Archives of “February 11, 2019” day

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Trading wisdom and strategies

  
  Education
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Trading System – According to Howard Abell: The trading system gives the trader the ability to control his or her emotional states rather than allowing them to control him. A system is a disciplined method for organizing dynamic, ever-changing market phenomena.

Risk Control – According to Paul Tudor Jones: If I have positions going against me, I get right out; if they are going for me, I keep them… Risk control is the most important thing in trading. If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in.

Psychological Makeup – According to Leo Melamed: You learn to distinguish the good traders from the bad, the successful techniques from the unsuccessful, and the good habits from the faulty. You also learn to distinguish the lover from the fighter, the winners from the losers, the serious from the frivolous, the cerebral from the superficial, and the friend from the foe. But above all, you learn that the psychological makeup of the trader is the single most critical element of success.

The Easy Middle – According to Randy McKay: The beginning of a price move is usually hard to trade because you are not sure whether you are right about the direction of the trend. The end is hard because people start taking profits and the market gets very choppy. The middle of the move is what I call the easy part.

Cut Back Trading Size When Losing – According to Bill Lipschutz: When you are in a losing streak, your ability to properly assimilate and analyze information starts to become distorted because of the impairment of the confidence factor, which is a by-product of a losing streak. You have to work very hard to restore that confidence, and cutting back trading helps achieve that goal.

Have A Predetermined Stop – According to Bruce Kovner: Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I am getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis.

Accept the Risk – According to Mark Douglas: To whatever degree you haven’t accepted the risk, is the same degree to which you will avoid the risk. Trying to avoid something that is unavoidable will have disastrous effects on your ability to trade successfully.

Making Mistakes Is Part of Business – According to Bruce Kovner: Michael Marcus [another top trader] taught me one other thing that is absolutely critical: You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best judgement, being wrong, making your next best judgement, being wrong, making your third best judgement, and then doubling your money.

Think Differently

  
  Education
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Many still see making money all wrong. They make wildly inaccurate assumptions when asked these questions regarding what constitutes a winning trader:

– Do they possess a unique talent?
– A special inborn gene or divine gift?
– The innate talent of a child prodigy?
– Inside knowledge?
– Ability to predict markets?
– Degrees in finance or a MBA?
– Huge starting capital?

One answer: No.

Thought on Risk

  
  Education
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Risk ManagementRisk is a very negative word for many, but as a trader you have to face financial risk (even ruin for some kamikaze traders) every day. But to make a living trading stocks you have to face risk in a bold way. IMO, the greatest opportunity for success goes to those who are not afraid of taking risks and at the same time managing risk in a proper way (and knowing excessive risk may lead to total ruin). By that you have to analyze risk in accordance to potential reward and to feel a little bit of fear. Success may come to those without fear, but many of the fearless have fallen by the wayside (and we never hear about them).

Actually, the biggest risk is not taking any risk! If you want to make money trading, you have to take risk. There is no way you will make money by being risk-averse.

That also means not afraid of looking stupid. Remember that learning is inhibited by caution and experimentation. Children who are afraid will never learn. Children with totally risk-averse parents will struggle in an uncertain world.  Children are in general not afraid of looking stupid and they are therefore much more adaptive than adults. Just look at how easy they learn a new language. (more…)

The Four Poisons

  
  Education
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There is a Korean martial art called Kum Do. This is a brutal game that involves a fight to the death with very sharp swords. The way it is practiced today is with bamboo sticks, but the moves are the same. Kum Do teaches the student warriors to avoid what are called “The Four Poisons of the Mind.” These are: fear, confusion, hesitation and surprise. In Kum Do, the student must be constantly on guard to never anticipate the next move of the opponent. Likewise, the student must never allow his natural tendencies for prediction to get the better of him. Having a preconceived bias of what the markets or the opponents will do can lead to momentary confusion and—in the case of Kum Do—to death. A single blow in Kum Do can be lethal, and is the final cut, since the object is to kill the opponent. One blow—>death—>game over.

Instead of predicting, anticipating, and being in fear and confusion, you must do exactly the opposite if you are to survive a death blow from the market movements. You must watch with a calm, clear and collected attitude and strike at the right time. A few seconds of anticipation, hesitation or confusion can mean the difference between life and death in Kum Do—and wins or losses in the stock markets. If you are not in tune with the four poisons of fear, confusion, hesitation or surprise in the markets, you are at risk for ruin. Ruin means that your money is gone and the game is over.

How can you avoid the four poisons of the trading mind: fear, confusion, hesitation and surprise?

Replace fear with faith—faith in your trading model and trading plan

Replace confusion with the attitude of being comfortable with uncertainty

Replace hesitation with decisive action

Replace surprise with taking nothing for granted and preparing yourself for anything.

Avoiding Punishment is the mistake-Reminiscences of a Stock Operator

  
  Education
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This chapter gives several examples of different peoples method of placing their trades, and uncovers the difficulties that many people have in following a trading method. Much of the difficulties lie in the behavior pattern of avoiding punishment. A speculator may make mistake and know that he is making them, but not why. He simple calls himself names and lets it go at that. 

Mistakes are always around if you want to make a fool of yourself. Mistakes are part of the human condition, and should not cause lost sleep. But being wrong – not taking the loss – that is what does the damage to the pocketbook and to the soul.  

Trading Commodities rather than stocks partakes more of the nature of a commercial venture than trading in stocks does. Commodities are governed by one law in the long run, supply and demand.  Fundamental information is more concrete than in Stocks, where the investor must guess about many influences.  

Technical analysis, or tape reading, works exactly the same for stocks as for cotton or wheat or corn or oats. Still, the average trader from Missouri everywhere will risk half his fortune in the stock market with less reflection than he devotes to the selection of a car. Today the popular analogy is that most people spend more time planning their vacation than they spend planning for their retirement.   (more…)

Weekend Thoughts…

  
  Education
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THOUGHTS-ASR* Distractions come from unfinished business;
* I’ve yet to meet an impressive person who has needed to impress people;
 * Passion without commitment is wasted energy;
* The early bird gets the worm; the night hawk gets the early bird;
* Success comes when doing things right is combined with doing the right things;
 * When you are doing what you’re meant to be doing, effort gives energy;
* In trading, as in life, you succeed by acting decisively on your convictions;
* You will never win if your goal is to not lose; * Successful people are productive; they traffic in efforts, not intentions;
* Narcissism craves admiration; self-esteem desires understanding. .

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