Archives of “January 2019” month

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Robert Meier's Eleven Rules

  
  Education
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1. Ask yourself what you really want. Many traders lose money because subconsciously their goal is entertainment, not profits.

2. Assume personal trade responsibility for all actions. A defining trait of top performing traders is their willingness to assume personal responsibility for all trading decisions.

3. Keep it simple and consistent. Most speculators follow too many indicators and listen to so many different opinions that they are overwhelmed into action. Few people realize that many of the greatest traders of all time never rely on more than two or three core indicators and never listen to the opinions of others.

4. Have realistic expectations. When expectations are too high, it results in overtrading underfinanced positions, and very high levels of greed and fear – making objective decision-making impossible.

5. Learn to wait. Most of the time for most speculators, it is best to be out of the markets, unless you are in an option selling (writing) program. Generally, the part-time speculator will only encounter six to ten clear-cut major opportunities a year. These are the type of trades that savvy professionals train themselves to wait for.

6. Clearly understand the risk / reward ratio. The consensus is that trades with a one to three or one to four risk / reward ration are sufficient.

7. Always check the big picture. Before making any trade, check it against weekly and monthly as well as daily range charts. Frequently, this extra step will identify major longer-term zones of support and resistance that are not apparent on daily charts and that substantially change the perceived risk / reward ratio. Point & figure charts are particularly valuable in identifying breakouts from big congestion / accumulation formations. (more…)

Stunning Time Lapse Video Of China Completing 15 Story Hotel In 6 Days

  
Analysis, Education, Video
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As the United States and China battle over the finer points of currency manipulation at the G-20 summit, American negotiators may want to take note of this startling testimonial to the productivity of Chinese workers: A construction crew in the south-central Chinese city of Changsha has completed a 15-story hotel in just six days. If nothing else, this remarkable achievement will stoke further complaints from American economic pundits that China’s economy is far more accomplished than ours in tending to such basics as construction.

The work crew erected the hotel — a soundproofed, thermal-insulated structure reportedly built to withstand a magnitude 9 earthquake — with all prefabricated materials. In other words, a crew of off-site factory workers built the sections, and their on-site counterparts arranged them on the foundation for the Ark project.

3 Key Lessons For All Traders

  
  Education
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Don’t Confuse the Concepts of Winning and Losing Trades with Good and Bad Trades
A good trade can lose money, and a bad trade can make money. 
Even the best trading processes will lose a certain percentage of the time. There is no way of knowing a priori which individual trade will make money. As long as a trade adhered to a process with a positive edge, it is a good trade, regardless of whether it wins or loses because if similar trades are repeated multiple times, they will come out ahead. Conversely, a trade that is taken as a gamble is a bad trade regardless of whether it wins or loses because over time such trades will lose money.
If You Are Out of Sync with the Markets, Trying Harder Won’t Help
When trading is going badly, trying harder is often likely to make matters even worse. If you are in a losing streak, the best action may be to step away from the markets. Clark advises that the best way to handle a losing streak is to liquidate everything and take a vacation. A physical break can serve to interrupt the downward spiral and loss of confidence that can develop during losing periods. Clark further advises that when trading is resumed, the size should be kept small until confidence is regained.
The Road to Success Is Paved with Mistakes
Ray Dalio, the founder of the world’s largest hedge fund, strongly believes that learning from mistakes is essential to improvement and ultimate success. Each mistake, if recognized and acted upon, provides an opportunity for improving a trading approach. Most traders would benefit by writing down each mistake, the implied lesson, and the intended change in the trading process. Such a trading log can be periodically reviewed for reinforcement. Trading mistakes cannot be avoided, but repeating the same mistakes can be, and doing so is often the difference between success and failure.

Random Walk?

  
  Education
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 This book almost convinced me that the markets are a random walk. I can’t really go into the details of why – you have to read it all before this impression begins to sink in. Compound this with the fact that all in all the economists of the world have said “we have no idea why the markets do what they do.” – Thats their conclusion.

