Archives of “big losers” tag

rss

Why Traders Lose Money ?

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #

why13One of the most frustrating things a trader can experience is being dead on right about a trade, taking it, BUT.. still losing money! How can this be? This can happen in five different ways, each of the first four contain a lesson for better planning the fifth way to lose money in this list is just part of the game.

  1. You enter your trade correctly and it goes in your favor, BUT… you do not have the right exit strategy to capture your profits and they evaporate due to not having a trailing stop or waiting to long to exit to bank those profits. Sometimes winners even turn into big losers win not managed correctly. You have to have a plan to take profits while they are there.
  2. You enter the right trade BUT… at the wrong time, you either exit not allowing your trade enough time to work or you are stopped out but do not have a plan to get yourself back in the trade with the right set up. The right trade with the wrong timing pays nothing.
  3. You have the right entry and it goes in your favor BUT.. you pick the wrong stock option to express your trade. If you pick an option with a high implied volatility your trade has to overcome that vega priced into the option, after an expected earnings event that vega value will be priced out and you need the move in intrinsic value to make up that difference. With a far out in time stock option you need the price to move enough in the underlying in the time period of the option to make up the theta cost of time embedded in the option. It is crucial to understand the option pricing model to make the right option trades to express your time period and expected move. Sometimes options also do not have the liquidity in some stocks,or far out time frames, or far out of the money strikes. Getting in and out of an illiquid  option trade can be very expensive. (more…)

The perils of Paulson

  
Analysis, Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

The crown may be slipping fast from billionaire trader John Paulson’s head.

The hedge fund manager became an overnight sensation in 2007 by betting big and early on the collapse of the U.S. housing market, and then doing much of the same on a surge in gold prices. But he is now emerging as one of this year’s big losers in the $2 trillion hedge fund industry.

His Paulson & Co. hedge fund firm, which managed $38 billion as recently as this past March, is down to about $35 billion as of the first week of August, and it shrinks a little bit more with every big drop in the U.S. stock market.

One of Paulson’s two main funds is now down more than 30 percent this year, the firm has reported to clients, compared to a much smaller 6.1 percent decline for the average hedge fund, according to Hedge Fund Research.

The problem for the 55-year-old manager: His equally daring bet that the U.S. economy and housing market would rebound strongly from the financial crisis — a big wager that looked prescient a year ago — isn’t panning out as planned.

Paulson’s funds have amassed huge, mutual fund-style stakes in shares of financial institutions like Bank of America, Citigroup, Hartford Financial, Popular Inc. and American Capital. But these are ringing up hefty losses.

And with fears of a double-dip recession in the United States mounting, coupled with this month’s 13 percent plunge in the S&P 500, the talk is growing on Wall Street that unless Paulson can quickly turn things around, the hedge fund king could be hit with a wave of year-end investor redemptions.

“There are many investors who have experienced great gains with John Paulson, but a lot of the money has come into his funds after those great gains were achieved, and the relative newcomers are seeing a lot of heavy losses,” said Daryl Jones, director of research at Hedgeye Risk Management, which sells investment research to institutional investors. “I would imagine it would lessen their appetite to stay with someone who is supposed to be a big superstar but is down double digits right now.”

Paulson, through a firm spokesman, declined to comment. But people close to Paulson point out that other than hedge fund guru George Soros, no one has consistently made more money for clients than the man referred to by his friends and associates as “J.P.”

LOYALTY TEST

This year, however, his investors’ loyalty is being put to the test.

Maybe no one single trade has come to symbolize Paulson’s bullishness on the U.S. economy more than Bank of America. By August 9, the troubled lender’s shares were down 43 percent this year, reducing the value of the 124 million shares Paulson owned as of March 31 by $784 million. Paulson is believed to have sold some of his Bank of America shares as the stock has plunged toward the $7 mark, but the firm has refused to comment on its current position. (link.reuters.com/gem23s)

The picture isn’t much prettier for Paulson’s large share holdings in Citigroup, Popular (formerly Banco Popular) and SunTrust Banks. The value of Paulson’s equity stake in those three banks, assuming the funds haven’t sold any shares since March 31, would have declined by more than $800 million over the past four months.

And then there is Sino-Forest, the troubled Chinese forestry company. Paulson absorbed a $500 million loss on the stock in June after allegations of accounting irregularities at the Hong Kong-based company surfaced earlier in the month. (link.reuters.com/hem23s)

The series of missteps is tarnishing the near god-like status the former Bear Stearns trader has earned over the past few years.

