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Psychological Risk Management

  
Analysis, Education
  • If you’re out of balance, you’re going to make bad decisions, and trading the market is a decision game
    • If you’re overtrading, you’re out of balance
    • If you’re overcommited, you’re out of balance.
    • If your dollar risk is too high, you’re out of balance.
    • If you’re hung over, you’re out of balance.
    • If you’re sick, you’re out of balance.
    • If you need the money, you’re out of balance.
    • If you make too much money, you’re out of balance.
    • You’ve got to take time off. You can’t trade every day.
  • Pay more attention when you account size gets bigger
    • I’ve noticed over the years that when my account has been small for whatever reason, I have been really careful with it. I watch it like a hawk. When my account gets rich, I tend to fall into a habit of neglect. I’m making money. I have profits, and I’m more comfortable. I don’t keep as close an eye on it. That’s very foolish.
  • Take profits out of your account
    • You should spend some profits rather than letting the money stay in your account indefinitely. That’s been important to me over the years. I withdraw money from time to time and take a vacation or buy a new car. From a behaviorist’s standpoint, it gives a sense of reward. It provides conscious and subconscious motivation.

Learn From And Cut Your Losses

  
  Education

Because you won’t always be right, you’ll undoubtedly experience some losses. The stock market is incredibly humbling, and a long stretch of winning trades can instantly be cut short by devastating losses. But losing trades are healthy in the long run of your trading career, so long as you learn from them. Ask yourself why the trade went awry, and learn how to minimize similar mistakes in the future. Also, make sure that you exit a position as soon as your risk is fulfilled or a technical barrier — such as support, resistance, volume, etc — has been broken.

Tactical Update From Bob Janjuah: "2008 Will Seem Like The Good Old Days"

  
Analysis, Economy, Education, Global Indices
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Worth Reading :

Plse refer to my most recent comments, from 24th May, and 26th April. Things are playing out nicely. This is just a ‘tactical’ update. In my cmmt of the 24th May I set out 2 possible paths for the new bear market we are in, and I want to clarify a little:


 
1 – 1st, the bigger strategic theme is clear and unchanged  – global growth HAS peaked and the deflation trend is clear for the next 3/6mths. This is strategically bullish the USD and USTs (think 1 vs the EURO, and low 2% 10yr yields). And this is strategically BEARISH risk assets (think mid-800s S&P in 3/6mths, and the iTraxx XO index up above 750bps). The strategic asset allocation outlook STRONGLY favours QUALITY as defined by balance sheet strength, balance sheet transparency (which therefore excludes most financials), market position, AND the ability to be a price setter (not taker).
 
The game changers are: A) a massive turnaround in China towards new stimulus & a new credit creation binge etc – for now very unlikely IMHO; B) a massive  turnaround in corporate behaviour resulting in a leverage, capex, investment, hiring & spending binge – extremely unlike for now and for the rest of this yr; C) a new US fiscal package (pretty impossible now), so the most likely and only really viable remaining option is a MASSIVE DEBASEMENT/MONETISATION move led by the Fed (but no doubt globally co-coordinated) thru the announcement of a NEW (say) USD5trn QE package, aided/abetted by maybe another USD5trn of funny money printing by the BoE, the ECB, ther BoJ, the PBOC, the SNB etc etc………HOWEVER, I don’t expect this last bullet to be used until things get REAL UGLY (see above para for levels). If u know u have only 1 bullet left in the rifle – and unless you are amazingly stupid – u don’t try to shoot the charging grizzly bear when its 50 yards away. No, you wait till its 5/10yards away…WHEN we get this final bullet out of the rifle it had BETTER not miss, as if it ‘misses’ we would then have the mother of stagflationnary busts in history where bonds get crushed due to debasement, taking risk assets out with them too. If this is the outcome – and this is really I think a late 2010/2011 story – then trust me, 2008 really will seem like the Good Old Days…..lets hope Uncle Ben not only has the rifle ready, but also that his scope is well lined up and that he has been practising hard… (more…)

Beating The Game

  
  Education
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3575My satisfaction always came from beating the market, solving the puzzle. The money was the reward, but it was not the main reason I loved the market. The stock market is the greatest, most complex puzzle ever invented – and it pays the biggest jackpot….it was never the money that drove me. It was the game, solving the puzzle, beating the market that had confused and confounded the greatest minds in history. For me, that passion, the juice, the exhilaration was in beating the game, a game that was a living dynamic riddle, a conundrum to everyone who speculated on Wall Street. Jesse Livermore

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