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A FAIR APPROXIMATION FOR A SUCCESS FORMULA
A fair approximation for a success formula would be:
- Pursue multiple sources of well-being and success;
- Express those through activities that bring favorable returns with minimal wear-and-tear;
- Stay flexible and rebalance your life periodically as needs and circumstances change.
In other words, life success requires savvy asset management. It’s not about pouring yourself into the next big opportunity or going with a consensus flow. Rather, success hinges upon deeply understanding the factors that create returns and finding the right expressions and blendings of these.
Life is more than a succession of unconnected trades. At its best, life is a portfolio of investments that generate positive and meaningful returns. That can only happen, however, if we take the reins and thoughtfully manage our life’s assets.
Core Trading Concepts
If you are serious about your trading there are some concepts you must know in significant details. Those concepts will help you build a strong foundation on which you can build a trading system. There are seven concepts you should study:
- Momentum : If you understand this you will understand trends and mean reversion. You will understand why and how momentum works in the market. Most indicators are momentum based. Trend following and buying strength also works, so does mean reversion. They are all part of the momentum phenomenon.
- Market Breadth: Stock markets are composite markets. The overall move in market is an aggregate of moves of several hundred or several thousand stocks. So the level of participation in a move is important.
- Equity Selection: Because the overall market is a composite of many individual moves, it becomes critical to select right kind of stocks from the universe of stocks. Hence equity selection is extremely critical. You should know various ways in which one can select equities.
- Market Anomalies: Market anomalies are the distortions in the market. If you base your trading on a proven and statistically significant anomaly, you will be profitable. Absent that no amount of indicators will help you. A through understanding of anomalies will give you an edge.
- Market Microstructure: Market Microstructure is a branch of finance concerned with the details of how exchange occurs in markets. Understanding this will tell you how the market operates. The concept of market microstructre is very critical if you are trading very small time frames or are a day trader. Because to be successful on those time frame you need to find exploitable anomalies in market microstructure. You need to understand role played by market makers, automated programs, arbitragers, large fund buyers and so on. Their tactics and behaviour creates certain patterns
- Growth investing : Growth investors buy stocks of companies growing faster than the average company in the market.
- Value investing : Value investors buy stocks of companies which are cheap or out of favor.
TIME
10 Essential Trading Words
1. Simplicity – have a simple, well defined way to generate trading ideas. Have a simple approach towards the market. You can’t simply take everything into account when you try to make an educated decision. Filter the noise and focus on several key market components. For me, they are relative strength and earnings’ growth.
2. Common sense – create a trading system that is designed on the basis of proven trading anomaly. For example, trend following in different time frames.
3. Flexibility – be open to opportunities in both directions of the market. Be ready to get long and short.
4. Selectivity – chose only trades with the best risk/reward ratio; stocks with the best set ups; it doesn’t make sense to risk a dollar to make a dollar.
5. Don’t overtrade – two or three well planned trades in a week (month) might be more than enough to achieve your income goals. Patiently wait fot the right set up to form and offers good risk/reward ratio.
6. Exit strategy – Always, absolutelly always have an exit strategy before you initiate a trade. Know at which point the market is telling you that you are wrong and do not hesitate to cut your losses short immediatelly. Don’t be afraid or ashamed to take a trading loss. Everyone has them. Just make sure that you keep their size to a minimum.
7. Let’s profits run – one or two good trades might make your month. One or two good months might make your year. Letting profits run is as important as cutting losses short. Bigger winners will allow you the luxury to be right in less than half of the trades and still be profitable.
8. Consistency – Stick to your method of trading ideas’ generation.
9. Specialize – Specialize in one or two distinct setups. It could be a combination of technicals and fundamentals, certain timeframe or special event as a trading catalyst, certain sector or trading vehicle.
10. Have a plan – Which are stocks that you will be paying special attention to – this week, today. Why those stocks? In which direction you expect them to continue their move? What will give you a clue for the beginning of the move? Follow them exclusivelly and enter without a hesitation when they give you a signal. Don’t just wake up and sit in front of your monitor without having a clue what are you going to trade today.
Inspiration
THINK IT
“What the mind of man can Conceive and Believe, it can Achieve.” – Napoleon Hill
“You become what you think about all day long” – Ralph Waldo Emerson
“You are today where your thoughts have brought you, you will be tomorrow where your thoughts take you.” – James Allen
“Do not think of knocking out another person’s brains because he differs in opinion from you. It would be as rational to knock yourself on the head because you differ from yourself 10 years ago.” – Horace Mann, educator – How many traders feel this way?
BELIEVE IT
“You can have anything you want. There are no limits to your possibilities.” – unknown
“Whether you believe you can do a thing or not, you are right.” – Henry Ford (more…)
The 8 Things Charlie Munger Expects from Warren Buffett
Berkshire’s Chairman would reserve only a few activities for himself.
(i) He would manage almost all security investments, with these normally residing in Berkshire’s casualty insurers.
(ii) He would choose all CEOs of important subsidiaries, and he would fix their compensation and obtain from each a private recommendation for a successor in case one was suddenly needed.
(iii) He would deploy most cash not needed in subsidiaries after they had increased their competitive advantage, with the ideal deployment being the use of that cash to acquire new subsidiaries.
(iv) He would make himself promptly available for almost any contact wanted by any subsidiary’s CEO, and he would require almost no additional contact. (more…)
Five surprising lessons from a career on Stock Market
1) Deep thought: Surprisingly few people rolled up their sleeves and thought deeply about why things in market are the way the are. What causes markets to go up and down? Why do things blow up? Why do most investors under-perform markets? Lots of myths and urban legends, not nearly as much quantitative evidence.
If you get really deep about it and study the data, there are some rules to learn. To succeed in markets, one needs to become a philosopher-mathematician.
2) Long-Term Greedy: Too many people went for the easy money, but that was never what motivated me. It was more about intellectual curiosity and honing ones craft, and less about the quick hit. I made less money compared to many of my peers, but I kept more of it and never blew up.
The phrase “long-term greedy” was coined by former Goldman Sachs director Gus Levy many years ago. You can make (lots of) money over time, but only by serving clients’ interests. Its amazing to me that view is so far out of fashion today.
3) Hard Work: There is no other field where a person of average skills and intelligence who is willing to put their head down and work hard can makes 100s of thousands or even millions of dollars a year — but only if they are diligent and patient and willing to put in the hours. (more…)
Being Rich is Having Money ,Being Wealthy is Having Options
