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A Bad Teacher

  
  Education
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The World’s Worst Teacher

The market often rewards bad behavior. You exit a stock because your stop is hit. You are okay with this because you followed your plan. The market then immediately reverses. You begin to think, “If only I stayed with the position.” The next time the market goes against you, you decide you are not going to get tricked again. This time though, the market does not reverse and what started out as a small manageable loss is now huge.

The market will give you loss after loss forcing you to abandon a methodology right before it takes off without you. On the flip side, the market will lull you into a false sense of confidence. You trade larger and larger, taking on excessive risk. You print money until your risks become so excessive that one or two bad trades wipe you out.

Learn from the market, but realize that sometimes it can be a lousy instructor.

A true story

  
Education, Humour
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“I heard this from one of my professors. To protect him, no names will be revealed. This professor was about to get married. He went to the jewelers to get a wedding ring for his fiancee. The jeweler told him that he can have the inside of the ring engraved with the name of his fiancee for an additional $20 (remember, this was a LONG time ago). He said, “But that will reduce the resale value!” The jeweler was aghast. He said, “How can you say such a thing. You are a butcher!” “No,” replied the professor, “I am an economist”.”

Asymmetry

  
  Education
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symetryA general principle in trading for me is that without thorough investigation, comprehension, and experimentation leading to full acceptance, no trading rule or system can be properly executed. If one cannot completely understand and embrace the reasoning behind some method or axiom, whether internally discovered or externally given, the reflex necessary to act without further thinking or doubt is fatally compromised — the circuit between the eyes watching the screen and the finger on the trigger cannot afford even the slightest impedence. One area in my trading which I’ve been struggling over has been the disparity between the success of my entries versus the failure of my exits on profitable trades. If I had the ability to accurately anticipate and identify the origins of a move, why were my attempts in capturing and keeping the bulk of the profits so horribly inept? Why was my timing in closing trades so blatantly pathetic in comparison with their openings, to the point where I would either consistently stop-out on the lows of retracements, or conversely wind up giving back the entire move if I tried to avoid getting shaken out. (more…)

Anticipation & Action

  
  Education
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The ANTICIPATION Phase:  this is where all the left hand chart reading takes place in preparation for the right hand chart battle. It’s the PROCESS that precedes the ACTION to put on a trade. A technical trader anticipates that a past price pattern will repeat again, so he identifies the pattern, locates a current one and determines a suitable match is present.  Technical analysis is nothing more than finding previous price patterns matched with current market conditions.  Traders anticipate such repetitive behavior based on human nature and seek to take advantage of it.

The ACTION phase involves hitting the BUY key based on the previous ANTICIPATION process.  Since no one can tell the future or what the right hand side of the chart will reveal, the ACTION is based on the confidence that the trader will do what is right once a trade is put on, which is to exit gracefully at a pre-determined loss line or exit humbly at a pre-determined profit target (P2), fully accepting either/or, or an OUTCOME between one or the other, depending on current market conditions.

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