So if they have no idea, what chance have I got? You may find within yourself some buried little impulse to “figure this thing out, once and for all.” – I know what thats like. You look at a chart, and you feel as though its on the tip of your tongue, just out of the minds reach if you will. You know that feeling? As if a thin veil could be lifted and you’d see the inner mechanics of it all. You won’t. Many have gone before you who tried, and still you don’t know where price will go next.

I think what happens is that if we make a certain call in one direction, and price happens to go in our direction, we say “I WAS RIGHT”… But we pay less emphasis when we were wrong. Its the old thing of when you want to buy a yellow VW you see them everywhere all of a sudden.

The impression left by the reading of this book doesn’t so much make me want to throw my hands in the air and give up, but rather it emphasizes the importance of things like risk/reward and high probability. Its not about being right or wrong. I also want to do some research into game theory, which is something that was touched on in the book. Its good how this subject constantly throws up new branches of learning.

Crisis Moves to Hungary?

  
Analysis, Economy, Education
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Sovereign debt worries in Europe have been elevated for a couple of months now, and today Hungary moved into the crosshairs.  Sovereign debt default risk as measured by 5-year CDS prices has spiked for Hungary and the countries surrounding it today, but default risk for this region still remains well below levels seen in late 2008 and early 2009.  The first two charts below of 5-year CDS for Austria and Hungary since 2008 highlights this.  Greece and Portugal default risk remains elevated as well, but at the moment it is still down from its recent peaks.  France also remains elevated, but it is still below highs seen in early 2009.  The same can’t be said for Spain, however.  Spain default risk reached a new crisis high today, taking out levels seen prior to the trillion Euro bailout.  And Spain matters much more than Hungary.

The Master Trader-Book Review

  
  Education

Occasionally one comes across a sleeper in markets — a man of great practical and systematic wisdom who has written a book that is widely overlooked and should be read by all market people for great profit. Such is the case with The Master Trader by Laszlo Birinyi. He is well known as a Hall of Fame Market elf from WallStreet Week, and winner of the outstanding elf of the 1990-1999 decade in performance and analysis. He is the inventor of the money flow method of investing, based on counting the market value of upticks and downticks. When you walk with him on the street, people are likely to come up to him and thank him profusely— You recommended apple in 1994 when it was four and I bought it and now I am a wealthy man. He has a number of great calls like this including catching the market bottom in 2008 with a 850 S&P call, catching the bottom of the bond market in 1994, and maintaining a bullish mien throughout the great expansion of 2012 and 2013.

His approach is somewhat diametrically opposed to mine, so I was particularly interested in interviewing him for an upcoming book review. He loves anecdotes. He publishes a market letter, and runs a money management service. He doesn’t deign to compute the proximity of his results to randomness, and he trades mainly individual stocks. Here are some of the things I learned from him.

1. Look for stocks showing a sprained ankle, i.e. a drop of 5 to 10% on such things as a trading loss, an earnings loss. Sprained ankles coming from ratings changes by inferior analysts is particularly poignant of future appreciation.

2. Do things physically. Enter all your trades yourself, and read the newspapers in original form so you can see the placement on the page, the size of the type and headline.

3. Pay attention to divergences in the performance of individual stocks from the consensus about the importance of external events. For example, the housing stocks have been strong throughout all the talk about tapering. How could interest rates be going way up if housing stocks so strong. He likes to look at NVR, Whirlpool, and Sherwin Williams for clues to the real effect of things. These stocks have the virtue of being high priced enough so as not to have high frequency trading interfere with it.

4. Little changes in the institutional structure can have tremendous effects on markets. The importance of big blocks and money flows has been negated by the black pools, multiple market makers, and payments for order flows.

5. Making money in the markets is as hard as making money as a architect or accountant. It requires constant study, practical experience, and openness to new ideas. The best traders are frequently art history majors. (more…)

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