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Why Does Trend Following Work?

  
  Education
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  • It is a statistically valid concept to have a “bias” in the otherwise random drift or a series of numbers.
  • It is as simple as Newton’s Law of Physics, a body in motion tends to stay in motion, a body at rest tends to stay at rest. A trend is nothing more than a momentum in a series of price movements.’
  • The markets only allow a few people to make money, and the majority of traders, regardless of what they might think, or say, do not know how to do it correctly (trend following). 
  • The markets exhibit maximum perversity. This means that the trends will only come about after most of the people have lost most of their money and have already given up in disgust. Then, when they do come, and nobody believes it anymore, eventually these people have to start chasing the market, and that’s what makes the trend continue.

    • Confidence

      
      Education
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    Confidence can be an important psychological tool for the trader – important enough to make the difference between a winning trade and a losing trade. When you develop your trading plan, it is obviously important that you have confidence in its accuracy and usefulness and in your belief that you can follow your plan closely and execute it successfully. 
    Often, traders fall into a mental “I know it all” trap, where they use their confidence to nurture their ego instead of using it to be appropriately decisive in their trading and investing decisions. Such misplaced confidence can be crippling to trading success, because any potential influence from the environment (media, others’ opinions, etc.) that could sway the trader from sticking to his trading plan will have far more power. When a trader is caught in this type of trap, his ability to question his opinions and ideas diminishes. If his initial reaction to a suggestion is to accept it, he loses the capacity to question his acceptance; and if his initial reaction is to disagree, then he loses the capacity to question his disagreement, which can cause even the slightest suggestions from news, colleagues, and other influential sources to be magnified in the trader’s psyche.  (more…)

    How to know when to exit your position?

      
      Education
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    This started as a quirky post but quickly turned into something probably more useful. I admit the post is based on personal experiences. Luckily, I do not make these mistakes any more….at least not very often ;). Enjoy!

    1) It is time to sell when…..you find yourself using extra technical indicators on charts to justify holding your position that you didnt use to get into it in the first place!

    2) It is time to sell when…..you find yourself going to yahoo message boards to see if someone has some positive news that you don’t know!

    3) It is time to sell when…..you find yourself justifying to yourself holding a position for fundamental reasons when you entered it for technical reasons!

    4) It is time to sell when…..when you listen to an ” Idiot expert” on Blue Channels  or Joker Analysts Websites  to chart a stock checking for entry when you are already in it!

    Let me know if you readers have any other such fun “indicators” and I shall add them.

    9 Rules by Nassim Taleb’s Risk Management

      
      Education
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    Rule No. 1- Do not venture in markets and products you do not understand. You will be a sitting duck.

    Rule No. 2- The large hit you will take next will not resemble the one you took last. Do not listen to the consensus as to where the risks are (that is, risks shown by VAR). What will hurt you is what you expect the least.

    Rule No. 3- Believe half of what you read, none of what you hear. Never study a theory before doing your own observation and thinking. Read every piece of theoretical research you can-but stay a trader. An unguarded study of lower quantitative methods will rob you of your insight.

    Rule No. 4- Beware of the nonmarket-making traders who make a steady income-they tend to blow up. Traders with frequent losses might hurt you, but they are not likely to blow you up. Long volatility traders lose money most days of the week.

    Rule No. 5- The markets will follow the path to hurt the highest number of hedgers. The best hedges are those you alone put on. (more…)

    The Hidden Variable in Your Trading Success

      
      Education
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    Most traders realize that trading involves a lot of psychology. And most traders readily admit that a significant portion of their trading losses, or lack of performance, is due to “psychology”. Although the term ‘psychology’ isn’t always mentioned as an explanation, you can see it easily enough in the following statements ……”I froze just as I was about to pull the trigger”….. ”I hesitated and missed that trade and was so pissed that I got myself into an impulse trade right after”….. “That large loss was not what I wanted, I held it thinking it would come back because last time I bailed out of this type of trade I got stopped out right before it reversed”….. “I was really nervous about losing money again so I got out of my winning trade way before my target”

    Those are four common examples of trading psychology issues manifesting in one’s trading. Do you recognize yourself in the above statements?

    All four of those statements have in common one thing, fear. Whether it’s the fear of not being perfect, the fear of being wrong, fear of losing money, fear of missing out, the fear of not being approved by others, or some other fear, the common theme is fear. Most trading mistakes are a maladaptive attempt to deal with fear or anxiety.

    Emotions like fear and anxiety cannot be eliminated; it is part of the human experience. But how you respond (your behavior, the action you take in response) to anxiety and fear will determine how successful you are as a trader. Some traders recognize this and do something about it; they learn to work with the fear and anxiety to reduce the chance that they’ll continue to fall into the same old behavioral response pattern to fear and anxiety.

    Fear will never disappear. Yes, maybe some days you feel more ‘in the zone’ and fear is less of an issue, but most days you’re probably not in the zone; and on those days the fear is unavoidable. Most likely, those are the days when you have your largest losses. The question is, what are YOU going to do to work with the fear? If you cannot eliminate fear, you must learn to work with it, use it to your advantage. Emotions are a form of self-communication; you need to learn what the message is (e.g. If this trade loses I won’t succeed as a trader) in order to begin to learn how to control your actions in response to the fear and anxiety. Your performance will not change until you learn to manage yourself differently when experiencing fear and anxiety.

    BSE Sensex :Below 17897 ,My target-17448-17298

      
    Analysis, Education
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    -Above is the Daily chart of BSE -SENSEX.

    -Just see IN 6 days crashed by 428 points after hitting a high of 18047.

    -Look at Negative Divergence on RSI (Same u will see in Nifty Future chart too )

    -MACD is in sell mode.

    -Just remember these levels :Crucial support for Sensex -17748-17298.

    -In this fall it will try to kiss these levels.

    -Suppose break and closes below 17298 level for 3 days then Iam expecting slide to continue and panic can take Sensex upto 16849-16699 level.

    -Above levels are valid till Sensex not crosses 18047 level.

    -101% No need of Watch Blue Channels or Read Pink papers and Pay money for Subscription.To know trend and levels for Sensex and NF ,I will do free of cost in this Blog only.

    To know more about Intraday trading calls/Commodity trend/Crude /Forex /Global Indices & Stocks ,Just send me at [email protected]

    Updated at 7:17/16th April/Baroda

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