Thought For A Day
Archives of “February 2019” month
rssEmotion and Trading
While trading I watch my emotional state of mind more than the price action. This has helped me trade better
Here are some of the emotions I feel from time to time and what they mean to me in context of trading
1) hesitation to pull the tigger – something is not right – don’t take the bet
2) anger – start of revenge trading – stop ASAP
3) uncomfortable while watching or not watching the price – non aligned with the market, trading with too much size – reduce size or quit
4) ignoring the little voice and gut feeling – trust the inner voice and take action
5) trading on hope – quit asap
6) thinking after hours or during market hours of money you can make = greed, impatience to make money – focus on how much you can lose
7) stress = wrong side of the market
8) feeling joy = right side of the market
"Here's the surprising thing about gold: it protects poorly against inflation" From Bernstein's Deep Risk
Just Be Yourself
Success in all aspects of life seem to follow those who do not try to act like someone else, but rather have a foundation of knowing who they are and act in that manner.
Many traders seem to want to act like other traders who have recently had a string of successes instead of being committed to their own strategy and trading style.
To be the best we can and have consistent success in trading takes a devotion and passion to learning our strengths and weaknesses and applying our skills to match up with these understandings.
Whether you are a risk taker or very conservative, both styles can reap profits as long as the trading matches with that personality. Just be yourself and let the results take occur.
Investing Like Warren Buffett.
In fact there are a couple of professors in Ohio, who studied any stock that Warren Buffett bought, if you bought on the last day of the month, when it was public that he owned that stock, and you sold it after it was public that he had started selling it, you would have generated north of 20% annual rate of return.
I would say that we will never see another Warren Buffett. Just like we will never see any Albert Einstein or another Mahatma Gandhi. Buffett is a very unique individual. His skillsets outside of investment are phenomenal but they get dwarfed by his investing skills. The main thing that makes Warren Buffett Warren Buffett is that he is a learning machine who has worked really hard for, let’s us say seventy years, and is continuously learning every day.
So the thing is if you want to be like Buffett, there is no short cut. First of all, you have to be deeply interested in investing and you have to be very willing spending tens of hours, hundreds of hours, reading the minutiae. There is a very famous value investor called Seth Klarman. He is into horse racing. And his famous horse is called Read the Footnotes.”
Thought For A Day
"Whether the object of ur faith be true or false, u will get the same results." Take control of your thoughts!
The Ten Most Foolish Things a Trader Can Do
In the spirit of April Fools Day here are the ‘Ten Most Foolish Things a Trader Can Do’. In no particular order of foolishness.
- Try to predict the future movement of a stock, and stay in it no matter what.
- Risk your entire account on one trade with no stop loss plan.
- Have a winning trade but no exit strategy to get out, no trailing stop or exhaustion top signal.
- Ask for and follow the advice of others instead of trading with your own trading plan, method, rules, and system.
- Trade your emotions instead of signals: buy when you are greedy and sell when you are afraid.
- Trade your opinions, not a quantified method.
- Do not bother to do your homework on trading, just jump in and trade, you are smart, you will figure it out.
- Short the best and most expensive stocks in the stock market and buy the cheapest junk stocks.
- Put on trades you are 100% sure are winners so you do not even need a stop loss or risk management.
- Buy more of a trade that you are losing money in and sell your winners quickly to lock in small profits.
Do not trade foolishly my friend.
10 Lessons for Traders
10) Those who are willing can be taught almost anything.
9) Great people want to help others achieve great success.
8) Success in business requires tremendous concentration. Outside distractions must be avoided.
7) Sometimes it is best to leave politics to politicians.
6) Everyone fails at some point in his life. The true winners rebuild after their failures.
5) To put on a trade when everything is going against you requires character and commitment.
4) Rules are rules. Stick to them.
3) Adapt with the times. Be willing to be malleable.
2) Always leave yourself outs. Never commit everything to one position or to one person.
1) The market is bigger, stronger and badder than you. Always respect it for the beast it is.
10 Mistakes -Done By 95% Traders
- Not honoring your original stops. Big losses make winning systems losing ones.
- Quit trading it during drawdowns. All systems have losing streaks, the key is to manage risk and stick to it until the system has time to play out with profits as the market becomes conducive to your system’s method.
- Lack of discipline, drifting from taking defined entries and exit signals to your own opinions is hazardous.
- Trading too big, no system can survive huge positions sizing that makes the first string of losses the last.
- Style drift is deadly, slowly changing your trading system during active trades is not good. Research has to happen after hours when the market is closed and backtested before changes are made.
- If you can’t mentally and emotionally deal with the equity curve of your trading style then you can’t trade it long term. You can’t quite during losing streaks or get too excited during winning streaks.
- You have to believe that your method will work over the long term, confidence comes from research, backtesting, and homework.
- Don’t trade someone else’s system, build your own. Custom to fit who you are by using the principles that you believe in and work.
- Trading too big during losing streaks ruins the potential of winning, don’t try to get back the blood the market took from you instead try to stop the bleeding by trading smaller and smaller until a new winning streak emerges.
- Straying from the trading plan and making one big, bold, can’t miss trade and blow up all your previous profits. Don’t let greed make you do something stupid, stick to the plan.