Archives of “January 21, 2019” day

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Some things never change

  
  Education

Among the galaxy of individuals interested in the stock market with whom I have come in contact, there have been literally thousands of different types, ranging from stupid to brilliant, from greedy to conservative, from rich to poor and from dismal failure to brilliant success.  In fact, no two individuals bring to their market operations identical attitudes and attributes.  They are all different; yet they are all identical in one respect-they want to make a profit from their operations.  The profit motive is the universal aim in all market activity, yet by what devious and warped methods most individuals go about their operations is known only to the stock market analyst in all the pathos of its ineffectiveness.  And the greatest tragedy of all is the realization that by far the greater portion of those who come to the market with hard-earned savings, high hopes and enthusiastic ambitions-only to leave it with disappointments and loss-could be saved from their misfortune by a simple medium of a few logical rules of policy, by a small amount of consideration and common sense.   R.W. Schabacker, 1934

Wall Street speculation is the most stupendous game known to the world of chance; as compared with it, the game of Monte Carlo pales into utter insignificance; in no other game are the stakes so high, is success so transitory, and failure so overwhelming.  It is a game in which the wealth of Croesus changes hands in a single hour but in which the vast majority of the outside public, who tamper with it, go to financial and often to physical and moral ruin.  The general public seldom have any opportunity to become familiar with the inside workings of Wall Street speculation, as it really is, except through an expensive personal experience; but by the time most people have learned enough through personal experience to make money in Wall Street, their experience is all the capital they have left, and this alone makes rather a light margin, with which to operate in stocks.  Franklin C. Keyes, 1904

If you, my dear sir, were to join a first-class Whist Club [whist is a card game] you would be expected to know something about the game would you not?  Some of the elementary principles of the play you should understand at least, otherwise you have no business to be in the game with experienced players. What is true of the game of Whist is not less true of the game in Wall Street.  In this latter game the amateur who goes into it without study or knowledge is almost sure to lose in the end.  William Hoyle, 1898

Eurozone inflation update: There isn't any

  
Analysis, Education

Annual inflation in the euro area is up, and out of negative territory in October, but it still comes in at a big fat zero, according to the latest release from Eurostat.
Unsurprisingly, energy provides a huge drag. See the chart below from Eurostat.
The fact that the currency bloc is no longer in deflation takes a bit of the pressure off the European Central Bank to beef up its easing measures. But only a bit. The lack of a reaction in the euro to the news shows that traders and investors still think it’s close to a done deal. (The euro is now at $1.10.)

Black Belt Trading

  
  Education
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Black BeltJust like you shouldn’t practice your basic martial-arts forms in the ring where your mind is more focused on pain avoidance then executing the tactic correctly, a novice shouldn’t begin trading with real money and real consequences. Only once you’ve amassed significant practice in a safe environment where you can conduct your technical and fundamental analysis without being emotionally distracted should you begin to trade with real money. And when you finally start, don’t jump straight into the ring with Bruce Lee. Begin tentatively, gradually, slowly increasing your trading exposure over time as you become accustomed to the increasing levels of risk. How do you know you’ve moved too far, too fast? If you are finding it’s becoming harder to sleep at night, either because you are worrying about your trades or you are excited about your gains, then you have moved into the realm where your emotions are going to have too strong an effect. You are going to start making poor, emotionally-clouded decisions and so it is time to scale back.

When Your Have an Edge, Increase Your Size, Not The Number of Trades

  
Analysis, Education
  • Rather than increase the size of the casino floor, I just want to hone in on the time frame and patterns that I find most comfortable.
  • I want to strive for perfection within this world, and rather than increase the number of trades I enter, I want to increase the risk I take per trade. I accomplish the same end results without the manic activity.

Metaphors and Similes

  
  Education
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Similes and metaphors play an important role in both the internal thought-process of a day trader as well as in communication between two traders.  To describe the emotional reactions coupled to the movement of a stock in likeness to a rollercoaster, or to compare averaging down in hopes of breaking even to digging one’s self out of a hole is to use simile to quickly illustrate a particular situation as clearly and succinctly as possible.  Every trader uses these analogies, each having his own favorites, and they are used to add structure to an environment that often lacks useful tools for explaining particular occurrences. 

Sports metaphors also play an important role in quickly passing information to another trader with a small chance for confusion.  Traders use base-hit as a metaphor to describe a solid but ultimately small-scale win in the market, and home run for when a trade is “out of the park”.  

