Archives of “February 2019” month

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One Liners From -MARKET WIZARD PAUL TUDOR JONES

  
  Education
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“Don’t ever average losers.”

“Never trade in situations where you don’t have control.”

“If you have a losing position that is making you uncomfortable, the solution is very simple, Get out”

“Don’t be too concerned about where you got into a position.”

“The most important rule of trading is to play great defense, not great offense.”

“Every day I assume every position I have is wrong.”

“Don’t have an ego. Always question yourself and your ability.”

Ken Rogoff: "China Property Market Collapse Starting"

  
Analysis, Economy, Education
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Bloomberg TV conducted an interview with Ken Rogoff in Hong Kong (the same way you land in New York before you take off in London via the now defunct Concorde) in which the Harvard professor recently made famous for his words of caution that overlevering sovereigns always eventually leads to economic slow down, financial collapse, and ultimately bankruptcy, warned, when discussing China real estate, that “you’re starting to see that collapse in property and it’s going to hit the banking system.” With this coming days ahead of the massive Agri Bank of China IPO, it is interesting just how much influence the person who has been warning all along that the world is headed on an unsustainable path will finally have, now that the permabullish cackle of the MSM punditry has finally been discredited as futures are about to reenter triple digit reality. Oh yes, and score one for Jim Chanos, and all those who have long been warning about the inevitable Chinese bubble pop. Additionally, in discussing the suddenly prevalent topic of perpetual stimulus, and particularly envisioning Paul Krugman’s thesis that the world will end unless another couple of trillion are thrown into the fire of irresponsible deficit spending, Rogoff says “I couldn’t disagree more… Just to keep drinking bottles of aspirin because you are worried you are going to get a headache, or it is going to turn into a migraine, it’s too much prophylaxis.”

Full clip although none of this is news:

EVOLUTION, MORPHEUS, EVOLUTION

  
  Education

Think of the following logic chain:

  • Error Data (Mistakes + Weaknesses) = Constructive Feedback
  • Constructive Feedback = Opportunity to Analyze and Refine
  • Analyzing and Refining = Incremental Improvement
  • Incremental Improvement = Micro-Evolution
  • Micro-Evolution over extended time cycles = Macro-Evolution
  • Macro-Evolution = Smarter, Faster, Deeper, Stronger
  • Smarter, Faster, Deeper, Stronger = DOMINATE

To approach from another angle:

  • Natural evolution = serendipitous impact of randomly distributed trial and error
  • Accelerated evolution = guided impact of shaped and observed trial and error
  • Trial and error = experimentation, hypothesis, “useful failures” etc
  • Which cycles back around to errors, weaknesses etc as “Constructive Feedback”

Don't Get Trapped

  
  Education
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1) Anchoring trap. The mind gives a disproportionate amount of weight to the first information received on a topic. Keeping an open mind and avoiding premature conclusions is a way to avoid this trap.

2) Status quo trap. Forecasts tend to perpetuate recent observations. If inflation has been high, it is expected to remain high. It is a psychological risk to assume something different. The authors suggest rational analysis within decision-making to avoid falling into this trap.

3) Confirming evidence trap. Individuals give greater weight to information that supports an existing point of view. Being honest to oneself about one’s motives, examining all evidence with equal rigor, and enlisting independent-minded people to argue against you are ways of mitigating this bias.

4) Overconfidence trap. Individuals overestimate the accuracy of their forecasts. Widening the range of expected possible outcomes is one way to mitigate this tendency.

5) Prudence trap. There is a tendency to temper forecasts that appear extreme. If a forecast turns out to be extreme and then wrong, it could be damaging to one’s career. Therefore, sticking to the herd is safer. The authors again suggest widening the range of expected possible forecasts to avoid falling into this trap.

6) Recallability trap. Individuals are overly influenced by events that have left a strong impression on a person’s memory. These events tend to be catastrophic or dramatic. To avoid falling into this trap, individuals should ground their conclusions in objective data rather than emotion or memories.

Responsible Choice for Traders

  
  Education
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Responsibility as a trader means a lot of different things. As a psychologist, I like to talk about being “responsible” for ones’ owns emotions – identifying and accepting them, and being responsible for our decisions. Too many traders blame the market or some unseen force that manipulates the market and causes their loss. Whether or not such unseen forces exist isn’t really the issue, or even the reason that keeps traders from making money. It’s a convenient excuse, but not much else.

A useful concept for traders is a concept known as Responsible Choice, defined as choices that create consequences for which you are willing to assume full responsibility. The phrase, “responsible choice” comes from Gary Zukav, a man who has covered a lot of ground in his life; former Special Forces officer in Vietnam, Harvard grad, wrote the best selling physics book, “The Dancing Wu Li Masters”, and now a consciousness expert.  A friend of mine is very good friends with him.

Fully accepting whatever happens in a well-planned trade is the hallmark of a successful trader. A trader with a mind-set that operates with the concept of responsible choice will see loss simply as an unproductive trade, not as a personal attack.  Moreover, they will see the loss as a learning opportunity, gathering market information from the loss and possibly adjusting their perspective on the market.

Using the framework of responsible choice, a trading loss is actually empowering.  If a trader has difficulty accepting losses, or accepting whatever happens (e.g. not reaching target or overshooting target after the trade is closed) the psychological experience of empowerment is elusive and the trader will usually swing to the other side of the spectrum and become frustrated. Obviously, there is a lot more to be said about losses, I just wanted to point out the concept of responsible choice as a framework to be considered.

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