Powerful line from Kahneman:
Archives of “January 2019” month
rssBacktesting is great to understand historical patterns but trading through a price path in real time is different.
Financial Suicide
“Most good traders would agree that risking less than 1% of equity in a trade (where 1% is the amount you lose if your stop loss was hit) is a prudent risk. Risking between 1 and 3% gets into the gunslinging range. Risking any more than 3% is usually financial suicide, and the average trader commits financial suicide all the time without knowing it”
Words worth memorizing, from Benjamin Graham
How to Become a Disciplined Trader
- The psychology of price movement
- The market prices flow back and forth like a tug of war between those who believe and expect the market to go up–and consequently buy–and those that believe the market will go lower–and consequently sell.
- This means for one side, in their minds, that “the market” will make them winners; their beliefs will be validated. All the traders on the other side, however, will be made losers; they will feel the market took something away from them and will naturally be disappointed.
- The steps to success
- Once you trust yourself to always do what needs to be done, there will be nothing to fear because the markets won’t be able to do anything to you, as a result of your inability to respond appropriately.
- Second, by passing up other opportunities that you are not an expert at yet, you will be releasing yourself from any compelling desire to trade. Any compelling behavior is usually the result of some fear.
- Staying focused on what you need to learn–> Deal with losses–> Become an expert at just one market behavior–> Learning how to execute a trading system flawlessly–> Learn to think in probabilities–> Learn to be objective–> Learn to monitor yourself
Paul Tudor Jones on the illusion of information
“Knowing is not enough, we must apply. Willing is not enough, we must do.” – Bruce Lee (Enjoy Video ,Look at Eyes Action )
"You only need to get rich once" is also "u only need to marry rich once"
Fischer Black : Earnings-price ratio doesn't reflect expected return
The Truth: A Two-Edged Sword
The truth is, almost everything about superior investing is a two-edged sword:
-If you invest, you will lose money if the market declines.
-If you don’t invest, you will miss out on gains if the market rises.-Market timing will add value if it can be done right.
-Buy-and-hold will produce better results if timing can’t be done right.-Aggressiveness will help when the market rises but hurt when it falls.
-Defensiveness will help when the market falls but hurt when it rises.-If you concentrate your portfolio, your mistakes will kill you.
-If you diversify, the payoff from your successes will be diminished.-If you employ leverage, your successes will be magnified.
-If you employ leverage, your mistakes will be magnified.