75% of the price movement in most stocks takes place in 20% of the time.The rest is notingbut noise withing a range.Relevant information that causes repricing doesn’t change quickly and frequently.This is why trends exist .Higher prices often attract more buyers and lower prices attract more sellers untull the rules of the game change.Focus on the main drivers and forget the rest.
Archives of “Education” category
rssHow Randomness Affects Trading Profitability.
1) If you ramp up your trading size, the increased risk over a random series of losing trades can devastate your account. Your trading size should not be a function of some high target return that you hope to make, but rather a function of the random strings of losers that you can survive.
2) Just because you’re going through a losing period doesn’t mean you’re trading a losing methodology. Changing sound methods in the middle of a random string of losing trades would be like a batter changing his swing after striking out a few times. That is what helps turn normal setbacks into prolonged mental and performance slumps.
The bottom line is that we can read far too much into short-term trading outcomes. Losing trades don’t necessarily mean we’re trading poorly and winning trades don’t necessarily suggest that we have a hot hand. We can gain knowledge from analytical mistakes and creative insights, but it’s also important to retain the wisdom that sometimes we will trade well and lose and other times we can trade poorly and win.
Not every move–of markets, or of profit/loss–is meaningful.
Fear, Greed & Trading Profits
Over the years we’ve noticed a remarkably consistent pattern. A very high percentage of our trainees can trade brilliantly in the simulation program; steady consistent profits, sharp entries and exits, excellent grasp of market conditions and a clear, rational plan for exploiting them
And then they start trading real money.
It’s like somebody turned out the lights. Almost immediately things turn sour; they jump in too soon, get scared out of good positions, hang on to losers and cut their winners short … the exact opposite of what they should be doing, and the exact opposite of what they were doing in the simulation program.
WHAT HAPPENED?
The only difference between real and imaginary – and between good and horrid – is the emotional impact on new traders of having real money at risk. They succumb to the two emotions that drive the market: greed and fear.
Nothing cranks up our emotional responses faster than money. And trading is about nothing else. But successful trading requires a kind of cold, calculating rationality, and any emotion – giddy joy as well as bitter despair – is fatal.
So we see trainees doing things they know are dumb:
- They jump on the long side of an uptrend because “they don’t want to miss the trade,” even as the trend is ending.
- They cling tenaciously to losing positions hoping the price will come back – an attempt to avoid admitting you made a dumb trade that usually turns a small loss into a big one.
- They pull their stops so they won’t get hit. Really!
- They become so traumatized by losing that they take excessive risks hoping to get back even.
- Finally, they quit in despair, close their trading account, burn the computer, and retreat into a dark place to lick their wounds.
None of this is necessary. All of it can be avoided. Here are some things that help. (more…)
We at ASR ….also think this is important
It’s been nearly impossible to lose money the last ~2 1/2 years.
Risk Management
- Risk of Ruin-Never risk more than 1% of your total account capital on any one trade.
- Position Sizing-Use your capital at risk to understand the right amount to trade based on the securities volatility.
- Capital at risk: Never put more than 6% of your total capital at risk at any given time on all positions.
- Trailing stops- Always have an exit strategy to lock in your winners.
Remembering Legendary Investor Sir John Templeton
The brief video below is in appreciation of Sir John’s life and the influence he still has on Franklin Templeton Investments’ perspective and our employees. Enjoy!
The 29th of November marks the anniversary of what would have been Sir John Templeton’s 100th birthday, someone who helped shape my career as a portfolio manager, and who I admire greatly as a human being. I first met the late Sir John more than three decades ago when I was working as an analyst for a broker based in Hong Kong. I traveled a few times to Nassau to make presentations to the Templeton portfolio teams, which is how he and I first became acquainted.
One day Sir John approached me to manage a new emerging markets group that he was starting and was very excited about. I jumped at the opportunity. This was a great chance to do things globally rather than just focus on Taiwan (where I was head of the country’s first investment management company at the time), and there weren’t many—if any—other portfolio managers focusing on global emerging markets. So, it was quite an opportunity! This year is the 25th anniversary of what’s now the Templeton Emerging Markets Group. The markets certainly have changed a lot since then, but our core investment philosophy remains true to Sir John’s timeless approach. (more…)
Thought For A Day
Top notch trading advice…..
DIFFERENCE BETWEEN THESE TWO GROUPS OF TRADERS
There must be a difference between these two groups of traders – the small minority of winners and the vast majority of losers who want to know what the winners know. The difference is that the traders who can make money consistently on a weekly, monthly, and yearly basis approach trading from the perspective of a mental discipline. When asked for their secrets of success, they categorically state that they didnt achieve any measure of consistency in accumulating wealth from trading until they learned self-discipline, emotional control, and the ability to change their minds to flow with the markets.
Mark Douglas