How do you decide when a position is too large?
I have a rule that whenever I’m still thinking about my position when I lay my head on my pillow at night, I begin liquidation the next morning. I’m hesitant to say this because it could be misconstrued: You know that I’m a praying person. If I find myself praying about a position at any time, I liquidate it immediately. That’s a sure sign of disaster. God is not a market manipulator. I knew a trader once who thought he was. He went broke – the trader, I mean.
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How do you decide when a position is too large?Albert Einstein's Timeless Advice For Investors
“If I had an hour to solve a problem and my life depended on it, I would use the first 55 minutes determining the proper question to ask, for once I knew the proper question, I could solve the problem in less than five minutes.”
– Albert Einstein
Well into the summer of 1914, when the then 35-year old Einstein was a professor in Berlin, Europe’s stock markets were buoyant.
They initially shrugged off the assassination of the heir to the Austro-Hungarian Empire, Archduke Franz Ferdinand, in Sarajevo.
But as investors began to grasp the implications of a European war with Russia siding with Serbia, both bonds and stocks started to sag as proactive investors began to raise liquidity. (more…)
Speculation drives human progress
Speculation, in all its forms, is what drives human progress. This is the core message behind Michael Bigger’s recent post, “The Desire to Speculate”.
An excerpt from Michael’s essay:
“It is said that the desire to speculate is very strong in the American people. That is why our country has made greater progress than any other country in the world, because progress is the result of speculation. We are not referring merely to stock speculations, but to the word in its broadest sense. Every new undertaking is a speculation.
An inventor speculates on what he is going to invent. Often such speculations result in losses, because many inventors, or would-be-inventors, never accomplish very much. They spend their money, time, and efforts, and probably live years in poverty, and then if the invention is not profitable, they are heavy losers.
It is the same thing with every new business. It is purely a speculation…” (more…)
Thought For A Day
Disciplined Traders vs. Emotional Traders
Discipline
Discipline seems to be that elusive element in trading, the thing you just can’t seem to get no matter how hard you try. Its a willo-the-wisp that we’ve only heard rumours about. Do you jump from system to system, method to method, change your chart constantly and have a favourite indicator of the month? We roughly call this poor discipline.
However I’ve discovered that there is something more fundamental underneath this behavior, which is a lack of belief in the system you are using. You have no faith in it. If you did, all such behavior and “discipline problems” would vanish in a puff of smoke.
To prove the point, consider this: imagine if I gave you a magic box, and if you put a dollar in this magic box and pulled the lever it would always dispense one dollar fifty.
What would you do? Yes thats right, you would do it over and over and over wouldn’t you? Probably for hour upon hour you would do it.
Would you at any time become bored with this magic box and go in search of a better one? Would you try to improve it or invent your own? If you had absolute faith in the fact that the box will dispense the dollar fifty I say you would have no discipline issues what so ever. You’d sit there putting in dollars and cranking the handle like maniac.
The problem is that in trading the dispensing of the dollar fifty is not so obvious but blurred under a win / loss ratio and other complications, but quite honestly the process of trading is the same.
Hence I say that if you are still jumping from system to system and have poor discipline, try reframing it as having no faith or belief in the system you are using.
Dysfunctional Valentine Hearts
The dollar exchange rate as a global risk factor: evidence from…
Balenthiran 17.6 Year Cycle
Interesting take on the longer term Secular Bear Market Vs. Cyclical Bull Market, via Kerry Balenthiran:
“My research has identified that a 17.6 year stock market exists within the markets consisting of downtrends lasting 2.2 years and uptrends lasting 4.4 years (2 x 2.2 years), with a combined cycle length of 17.6 years. I have called this cycle the Balenthiran Cycle and demonstrate how the intermediate turning points match stock market behavior going back to the early 1900s and extrapolate the cycle forwards to provide a market roadmap of the next secular bull market to 2035 and subsequent secular bear market to 2053.”
A few caveats: The 17.6 year cycle has been bantered about for a long time by various people. (See “previous” below).
Second, I would add is that cycles can be interrupted by external events — like Bailouts, QE, etc.
Last, the world changes over time, and I doubt that any oscillation period dependent upon humans would stay all that consistent over decades and centuries.