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rssThe Hidden Variable in Your Trading Success
Most traders realize that trading involves a lot of psychology. And most traders readily admit that a significant portion of their trading losses, or lack of performance, is due to “psychology”. Although the term ‘psychology’ isn’t always mentioned as an explanation, you can see it easily enough in the following statements ……”I froze just as I was about to pull the trigger”….. ”I hesitated and missed that trade and was so pissed that I got myself into an impulse trade right after”….. “That large loss was not what I wanted, I held it thinking it would come back because last time I bailed out of this type of trade I got stopped out right before it reversed”….. “I was really nervous about losing money again so I got out of my winning trade way before my target”
Those are four common examples of trading psychology issues manifesting in one’s trading. Do you recognize yourself in the above statements?
All four of those statements have in common one thing, fear. Whether it’s the fear of not being perfect, the fear of being wrong, fear of losing money, fear of missing out, the fear of not being approved by others, or some other fear, the common theme is fear. Most trading mistakes are a maladaptive attempt to deal with fear or anxiety. (more…)
Don't stand in your own way. If you want something, work relentlessly towards achieving it
Visualizing The Cost Of Living Around The World
Imagine that users submitted hundreds of thousands of prices for everyday items, and that they all got compiled into a massive database. Then, suppose a worldwide index of prices was created that compared the cost of living across different places by using these many data points.
Well, that’s already happened at Numbeo which is the world’s largest database of user contributed data about cities and countries.
This infographic uses this information to show the most expensive and cheapest places to live by country. While it is missing some of the granularity of looking closer at individual regions and cities, it does do a good job of showing a broad perspective on living costs.
Switzerland and Norway may not surprise you as two of the most expensive countries. However, Venezuela might not have been a place that was on your radar. Of course, in retrospect, when you have inflation spiraling out of control at a rate of 64% per year, that will make things a bit pricey.
Want cheap goods and services? Head over to India, Nepal, and Pakistan. With about 1.5 billion people spread between those three countries, labour is cheap and the cost of living is very low. (more…)
Checklist
My greatest weakness as a trader is the sudden deterioration of a sound and patient mindset that can occur at any moment throughout the trading day, so here is my checklist that I use to remind myself each morning of the elements most important for my performance.
1. Attitude: Are you optimistically patient? Can you picture yourself not trading at all today if no opportunities arise? Are you Little Orphan Annie or Agent Jack Bauer when it comes to the word Tomorrow?
2. Preparation: System implementation and account management. Have you noted any possible setups forthcoming for optimal entry and the actions entailed? Have you noted your max drawdown limit for the day and the willingness to honor it?
3. Balance of Concentration: Trading is as much anticipation of changes in your mentality as it is the market. Don’t let yourself get completely absorbed by the “flickering ticks” and stay equally grounded on both sides of the monitor.
4. Equanimity: Concentrate on staying collected under fire, no matter how wild the market or how quickly losses come in succession — keep the ship upright.
5. Visualization: Visualize each of the following:
— Seeing a system signal, and entering the trade without further thought
— A stop-loss triggered almost instantly, and just as quickly forgotten.
— Waiting for the market to come to you before entering. (more…)
Marty Schwartz Interview (1999)
Day Trader Marty Schwartz spent a number of years in what he felt was a dead-end job as a financial analyst. Finally he quit the comfort of the corporate cotton wool and accumulated $100,000 of which he spent $90,000 to buy his seat on the American Stock Exchange in 1979.
Left with just $10,000 of trading capital, he made over $8,000 on his first trade and in his second year of trading he made $600,000 and $1.2 million in his 3rd year.
It’s interesting to note that he never made money trading until he made a plan, which only happened when his wife Audrey told him to make one.
When asked; “what is the most money you have made in one day?” he replied; “several million”. At one point in the early 1980’s, he was making $70,000 per day trading the S&P’s.
Click here to listen to Marty Schwartz being interviewed in 1999 by Dave Allman on Wall Street Uncut.
NOTE: This audio file will only open if you have RealPlayer installed. You can get it free here
Read Marty’s book: “Pit Bull: Lessons from Wall Street’s Champion Day Trader”
Michael Mauboussin talks about The Success Equation: Untangling Skill and Luck in Business, Sports and Investing -video
SUN TZU THE STOCK TRADER
Sun Tzu, the author of The Art of War, would make a great stock trader. Although The Art of War is a 2500 year old military treatise it could just as easily be written for today’s stock trader as the principles outlined therein are as applicable in the stock market as in the theatre of war. I read The Art of War again this past weekend and highlighted what I believe are some of the most pertinent and applicable principles for stock traders as seen through the eyes of Sun Tzu the would be stock trader. Make sure you copy and post these in a prominent place for quick reference when in the heat of battle.
I. 17 When the market is rewarding your trading strategy, you should modify your position sizing accordingly.
I. 26 Now the successful trader prepares before he enters battle. The unsuccessful trader makes but a few, if any, preparations before he enters battle. Proper preparation leads to victory; a little preparation leads to defeat; and no preparation leads to ultimate destruction! The one who is properly prepared is the one who is most likely to win.
II. 7 Appreciating the gains better helps you accept the losses.
II. 19 In trading, let your great object be a quick and decisive victory, not the slow death of a lengthy loss.
III. 18 If you know who the enemy is and you know yourself, you will never fear the next trade. If you know yourself but not the enemy, you will win one lose one. If you do not know the enemy or yourself, you will lose on each trade.
IV. 1 The good traders of old first put themselves beyond the possibility of defeat and then waited for the right time to defeat the enemy.
IV. 4 It is possible to know technical analysis without being able to properly apply it. (more…)
PIZZA-Maths
If you assume the radius of a pizza is “z” & the thickness of its crust is “a”. The volume of pizza will be pi*z*z*a:
Emotional Satisfaction
William Eckhardt once said that “If you’re playing for emotional satisfaction, you’re bound to lose, because what feels good is often the wrong thing to do.” If any trade makes you feel like “kicking yourself,” then you’re likely trading for emotional satisfaction and that’s a problem. In other words, if every trade you make has the purpose of trying to make you feel good, prove you are right, feed your ego, eliminate pain from a prior mistake you refused to deal with early on, or something other than just making money for you, you need to learn how to put trading in the proper frame of mind if you desire to become a better trader and investor.