Before the Trade
1. Do you know the name and numbers of all your counterparts, especially if your equipment breaks down?
2. When does your market close, especially on holidays?
3. Do you have all the equipment you’ll need to make the trade, including pens, computers, notebooks, order slips, in the normal course and in the event of a breakdown?
4. Did you write down your trade and check it to see for example that you didn’t enter 400 contracts instead of the four that you meant to trade?
5. Why did you get into the trade?
6. Did you do a workout?
7. Was it statistically significant taking into account multiple comparisons and lookbacks?
8. Is there a prospective relation between statistical significance and predictivity?
9. Did you consider everchanging cycles?
10. And if you deigned to do a workout the way all turf handicappers do, did you take into account the within-day variability of prices, especially how this might affect your margin and being stopped out by your broker? (more…)
Archives of “February 10, 2019” day
rssTHE CAT STEVENS PHILOSOPHY
We tend to think that taking a loss on a trade is the end of the world when it is not. It is just a trade that did not work out. Period. No need to re-invent the wheel, throw out the baby with the bath water, or cry wolf one too many times. Maybe we should simply have the attitude of Cat.
… if I ever lost my hands
Lose my plough, lose my land
Oh, if I ever lose my hands- Oh, if…
I wont have to work no more
And if I ever lose my eyes
If my colors all run dry
And if I ever lose my eyes – Oh,
I won’t have to cry no more
And if I ever lose my legs
I won’t moan and I won’t beg
Oh if I ever lose my legs- Oh if…
I won’t have to walk no more
And if I ever lose my mouth
All my teeth, north and south
Yes, if I ever lose my mouth- Oh if…
I won’t have to talk…
Let’s add another stanza here for the stock trader…
… if I ever lose a trade
The Market takes the money I could have made
Oh, if I ever lose a trade…
I won’t have to brag no more!
Kind of puts things in their proper perspective doesn’t it?
THE DISCIPLINED TRADER
When an aspiring trader asks me to recommend books on technical analysis he or she is often surprised at my answer. While I do have a technical favorite or two (besides my own) I am quick to redirect him or her to books on trading psychology.
Technical analysis is worthless without a thorough understanding of the psychology behind winning and losing, buying and selling, fear and greed, risk versus reward, the past versus the future, the knowable versus the unknowable. Technical analysis is best used as a psychological tool to help the trader manage random price action and the emotions associated with it, not as a way to predict price action and thus confirm the trader’s egotistical need to be right. Psychology first; technical second.
One of my favorite “go to” authors on trading psychology is Mark Douglas. Although he is best known for his book Trading In The Zone, Mr Douglas’ first book The Disciplined Trader is a gem of a read also. I recommend both but start with The Disciplined Trader. It will help you better understand and appreciate the principles discussed in Trading in the Zone.
The following is from the INTRODUCTION and provides the thesis for the book. In it Douglas discusses the following
THE MENTAL GAME IS MUCH DIFFERENT IN THE MARKETS THAN IN EVERYDAY LIFE
THE MARKETS HAVE NO POWER OR CONTROL OVER YOU
YOU ALONE ARE RESPONSIBLE FOR YOUR ACTIONS AND REACTIONS
YOU MUST LEARN TO CONTROL YOURSELF
YOU CREATE THE MARKET YOU CHOOSE TO TRADE
YOU MUST DEVELOP YOUR OWN RULES…AND FOLLOW THEM
YOU MUST ALWAYS BE PREPARED…OR FACE DISASTER
WHILE YOU CANNOT CONTROL THE MARKET YOU CAN CONTROL YOUR PERCEPTION OF IT
YOU MUST WORK ON SEEKING OPPORTUNITY INSTEAD OF TRYING TO AVOID PAIN
IN YOUR ATTEMPTS TO AVOID LOSSES YOU ACTUALLY CREATE THEM
TO BE SUCCESSFUL YOU MUST DEVELOP SELF CONFIDENCE AND SELF TRUST (more…)
Be Thankful For…
Trying to explain Brexit to non trading friends. This pretty much sums it up… Britain's pull out game is strong!
