Archives of “Education” category

rss

Developing The Right Mindset

  
  Education
  Tags

First, you need to find a systematic method which removes most (if not all) of the emotion and discretionary judgment from your trading. Be prepared… this could take years. Once you have identified a system that can be profitable over the course of time, then you have to develop a mindset in which you:

  1. Focus on executing your system perfectly for each individual trade;
  2. Focus on weekly or monthly gains and not the results of individual trades;
  3. Track and quantify your performance mercilessly;
  4. At the end of each day, each week, and month evaluate your actions and then commit to doing better tomorrow;
  5. Stay positive in your thoughts and spoken words;
  6. Stay away from negative influences that cause you to have doubts and fears about your ability as a trader;
  7. Teach others to maximize their performance and, in so doing, maximize your own.

Sharpen Your Trading With Occam's Razor

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

 Would you believe that a 14th century priest, and his concepts, can help make you a better trader?  Well, English logician and Franciscan friar William of Ockham really can make you a better trader.


Ockham developed the concept commonly referred to as Occam’s Razor.  Simply put, this principle favors the simple over the complex, when there is a choice to be made, or a path to be followed.


How can this apply to trading? A few different ways.


First, if you are a system trader, perhaps your approach has too many rules, too many parameters, or too much optimizing.  While every parameter you add might make your system better historically, the more parameters you have, the less prone the system is to work going forward.  Simpler concepts and simple rules tend to be based on fundamental market principles – ones that aren’t as likely to change.


Second, if you are a discretionary trader, you might trade off of news reports from Blue Channels  and multiple other sources.  Multiple news sources might give you more data, but does it really give you more knowledge?  You might find that with multiple, conflicting pieces of information, you actually can’t trade at all – rather, you are a victim of “analysis paralysis.”


Third, maybe your trading office looks like the control room for the Space Shuttle. If you try to trade off all of the information shown on all the screens, you might just find yourself overwhelmed.  It is better to stick to a few monitors of information, and know that information very well.  The best traders don’t need a dozen monitors to trade well – usually 1 or 2 monitors is plenty.


Many new traders tend to think that that more complicated they make trading, the easier it will be to “solve” the markets.  Instead, they should be listening to William of Ockham, and making things simpler.  Simple, done correctly, can lead to more profits, and stand the test of time better than complicated approaches.

Trading Wisdom

  
  Education
#  #  #  #  #  #  #  #  #

 

  • The fewer decisions that you can make during the trading day, the better off you will be.
  • All exit strategies should be based of your initial entry.
  • 75% of trades test out best by taking your profits quickly.
  • Shorter the time frame, the less justification for trailing stops.
  • Trend followers often pay up to ensure they get a position.

Livermores Seven Trading Lessons

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Lesson Number One: Cut your losses quickly.

As soon as a trade is contemplated, a trader must know at what point in time he’ll be proven wrong and exit a position. If a trader doesn’t know his exit before he takes the entry, he might as well go to the racetrack or casino where at least the odds can be quantified.

Lesson Number Two: Confirm your judgment before going all in.

Livermore was famous for throwing out a small position and waiting for his thesis to be confirmed. Once the stock was traveling in the direction he desired, Livermore would pile on rapidly to maximize the returns.

There are several ways to buy more in a winning position — pyramiding up, buying in thirds at predetermined prices, being 100% in no more than 5% above the initial entry — but the take home is to buy in the direction of your winning trade –  never when it goes against you.

Lesson Number Three: Watch leading stocks for the best action.

Livermore knew that trending issues were where the big money would be made, and to fight this reality was a loser’s game.

Lesson Number Four: Let profits ride until price action dictates otherwise.

“It never was my thinking that made the big money for me. It always was my sitting.”

One method that satisfies the desire for profit and subdues the fear of a losing trade is to take one half of your profit off at a predetermined level, put a stop at breakeven on the rest, and let it play out without micromanaging the position. (more…)

China told property risk is worse than in US

  
Analysis, Economy, Education
#  #  #  #  #  #  #

UH OH: China told property risk is worse than in US. “The problems in China’s housing market are more severe than those in the US before the financial crisis because they combine a potential bubble with the risk of social discontent, according to an adviser to the Chinese central bank. . . . ‘The housing market problem in China is actually much, much more fundamental, much bigger than the housing market problem in the US and UK before your financial crisis,’ he said in an interview. ‘It is more than [just] a bubble problem.’”

Go to top