Many a trading firm looks for a history of athletic participation in the search for trading talent. While athletics, as performance domains, share some characteristics with portfolio management and trading, the overlap is far from perfect. Both athletics and trading are competitive activities, and both require practice and disciplined performance. It is not surprising that the personalities that gravitate to competitive sports are also drawn to market competition.
What differentiate athletics and trading, however, are the requisite cognitive skills. The pattern recognition and deep analyses typical of short-term traders and investors are not necessarily skills required of sprinters, weightlifters, baseball outfielders, or football linemen. Many sports require rapid hand-eye coordination; not necessarily explicit decision-making under conditions of risk or uncertainty. Across many trading firms and types of trading, I have not found a strong correlation between athletic achievement and trading success.
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rss16 Cognitive Distortions
- Negative predictions: Overestimating the likelihood that a market or economic report will have a negative outcome.
- Negatively biased recall: Remembering negatives while ignoring positives.
- Basing future decisions on “sunk costs.” e.g., investing more money in a business that is losing money because you’ve invested so much already.
- Delusions: Holding a fixed, false belief despite overwhelming evidence to the contrary.
- The Halo Effect: Perceiving qualities to one company due to its association with another (ie, JC Penney’s CEO was Apple’s former head of Retail).
- Overgeneralizing Generalizing a belief that may have validity in some situations to every situation.
- Overvaluing things because they’re yours.: e.g., perceiving your portfolio holdings as more attractive because they are yours. Or, overestimating the value of your home when you put it on the market for sale.
- Failure to consider alternative explanations: Coming up with one explanation for why something has happened/happens and failing to consider alternative, more likely explanations.
- The Self-Serving Bias The self-serving bias is people’s tendency to attribute positive events to their own skills but attribute negative events to external factors. (See these Tips for overcoming the self-serving bias.)
- Failure to consider opportunity cost: There is a cost to every holding you have, as that capital could be deployed in productive uses.
- “You don’t know what you don’t know.” Having a 3rd party provide an outsiders perspective can help you avoid being blindsided by whats outside of your understanding.
- The belief that more information and analysis will lead to problem solving insight: Excess information often leads to excess confidence and poor decision making.
- The Peak-End Rule: The tendency to most strongly remember (1) how you felt at the end of a trade, or (2) how you felt at the moment of peak emotional intensity during the trade. Biased memories can lead to biased future investment decision making.
- The tendency to prefer familiar things: Familiarity breeds liking. Think about why people tend towards certain stocks or sectors or assets — its often the familiarity as opposed to something intrinsic about those holdings.
- Positively biased predictions: Once you commit capital to a given investment, you can easily allow your hopes and desires for it succeed to interfere with your ability to objectively evaluate it.
- Repeating the same behavior and expecting different results (or thinking that doubling-down on a failed strategy will start to produce positive results). What more does anyone need to say about doubling down on bad trades?
Three most important elements that all great traders share
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Nifty VIX :Support at 24.24 -22.79
Yesterday VIX closed at 26.64.
Chart indicates Support exist at 24.24 ,22.79 level.
Yesterday formed a low of 26.40
Now suppose it crashed to 24.24 or 22.79 then rally will continue in Nifty.
If not breaks these levels ,Then SEE sharp rally in VIX in day or two…so it means crack in Nifty !!
-As I had already mentioned :Just watch 3& 7DEMA as your crucuial support levels.
Updated at 11:16/1st July/Baroda
Career risk 101
An important lesson
It is that I am, in one sense, ‘wired to lose’. Being of a contrarian mind, I have a tendency to ask ‘why’, to look at the other side of the coin, stay away from the herd, etc. In itself, this isn’t a problem, but trading is as much about getting in as getting out, and looking at my trading behaviour retrospectively I can see that I tend to establish trades that are usually against the consensus or trend with the result that I often have to endure some pain in the short-term; however, when and if the trade eventually goes my way, I am way too quick to close the position, because the contrarian in me is again telling me that the consensus is wrong. I simply don’t give enough room for the trade to carry on. It’s absurd. I know I can’t have it both ways and I realise that I need to have less of ‘me’ in the trade. I’ve only just realised this, so it’s a bit late. Nevertheless, a useful self-analysis if I ever return to trading in a meaningful way. |
3 Statisticians Fishing
5 Trading Pitfalls And Solution
The following are 5 common pitfalls I have seen traders experience and I have listed 5 practical solutions you can quickly implement to overcome these assassins to your performance.
Pitfalls
- 1. Focusing on the P & L
- 2. Losing objectivity while in a trade
- 3. Becoming emotional about a trade
- 4. Lacking confidence: exiting early, failing to put a trade on, not sizing up
- Difficulty adapting to a changing market (more…)
Life is short. Focus on what matters and let go of what doesn't.
20 Trading Thoughts
1. You have to have passion for learning to trade; passion is the energy that you need to take you to your goals.
2. You have to have the perseverance to keep going after you want to give up. 90% of new traders quit when they were very frustrated while 100% of successful traders didn’t quit until they reached their goals
3. New traders spend too much time looking for what to trade instead of focusing on who they are as traders. You have to know who you are as trader first then you can start building your trading system.
4. Traders have to be able to manage their stress by trading inside their current comfort zone. Traders have to grow themselves and trade size step by step.
5. The vast majority of new traders fail simply because they did not do their homework before they started trading.
6. A trader has to build a trading system that matches their own personality and risk tolerance levels.
7. A trader that chooses to be master a specific type of trading method or trading vehicles has a much better chance of success than the traders that just dabble in many different things and never make much progress.
8. A trader has to write a good trading plan while the market is closed to guide their trading while the market is open.
9. A trading plan has to be followed with discipline to have a chance at success.
10. A trader has to manage their behavior by acting consistently with their own rules. (more…)