RESISTANCE, DROP
Resistance is a powerful word, but in the market it can mean the end of a long climb up the latter of a successful bullish run. Points of resistance aren’t necessarily concrete, think of them more as a tightened rubber band that if you push into it to hard, it can send you plummeting very quickly.
Resistance is what it implies, a possible push against current price action. There are two correct responses you can have at a resistance, turn back (with a proper candlestick confirmation), or wait to see if the resistance is overcome, You never want to go head on into resistance because chances are you will get your butt handed to you. The other thing you don’t want to do is automatically turn back without a little push. YOU DON’T ALWAYS WANT OR HAVE TO BE IN THE MARKET. There are times when you need to be on the sidelines in observation mode; at a point near resistance is one of those times. Trying to break resistance is like trying to run over a locomotive on a bicycle. You can’t do it!! Your best option at resistance is to rest to see either the strength or weakness of your price action. Whether price is successful at demolishing or chipping away resistance or does a turnabout, wait until it makes a concrete decision before following. NOTE: wherever price leads, follow until you get a signal that it is no longer safe to do so, or until you have had your fill of a nice fat profit.
Let other traders jump in front of the locomotive to slow it down; DON’T YOU DO IT! Save yourself and wait until it is safe. Resistance points can either be safety zones put in place to help you protect your profits or the force and authority to crush you if you try to cross the line. When you come to a resistance point it means STOP!!!!, DO NOT PROCEED WITH CAUTION it is a RED LIGHT, when it is green, proceed with caution because there are times when price will break resistance only to fall back limp under the weight of the break through triumph.
A Lesson from Einstein
A lesson I learned from Einstein is the benefit of being able and willing to changes one’s mind. At times a pacifist, he changed after witnessing the rearmament in Europe. In physics and science in general when presented with new evidence it is quite normal to revise theories and mathematical proofs, or even to reverse a position entirely. Putting ego aside, he did this many times, most famously dropping his famous Constant variable regarding a static universe when through experiment it was proved no longer necessary. This is skill which comes more naturally at a younger age, but is quite possible for the post 40 crowd as he demonstrated in his long career.
Words of Wisdom for Traders
Wall Street never changes, the pockets change, the suckers change, the stocks change, but Wall Street never changes, because human nature never changes.” ~ Jesse Livermore
“Wealth and rank are what people desire, but unless they are obtained in the right way they may not be possessed.” ~ Confucius
“Man has the power to act as his own destroyer—and that is the way he has acted through most of his history.” ~ Ayn Rand
“It is no measure of health to be well adjusted to a profoundly sick society.” ~ Jiddu Krishnamurti
“Men in the game are blind to what men looking on see clearly.” ~ Chinese Proverb
“The most exquisite paradox… as soon as you give it all up, you can have it all. As long as you want power, you can’t have it. The minute you don’t want power, you’ll have more than you ever dreamed possible.” ~ Ram Dass
“If thou wilt make a man happy, add not unto his riches but take away from his desires.” ~ Epicurus
“Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble… to give way to hope, fear and greed.” ~ Benjamin Graham
“The investor’s chief problem – and even his worst enemy – is likely to be himself.” ~ Benjamin Graham
“The ignorant mind, with its infinite afflictions, passions, and evils, is rooted in the three poisons. Greed, anger, and delusion.” Bodhidharma
“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.” ~ Ayn Rand
“Money often costs too much.” Ralph Waldo Emerson
Personally, I believe it to be futile to fight greed — something that is ingrained in human nature. We can only acknowledge greed’s existence, choose our own behaviors as individuals, and react to its occurrence — it can not be prevented. Greed will simply manifest into a different form.
DISCIPLINED TRADERS -EMOTIONAL TRADERS :Real Facts
Video Interview: US Dollar, Stocks, Gold
“Prices are going to get worse because Mr. Bernanke and the people in Washington are spending gigantic amounts of money which we don’t have, and someobody has to pay for this. There’s no free lunch.”