Archives of “February 2019” month

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Disaster

  
  Education
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When the market becomes volatile or a series of trades produce loses, it is easy for us to become fearful.

We then start to verbalize excuses as to why we even executed those trades or why we use the trading strategy that we use or any of a long list of items.

For all of us as traders to continue to grow, we need to develop a better way to address these situations. The foundation for this is analysis.

If we will be honest and look at the entire situation, generally we had executed a solid trade, however due to the very nature of the financial markets; an unusual movement occurred that caused us to not receive the results we expected. If we do this, most of the time we will see this fear, this confusion or these excuses just evaporate.

Are these times comfortable, never. Chaos is not comfortable, nor will it ever be.

But the successful trader will step up to the plate and handle this challenge instead of succumb to it. Do not allow a challenging situation to become a disaster because of fear or excuses.

Don’t Set Your Trading Size at the Optimized Setting

  
Analysis, Education
  • On the subject of bet size, if you plot performance against position size, you get a graph that resembles
    one of those rightward-facing, high-foreheaded cartoon whales. The left side of the graph, corresponding to relatively small position size, is nearly linear; in this range an increase in trading size yields a proportionate increase in performance. But as you increase size beyond this range, the upward slope flattens out; this is because increasingly large drawdowns, which force you to trade smaller, inhibit your ability to come back after strings of losses. The theoretical optimum is reached right about where the whale’s blowhole would be. To the right of this optimum, the graph plummets; an average position size only modestly larger than the
    theoretical optimum gives a negative performance
  • Trading size is one aspect you don’t want to optimize. The optimum comes just before the precipice. Instead, your trading size should lie at the high end of the range in which the graph is still nearly straight.

George Soros quotes

  
  Education
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The Hungarian-born financier will therefore no longer be able to move markets. But many of his aphorisms and apothegms will long continue to apply. Here are some of the best.
QuoteWhen I see a bubble forming I rush in to buy, adding fuel to the fire. That is not irrational.”
QuoteWell, you know, I was a human being before I became a businessman.”
 
Markets are designed to allow individuals to look after their private needs and to pursue profit. It’s really a great invention and I wouldn’t under-estimate the value of that, but they’re not designed to take care of social needs.”
QuoteThe financial markets generally are unpredictable. So that one has to have different scenarios… The idea that you can actually predict what’s going to happen contradicts my way of looking at the market.”
 

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Munger's Musings: Trump's "Not Wrong On Everything"; "Young People Should Shop Less, Learn More"

  
Analysis, Education, Video

Charlier Munger, the 93 year old billionaire vice chairman of Warren Buffett’s Berkshire Hathaway who once said Trump was not “morally qualified” to be President, seems to be warming up to the new administration.  Well, at least he doesn’t think Trump is quite as bad as Hitler anyway, which is a start.

In speaking with a group of investors and students for nearly two hours yesterday at the Daily Journal’s annual meeting, on a wide range of topics, Munger said that he’s “gotten more mellow” when it comes to Trump and is now convinced that “he’s not wrong on everything.”  Per Yahoo Finance:

 “Well, I’ve gotten more mellow,” Munger said at the Daily Journal’s 2017 meeting on Wednesday, adding, “I always try to think about the good as long as it’s not good.”

“He’s not wrong on everything. And just because he isn’t like us, roll with it. If there’s a little danger, what the hell, you’re not going to live forever anyway.”
“And when Donald Trump says he wouldn’t touch Social Security and Republicans have all kinds of schemes for revising Social Security — I’m with Donald Trump. If I were running the world … I wouldn’t touch [Social Security].”

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Donchian's 20 Trading Guides (First publication: 1934)

  
  Education
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General Guides:

  1. Beware of acting immediately on a widespread public opinion. Even if correct, it will usually delay the move.

  2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases.

  3. Limit losses and ride profits, irrespective of all other rules.

  4. Light commitments are advisable when market position is not certain. Clearly defined moves are signaled frequently enough to make life interesting and concentration on these moves will prevent unprofitable whip-sawing.

  5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for a one-day reversal.

  6. Judicious use of stop orders is a valuable aid to profitable trading. Stops may be used to protect profits, to limit losses, and from certain formations such as triangular foci to take positions. Stop orders are apt to be more valuable and less treacherous if used in proper relation the the chart formation.

  7. In a market in which upswings are likely to equal or exceed downswings, heavier position should be taken for the upswings for percentage reasons – a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100%

  8. In taking a position, price orders are allowable.  In closing a position, use market orders.”

  9. Buy strong-acting, strong-background commodities and sell weak ones, subject to all other rules.

  10. Moves in which rails lead or participate strongly are usually more worth following than moves in which rails lag. (more…)

‘Essential Qualities of the Speculator’

  
  Education
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qualities

1. Self-Reliance. A man must think for himself,must follow his own convictions. George MacDonald says: “A man cannot have another man’s ideas any more than he can another man’s soul or another man’s body.” Self-trust is the foundation of successful effort.

2. Judgment. That equipoise, that nice adjustment of the faculties one to the other,which is called good judgment, is an essential to the speculator.
3. Courage. That is, confidence to act on the decisions of the mind. In speculation there is
value in Mirabeau’s dictum: “Be bold, still be bold; always be bold.” (more…)

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