Archives of “February 8, 2019” day

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THE COLLECTIVE MADNESS OF CROWDS

  
  Education
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All I can say about the following is WOW, talk about THE perfect explanation for the reason behind unreasonable and illogical crowded moves in the stock market…

The most striking peculiarity presented by a psychological crowd is the following: Whoever be the individuals that compose it, however like or unlike be their mode of life, their occupations, their character, or their intelligence,the fact that they have been transformed into a crowd puts them in possession of a sort of collective mind which makes them feel, think, and act in a manner quite different from that in which each individual of them would feel, think,and act were he in a state of isolation. There are certain ideas and feelings
which do not come into being, or do not transform themselves into acts except in the case of individuals forming a crowd. The psychological crowd is a provisional being formed of heterogeneous elements, which for a moment are combined, exactly as the cells which constitute a living body form by their reunion a new being which displays characteristics very different from those possessed by each of the cells singly.

…and it was written by a psychologist in 1896!

4 Trading Rules-Must Read

  
  Education

4 STEPSRules that I can live by: my rules have to be rules that I stand a good chance of keeping, not the kind that I will follow for one day and then give up the next. I’m not the kind of trader that can follow rules mechanically, like if x happens 3 times then do y.
•    Rules that I own: my rules must belong to me. They must be rules that I have adopted out of personal choice after careful thought to understand what exactly they mean to me, not out of a sense of having to follow the ’101 of trading’ or what someone else has told me. Why? Because if my rules do not feel like my rules, I will subconsciously reject them. I may do so anyway, as I have authority issues; but the more I can imbue my rules with a sense of having been chosen by me out of my own free will, the more likely it will be for my subconscious to embrace them.
•    Rules that are integral to my trading approach: my rules should be an integral part of how I trade, not bolted on. They should feel like they are facilitating, not restricting, what I do. A stop, for instance, should be perceived as an opportunity, by getting me out of a losing trade so I can reenter at better prices or as a trading signal indicating that I should reverse my bias. Similarly, a timeout should be perceived as giving the market sufficient time to get to where I think is the best location for a trade.
•    Rules that are tailored to my weaknesses: my rules should help me work around my weaknesses. In particular, they should keep me out of trouble on trend days, as it is on these days that I usually run into problems. They should be preventative rather than reactive, i.e. they should steer me clear of meltdowns, rather than try to guide what I do after I have already gotten into one, by which time it would be too late as I won’t have the composure to follow any rules.

Plan the Trade, Trade the Plan

  
  Education
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This is where all the thinking in trading comes into play, while writing your trading plan. Once you have created your rules to trade by, you become more systematic and logical in your thought process for executing successful trades. Your personal trading plan will include every step of the trade from identifying to exiting your trade. By having your setup written down in your plan, you will have a better chance of using patience and discipline to wait for your entry. Otherwise, you will use emotions to enter trades and we all know where that will get you. After entering your trade, you will have more confidence because you have back-tested your strategy and know that it has a successful track record and will give you that extra edge over your competition. Identifying your entry strategy will help you execute your strategy in an efficient manner with no hesitation. There will be no guessing or wondering what to do once your setup is identified, you just click and go. Your risk management is also pre-defined so your initial protective stop is set on entry and you know when you will be moving your protective stop to breakeven after the market moves in your direction by a certain amount. Of course, our price target is also known in advance and how we will exit the market at this target. Will we have a set price target, a trailing stop, a time stop, etc.?

Become an expert at one market behaviour

  
  Education
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 Simplicity and focus is the mother of success.  “You need to start as small as possible and then gradually allow yourself to grow into greater and greater amounts of market information.  What you want to do is become an expert at just one particular type of behavior pattern that repeats itself with some degree of frequency. To become an expert, choose one simple traing system that identifies a pattern.  Your objective is to understand completely every aspect of the system.  In the meantime, it is important to avoid all other possibilities and information”

Trading Your Personality

  
  Education
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It’s been said too many times to count – that you must trade according to your personality. In the movies they might call it “being true to yourself” or something cheesy, but it’s a necessity in this job.

Recently I was asked which chart patterns I prefer to trade, continuation chart patterns or reversal chart patterns. My answer was that while I will actually trade either, I suppose the continuation and breakout type of patterns are the ones I trade more often than reversals or buying on support levels.

I don’t think one setup is superior to the other, they both have their pros and cons, and you have to go with what fits your style best.

Buying on support is an anticipatory play, which may take a few extra days to get moving. It can give you a lower cost basis than another trading strategy, but will require greater patience on your part while you wait for the stock to find traction.

Buying a stock which is breaking out puts you (by definition) in a stock that’s already on the move. This is a confirmation play. You get instant feedback on how your trade is developing and how much momentum the stock has.

The setups you select for your trades need to incorporate your personality tendencies on managing those trades once you are in them. For me, I tend to be a bit impatient and I want to know as soon as possible whether or not I’m right or wrong on a trade. Other traders don’t live in the left lane, and they’re willing to give a stock some time to get moving one way or another. They place their protective stop and turn their attention to something else in the meantime while waiting for their trade to make a move. Personally, I prefer to have my money at risk for the shortest timeframe possible. I really prefer the times when the market conditions are producing breakout plays and continuation patterns like the bull flag or ascending triangle patterns.

So, when you’re doing your homework and looking for quality setups to trade, be sure to consider the ones which fit your personality and your style of trading. Those will be the trades which you ultimately will manage the best.

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