Ultimately, metaphors and similes can be used by a trader to keep his mind in the right place, and maintain emotional control.  By metaphorically comparing trading to baseball or basketball, the Michael Jordan truism about never missing a shot he didn’t take or Babe Ruth’s statistical record for strikeouts helps the trader keep in the back of his mind the inalienable reality that he won’t get a hit every time he swings the bat. 

Some traders choose to relate trading to fighting a war, conducting scientific research, or any number of analogous endeavors.  The best metaphors and similes are those with which the trader can most easily identify.  These easily identified intellectual aids, when utilized to enhance trading and the trader’s sense of control, in the end, will increasable productivity, and most importantly, profitability.  

Expectations vs Reality

  
  Education
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expecˈtation – noun

1. belief about (or mental picture of) the future
2. anticipating with confidence of fulfillment
3. the feeling that something is about to happen

I think all of us initially come to this subject with expectations (or as stated above, confidence in the fulfillment of our mental pictures of the future). Obviously having goals is one thing, but expectations are another – the problem is the time lines we set and the source of our expectations.

For instance, what if you expect to make money trading in two years, but in actuality (and unknown to you) it will take five? Surely after two years a thought will enter your head such as “this is not working out how I hoped…”

No wonder – your hopes had no connection to reality.

Even more bizarre, considering the above, is that I imagine almost everyone that gets involved in this subject expects to make money immediately. If you expect to make money immediately, but in reality it takes five years to learn to trade with consistency, then of course blown accounts and negative emotions are virtually guaranteed.

Non of us that wash out are smart – we are dumb. If we were smart, we would demo trade (or make use of facilities such as micro accounts) UNTIL we could actually trade profitably, no matter how many years it took.

Are you able to demo trade for five years? I can hear you now – “no freekin’ way!!!”

Why not? Of course, because you have PLANS don’t you? You have OTHER THINGS that you need to press on with that are dependent on your success in trading; in fact these plans of yours are already LATE due to the unexpected delays you hit with this little ‘ole thing called the Stock Market.

What was it? Quit your job, pay off a debt, new car, beach house by the sea, exotic holiday, help your parents in their old age, total financial freedom from the wage slave arena?

These two things combined, unrealistic expectations + unrelated desires are pure poison to any chance of success you have. I can see that now – I have actually looked within and SEEN the cobwebs of unrelated desires and unrealistic expectations that in fact have nothing to do with the reality of trading. Thats the truly amazing thing; these issues are actually NOT CONNECTED to the subject, they are things that are hanging around it in your head like moths around a flame.

So what to do? Somehow, this subject and this practice of trading needs to be mentally separated out into its own space and be unconnected to anything else, otherwise we are dragging all of this dead weight behind us. The term “mental purity” was a phrase coined by the West Coast trading desk by the Enron traders used to describe the state whereby they have nothing unconscious infecting their trading decisions (such as morals and a conscience in their case! See the book Smartest Guys in the Room – a brilliant read).

Its a good term – somehow we need to achieve mental purity (be free from murky motives and unconscious unrealistic expectations).

Are You A Subjective or Objective Trader?

  
  Education
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Subjective: Based on or influenced by personal feelings, tastes, or opinions.Proceeding from or taking place in a person’s mind rather than the external world.

Subjective traders they are intertwined with their trades.Their signals are generally entering out of greed and exiting based on their own internal fear. The believe in their opinions more than the actually price action. They base trades off of whether they are feeling good or bad about a particular trade. A subjective trade comes out of the imagination of the trader, from their own beliefs, opinions, and what “should” happen in their view. Many times reality is not even cross checked as a reference, and if it is the subjective traders sees what they want to see instead of what is really going on. Their compass is their emotions and they have internal goals other than making money.

Objective: (Of a person or their judgment) not influenced by personal feelings or opinions in considering and representing facts. Having actual existence or reality.

Objective traders have a quantified method, a system, rules, and principles they trade by. They know where they will get in based on facts, and where they will get out based on price action. Objective traders have a written trading plan to guide them. The guides of the objective trader is historical price action, charts, probabilities, risk management, and their edge. They react to what is happening in reality in quantifiable terms that can be measured. They go with the flow of price action not the flow of internal emotions. (more…)

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