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5 Quotes From – Market Wizard Victor Sperandeo

  
  Education
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“I think successful trading, or poker playing for that matter, involves speculating rather than gambling. Successful speculation implies taking risks when the odds are in your favor. Just like in poker, where you have to know which hands to bet on, in trading you have to know when the odds are in your favor.” – Sperandeo 

It is interesting that Sperandeo makes a point to define the difference between speculating and gambling. He discusses how he never viewed playing poker to be gambling in the same respect that slot machines are gambling. In poker, he had the knowledge  of which hands had the highest probability of winning and the option to only play the highest probability hands. This draws a direct correlation to trading. We know from our study of historical winners what qualities make up stocks that go on big runs and we have the option to only play those key stocks.

Looking at trading in this respect breaks it down into two important goals. We have to know which kinds of stocks have the best odds of going on huge runs. We also have to have the timing skills and the guts to play those stocks when we encounter them and the patience to sit on the sidelines when when there aren’t good options.

“Trading the market without knowing what stage it is in is like selling life insurance to twenty-year-olds and eighty-year-olds at the same premium.” – Sperandeo 

Again here, we see Sperandeo drawing a real world comparison to stock trading. He discusses that you just as the odds would be better if you sell life insurance to a twenty-year-old compared to an eighty-year-old, the same can be said when trading a young trend compared to trading an extended trend. He doesn’t necessarily say you should trade a new trend or shouldn’t trade an extended trend, but that you should strongly factor that in to your timing decisions.  (more…)

Life is like a big bike race

  
Analysis, Education

Life is like a big bike race, with the path to the finish line being your personal path.

At the start, we all ride together – sharing the camaraderie and enthusiasm. But as the race progresses, the initial joy gives way to the real challenges: tiredness, monotony, doubts about our own abilities.

Notice that some friends will give up, they are still going, but only because they do not know how to stop in the middle of a road, they are numerous, pedaling alongside the support car, talking amongst themselves and meeting an obligation.

Eventually we distance ourselves from them and are forced to cope with loneliness and unfamiliar bends in the road, not to mention problems with the bike. After some time, we may begin to wonder if it’s worth the effort.

Yes, it’s worth it. You just can’t quit.

Furthermore, if you stop pedaling, you begin falling.

Quick thought on being an extreme contrarian

  
  Education
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It makes it hard to make successful, opinion based trades.

You enter a trade on the basis that everyone is wrong, accepting scope for the crowd to get it even more wrong before waking up to reality. When the crowd does eventually realise the error of it’s ways, the price turns in your favour. However, it is extremely difficult to hold on to the trade and enjoy ‘being right’, because the crowd is always wrong, and if it is now moving in your favour, then you are also wrong, an equal fool.

This unhealthy skepticism leads to early culling of winners and ensures that one’s portfolio spend most of it’s time holding on to losing positions.

Determination & Honesty in Trading

  
  Education
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This is probably the single biggest factor which divides the winners from the losers, not just in trading, but in any other walk of life.  Yes, it pays to have money and time on your side, but you could have all the money and time in the world and still fail at trading if you do not have the drive to do well at it.  On the other hand, you could have a lack of resources, but have a greater chance of success because you have the drive to win.  That drive will help you preserver when the going gets tough.

A trader who can admit his mistakes to himself and also recognize his positive traits is one who is likely to succeed.  Honesty gives you clarity, and clarity allows you to make sound decisions which have a basis in reality.  If you do not know yourself and cannot be honest with yourself about your trading activities, you cannot see what is going on.  Imagine getting into a car blindfolded, turning the key, and driving out into rush hour traffic.  That is what trading is like if you are dishonest with yourself.  Another good metaphor would be driving drunk.  An inebriated driver has no idea whether or not he is even making mistakes, and does not hold himself accountable from his actions.  Stay sober and check your windows and mirrors when you trade.

TRADING IS SIMPLE. IT’S JUST NOT EASY

  
  Education
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How could two phrases sound so similar, but yet be so different?

I think we need to look differences between the context of each phrase.

