Archives of “February 13, 2019” day

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Greed & Fear

  
  Education
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Emotions, emotions and emotions, trading will always full of them, movement of the market based on them. Our rush to buy or sell sometimes overflow our plans. The common  traders question was “Why did I do this or do that?”

What is driving us to get into the market when we are not prepared and exit on completely different prices, which completely disagree with our plans? Two major factors, Greed and Fear.

Greed come when market goes as we expected then we want more! We believe it will continue for very long time. We forgot that everything changes. For successful trading you need a good strategy and discipline to execute that strategy. No matter how good it is, trading is completely useless without proper execution of the strategy.

We Fear when we afraid to miss the profitable move or to loose the money. And until fear and greed will dominate us, our results will be very unstable. And worse if our money management is not the strongest point, this is the weakest point for emotional traders, will soon will be out of money, before we even had a chance to establish ourself as a trader.

7 Reasons Why 95% Traders Lose Money in Trading

  
  Education
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number7-asr1)  The majority of traders think directionally, and they think linearly.  That has them trading momentum and that has them trading trends.  Even the traders who look for reversals look for momentum and trend, just in a different direction.
2)  Market behavior can be described as a combination of cyclical and linear (trend) components over any particular time frame.  As markets become more crowded, cyclical components dominate over time, reducing the Sharpe ratio of those markets.
3)  Traders fail because they are thinking in straight lines when they should be thinking in cycles.  They think of cycles as sources of choppiness and noise, not as sources of signals that are different from linear, trending ones.
4)  Any market cycle consists of mean-reverting behavior at cycle peaks and troughs and trending behavior between peaks and troughs.  This ensures that any single approach to trading markets (looking for trend/momentum; looking for reversal/mean reversion) will draw down substantially over many cycles.

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Genetic Testing for Traders

  
Analysis, Education
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I”ll confess to being mostly skeptical about these quasi-deterministic genetic trait studies — circumstances generally matter so much more — but there is a new study claiming a genetic basis for some aspects of decision-making in risky situations.

Research published today in the Proceedings of the Royal Society B1 is a step towards a more nuanced understanding of how variants of the gene MAOA — which specifies an enzyme, monoamine oxidase-A, that breaks down neurotransmitters such as serotonin — affect financial decisions.

The gene variant MAOA-L is associated with lower production of the enzyme and has been repeatedly linked to risky behavior. Previous studies suggested that carriers of MAOA-L are more likely to lash out when provoked2, for example, or to be more prone to aggression when raised in high-stress environments3.

More here, including a summary of the research, which appears to have been the usual test of a sure versus a gamble for higher gains.

Lessons for Stock and Options Traders

  
  Education
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lessonsNow, you ask, what does this have to do with stock and options trading?  Just as in every day life and in the case of CFIT, stock and options traders must remain focused on the current trade or risk opening themselves up to any number of mistakes.  These mistakes can include (but are in no way limited to)the following:
1) allowing impulsiveness to take over your trading rules, thus taking a trade that does not meet your criteria
2) not taking a trade signaled by your system because your focus is elsewhere (more…)

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