Archives of “February 10, 2019” day
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Discipline and Devotion
No issue so pervades the trading psychology literature as that of “discipline”. It is very common for traders to lay their plans and define their setups, only to find that their actions undermine their careful preparation.
A good deal of the advice dispensed by trading coaches and psychologists addresses this discipline problem.
But what if the lack of discipline is not a problem? What if we view departures from trading plans and intentions as *information*, not as weakness? As it turns out, those departures can be quite informative.
You see, we naturally gravitate toward the nexus of our values (interests), talents (native abilities), and skills (acquired competencies). On average, we tend to enjoy doing what we’re good at and we tend to build skills when there is a foundation of talents to support them. The artist who spends long hours at the canvas doesn’t have to draw upon “discipline” to sustain an interest in painting. The hard work is hard play: the discipline stems from a devotion to a craft–and to the ability of that craft to crystallize the artists’ interests, talents, and skills. (more…)
A Useful Stock Market Dictionary
I just finished reading Jason Zweig’s new book “The Devil’s Financial Dictionary” and boy is it good. If you’ve ever been overwhelmed by all the jargon used in finance and economics then this is right up your alley. Jason offers up a witty, brilliant and most importantly, useful collection of honest definitions. It’s a collection of all the things most people think about these words, but are too afraid to actually say. For instance:
ACCOUNT STATEMENT, n. A Document from a bank, brokerage, or investment firm that is designed to be incomprehensible to the CLIENTS, thereby preventing them from asking impertinent questions like “Who set my money on fire?” You might be able to recognize your balances and recent transactions on an account statement, although that will be easier if you earn a PhD in cryptography first.
EFFICIENT MARKET HYPOTHESIS, n. A theory in financial economics believed only by financial economists. In theory, the market price is the best estimate at any time of what securities are worth; it immediately incorporates all the relevant information available, as rational investors dynamically update their expectations to adjust to the latest events. In practice, however, investors either ignore new information or wildly overreact to it, regardless of how relevant it is. Even so, that doesn’t make beating the market easy, because you must still outsmart tens of millions of other investors without incurring excess trading costs and taxes. As behavioral economists Meir Statman puts it, “The market may be crazy, but that doesn’t make you a psychiatrist.”
FEE, n. A tiny word with a teeny sound, which nevertheless is the single biggest determinant of success or failure for most investors.
Investors who keep fees as low as possible will, on average, earn the highest possible returns. The opposite may be true for their financial advisors, although that is still not widely understood.
Arbitrage Movie Trailer: Film About Hedge Fund Manager Played By Richard Gere
Directed by Nicholas Jarecki, it stars Richard Gere, Susan Sarandon, Brit Marling, Tim Roth, and Nate Parker. The trailer looks like it also features a cameo by CNBC’s Maria Bartiromo. The movie will be released on September 14th, 2012.
Gere plays a hedge fund manager who is desperate to sell his trading empire before the depth of his fraud is exposed, but he makes an error that forces him to turn to an unlikely person for help.
The trailer makes it look like the film is less about finance and more about a drama and homicide case. The film’s tagline is Arbitrage: Power is the Best Alibi.
Embedded below is the movie trailer for Arbitrage:
4 Steps
The steps below are based on the developmental maturity of any trader. Each of us are at different levels in this process. This process can be applied to our overall progress as traders or in the learning of a new strategy. It is important for us to be realistic about where we are personally to become the best trader possible.
HEAR
To HEAR you have to listen and listen intentionally. You will not HEAR properly if you are focused on other things. This situation is especially true on a webinar or during the trading day when the markets are open. It is essential to set distractions aside and HEAR what is being stated.
RECEIVE
To RECEIVE something you have to HEAR it and come into agreement with it. To RECEIVE is to take it unto yourself and personally grab hold of what you have heard and make it your own.
BELIEVE
To be successful you have to believe that what you HEAR and RECEIVE can add value to your current situation. You have to BELIEVE that a specific strategy repeated and correctly executed, regards of any specific outcome, will provide successful results over time. You will act on what you believe In all areas of life. Please make sure you really do BELIEVE it and are not allowing any contradictory mindset to compete with your belief because it is possible to hold two opposing beliefs at once. This is being double minded and leads to instability. Being firm and unswayed in what you BELIEVE can lead to becoming a successful trader.
APPLY
APPLY Is taking action on what you BELIEVE. You will not fully apply something until you fully believe it. Application requires action. You must be willing to pull the trigger on a trade when all of your rules are meet or when all the T’s have been crossed. You must also without reservation pull the trigger to exit at your predetermined stop loss. Regardless of what we think or BELIEVE we will also act out of core or dominant belief. To properly apply ourselves we have to revise our core beliefs. If I APPLY all of my predefined rules for entry and exit even when the trades go against me, my core belief will keep me confident that I did the right thing in making this trade and over time I will accomplish my goals. In addition my loss will not stress me because based on following my predefined rules it was a small loss based on a predetermined, well thought out process.
As we move forward we should focus on hearing , receiving, believing and applying.
Dunkin Donut's Billboard placement
Jesse Livermore On You Don’t Have To Be Active Every Day
Success
Success does not come from having one’s work recognised by others. It is the fruit of the seed that you lovingly planted.
When harvest time arrives, you can say to yourself: ‘I succeeded.’
You succeeded in gaining respect for your work because you did not work only to survive, but to demonstrate your love for others.
You managed to finish what you began, even though you did not foresee all the traps along the way. And when your enthusiasm waned because of the difficulties you encountered, you reached for discipline. And when discipline seemed about to disappear because you were tired, you used your moments of repose to think about what steps you needed to take in the future.
You were not paralyzed by the defeats that are inevitable in the lives of those who take risks. You didn’t sit agonising over what you lost when you had an idea that didn’t work.
You didn’t stop when you experienced moments of glory, because you had not yet reached your goal.
And when you have to ask for help, you did not feel humiliated. And when you learned that someone needed help, you showed them all that you had learned, without fearing that you might be revealing secrets or being used by others.
To him who knocks, the door will open.
He who asks will receive.
He who consoles knows that he will be consoled.
Nassim Taleb’s Risk Management Rules
Rule No. 1- Do not venture in markets and products you do not understand. You will be a sitting duck.
Rule No. 2- The large hit you will take next will not resemble the one you took last. Do not listen to the consensus as to where the risks are (that is, risks shown by VAR). What will hurt you is what you expect the least.
Rule No. 3- Believe half of what you read, none of what you hear. Never study a theory before doing your own observation and thinking. Read every piece of theoretical research you can-but stay a trader. An unguarded study of lower quantitative methods will rob you of your insight.
Rule No. 4- Beware of the nonmarket-making traders who make a steady income-they tend to blow up. Traders with frequent losses might hurt you, but they are not likely to blow you up. Long volatility traders lose money most days of the week.
Rule No. 5- The markets will follow the path to hurt the highest number of hedgers. The best hedges are those you alone put on. (more…)