Archives of “January 2019” month

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To Trade or Not to Trade: The Most Important Question

  
  Education
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In trading activity alone does not make money, the right activity at the right time is what makes money. Many times the right thing, is to do nothing.

In your actual trading you have to do four things very well to make money.

You have to know when to get in.

Only enter trades that have the highest probability of success and the best risk/reward ratio. Buy the best monster stocks during up trends. Short the fallen leaders when the game changes and they are under the 50 day. Buy the monster stocks at the gift of the 200 day moving average. Short down trending junk stocks. Go where the trends are.

You have to know when to get out. (more…)

The Five Investing Essential Truths

  
  Education
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5-number

Markets are notoriously hard to read and people see only what they themselves want to see.

Bulls will find reasons why certain stocks will go higher, while at the same time, Bears will find many reasons for the same stocks to go lower.

The seldom-admitted truth is that most of the time, markets exist in some indeterminate state!

The main thing is that you cannot trust consensus and you cannot rely on the “Establishment.”

You can’t find refuge in the herd and you must resist the urge to join the crowd.

Your passion of the moment will most certainly create a disaster over the years!

On the other hand, if you do stick with the following five essential truths, you do stand a better than average chance to invest profitably:

1. Markets are unpredictable and ill-suited to forecasts.

2. Long-term fundamentals are key.

3. Investor emotion leads to volatility.

4. Valuation discipline should guide investment selection.

5. Perspective and patience are always well rewarded.

 

Hitler's definition of democracy

  
  Education
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Hitler, February 1945

Hitler, in speeches in Nuremberg and Munich, has given us definitions of democracy, yet these definitions are nowhere near explicit or conclusive. “Democracy in our eyes is a regime that is supported by the will of the people.” (My New Order, 554) It is unclear as to whom Hitler means by “our eyes…”; one can assume he is talking of the German people. Furthermore, according to Webster, a regime is simply “a form of government or administration”. Hitler’s definition, in turn, becomes simple and obvious; the above definition taken literally does not waver from the consensus definition mentioned in the introduction; in fact it is broader, leading one to suggest that the word “regime” had negative connotations that were lost in the English translation.

Fortunately, Hitler has given us a more intricate definition of democracy, even likening it to an aqueduct or blood vessel: “Democracy is the canal through which bolshevism lets its poisons flow into the separate countries and lets work there long enough for these infections to lead to a crippling of intelligence and of the force of resistance.” (My New Order, 405)

Trade Sizing Depends on Risk Aversion and Volatility

  
  Education
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  • Risk aversion
    • When I was a young man I wanted to devise objective risk systems. In other words, once you have a system, what is the right size to trade, period.
    • After years of working on this I convinced myself that it did not have a unique answer. You need at least one subjective piece of the puzzle to put it together, and that is an individual’s risk aversion. Now that is subjective.
    • There is no rule that says how averse you should be to risk, that is an integral element of your personality. But unless you know how averse to risk you are or unless you can impute risk aversion to your clients, you really can’t settle the question of how big you should trade.
  • Volatility
    • Estimating volatility determines to a large extent what your position sizes should be.
    • A slight improvement in our volatility estimators can potentially produce a significant long-term benefit.

Be Proactive and Not Reactive

  
  Education
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If you want to stay positive even after some losing trades, then it’s also worth taking a proactive approach to losing -as oppose to being reactive to it.

For many, they use the visualising technique. This involves relaxing and trying to see yourself already having lost the trade before it happens. This is some what similar to having no expectations but you make an effort to mentally rehearse the lost. By rehearsing it, you will include your emotions in the rehearsal and start to anticipate how you will feel so that you will not react to it if it does happen.

Many Master Traders probably do not use this technique but they have gone through enough winners and losers to know how they feel. In my view, that is an reactive approach and that is in line with my next point below.

Don’t get me wrong, I’m not saying that visualisation is the best way. But I’m suggesting that you should find the method that best fits your personality. And, to me, that is being proactive.

20 Habits of Great Traders

  
  Education
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1)      Patient with winners and impatient with losers

2)      Making money is more important than being right

3)      View Tech Analysis as a picture of where traders are lining up to buy and sell

4)      Before they enter every trade they will know profit target or stop exit

5)      Approach trade no.5 with the same conviction as the previous 4 losing trades

6)      Use naked charts

a)      As we mature we begin peeling off indicators

b)      Prices action is key (more…)

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