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rssBehavior Modification
The big mistake made by traders is thinking and expecting trading to be a favorable game. Trends both short- and long-term do exist but not 100% of the time.
The correct way to control positions is to only hold them once they prove to be correct. Let the market tell you your position is proven correct, but never let the market tell you that your position is wrong. You, as a good trader, must always be in command of knowing and telling yourself when your position is bad.
Your exposure and risk is much higher if you let the market prove you wrong instead of your actions removing positions systematically unless or until the market proves your position correct. You decide what is correct according to your plan.
You never want to be in a position that is never proven correct. By making the market prove you correct in order to hold a position is acknowledging that trading is a losers’ game and not a winners’ game.
What makes this strategy more comfortable is that you must take action without exception if the market does not prove the position correct. Most traders do it the opposite by doing nothing unless they get stopped out, and then it isn’t their decision to get out at all — it is the market’s decision to get you out. Over time it has proven to be the rule which keeps the losses small and keeps a trader swift and fast to take that loss.
Howard Marks On Luck And Skill In Investing
When Howard Marks graduated from the Booth School of Business of the University of Chicago, he was turned down for the one job he really wanted. That, he said, was the luckiest moment of his career. The firm that turned him down was Lehman Brothers.
Marks is the co-chairman and founder of Oaktree Capital Management. He spoke to an audience of investment professionals and MBA students at the annual MIT Sloan Investment conferencein Cambridge on February 20th.
His talk was moderated by Randy Cohen, a senior lecturer at the Sloan School. Marks and Cohen discussed a range of topics, including his luck and skill in career choices, the lack of efficacy in forecasting, the importance of second-level thinking, investing in the current interest rate environment and the ingredients for investment success.
On luck and skill in career choices
Marks said he was not the kid who started reading prospectuses at nine years old and then invested his bar mitzvah money. Before deciding on a career in finance, he considered being a history professor, an architect, an advertising man and an accountant. Before graduating from the University of Chicago, he interviewed for jobs in corporate treasury, banking, investment management, investment banking, accounting and consulting. (more…)
Traders Emotional State
Strategies that can be used to benefit from patterns in sell-side analyst behaviour
On Psychology
- Stop trying to outsmart the market. NO ONE knows exactly where it will go.
- With each decision you make comes stress:
- The more decisions you make, the more likely you are to be wrong.
- The more decisions you are used to making, the more pressure you’ll put on yourself to make even more decisions.
- No one can be that right.
- Forget about the “whys’ of the market. After all is said and done, the reasons will be known.
- Don’t apply logic. Markets move on emotions — period!
- Plan your trade and trade your plan.
- Reduce the amount of decisions you make.
- Make decisions and live with them (also a life lesson!).
- Good decisions come from experience.
- Experience comes from bad decisions.
A Few Notes From Adam Grimes
Adam Grimes (Chief Investment Officer of Waverly Advisors) prefaces his 2012 book, The Art and Science of Technical Analysis: Market Structure, Price Action, and Trading Strategies, by stating: “This book…offers a comprehensive approach to the problems of technically motivated, directional trading. …Trading is hard. Markets are extremely competitive. They are usually very close to efficient and most observed price movements are random. It is therefore exceedingly difficult to derive a method that makes superior risk-adjusted returns, and it is even more difficult to successfully apply such a method in actual practice. Last, it is essential to have a verifiable edge in the markets–otherwise no consistent profits are possible. This approach sets this work apart from the majority of trading books published, which suggest that simple patterns and proper psychology can lead a trader to impressive profits. Perhaps this is possible, but I have never seen it work in actual practice. …The self-directed trader will find many sections specifically addressed to the struggles he or she faces, and to the errors he or she is likely to make along the way. …[Institutional] traders will also find new perspectives on risk management, position sizing, and pattern analysis that may be able to inform their work in different areas.” Using example charts for many assets from different times over different time frames and from different markets, he concludes that:
From Chapter 1, “The Trader’s Edge” (Page 7): “Every edge we have, as technical traders, comes from an imbalance of buying and selling pressure. …we do not trade patterns in the market–we trade the underlying imbalances that create those patterns.”
From Chapter 2, “The Market Cycle and the Four Trades” (Page 45): “When buying pressure seems to be strongest, the end of the uptrend is often near. When the sellers seem to be decisively winning the battle, the stage is set for a reversal into an uptrend. This is why it is so important for traders to learn to stand apart from the crowd, and the only way to do this is to understand the actions and emotions of that market crowd.”
From Chapter 3, “On Trends” (Page 95): “…many outstanding trades come in trending environments. Market structure in trends is often driven by a strong imbalance of buying and selling pressure, it is often easy to define risk points for trades, and some of the cleanest, easiest trades come from trends. However, markets do not always trend.” (more…)
Be In Tune With the Markets
Trade the markets as they are and not as you want them to be.
If we are not in tune with the markets and don’t listen to them, we are going to be in a losing game.
After all, hope is a lousy hedge.
Give It Up
Sometimes, it’s the right thing to do. Traders must learn to honor stops and accept losses — that’s just part of the game.
Honor Your Stop
Why is it so hard to honor your stops? It is because we are taught not to quit in life. In trading, quitting is often the thing to do. If you are new to trading or lack discipline, you must place actual stops. You cannot say that you will exit the market if it goes against you by X amount and then sit there like a deer in the headlights as the market blows past that stop.
Placing actual stops makes your decision a passive one and not an active one. The market will make the decision for you if you are wrong.
Once you gain experience, confidence and discipline, you can use mental stops to help avoid being stopped out under certain specific conditions. However, when learning or having difficulties following your plan, you should place actual stops.
View A Potential Loss As A Cost
There is a cost to doing business in any field. You will have to pay for office supplies, computers, printers, and inventory if you are selling something tangible. When you run low on supplies or inventory, you accept the fact that you have to buy more. A loss in trading must be viewed the same way. It is simply the cost of doing business.
Documentary on Paul Tudor Jones
This is news because back when PBS first aired the film, PTJ hated it. He asked PBS never to air it again and finding a copy of the movie is really, really tough.
“If life ever ceased to be an educational experience. I probably wouldn’t get out of bed in the morning.”
That sounds exactly like the attitude a trader should have.
-101% Don’t Miss to Watch !!!!