Archives of “February 2019” month
rssStan Druckenmiller: "What I learned from George Soros".
3 Types of Confidence
First, is what I call ‘false confidence’ That’s the person who talks big and poses like a big shot. This type of person often takes big risks in an effort to either impress others or to assuage their own discomfort, and the results are often erratic and often end terribly.
Next, there is temporary confidence, which is conditional on recent performance. This is the person whose self-esteem is tied to their account equity or P&L. When on a good run, they feel confident and take larger risks (often the prelude to giving it all back). And when performance is lousy they start grasping at anything, maybe exiting winners prematurely or taking on excessive risk to get their money back.
Finally, we have true confidence. This is confidence that does not depend on recent results. It is based on a deep sense of inner trust. This is the person who has a history of doing the right thing, regardless of the outcome. Doing the right thing in the sense that they act in their own best interest and trust and understand that doing so over time has a positive impact on results. The trust runs deep enough to provide resilience in the face of disappointment. This is true self-confidence, the kind you want in trading and in life.
Instead of complaining about a broken system, do something constructive
Smart people use simple language — a brilliant memo from Elon Musk
Tourism to Japan, way up. And China a big part of that.
The 14 Trading Lessons From “What I Learned Losing A Million Dollars”
- The potential of initial and temporary success only exists in trading. You can’t just call yourself a brain surgeon and get lucky while messing around in someone’s head. And just stepping on stage and trying to give a violin concert if you have never touched a violin before won’t end too well either.
- Right, wrong, win and lose are inappropriate terms for describing the participation in the markets. In 20/20 hindsight, decisions might be good or bad but not right or wrong. With regards to the markets, only expressed opinions can be right or wrong. Market positions are either profitable or unprofitable.
- There are as many ways to make money in the markets as there are participants. But there are only very few ways to lose.
- A light-bulb manufacturer understands that 2 out of 10 bulbs will not work; a fruit seller knows that some apples will be foul. Those losses are expected. In trading, we don’t expect to lose when we enter a trade. Unexpected losses are hard to deal with. Acknowledging that losses are part of the game and accepting the losses are two very different things.
- In trading, losses are treated as mistakes and from early on, we have been taught that mistakes are bad and have to be avoided.
- If you know exactly how much you are going to win, but don’t know how much you can lose, you are denying losses.
- Trading is an activity without a beginning and an end. In an activity without an end, you can always make decisions and change your decisions based on the current situation. A football game, a roulette spin or blackjack have defined beginnings and endings; after the game is over, you can’t change anything. You have to accept the outcome. It’s not open for interpretation; you (your team) have lost or won. In trading, the “game” (activity) never ends and your trade (potentially) never ends. Because your trade doesn’t end, your loss is never final and it could always turn around.
- Rules are hard and fast. Tools have some flexibility. Fools neither have rules nor tools.
- A scenario might have been an acceptable trade based on someone else’s rules. Profitable opportunities will occur that you won’t participate in. Your rules will only enable you to engage in some of the millions of opportunities.
- You can’t calculate the probability of having a winner. You can only calculate how much you are going to lose. All you can do is manage your losses and not predict your profits.
- People usually pick the exit point as a function of their entry point and it’s usually some arbitrary Dollar amount.
- People rationalize a trade idea by expressing the trade in terms of the money odd’s fallacy – “it’s a three to one reward-risk ratio! I’ll risk $500 to make $1500”. The reward-risk ratio gives no information about the likelihood of winning a trade.
- People who ask, “Why is the market up or down?” don’t want to know why. They only want to hear the reasons that justify their losing position.
- The last moment of objectivity for the roulette player is the moment before he places his bet and the wheels starts spinning. After that, he can’t do anything anymore to lose more money. For the market participant, the last moment of objectivity is the moment before he places his trade. But after that, he can still do a lot to lose more money. That’s why all your decisions and plans have to be made pre-trade.
20 Trading Rules for your weekend
1. KNOW THYSELFWhat kind of trading style fits your personality…Trend following? Day Trading? Buy and hold (please NO)? Next, what do you want to accomplish with your trading…Monthly Income? Long-Term Growth? Risk Aversion? And finally, you must have a grip on your emotions, because you will experience failure and success in trading and you need to know how you will react to both.