When I describe the idea of trading being simple, what I really mean is that itshould be effortless. The word effortless is defined by Merriam-Webster Dictionary as:

showing or requiring little or no effort <effortlesspower>

I believe that good traders are able to trade the markets effortlessly – it’s simple to them. But getting to the point of doing anything effortlessly is noteasy. In fact, it’s really hard. A good analogy would be describing an athletes ability to perform his or her skill. If we took two people – one being a person who runs two miles everyday versus a person who hasn’t ran for the past two months, who will have the easier time running one mile? The answer is simple of course. The person who runs everyday will be able to run one mile easily – it will be effortless to them. However, the person who hasn’t ran in two months will find it extremely hard to and likely have to take breaks in-between so that he or she can finish. (more…)

Objectivity in Trading -Anirudh Sethi

  
Analysis, Education
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Image result for Objectivity in tradingTrading is a very interesting field, and also a highly challenging one. Being faced with changing prices, other traders’ actions, and your expectation and hope of making the right decision, is certainly not an ideal situation to make objective choices. Many a time traders feel the stress and tension of it all to be too heavy on their minds, and as a result, their judgement is clouded. They either act too rashly, or are way too slow and cautious.

So we can all agree that for a trader to be objective is definitely no easy feat. However, an objective mindset is indispensable for a successful trader. The market is going to be offering the trader all kinds of information and data, as well as suggestions and comments being made by fellow traders. A trader needs to learn how to be objective as well as have the flexibility to use that information so as to act upon it objectively. This is however easier said than done.

In reality most traders enter the market with many notions and mindsets, as well as certain biases. The goal is to try to make the best possible trading decision, but due to these aspects it is not always the case. All human beings have an innate tendency of trying to be quite certain about a decision they make, and so they sort of seek confirmation for their actions. However in trading you cannot always be fully certain of your choices, and in the vast majority of the cases you will not be. The best you can do is to acquire information so as to make well informed decisions and as a result minimize risk. Speculating in the financial markets is normal, but no matter how much you try to speculate, you can never be completely certain. (more…)

Fear of Loss — How the unconscious mind detects danger before the conscious mind does

  
Education, Video
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A card game — The subjects in the study played a gambling game with decks of cards. Each person received $2,000 of pretend money. They were told that the goal was to lose as little of the $2,000 as possible, and to try to make as much over the $2000 as possible. There were four decks of cards on the table. The participant turned over a card from any of the four decks, one card at a time. They continued turning over a card from the deck of their choice until the experimenter told them to stop. They didn’t know when the game would end. The participant was told that every time they turned over a card, they earned money. They were also told that sometimes when they turned over a card, they  earned money but also lost money (by paying it to the experimenter). (more…)

Trading Success, Fear, and Endurance

  
  Education
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“What makes a great endurance athlete is the ability to absorb potential embarrassment, and to suffer without complaint. I was discovering that if it was a matter of gritting my teeth, not caring how it looked, and outlasting everyone else, I won. It didn’t seem to matter what the sport was–in a straight-ahead, long-distance race, I could beat anybody.

If it was a suffer-fest, I was good at it.”

Lance Armstrong
It’s Not About the Bike
p. 23

“You can lash out at people, you can get mad at yourself–you can even end up hating yourself without ever realizing that fear is the interference, the block in the road of progress. Fear only causes me to react. Fear only causes me to wait. Fear moves me away from effective action. When you find yourself acting like a jerk, stop for a second and just ask yourself, What am I afraid of here?”

Richard Machowicz
Unleash the Warrior Within
p. 61

What do you fear most as a trader?

Embarrassment of loss?

Being wrong?

Losing a dream?

How does your fear manifest itself?

What negative trading behaviors do you engage in to mask your fears? Getting mad? Walking away?

There’s much to be said for trading as an endurance sport. One of the things successful traders learn to endure–and overcome–is fear. And that starts with a simple question: What am I afraid of here?

Three Emotions in Trading : FEAR, HOPE, AND GREED

  
  Education
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Fear, hope and greed are probably the three most common emotions traders deal with.  Holding on to losers, exiting too early, or jumping in before confirmation are just a few examples of the things we do when emotion manages our trades for us.  Trading without well-defined boundaries can be tempting, especially when things like intuition and “gut feeling” are things we take pride in as human beings.

We’ve all heard stories about how someone’s gut instinct helped them to avoid a dangerous situation or how someone’s intuition led them to make a perfect decision with little or no substantive information to guide them.  As powerful as these abilities may be in our human experience, I’ve learned that they have no place in trading.  I have found that what we perceive as gut instinct or intuition while trading is usually just fear, hope, or greed in disguise.

I address these three specific emotions using three boundaries:

1. Stop Loss- At what price point is my idea proven wrong? 

This boundary addresses the fear of realizing a loss.

2. Time limit- How long do I give this trade to work?

Hoping that a trade will eventually work out as price goes no where only ties up capital that could be used for better trades.

3. Target- At what price point does my idea come to an end?

Having a clear target for your idea keeps you from being greedy (Exiting the majority of a position at the target and letting profits run on the remainder is an effective way to address greed with winning positions).

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