1. Hope is not a strategy.
2. Plan your entry and exit before you make a trade.
3. If you are unsure of what to do, get out.
4. Only trade when you have an edge.
5. Track all your trades. If a strategy loses money, abandon it.
6. Do not focus only on potential gains but also on potential losses. Trade only when the risk/reward ratio is favorable.
7. Don’t let a very good profit disappear or turn into a loss because you want an even bigger profit.
Latest Posts
rssTrading Psychology: Watch out for that dopamine
The market is not your enemy. You are. Well not you, but some of your innate biochemistry is. Not to make this article a major lesson on biology but I want to point out one of the major buggers that messes with your head: Dopamine. It’s a neurotransmitter chemical that drives so much of our motivations and behavior. Call it nature’s motivator drug. Vegas casinos know all about it. In fact, the gambling industry’s entire business model is designed around how to maximize how much fun dopamine is having in people’s brains to extract value from the gullible millions. Scientists have studied the effects of dopamine in detail and came up with some surprising results:
We all know when something nice happens to us we experience feelings of bliss and joy. Gamblers get excited when the lights go off at a slot machine and coins fall into the slot below. Traders experience giddiness when they have a nice winning trade. So far so good, but here comes the wicked revelation: Studies show that the ‘near-miss’ effect triggers dopamine levels not only as equal but they even grow stronger over time versus a winning experience. (more…)
Doubt and Disappointment
We all want certainty both in and outside the charts. Problem is certainty is nothing more than hope wrapped in expectation. Life is uncertain. A successful trade is uncertain. If certainty is what we want then certainty we will get. However, be prepared to meet certainty’s friends, doubt and disappointment. Doubt and disappointment are, shall we say, in “cahoots” with certainty. You can’t have one without the other. This is a blessing really that we all too often turn into a curse. A blessing because we have two new friends who can help keep us balanced, honest, and above all, human. A curse because we choose to ignore their advice when we should be embracing it. Embrace it you say? Yes. Because doubt and disappointment can lead to new discoveries and a deeper appreciation for what life has to offer. Maybe, just maybe, what we believe to be certain, you know, that which we wrap up in hope and expectation, is not so certain after all. Maybe, just maybe, our friends doubt and disappointment can lead us down a better path and a better life. Maybe, just maybe, doubt and disappointment can teach us a new understanding about the markets and the charts, wherein we pin so many of our hopes and expectations.
What a ride this market has been on! No roller coaster can compare. And the ride is far from over and triple digit days will continue for some time. Today could easily be a triple digit day to the upside or downside or both! Who knows? We have no certainty about where this consolidation will end and in what direction. All I know is when a certain trend begins we will still be faced with doubt and disappointment, either because we doubt the new trend or are disappointed that the direction is not quite what we expected, when we expected it. Then again, nothing in the market is quite what we expect. Don’t be surprised if the market does exactly the opposite of what you want or expect. If you are certain of its direction…I have two friends to introduce you to.
"You think a stock is your wife, your girlfriend. It's not."
Now in our Collection :EINSTEIN is Dead
Risk is an educator.
Rosenberg: "The Pattern Would Suggest A Test Of 5,000 On The Dow
The latest set of fundamental and technical observations from the bearish Canadian.
Well, well, so much for consensus views. Like the one we woke up to on Monday morning recommending that bonds be sold and equities be bought on the news of China’s “peg” decision. As we said on Monday, did the 20%-plus yuan appreciation from 2005 to 2008 really alter the investment landscape all that much? It looks like Mr. Market is coming around to the view that all China managed to really accomplish was to shift the focus away from its rigid FX policy to Germany’s rigid approach towards fiscal stimulus.
What is becoming clearer, especially after the latest reports on housing starts, permits, resales and builder sentiment surveys, is that housing is already double dipping in the U.S. The MBA statistics just came out for the week of June 18 and the new purchase index fell 1.2% – down 36.5% from year-ago levels and that year-ago level itself was down 22% from its year-ago level. Capish, paisan? So far, June is averaging 14.5% below May’s level and May was crushed 18% sequentially, so do not expect what is likely to be an ugly new home sales report for May today to be just a one-month wonder. Meanwhile, the widespread view out of the economics community is that we will see at least 3% growth in the second half of the year: fat chance of that.
What is fascinating is how the ECRI, which was celebrated by Wall Street research houses a year ago, is being maligned today for acting as an impostor — not the indicator it is advertised to be because it gets re-jigged to fit the cycle.
From our lens, there is nothing wrong in trying to improve the predictive abilities of these leading indicators. Still — it is a comment on how Wall Street researchers are incentivized to be bullish because nobody we know criticized the ECRI as it bounced off the lows (not least of which our debating pal, James Grant). For a truly wonderful critique of the ballyhooed report that was released yesterday basically accusing the ECRI index as fitting the data points to the cycle – not the case, by the way – have a look at ECRI Weekly Indicators Widely Misunderstood that made it to our friend Barry Ritholtz’s blog (“The Big Picture”).
As for the equity market, we are at a critical juncture and it could break any day. After successfully testing support at the key Fibonacci retracement level of 1,040, the S&P 500 has since bounced up to the 200-day moving average of 1,115 – and this failed to hold. Resistance prevailed. My sense is that the market will break to the downside, and for three reasons:
- Even if a double dip is avoided, the market is not priced for a growth relapse.
- The intense volatility in the major averages over the past three months is consistent with the onset of a bear phase.
- Bob Farrell believes a test of the March 2009 lows is likely. I don’t think anyone is in a position to debate five decades of experience, not to mention his track record. Louise Yamada, a legend in her own right, not to mention the likes of Bob Prechter and Richard Russell, are on this same page. Notice how none of them work at a Wall Street bank. (more…)
Life before CAD
Seven Habits of Highly Successful Traders
Who's Really In Charge Of Interest Rates? A Graphic Novel
Inspired by Eugene Fama’s paper, “Does the Fed Control Interest Rates?,” forthcoming in the Review of Asset Pricing Studies, Chicago Booth’s Capital ideas magazine exposes the awful truth of who is in charge… and it’s not The Fed.
(more…)