extremums.  One might think these people are irrational, but in the big picture people with this bias actually have a huge advantage, why Danny Kahneman said it’s the bias he most wants his children to have.
Two economists at Washington State University looked at twitter accounts for sports prognosticators and found that confidence was much more important than accuracy in generating followers. Their sad conclusion: Pundits have a false sense of confidence because that’s what the public, seeking to avoid the stress of uncertainty, craves. In other words, to be popular (read: successful), you need to be unwarrantedly confident. This takes either an amoral cognitive dissonance or ignorance. (more…)

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