Archives of “July 2020” month

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How expectations will destroy you.

  
Analysis, Education
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ExpectationsIt is easy to see others around you that are successful and just see two points.  Where you are and where they are.  It is easy to miss or skip what took place between.  Everyone would rather fly from New York to LA than drive.  If you look at trading as driving that distance chances are you are not going to have the time, money, or patience to do it. However, you have to get in a car to get to the airport.  How long that drive is ultimately up to you.

Getting off on the right foot.

Many traders get in the car not knowing where they are going.  Some of the time it leads them to the airport.  Most of the time it leads them in the complete opposite direction.  The do not know what they do not know. Chances are during this period they have had enough moments of success to keep them going. That amount of time, energy, and money was used to find out what they do not know.  Only they did not realize that or refuse to realize that.

Now what?

It is time to own your mistakes.  You can tell by the money and time that you burnt up that you made a mistake. If you try to make it all back at the wrong moments than the hole will get bigger.  This time you paid to learn what you already know.  Insert definition of insanity here.  Doing the same thing expecting different results.  Once again, you are at the cross roads and once again it is up to you.

  • Own your mistakes
  • Learn from them
  • Make them cost you less
  • Divide and conquer your losses
Moving on.

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Quick Compilation of Market Crashes

  
Analysis, Education
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With the current liquidity/credit crisis, I thought it will be interesting to take a look at past crashes. Here’s a quick compilation (not comprehensive):

  • 1901 – 1903 (17 Jun 1901 – 9 Nov 1903) – 46.1% drop in DJIA.
  • 1906 – 1907 (19 Jan 1906 – 15 Nov 1907) – 48.5% drop in DJIA.
  • 1916 – 1917 (21 Nov 1916 – 19 Dec 1917) – 40.1% drop in DJIA.
  • 1919 – 1921 (3 Nov 1919 -24 Aug 1921) – 46.6% drop in DJIA.
  • 1929  (3 Sep 1929 – 13 Nov 1929) – 47.9% drop in DJIA. Kicked off the great depression.
  • 1930 – 1932 (17 Apr 1930 – 8 Jul 1932) – 86% drop in DJIA.
  • 1937 – 1938 (10 Mar 1937 – 31 Mar 1938) – 49.1% drop in DJIA.
  • 1973 – 1974 (11 Jan 1973- 6 Dec 1974) – 45.1% drop in DJIA.
  • 1987 – Black Monday (19 Oct 1987)
  • 1989 – Friday the 13th mini crash (13 Oct 1989)
  • 1990 – Savings & Loans collapse.
  • 1997 – Asian financial crisis (27 Oct 1997)
  • 1998 – Long Term Capital Management
  • 2000 – 2002 (15 Jan 2000 – 9 Oct 2002) – 37.8% drop in DJIA.
  • 2002 Summer – freezing up of corporate credit

With each new trade we must believe the following:

  
Analysis, Education
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1.  Consistent profitability has nothing to do with our predictive abilities.

2.  With each new trade we cannot place any undeserved significance (e.g. “this is the perfect setup”) on its outcome.

3.  We cannot expect the trade to do anything for us other than provide the information needed for us to either hold or exit.   The process by which we have determined our trade setup will also be our guide for exiting (win, lose, or draw).

4.  We accept that we have control over the process but absolutely no control over the outcome.

5. We accept that our current trade setup may look exactly like past opportunities, profitable or not, but may produce an entirely different result due to the collective beliefs and decisions of other market participants.

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