Much of the $20 billion in outside investor money Paulson manages has come from pension funds and clients who bought in after he made $15 billion for the firm in 2007 on his well-chronicled subprime mortgage trade. Paulson raised that money by making his hedge fund one of the most widely available to wealthy customers of dozens of large and small brokerage firms. (more…)

Self Improvement

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

self-improvementIf you are having trouble achieving your trading goals, take time out to examine the real causes of your problems. Working towards improvement will take a dedicated approach on your part. Identification of the problems are the first step. Attacking the problems one at a time is the first part of the solution. Doing the right thing at the right time based on the information you have should be your goal. Sit down and have an in depth talk with yourself and ask yourself some hard questions. For example: – do I have the emotional makeup necessary for this business? – do I have the financial reserves so that I am not relying on trading to pay the bills while I learn? – do I really enjoy doing this? Coming up with honest answers will be the only way to ultimately overcome issues that keep getting in your way. If you keep doing the same things, you will keep getting the same results, so you’ll need to change. Plain and simple. Best not to delay in sorting things out.

Waiting for the right moment to enter and exit definitely comes with experience. Correct order execution, taking profits when they are offered and cutting losers are also vital to your success.

My mind is not bogged down by indicators, rumours, conjecture or analyst’ reports. It is much easier for me then to concentrate on what really matters – recognizing what the charts are telling me and acting on this information.
Concentrate on the problems you might have. Hesitation, taking big losers, selling winners to soon, screwing up order entry, racing heart and sweaty palms. (more…)

7 ways someone can claim a 90% winning rate

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

1. Mr. Hindsight

This person can point to any chart, and identify his buy and sell points with absolute precision. Usually recognized as an expert in his field of analysis, he can create stunning buy and sell signals for past data. Problem is, he usually can’t do it going forward. ADVICE: Ignore past “predictions,” and only follow Mr. Hindsight in real time. You’ll soon see his true ability.

2. Ms. Vague

Her market predictions are akin to reading the works of Nostradamus. She’ll say “the market will be up today, unless GDP figures are disappointing.” After the numbers come out, the prediction can be made to fit the outcome – “well, the numbers were only somewhat disappointing” or “other forces overpowered the market, so even though I was right, the market fell.” ADVICE: Turn off financial TV shows, since this is where Ms. Vague and here cohorts lurk.

3. Mr. Sneaky

This guy will have an ad that states “95% winning closed trades.” Sounds great, BUT it usually means that 5% of his trades are currently open losers, usually big losers, that he has held onto for a long time. ADVICE: Make sure all open trades are disclosed, too. Treat open and closed trades as the same. Don’t fall for the “this losing trade can always come back and be profitable” ploy.

4. Ms. Quick Exiter

In and out like a flash on winning trades, Ms. Quick Exiter will typically have losses 5-10 times her winners. But, she gets a lot of winners, and she wants to dazzle you with winning percentage. ADVICE: Look at total net profit. You probably will see a losing strategy, even with a 90%+ winning percentage.

5. Mr. Liar

If Mr. Liar can do anything to cheat, he will. In the past, he has stuck all his losing trades in one account, put all his winners in another account, and of course, only shows you the winning account. But, he has many other tricks up his sleeve, certainly more than I can name here. ADVICE: Track his trades in real time. Make sure they are specific and detailed enough so they cannot be misinterpreted.

6. Mr. Long Term

“The stock market will rise,” says Mr. Long Term. He is absolutely right, if you don’t pin him down on time. It may take 100 years, but stocks will eventually rise. But, the first 99 might wipe you out. Long term forecasters hope you’ll forget their predictions if they are incorrect. ADVICE: Treat any prediction, especially long term ones, with extreme suspicion. The fact is most experts are just guessing.

7. Ms. Really Can Do It

A rare and exceptional talent, this person is the real deal. No gimmicks, no tricks – just super high winning percentage and super high profits. ADVICE: Ask yourself “why would this person sell me their amazing secrets for $79, when if she is so good, she can trade and make unlimited amounts of money?” Answer: No one will ever sell you the ultimate key to trading success, and if they did, it would cost a lot more than you could afford.

So, now you know the seven members of the 90% winning trade club. Avoid these folks, and you’ll almost certainly become a better trader.

What Warren Buffett said…

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

W.B* For some reason, people take their cues from price action rather than from values. What doesn’t work is when you start doing things that you don’t understand or because they worked last week for somebody else. The dumbest reason in the world to buy a stock is because it’s going up.
* Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.
* The important thing is to keep playing, to play against weak opponents and to play for big stakes.
* Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.
* There are all kinds of businesses that Charlie and I don’t understand, but that doesn’t cause us to stay up at night. It just means we go on to the next one, and that’s what the individual investor should do. (more…)

Go to top