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VALUE OF TRADING

  
  Education

The value of trading, properly conceived and exercised, is that it can become a vehicle for self-development. If not properly conceived and executed, trading can become an addictive and destructive activity. Good trading is trading that is self-determined, self-enhancing, and rewarding in terms of personal and financial development; bad trading reinforces and repeats the negative patterns that hold us back in life. It is rare to find activities that reward you financially for your growth and development as a human being. That is one of the great appeals of trading. – Brett Steenbarger

Value of trading

Ernest Hemingway-The Old Man and the Sea

  
Economy, Education
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‘The Old Man and the Sea’ is my favourite work by Hemingway. Here are two quotes that have direct parallels with trading:  

He looked down into the water and watched the lines that went straight down into the dark of the water. He kept them straighter than anyone did, so that each level in the darkness of the stream there would be a bait waiting exactly where he wished it to be for any fish that swam there. Others let them drift with the current and sometimes they were at sixty fathoms when the fishermen thought they were at a hundred. But, he thought, I keep them with precision. Only I have no luck any more. But who knows? Maybe today. Every day is a new day. It is better to be lucky. But I would rather be exact. Then when luck comes you are ready.’ 

And the great sea with its friends and its enemies. And bed, he thought. Bed is my friend. Just bed, he thought. Bed will be a great thing. It is easy when you are beaten, he thought. I never knew how easy it was. And what beat you, he thought. ‘Nothing’, he said aloud. ‘I went out too

10 Investment Lessons

  
  Education
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1. Believe in history
“All bubbles break; all investment frenzies pass. The market is gloriously inefficient and wanders far from fair price, but eventually, after breaking your heart and your patience … it will go back to fair value. Your task is to survive until that happens.”

2. ‘Neither a lender nor a borrower be’
“Leverage reduces the investor’s critical asset: patience. It encourages financial aggressiveness, recklessness and greed.”

3. Don’t put all of your treasure in one boat
“The more investments you have and the more different they are, the more likely you are to survive those critical periods when your big bets move against you.”

4. Be patient and focus on the long term
“Wait for the good cards this will be your margin of safety.”

5. Recognize your advantages over the professionals
“The individual is far better positioned to wait patiently for the right pitch while paying no regard to what others are doing.”

6. Try to contain natural optimism
“Optimism is a lousy investment strategy”

7. On rare occasions, try hard to be brave
“If the numbers tell you it’s a real outlier of a mispriced market, grit your teeth and go for it.”

8. Resist the crowd; cherish numbers only
“Ignore especially the short-term news. The ebb and flow of economic and political news is irrelevant. Do your own simple measurements of value or find a reliable source.”

9. In the end it’s quite simple. really
“[GMO] estimates are not about nuances or Ph.D.s. They are about ignoring the crowd, working out simple ratios and being patient.”

10. ‘This above all: To thine own self be true’
“It is utterly imperative that you know your limitations as well as your strengths and weaknesses. You must know your pain and patience thresholds accurately and not play over your head. If you cannot resist temptation, you absolutely must not manage your own money.”

8 Skill Every Traders must have

  
  Education
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  • Passion. The best investors I’ve seen truly love what they do. It’s the only way they are able to put in the time needed to become great.
  • Experience. The pros have seen it all. They’ve been through all sorts of market cycles. Long periods of sideways choppiness, uptrends, and downtrends. And not just the short term 15-20% corrections but the big 50% corrections too.
  • Adaptability. Markets change. And the strategies that were working in one market may eventually deteriorate. Good traders will change their methodology to match the new market conditions.
  • No ego. None. If you go into trading with an ego the market will eat you alive. The elite investors are able to admit when they’re wrong. They even embrace it. Being wrong quickly means they can move on to being right faster.
  • Emotionless. This goes hand in hand with ego. Along with pride, investors face a daily trio of emotions of hope, fear, and greed. The worst investors allow their emotions to control their trading; the best avoid any emotional attachment at all. (more…)

Four Trading Fears

  
  Education
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“Ninety-five percent of the trading errors you are likely to make—causing the money to just evaporate before your eyes—will stem from your attitudes about being wrong, losing money, missing out, and leaving money on the table. What I call the four primary trading fears.” -Mark Douglas (Trading int he Zone)

As Mark Douglas points out in his great book about trading psychology is that the majority of traders lose because of wrong thinking, misplaced emotions, and wanting to be right. We know fear and greed drive the market prices far more than fundamentals do. However fear makes traders do the wrong things at the wrong time. Here are four great examples of fear over ruling sound trading strategies.

Here are more thoughts about these four fears:

The fear of being wrong: Traders fear being wrong so much they will hold a small loss until it becomes a huge loss. Even adding to the loss in the hopes of it coming back and getting to even. Don’t do this, holding on to a loser after it hits your predetermined stop loss is like being a reverse trend trader. Do not be afraid of being wrong small be afraid of being wrong BIG.

The fear of losing money: New traders hate to lose money, they do not quite understand yet that they will lose 40%-60% of the time in the long term. We should come to expect the small losses and wait for the big wins patiently. Many times traders fear this so much that they have a hard time taking an entry out of fear of losing. If you can’t handle the losses as part of the business, you can’t trade.

The fear of missing out: The opposite of the fear of losing money is the fear of losing potential profits. This causes traders to watch a stock go up and up, miss the primary trend, then not being able to take it any more and get in late just in time for the trend to reverse and lose money. Trade at your systems proper entry point do not chase a stock because you are afraid to miss out on some profits.

The fear of leaving money on the table: When your trailing stop is hit get out of the trade. If your rules tell you to get out after a parabolic run up and stall then exit. You must be disciplined on taking money off the table while it is there. Being greedy for that last few dollars when your system says to sell could lead to major losses of paper profits. Let your winners run but when the runner gets to tired to continue: bank your profits.

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