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Running Rates

  
  Education

Many times when price is running like a mad train on steroids, it is very unsettling because all of your emotions are screaming for you to jump aboard. The problem with that is many time that same train that seduced you aboard will often abandon you at the station leaving you wondering what happened??????

One of the most difficult temptation to resist in trading is the urge and beckoning to follow running price. Running price will often leave you stuck at the top or abandoned at the bottom. When your eyes see price running, all of your emotions are screaming for you to jump aboard. DON’T DO IT! Many times it is a trap that will leave you licking your wounds. When you get off of the ground all scraped up, you still aren’t sure what happened because you were in harmony with your trend. Many times price will speed up just before the critical end of that run.

Many times when price is running like a mad train on steroids, it is very unsettling because all of your emotions are screaming for you to jump aboard. The problem with that is many time that same train that seduced you aboard will often abandon you at the station leaving you wondering what happened??????

One of the most difficult temptation to resist in trading is the urge and beckoning to follow running price. Running price will often leave you stuck at the top or abandoned at the bottom. When your eyes see price running, all of your emotions are screaming for you to jump aboard. DON’T DO IT! Many times it is a trap that will leave you licking your wounds. When you get off of the ground all scraped up, you still aren’t sure what happened because you were in harmony with your trend. Many times price will speed up just before the critical end of that run.

Now if you are aboard a trend and price starts on super steroids x 20 then you might want to begin looking for the nearest exit point. It doesn’t always happen like that, but I have seen it often enough that I never jump into running price, even though my emotions are still screaming for me to.

While I am looking at price accelerate, I am thinking “look at all of that money you missed, and you knew it was going to keep going” or thoughts like “crap you should have gotten in, you missed your chance.” My Friend the market will give you another chance!

I would rather miss out on an iffy trade for a sure one any day. When things settle and I can see a clear advantage then I can enter the market with logic instead of emotions….

Speculation, Trading, and Bubbles-by José A. Scheinkman (Book Review )

  
  Education
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SPECULATION-TRADING-BUBBLESTo pay tribute to one of its most famous graduates, Kenneth J. Arrow, Columbia University launched an annual lecture series dealing with topics to which Arrow made significant contributions—and there were many. Speculation, Trading, and Bubbles stems from the third lecture in the series given by José A. Scheinkman, with adapted transcripts of commentary by Patrick Bolton, Sanford J. Grossman, and Arrow himself. I’m going to confine myself here to a few excerpts that encapsulate some of the lecture’s key points, ignoring the often perceptive commentary.
Scheinkman offers a formal model of the economic foundations of stock market bubbles in an appendix to his lecture, but he lays out its basic ideas in the lecture proper. The model rests on two fundamental assumptions—“fluctuating heterogeneous beliefs among investors and the existence of an asymmetry between the cost of acquiring an asset and the cost of shorting that same asset. … Heterogeneous beliefs make possible the coexistence of optimists and pessimists in a market. The cost asymmetry between going long and going short on an asset implies that optimists’ views are expressed more fully than pessimists’ views in the market, and thus even when opinions are on average unbiased, prices are biased upwards. Finally, fluctuating beliefs give even the most optimistic the hope that, in the future, an even more optimistic buyer may appear. Thus a buyer would be willing to pay more than the discounted value she attributes to an asset’s future payoffs, because the ownership of the asset gives her the option to resell the asset to a future optimist.” (pp. 15-16)

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BY IGNORANCE THE TRUTH IS KNOWN

  
Analysis, Education


Whether we choose to believe it or not we do not know the future, nor can we predict it with any consistency.  When the future does play out exactly as predicted luck must be credited.
We stock traders love to predict.  When we are right (which is not very often) we are quick to pat ourselves on the back, staking our claim on expert technical and/or fundamental analysis.  When we are wrong we are just as quick to deny responsibility, usually blaming the “market” for its ignorance.  All too often we justify our losses because we mistakenly believe the market is wrong.
But if the truth be known we are the ones who are ignorant and we choose to remain so.  Ignorance can only be used as an excuse until the truth is discovered.  The truth is we are wrong. The market is always right.
So, here is the truth.
We are ignorant of randomness and uncertainty.  We are ignorant of the many reasons others have for buying and selling, oftentimes diametrically opposed to our own.  We are ignorant of the hidden forces that move markets both intra-day and day to day.  We are ignorant of unforeseen news and how the “market” will interpret it.  We are ignorant of our many and varied biases, too numerous to mention here.  In a word, we are ignorant.
But in ignorance we find truth; in ignorance we find opportunity.  We traders can use our ignorance as a tool for profitability.  But can we handle it?
 


Can we accept that our expert analysis can be wrong?  Can we accept uncertainty?  Can we admit that our decision making processes are often flawed because of our psychological makeup? Can we accept that the market is always right? Can we handle the truth?
If we dare confront our ignorance we can then proceed to admit to and accept our flawed biases.   We can admit that luck plays a major role in our success.
We can actually exit losing trades.  We can take profits without getting greedy. We can cease to fear the future.  We can accept, and even learn to embrace, uncertainty.  We can then use technical and fundamental analysis as tools to manage our emotionally based biases, not confirm them.   We can become consistent in our decisions.  We can become profitable.
We can discover the truth by our ignorance.

Traders Should Accept these 4 Things

  
  Education
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  1. Accept that the key to being a successful trader is having big wins and small losses, not big bets paying off. Big bets can lead quickly to you being out of the game after a string of losses.
  2. Accept that the best traders are also the best risk managers, even the best traders do not have crystal balls so they ALWAYS manage their capital at risk on EVERY trade.
  3. If you want to be a better trader then you need to accept that trading smaller and risking less is a key to your success. Risking 1% to 2% of your capital on any single trade is the first step to winning at trading. Use stops and position sizing to limit your losses and get out when your losses grow to these levels.
  4. You must accept that you will have 10 trading losses in a row a few times each year. The question is what your account will look like when they happen.

Ari Kiev – The 10 Cardinal Rules Of Trading

  
  Education
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The Ten Cardinal Rules

1. Learn to function in a tense, unstructured, and unpredictable environment.
2. Be an independent thinker versus a conventional thinker.
3. Work out a way to handle your emotions and maintain objectivity.
4. Don’t rely on hope and fear in the conventional sense.
5. Work continuously to improve yourself, giving importance to self-examination and recognizing that your personality and way of responding to events are a critical part of the game. This requires continuous coaching.
6. Modify your normal responses to certain events. (more…)

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