February 4, 2019 - Page 16 of 19 - Financial Occultist

elephant-3

A Hindu folktale tells of three blind men encountering an elephant. “It’s a tree,” says one, stroking a leg. “No, no, it’s a snake,” says another, feeling the trunk. “No, this must be a house,” insists a third, spreading his arms against the bulk of the elephant’s body.
All three had a different perception of the elephant based on the part they examined, and all three conclusions were wrong. The elephant was larger and more complex than any of the men realized.
A similar tale is told everyday in the market. Each market participant has different needs, agendas, histories, perceptions, and sees the market completely differently. As with the three blind men examining the elephant: (more…)

Ten questions to ask yourself before every trade

04-Feb-19 05:06 am

Education

Anirudh Sethi

Does this trade fit my chosen trading style? Whether it is: swing trading, momentum, break out, trend following, reversion to the mean, or day trading? Does this trade fit into the parameters of who I am as a trader, or is it just based on my own fear or greed?
How big of a position do I want to trade? How much capital am I going to risk? Am I limiting my risk to 1% or 2% of my trading capital? Knowing where my stop will be how big should my position size be to limit my risk?
What are the odds of my risk of ruin based on my capital at risk?
Why am I entering the trade here? What is the entry trigger to take the trade? Is this a quantified entry on my trading plan?
How will I exit with a profit? A price target or trailing stop? (more…)

Typical Symptoms of Egotizing Trading

04-Feb-19 05:02 am

Education

Anirudh Sethi

. Not putting in stops. The ego doesn’t want to be proven wrong.
· Hesitating before putting on a trade. The ego wants reassurance before it begins.
· Overtrading. The ego wants to prove itself big time.
· Getting stuck in a trade. The ego has intertwined itself with a trade and is holding on for dear life. It cannot cut out. The ego doesn’t want to be wrong.
· Adding to a losing trade. The ego digs its hole deeper in a massive effort to crawl out.
· Grabbing a profit too soon. The ego wants a pat on the back.

How do we separate our ego from our trading? How do we keep from personalizing a trade? How do we avoid personalizing all of our trading?

One way to separate your ego from your trading is to build healthy boundaries between yourself and your trading. Not only do good fences make good neighbors, good boundaries make good traders.

A boundary sets limits, makes distinctions, informs you as to what is you and what is not you, makes clear the distinction between you and others, tells you where one thing ends and another begins. It distinguishes between past, present, and future. It lets you know that another’s ideas, values, and feelings are not necessarily yours. A boundary is flexible and permeable. It lets information flow back and forth. It allows you to listen actively without having to take on someone else’s opinions and without having to force your opinions on another person. In trading it draws a distinction between yourself and your trading, between one trade and another, between one trade and all of your trading.

One trader would see the signal to take a trade and before she could put the trade on, she’d hear a voice saying, “What if I’m wrong?” Immediately she’d feel small and diminished. The next step was simply to let the trade go by as she sat there stalled by her vulnerable ego. She needed a boundary between her self-esteem and the outcome of a trade. She needed a boundary between self worth and being wrong. With such a boundary she could give herself permission to not always have to be right. (more…)

Brooks, Trading Price Action Reversals

04-Feb-19 04:52 am

Education

Anirudh Sethi

The third and final volume of Al Brooks’s series is Trading Price Action Reversals: Technical Analysis of Price Charts Bar by Bar for the Serious Trader (Wiley, 2012). A trader does indeed have to be serious to read all three volumes because, according to the author himself, the task is daunting: some 570,000 words.
Only half of the final volume is about trend reversals. The rest deals with day trading, the first hour (the opening range), and putting it all together, including 78 trading guidelines, some of which you may not have encountered elsewhere.
This volume is the most accessible of the three, but then my very tired eyes did a lot of work before getting here. It would be difficult to skip the first two volumes and expect to understand the third.
Brooks himself is not primarily a reversal trader. As he writes, “I prefer high-percentage trades, and my most common trades are pullback entries and trading range fades. I especially like breakouts because when they are strong the probability of follow-through is often more than 70 percent. I look less often for reversal trades, because most reversal attempts fail, but I will take a strong reversal setup.” (p. 463) (more…)

STOP TRADING until you can answer YES to all QUESTIONS

04-Feb-19 04:36 am

Education

Anirudh Sethi

Managing Risk as a trader is the most important consideration and if you answer NO to any of the following questions, then STOP TRADING until you can answer YES to all of them:

Do you have a written trading plan that deals with risk management?
Have you calculated the risk that you are comfortable with in every trade?
Will you not place a trade, even though you have a healthy balance in your trading account, when you know that your risk exposure goes beyond the risk outlined in your trading plan?
Have you identified what your maximum position size will be?
Do you have a stop in place every time you trade?
Are you aware that risk management is not just about where you place your stop?
Will you be able to stick to your risk management rules under ALL trading conditions?

There are many ways to manage your risk but until you have a risk management process written into your trading plan and you stick to these risk management rules on EVERY occasion, then you have more work to do until you are on your way to being a successful trader. (more…)