Archives of “January 2019” month

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FEAR

  
  Education
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There is nothing to fear except fear itself…’so said FDR when talking about America’s policies for exiting the great depression. Of all the known negative emotions that affect trading, I would argue that Fear is the most pervasive, and potentially the most destructicve. 

Even that other emotion we are always warned about – Greed can be alternatively described as ‘the fear of missing out’ and so it’s very essence is derived from fear. Frustration too is essentially born from fear as is Boredom, these being two other potentially harmful emotions that can afflict traders.

Fear in trading comes from the fear of a losing trade/losing run and the loss of money/not being right. This fear of losing stems from operating in an environment of uncertainty where the result is not known in advance. This uncertainty though does not have to result in fear per say.

The human brain is not naturally wired for trading in it’s evolutionary development. It takes years of practice and development for someone to re-train their brain to accept uncertainty and manage it. This is the necessary acquiring of the psychological skills required to trade successfully. Essentially when it is more natural to hope we fear and when it is more natural to fear – we hope….in trading we have to do the opposite. Add to this the technical skill requirement of having to be right at the right time as being right at the wrong time is still a losing trade, and it is not hard to see that a process has to be undertaken to train our brains from a fear based outlook of uncertainty to a risk management outlook toward it. (more…)

10 Points -Why Traders lose Money

  
  Education
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  1. Not honoring your original stops. Big losses make winning systems losing ones.

  2. Quit trading it during draw downs. All systems have losing streaks, the key is to manage risk and stick to it until the system gets make to a winning streak.
  3. Lack of discipline, drifting from taking defined entries and exit signals to opinions is hazardous.
  4. Trading too big, no system can survive huge positions sizing that makes the first string of losses the last.
  5. Style drift is deadly, slowly changing your trading plan during active trades is not good. Research comes after hours and before changes are made. (more…)

M. de la Rochefoucauld’s 15 maxims -written 400 years ago

  
Education, Life
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  1. “It is a kind of happiness to know how unhappy we must be.”
  2. “In their first passion, women love their lovers; in all the others, they love love.”
  3. “In jealousy there is more of self-love than love.”
  4. “One is never so happy or so unhappy as one fancies.”
  5. “Neither the sun nor death can be looked at steadily.”
  6.  “Good advice is something a man gives when he is too old to set a bad example.”
  7. “Everyone blames his memory; no one blames his judgment.”
  8. “There are very few people who are not ashamed of having been in love when they no longer love each other.”
  9. “It is almost always a fault of one who loves not to realize when he ceases to be loved.”
  10. “When a man is in love, he doubts, very often, what he most firmly believes.”
  11. “There is only one kind of love, but there are a thousand imitations.”
  12. “If we resist our passions it is more from their weakness than from our strength.”
  13. “We are more interested in making others believe we are happy than in trying to be happy ourselves.”
  14. “Absence diminishes little passions and increases great ones, as the wind extinguishes candles and fans a fire.”
  15. “When a man must force himself to be faithful in his love, this is hardly better than unfaithfulness.”

Goldman as a “black hand”

  
Analysis, Economy, Education
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And you thought Goldman had it bad in the US. The FT reports: “Many people believe Goldman Sachs, which goes around the Chinese market slurping gold and sucking silver, may have, using all kinds of deals, created even bigger losses for Chinese companies and investors than it did with its fraudulent actions in the US,” read the opening lines of an article in the China Youth Daily, a state-owned daily newspaper, last week.” Matt Taibbi – you have met your match, and the outcome is picturesque indeed  – a vampire squid that slurps and sucks its way to every loose ounce of gold and silver. But fear not, all those millions of ounces in GLD are perfectly safe and sound.

The article continues:

 
 

The article was widely distributed through commercial news portals and the website of government mouthpiece Xinhua News and the People’s Daily, the Communist Party publication.

Referring to Goldman as a “black hand” that “played little tricks carefully designed to gamble with Chinese enterprises”, the article made few specific accusations of wrongdoing by the bank.

The report followed similar commentary and articles published in publications including the 21st Century Business Herald, one of the largest financial newspapers in the country, and New Century Weekly, a liberal magazine. (more…)

Books on short-selling

  
  Education
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1) How to Make Money Selling Stocks Short by William O’Neil (Wiley, 2005) – [Technical, Swing & Position Trading]
2) Sell & Sell Short by Dr. Alexander Elder (Wiley, 2008) – [Technical, Day Trading]
3) The Art of Short Selling by Kathryn Staley (Wiley, 1997) – [Fundamental]
4) Sold Short by Manuel Asensio (Wiley, 2001) – [Fundamental]
5) Sell Short: A Simpler, Safer Way to Profit When Stocks Go Down by Michael Shulman (Wiley 2009) – [Macro]

The best way to become an effective short seller is by making it a habit of studying hundreds and even thousands of charts every week. Train your eye to see the setups, the accompanying volume, how the MA’s line up, etc. The only way to do this is with practice. Short-selling can become very profitable due to the simple fact that stocks drop faster than they rise (in most cases) and for me, it typically only takes about 1-3 days to make a decent profit of 10% or more.

Trade only the best setups to increase your odds. I do recommend the use of stop losses above key resistance areas due to the fact that losing short positions can cause serious damage if left unattended.

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