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Five Trading Lessons From Market Wizard Dr. Van. K. Tharp

  
  Education
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The composite profile of a losing trader would be someone who is highly stressed and has little protection from stress, has a negative outlook on life and expects the worst, has a lot of conflict in his/her personality, and blames others when things go wrong. Such a person would not have a set of rules to guide their behavior and would be more likely a crowd follower. In addition, losing traders tend to be disorganized and impatient.”

The profitable trader is able to manage stress, has a positive outlook on life and expects the best from themselves and their trading. They take responsibility for their wins and losses. They know who they are and are in touch with their goals. They have specific rules to guide their trading and are organized and patient.

“The simple truth is that most people are risk-aversive in the realm of profits – they prefer a sure, smaller gain to a wise gamble for a larger gain – and risk-seeking in the realm of losses – they prefer an unwise gamble to a sure loss. As a result, most people tend to do the opposite of what is required for success. They cut their profits short and let their losses run.”

Most traders are unprofitable because they take profits quickly but let losers run. Many traders can have a nice winning streak or be profitable in a bull market only to give back their profits with one big loss or lose all their bull market profits during the next bear market.

“Most people approach trading to make a lot of money, and that is one of the primary reasons they lose.” (more…)

Perfectionism

  
  Education
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perfect-aTrading is not about perfection. It is about probability and progress. All charts, analyses (fundamental and technical) and trading plans are built on probabilities.

Why then, do so many traders strive for perfection? Why do so many traders miss trades, waiting for exactly the right entry and then beat up on themselves when it doesn’t come and the position runs away while they sit there scratching their heads and condemning themselves?

Why are so many traders trying to turn a game of probability into one of 100% certainty?

The answer lies in one of the cardinal sins of trading which is PERFECTIONISM.

Perfectionism can be a great help to people in many professions, but can be fatal to a trader. Perfectionists, always trying to find the Holy Grail of trading go from one service to another, from one system to another, looking for a way that they can be right all the time. YES! Now, I found it. It’s this trading room, or this service, or this indicator! Wait… something is wrong here. Not all of these trades are working and I have draw downs! How can it be that this particular method failed and I actually had to take a loss? Must be something wrong. I will try harder and look for an even better system, a more expensive service, a new and improved guru, some absolutely no-fail software so that I can have ONLY WINNING TRADES. (more…)

Skirts: What Does It Mean for the Stock Market?

  
  Education
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Many investors are familiar with the skirt length stock market theory or indicator, where the current fashion for length of skirts determines which way the markets will go. The flappers during the roaring 20’s had very short dresses, and the stock market was roaring. During the depression of the 1930’s, the length of skirts and dresses dropped. During the 1960’s, the mini-skirt came out and the stock market took off. Then floor length dresses came into vogue, and stocks tanked. And so on.

But now we have a unique fashion trend. Supposedly in Japan, skirts are being worn with paintings on the back which make it appear that the skirts are transparent. (PG-13 rated)

If you think this kind of clothing might look good on your wife or girlfriend (or yourself, if you are a woman), you can actually buy this type of clothing from an apparel company in Germany, Alba D’Urbano Couture. (R rated)

However, the important issue is what this means for the stock market. If this type of apparel catches on in the United States, then analyzing the stock market from the skirt length theory is somewhat difficult.

This would be my take. A stock market with lots of fake-outs, appealing opportunities which don’t work out, investments that turn into bummers, and no way to analyze figures as you can’t tell what’s real or not.

China Announces Huge Trade Deficit

  
  Education
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China announced on Saturday the first trade deficit within the last six years. Although a deficit was expected, nobody anticipated the numbers would reach $7.24 billion.

The last trade deficit in the country came in April of 2004 and was $2.26 billion.

For the month of March, the country’s imports totaled $119.35 billion and exports reached $112.11 billion. Both of these numbers are up drastically in comparison to March of 2009.

The deficit will more than likely turn around within the near future, but the numbers are enough to spark concern in the eyes of the Chinese.

The deficit in March mainly came from China’s trade with Taiwan, Japan and South Korea, Customs said, while it continued to run surpluses with the U.S. and the European Union. Those big trading partners have been among those arguing that China’s practice of keeping the yuan effectively pegged to the U.S. dollar gives its exporters an unfair advantage and contribute to the large trade surpluses.

All of this comes at a time when the United States and leaders throughout Europe are pushing China to increase the value of the yuan, which economist suspect is nearly 40% undervalued.

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