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10 Facts About Trading

  
Education, Video
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  • You cannot control which stock on your watch-list is going to breakout so try not to have any biases.
  • You cannot control the outcome of a trade, but you can control your entry, stop, and size, focus on what you can control.
  • You are going to be wrong 50% of the time; you must know that, and if you do know it then you must accept it.  No matter how much you think you know or how much more data you are in-taking you will more than likely still be wrong 50% of the time.  More knowledge does not make you a better trader.  Learn to accept losses. (See videos below)
  • If you don’t learn how to accept losses you will revenge trade, you will hold on to stocks hoping they will comeback, you will buy a stock based on technicals and when the stock goes down you will find yourself searching for news to hold on to it.  Accept the loss.
  • A good set up is a good set up regardless of the outcome of the trade.
  • A gain on a trade does not mean that it was a good set up.  Lately this bull market has forgiving many sins that give traders a false sense of talent.  In a bull market all of your sins are forgiving, don’t you ever forget that.
  • Don’t fret about missing a trade, set ups come and go like buses.
  • 80% of your gains will likely come in a stretch of 3 months. Know your process, have faith in it, and accept the fact that it will not work 12 months out of the year.  Don’t jump from strategy to strategy just because your process is currently in the winter months.
  • Sometimes you are going to sell early and wish you would’ve held on, other times you will hold on a little bit longer and wish you would’ve sold early- -this is just part of the game.
  • Price targets for the most part are useless.

 

 

10 Keys to become Consistent Trader and increase your Profitability

  
  Education
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  1. Think of trading as a business and have a trading plan.
  2. Make sure that the strategies you select, match your personality so you can follow them.
  3. Have a realistic expectation of what your returns are. Include all the costs associated with your trading business.
  4. Have an idea for your risk/reward ratio. Don’t confuse trading with gambling. If you are increasing your position, make sure that your strategy warrants it.
  5. Have trading rules and follow them. Think about them as contingency plans. Because when your emotions are very high, the tendency is that you make very poor decisions that can cost you your account!
  6. Be flexible to the market conditions. When you see the market as it is, you have a much better chance of managing your portfolio and increasing your profits.
  7. Take responsibility for your results. Taking responsibility does not mean that you have control of everything that happens. It means that you have a choice of how to react to the things that happen.
  8. Find out why you are in the trading business. If it is for the excitement of it, find other hobbies or activities that you can get your excitement from.
  9. Keep track of your performance. This is a way of objectively looking at how you are doing, what you did right and what you learned. Be gentle with yourself.
  10. One of the most important things that people don’t handle is their Emotional Risk. When emotions run high, the quality of decisions goes down. It is very important to learn how to react to your emotions and thus increase your profits.

Practice, Practice, Practice

  
  Education
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Let’s be brutally honest, there is no easy way to react to trading losses. If you are expecting me to give you a magic formula, then I am really sorry, as I don’t have one. Going trough losses is not easy because, for many, these are your hard earned money and of course it will be painful. However, every time you feel the pain from losing, you have gained new perspective to how “pain” feels like. From personal experience, I can honestly say this – it only gets easier because you start to know how your emotions will react and to a certain extend, you get immune to it.

Some would think that getting immune to losing is not a good thing. Agree, but you’re missing the point. When you are immune to losing, it is because you understand yourself better and you are better at managing your expectations and emotions. More importantly, when you are immune, you are emotionless and you can focus more on making rational decisions.  And that is the ultimate goal of staying positive.

4 Stages ..

  
Analysis, Education
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Stan Weinstein’s concept of stage analysis as outlined in his excellent book entitled Secrets For Profiting In Bull and Bear Markets.  I decided to read Mr Weinstein’s book and find out what these stages are.  Here is what I discovered:

STAGE 1:  This is the basing area where a stock is losing downside momentum.  Buyers and sellers are starting to move in equilibrium and although the stock is not taking off it is not selling off either.  The buyers are not asking for a discount of the price but are buying what the holders no longer want.  This stage could last weeks to months so there is no need to jump in just yet. 

STAGE 2:  The advancing stage begins when the stock in question starts to break higher from the basing area.  This stage usually has a retest to the break-out area before the real move starts.  There begins here a pattern of higher lows best described as two steps forward and one step back.  These pullbacks provide a good risk/reward opportunity for the astute trader.

STAGE 3:  The top area is stage 3 where the good trending stock finds its eventual end.  The upward advance loses momentum and consolidation sets in.  The mirror image of stage 1 starts to take shape once again.  There are sharp moves and high volume in this stage and it is best to refrain from trading here as the reward/risk ratio is stacked against you.

STAGE 4:  The declining phase is the fourth and final phase as the factor’s that maintained the stock’s previous momentum are no longer present and the sellers step in.  The trader is advised to never go long in this stage or hold on to any winning positions.  It is time to exit. If a downtend begins then you can start to look at shorting the stock for the same reasons you went long: trend and momentum.

The market is really very simple in its design and structure; it is the trader who makes it difficult.  Although not all markets and stocks are text book examples of the four stages, the disciplined trader would be wise to consider whether or not the stages may be playing out in a current position or one being considered.  There may just be a very good reason why both Shannon and Weinstein have best selling books on the same subject.

12 Things I’ve Learned from Steve Jobs about Business

  
  Education
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1. “The difference between the best worker on computer hardware and the average may be 2 to 1, if you’re lucky. With automobiles, maybe 2 to 1. But in software, it’s at least 25 to 1. The difference between the average programmer and a great one is at least that. The secret of my success is that we have gone to exceptional lengths to hire the best people in the world. And when you’re in a field where the dynamic range is 25 to 1, boy, does it pay off.” [1995]

“The problem is, in hardware you can’t build a computer that’s twice as good as anyone else’s anymore. Too many people know how to do it. You’re lucky if you can do one that’s one and a third times better, or one and a half times better… Then it’s only six months before everybody else catches up. But you can do it in software. As a matter of fact, I think that the leap that we’ve made is at least five years ahead of anybody.” [1994] This phenomena described by Steve Jobs, when combined with supply-side economies-of-scale and demand-side economies-of-scale, creates a lollapalooza. The existence of lollapaloozas in an environment where scaling happens digitally over networks means that digital businesses are nonlinear in terms of its outcomes. This point is so fundamental to any digital business today that the Jobs quotes above must come first in my list. Once the offering of a business is digital, even small advantages tend to lead to a “few winners-take-most-all” result.

The power law distributions that exist in business flow from this “few winners-take-most-all” phenomenon. The great wealth of a tiny number of technology business founders is one outcome of this phenomenon. As another example, both (1) the power law distribution inside a venture capital firm’s portfolio and (2) the power law distribution of financial returns between venture capitalists, are driven by digital businesses being part ofExtremistan. That financial outcomes tend to produce an unequal distribution of income is not a new phenomenon. The rich get richer phenomenon is at least as old recorded history. What is new is that digital systems are an accelerant of the Matthew effect (rich get richer) phenomenon. (more…)

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