2. KEEP IT SIMPLE
You should be able to describe each trading strategy in your war chest on a 3×5 index card. There are so many different trading tools and indicators out there that it is easy to make trading and investing harder than it is. Find a few technical and/or fundamental indicators that you can apply to your trading, and master them.
3. DIVERSIFY
Specialize in a few different trading strategies and then spread your risk out across multiple asset classes using those trading strategies. Make sure all of your trades are not dependent on the same sector, commodity, industry, or idea.
4. LOSERS AVERAGE LOSERS
Only losers add to losing positions. If a trade is going against you, move on and find another trade. It’s not about pride, it’s about profits.
5. NEVER STOP LEARNING
You must constantly make an investment in your trading education. Read books, go to seminars, or talk to other traders, because over time the traders that make a commitment to never stop learning will be the traders that stay in the game and are able to adjust their trading style to any market environment.
6. CREATE A TRADING PLAN
Having a trading plan creates discipline. Why are you making this trade? What’s your risk? What’s your reward? How much margin is required? What will you do if things get bad, or really good? These are questions you should be able to answer on every trade you execute.
7. BAD TRADE MOVE ON
I don’t care who you are, you are going to have bad trades. When you have a bad trade, take a break from trading, go to a movie, or kick the dog (once), but don’t sit around and pout. It’s important that you move on and start planning how you are going to get it back.
8. TRADE WITH CONFIDENCE
Trust your research, feel confident in the time and energy you have put into your trading strategy and know that no matter what the market does in the short term, you have the ability to make money in the long term.
9. THE MARKET IS GOING…????
Nobody knows where the market is going and you don’t either. So pick trading strategies that allow a little wiggle room in case you wake up one morning and the market doesn’t do exactly what you told it to. (See trade schools)
10. DICSIPLINE
This word sums up a long term trader. You must have the discipline to follow your systems and manage your emotions hour after hour, day after day, year after year. If you are undisciplined in other areas of your life, don’t be surprised if one day you break your trading rules. You must practice discipline 24 hours a day. (more…)
Self-Control and Discipline
Cultivating discipline and self-control is vital for consistent and profitable trading. You implement proven trading strategies, over and over, so that across a series of trades, the strategies work enough to produce an overall profit. It’s like making shot after shot on the basketball court so as to accumulate a winning number of points. The more shots you take, the more likely you will amass points. But the winning player is the person who first develops the skill to make the shot consistently, so that at every possible opportunity, the ball is likely to go through the basket. To a great extent, consistency is the key. If the player uses one approach one time and a different approach at another time, performance is haphazard.
It’s the same for trading. One must trade consistently, following a specific trading plan on each and every single trade. This allows the law of averages to work in your favor, so that across the series of trades, you will make an overall profit. If you follow the plan sometimes and abandon it at other times, you throw off the probabilities. Suppose you used a strategy that had a track record of 80%. Under the best-case scenario, you could only expect to win 80% of the time. But since history doesn’t always repeat itself, it’s likely that you will win less than 80% of the time. If you don’t execute the trading strategy the same way each time, you will decrease your winning odds. And fewer winning trades may mean an overall loss. That’s why discipline and self-control are so important. (more…)
Gold 75% Underowned In 20 Years, Or Exter's Pyramid For Gen X/Y
Kedrosky has posted an informative chart from JPM’s Michael Cembalest indicating that ownership of gold in dilutable terms (aka dollars), as a portion of global financial assets has declined from17% in 1982 to just 4% in 2009. And even thought the price of gold has double in the time period, as has the amount of investible gold, the massive expansion in all other dollar-denominated assets has drowned out the true worth of gold. Were gold to have kept a constant proportion-to-financial asset ratio over the years, the price of gold would have to be well over $5,000/ounce.
Of course, the chart above pales in comparison with the true Exter pyramid, which incorporates all those wonderful JPM/Goldman inventions known as derivatives, amounting to $1.8 quadrillion, which certainly did not exist in 1982. If one were to factor the above table to include this Exter securitized credit money as well, then the true constant worth of gold would be well north of $10,000.
