9 Words Will Explain Everything About Trading
Archives of “January 23, 2019” day
rssA word from Bruce Kovner
Bruce Kovner is one of the world’s most successful traders. The following below is extracted from his Market Wizardsinterview:
“A greedy trader always blows out. I know some really inspired traders who never managed to keep the money they made. One trader at Commodities Corporation – I don’t want to mention his name – always struck me as a brilliant trader. The ideas he came up with were wonderful; the markets he picked were often the right markets. Intellectually, he knew markets much better than I did, yet I was keeping money, and he was not.”
Q: So where was he going wrong?
“Position size. He traded much too big. For every one contract I traded, he traded ten. He would double his money on two different occasions each year, but still ended up flat”.
And, from further on in the interview:
“First, I would say that risk management is the most important thing to be well understood. Undertrade, undertrade, undertrade is my second piece of advice. Whatever you think your position ought to be, cut it at least in half. My experience with novice traders is that they risk three to five times too big. They are taking 5 to 10 percent risks on a trade when they should be taking 1 to 2 percent risks.”
Prudent risk control, combined with the power of compounding, can lead you a long way in this game.
From $8 a Month to $20 Billion
“Twenty-five years ago, when Zong Qinghou was 42, he made his living selling soft drinks and popsicles to schoolchildren. He says he earned about $8 a month — less than a third of China’s average wage at the time — and was so broke that he once slept in a tunnel under the streets of Beijing rather than spend on a hotel.
“Today, Zong, 67, is still selling soda — and lots of other things — as the wealthiest man in mainland China, Bloomberg Markets magazine reports in its December cover package, “The World’s Richest People.” His net worth of $20.1 billion as of Oct. 5 ranks him No. 30 in the world…”
– Bloomberg, Zong Tops China Billionaires as Communist-to-Capitalist
The responsible trader puts risk control first. That means staying clearheaded in respect to potential outcomes, refusing to “drink the kool-aid” while everyone else chugs it.
Given the need for realism, though, it’s good to temper cynicism with awareness of what’s possible… the potential in what could happen, with hard work, if things really go right.
In that regard, extreme success outliers are not to be envied or copycatted — obviously one needs a lot of fortuitous circumstance (plus the hard work) to do what Zong did.
Instead, fat tail successes serve as a useful reminder that perhaps, just perhaps, outlandish aspirations are not so outlandish… and could even be modest in respect to what’s been done.
After all, if a man in China can go from making $8 a month at age 42, to being worth $20 billion at age 67, who is to say what you or I might achieve?
Tools checklist for new traders
Even the greatest minds fall victim to asset bubbles – Sir Isaac Newton
30 Quotes For Traders/Investors
“Wall Street people learn nothing and forget everything.” Ben Graham
“ Buy on the cannons, sell on the trumpets.” Old French Proverb
“A stock broker is one who invests other people’s money until its all gone.” Woody Allen
“It is fortunate for Wall Street as an institution that a small minority of people can trade successfully and that many others think they can.” Ben Graham (more…)
It's in the rules of the game
Thought For A Day
Plain vanilla ETFs generate 60% of industry revenue -Chart of the Day
The Daily Trading Coach- 10 Lessons
1. The Process and the Practice: “Confidence doesn’t come from being right all the time: it comes from surviving the many occasions of being wrong” (27).
2. Stress and Distress: “Thinking positively or negatively about performance outcomes interfere with the process of performing. When you focus on the doing, the outcomes take care of themselves” (56).
3. Psychological Well-Being: “We can recognize the happy trader because he is immersed in the process of trading and finds fulfillment from the process even when markets are not open” (72).
4. Steps Toward Self-Improvement: “Your trading strengths can be found in the patterns that repeat across successful trades” (105).
5. Breaking Old Patterns: “Many trading problems are the result of acting out personal dramas in markets” (133)
6. Remapping the Mind: “When we change the lenses through which we view events, we change our responses to those events” (168)
7. Learn New Action Patterns: “Find experienced traders who will not be shy in telling you when you are making mistakes. In their lessons, you will learn to teach yourself” (203)
8. Coaching Your Trading Business: “Long before you seek to trade for a living, you should work at trading competence: just breaking even after costs” (230)
9. Lessons From Trading Professionals: “If you don’t trust yourself or your methods, you will not find the emotional resilience to weather periods of loss” (267)
10. Looking For the Edge: “The simplest [trading] patterns will tend to be the most robust” (311).