Charles Dow used to counsel that no individual should ever be promoted if they hadn’t made a large error at some point. Phil Fisher used to insist only in investing in those stocks that had management teams willing to make big mistakes. If they didn’t make mistakes, they wouldn’t also take the risks required for success. Is this the essence of success? How does a corporate management team, upon the fruition of such errors, survive being “stopped out” of their positions in today’s hair twitch paradigm? Is being expropriated from your career rather than your capital not the bigger risk today? And thus can it only be stocks with founder, family or veto shareholdings that make for truly great growth stocks today? Should not Tim Cook undertake an LBO with the Qataris?
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rss5 Ways -Traders are Right ,But …. Still Lose Money.
- You enter your trade correctly and it goes in your favor, BUT… you do not have the right exit strategy to capture your profits and they evaporate due to not having a trailing stop or waiting to long to exit to bank those profits. Sometimes winners even turn into big losers win not managed correctly. You have to have a plan to take profits while they are there.
- You enter the right trade BUT… at the wrong time, you either exit not allowing your trade enough time to work or you are stopped out but do not have a plan to get yourself back in the trade with the right set up. The right trade with the wrong timing pays nothing.
- You have the right entry and it goes in your favor BUT.. you pick the wrong stock option to express your trade. If you pick an option with a high implied volatility your trade has to overcome that vega priced into the option, after an expected earnings event that vega value will be priced out and you need the move in intrinsic value to make up that difference. With a far out in time stock option you need the price to move enough in the underlying in the time period of the option to make up the theta cost of time embedded in the option. It is crucial to understand the option pricing model to make the right option trades to express your time period and expected move. Sometimes options also do not have the liquidity in some stocks,or far out time frames, or far out of the money strikes. Getting in and out of an illiquid option trade can be very expensive.
- You enter correctly BUT… get stopped out too soon because your position size is just too big and either you stop out from a monetary loss above your risk threshold or your fear of big losses stops you out. Trade the right size for your risk tolerance and give yourself some wiggle room.
- Your trade can be perfectly timed and executed and it can immediately go in your favor BUT… an unexpected news headline about your company, interest rates, commodity, or macro can still cause you to lose. Nothing you can do about this one but move on the next trade. The other four can be great lessons in how to be a winner the next time around.
10 Types of Trading Animals:Which Are You?
The Bear- This trading animal believes the market will be going down and plays the short side. Bears think that a market is going to be very red.
The Bull- This trading animal is very optimistic that the market will be green. Bulls love to buy and believe their screen will be full of green.
The Whale- This trading animal can move prices when it buys and sells. The whale has to faze into positions and out of them so it does not make big enough waves to attract piggy backers. A lot of money can be made trading along side the right whale.
The Pig- This trading animal likes to trade big and often. The problem is that the pig does not know how to exit a winning trade he usually has too big of a target, too big of a position size, and too big of a time frame.
The Shark- This trading animal is just about making money, it gets into trades, makes money and gets out. It has little interest in big complicated theories or esoteric methods. The shark keeps it simple it makes money then moves on to the next opportunity. (more…)
Focus & Anticipation
Focus: Once all of the little things are taken care of you can now focus on what is important, the market. This will dramatically improve your execution. You can only execute well over time if it is you and the market. You can take more intelligent risks because you have more of the RIGHT information. Have you ever been in a trade, then when you go back to review a trade, you realize you missed something important? More than likely that is a process problem. It is important to accurately attribute the importance of that information and realize that hindsight is a horrible recorder. I would rather make that decision when I can do something about it. This takes trial and error but a pattern will develop and once it does it is your responsibility to constantly monitor it for change.
Anticipation: Anticipation is key in trading because the market is always leaving cues to what it is going to do next or that what it is going to do next is not tradeable. We teach our traders to have a progression, much like a quarterback would. Anything can happen and having a progression will help you to take advantage of it.
This Mercedes F 015 Luxury future concept car is amazing. Probably another 10-20 years away -Video
Every mistake a trader can make
Symptoms:
Trading with “scared” money
- Trading from a state of desperation and fear
- Ruled by emotions and unable to take a loss
- Changing her trading plan often
- Trying to be perfect
- Looking for medication to deal with emotional issues over trading
- Adopting a trading technique (scalping one futures contract) that is beyond her level of trading competence
- Attached to the outcome of each trade
- Not committed to the process of learning to trade—using trading as a temporary “stop-gap” source of income until something else becomes available.
Acting out personal dramas in the financial markets
10 Tips For Managing Trader Stress
Traders should never underestimate the role that stress plays in their trading. Many more will succeed or fail based on their ability to handle stress than will have their winning and losing determined by a robust method, mentor, or risk management. It is even possible for a trader to win consistently and still not be able to win in the long term due to the fact that they can not get comfortable being uncomfortable with capital on the line with an unknown outcome. Others will simply burn themselves out stressing excessively while losing and also stressing when they win scared they will give back their profits. If you are going to be a successful trader you will need to manage the weakest link in any trading system: the trader. Stress management is the traders weakest spot. You have to be able to handle the heat of trading so you don’t melt.
Here are the ten ways to manage your stress in trading:
1). When you get over excited calm down by concentrating on your breath.
2). Never trade so big that one trade will make or break your account, trading career, or lifestyle.
3). Only trade systems and methods that you fully understand and have faith in for profitable in the long term.
4). Visualize yourself being a success as a trader.
5). Slow down your trading to a pace that does not rattle your nerves.
6). Connect with like minded traders that understand your battles and goals.
7). Study and do so much homework about trading that you begin to have unshakable confidence in yourself.
8). Stop doing what does not work in your trading and start doing more of what does work for you and makes you money.
9). Do not let others shake your confidence, do not accept any unsolicited advice from anyone, stick to your game plan.
10). Accept your losses quickly when stops are hit to avoid emotional damage and stress from big losses.
Do everything you can to prevent the damaging effects of stress on your trading and life. (more…)
What does it mean when a stock is at all-time high?
Real Fact of Life
7 Things for Traders
The definition of man·age:
- To direct or control the use of; handle.
- To exert control over.
- To make submissive to one’s authority, discipline, or persuasion.
- To direct the affairs or interests of.
- To succeed in accomplishing or achieving, especially with difficulty; contrive or arrange.
1. Traders must be great risk managers.
“At the end of the day, the most important thing is how good are you at risk control.” -Paul Tudor Jones
2. Traders must manage their own stress.
Trade position sizes that keep your stress level manageable, if you can’t talk calmly to someone while trading you are trading too big.
3. Traders have to be able to manger their emotions, we have to trade our plan not our greed or fear
“There is nothing more important than your emotional balance.” – Jesse Livermore (more…)