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What is Hope ?What is Regret ?

  
  Education
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What is Hope?

Hope is a feeling of expectation and desire for a certain thing to happen. It’s an individual’s desire to want or wish for a desired event to happen.

Hope may be the most dangerous of all human emotions when it comes to trading. Hope is what keeps a trader in a losing trade after it has hit the stop. Greed and hope are what often prevent a trader from taking profits on a winning trade. When a stock is going up, traders will often remain in the trade in the “hope” of recouping past losses. Every swing trader hopes that a losing trade will somehow become a winning trade, but stock markets are not a charity. This type of thinking is dangerous because the group (stock market) could not care less about what you hope for, or what is in your best interest. Rest assured, when your thinking slips into hope mode, the market will punish you by taking your money.

What is regret?

Regret is defined as a feeling of sadness or disappointment over something that has happened or been done, especially when it involves a loss or a missed opportunity. (more…)

Stay humble

  
  Education
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More great lessons and trend following trading wisdom from Michael Covel’s book: ‘Trend Following – Learn to make millions in up or down markets’. I am quoting from page 282-283:

Fortune Favors the bold

Trend following, like any entrepreneurial endeavor, demands you be responsible for yourself. Charles Faulkner emphasized the point:

‘Trend trading and even trading in general isn’t for everyone. As too few people check out what the day-to-day life of a trader is like, and trend trading specifically, I strongly recommend they find out before making a life-changing commitment.’

What does ‘life-changing commitment’ involve? You commit to not wanting to be right all of the time. Most people, let’s face it, must be right. They live to have other people know they’re right. They don’t even want success. They don’t even want to win. They don’t want money. They just want to be right. The winners, on the other hand, just want to win.

What else can you do? You commit to patience and faith in a trading system that is not structured on quarterly performance or some artificial measure of the ‘mass’. You work hard to gain experience. Great experience leads to great intuition. You commit to thinking for the long term and not feeling insecure if you don’t have a steady earnings stream of 1-2 percent a month. You might have one year where you are down 10 percent. The following year you might be down 15 percent. The next year you might be up 115 percent. If you quit at the end of the second year, you will never get to the third year. That’s reality.

The Top 5 Lessons For Trading Anything

  
Analysis, Education

“How did you feel when you bought that position?”
An odd question, perhaps, but I heard it every week during my first year at SAC Capital in the late 1990s. My inquisitor was Ari Kiev, who was the in-house psychologist there. He met with every trader in the room on a regular basis. For new guys like me, it was the toughest hour of the week.
We’d go down a list of every position I had traded and discuss each one in minute detail. What was my logic? What catalysts did I expect? Who had I spoken to?

But there was one question I hated the most…

“Why didn’t you get bigger?”
That question, in a nutshell, is the essence of trading. You make most of your gains from a handful of names where you owned enough to really generate an outsized return. Put on 20 ideas a week, and 1-2 really work. The trick is to identify those early enough and then buy or short as much as you can stomach. The rest of your ideas usually just net out to zero.
I bring all this up because I have noticed something strange in my conversations about bitcoin with many savvy Wall Street types: they don’t know/remember many old-school rules of trading. Perhaps the last +5 years of low volatility US equity markets have made those skills rusty. Or maybe they think crypto currencies are different from equities – more volatile, different fundamentals, whatever…
Fortunately for this discussion, I have the memory of an old embittered elephant – I remember everything, including plenty of things I should probably forget in order to live a happier life. Bad for me, but good for you. Because I remember those sessions with Ari like they were yesterday.
 

 
#5: Know yourself. Everyone has different risk tolerances, so no two trading styles are exactly the same. Some traders can carry 10 positions and maxed out leverage and happily live with the resultant volatility. Others (myself included), like to limit drawdowns and always have gas in the tank in the form of unused capital.

In the end, that last point should inform all the others. Trading and investing are both manifestations of how we make decisions. That process is a function of our personality, risk tolerance and experience.
So when somebody asks me if they should trade/own bitcoin, my first answer back is “I don’t know… Tell me about yourself.”

(more…)

The Wall Street Book Everyone Should Read

  
  Education
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In 1997, though, such arguments were pretty close to unheard of. Which is what makes Doug Henwood’s book Wall Street, published that year, such an amazing document. Along with explaining in clear if caustic terms how financial markets work, the book prefigures almost every criticism of the financial system that’s been levied since the crisis of 2008. An overleveraged housing market?Check. A link between financial sector growth and income inequality? Check. A natural tendency toward instability in financial markets? Check.

I don’t want to paint Henwood, who edits a newsletter called the Left Business Observer, hosts aweekly radio show, and knows more about economic indicators than anyone has a right to, as some kind of Nostradamus. In Wall Street he doesn’t so much make predictions as expose, in his crotchety, almost absurdly erudite way, the inconsistencies and contradictions in conventional views of how the financial world is supposed to work. (more…)

Market Metaphors and Perception

  
  Education
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Day Trading* A trader views the market as an enemy to be conquered;

* A trader approaches the market as a puzzle to be solved;

* A trader sees the market as a paradise of potential riches;

* A trader regards the market as a mistress to be wooed;

* A trader views the market as a dangerous minefield;

* A trader looks at the market as a video game.

How do these metaphors affect our trading? Our emotional responses to trading?
How would being aware of our metaphors–and shifting them–change how we trade
and how we experience our trading?

This story is my favorite metaphor for the Stock Market.

monkey-with-glasses

I wonder what it says about my perception? Personally, I favor the puzzle to be  solved approach.

“Once upon a time, in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each.

The villagers, seeing that there were many monkeys around, went out to the forest and started catching them. The man bought thousands at $10 and, as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at $20 for a monkey.

This renewed the efforts of the villagers and they started catching monkeys again. Soon the supply diminished even further and people started going back to their farms. The offer increased to $25 each, and the supply of monkeys became so small that it was an effort to even find a monkey, let alone catch it!

The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.

In the absence of the man, the assistant told the villagers. ‘Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35, and when the man returns from the city, you can sell them to him for $50 each.’

The villagers rounded up all their savings and bought all the monkeys. They never saw the man nor his assistant again, only monkeys everywhere!

Now you have a better understanding of how Stock Market works!

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