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Know Your Risk Tolerance

  
  Education

Every trader is different, and only you know your risk tolerance. Are you the type of trader who can risk 20% to make 20%, or do you feel the need to have a much higher risk/reward payout in order to enter a trade? Be sure to define your risk before placing any trade orders. Doing so helps ensure that you have an exit strategy, which is arguably just as important as your entrance strategy. A little extra work in the beginning can make all the difference in the end.

Hedge Fund Horror Show

  
Analysis, Education

Really interesting analysis via Gadfly about under performance in the hedge fund community:

Just last week, the U.S. bull market in stocks became the second longest on record, which — fair or not — leaves it vulnerable to some age discrimination. Over that stretch, equity hedge funds as a group have underperformed the S&P 500, which is a comparison that many fund managers will insist is apples to oranges but which nonetheless is a comparison that will probably continue to be made forever by investors perusing the fruit salad of investment options.

Look at this chart, which shows a ratio of the HFRX Global Hedge Fund Index to a total-return version of the S&P 500. When the line is falling, it means the hedge funds tracked by the index are getting beaten by the S&P 500. And, whoa boy, it has been falling for the last seven years:

5 Minutes of Daily Conditioning

  
  Education
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Deciding to be a profitable financial trader is the first step in becoming one. Trite you say? Not really. Missing this one step or doing it out of order xplains why 90% of brokerage accounts go to zero within the first year, many doing so in the first 4 months!

In addition to arbitrarily deciding to be a profitable financial trader, a more powerful and lasting way is to use psychological conditioning on yourself so that you CONSISTENTLY decide that you are a profitable trader Here’s my interpretation of the method for doing this that I learned from the famous success guru I alluded to in my comments two blogs back.

First, write out the sentence below on a piece of paper.

“FROM THIS MOMENT FORWARD, I AM A PROFITABLE TRADER”.

Second, consider the pain you have experienced before because you have not consistently thought of yourself as a profitable trader. Imagine experiencing that again in the present and future. Do this for 30 seconds. Notice how you feel as you do that. (more…)

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