Archives of “big picture” tag

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Mark Douglas’s Five Fundamental Truths

  
  Education
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1.       Anything can happen.  Translated – you have no control over the market.

2.       You don’t need to know what’s going to happen next in order to make money.  You don’t need to be psychic, or try to predict the market.  This is not to say that you cannot predict what the market will do next and be correct, only that you don’t have to, and that by trying to predict you shackle yourself to ‘the need to be right’ and the associated ball and chain.

3.       Wins and losses are random – You will never know when a trade will be a winner in advance, only that the conditions that define your edge are present.

4.       Your edge is nothing more than a higher probability of one thing happening over another.  Your edge is no guarantee of a winning trade, just of winning over time.

5.       Every moment in the market is unique.  Just because a similar trade won last time does not mean it will this time, and by treating each trade as totally unique you can see the truth of the trade without relating it to ‘what happened last time’.

These beauty in these theories is that they take the emphasis off any one trade, and turn your trading into a big picture endeavour.

Hallmark of a Position Day Trader

  
  Education
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  • Routine and Predictable daily methodology
  • Psychological Control: Discipline, Focus, Patience
  • Macro vs Micro Market Analysis … seeing the Big Picture
  • Comprehensive intraday Hit List analysis
  • Multiple intraday Set-up opportunities
  • Various chart pattern recognition … low risk opportunities
  • Capital preservation = risking less than 50% maximum stop loss.
  • Expectation & Time Exits: Scalp, Breakeven, Profit Target, Let Profits Run
  • Trading Execution Commitment: honoring Set-up signals, not P&L

    • Rosie’s Rules to Remember (an Economist’s Dozen)

      
      Education
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    1. In order for an economic forecast to be relevant, it must be combined with a market call.
    2. Never be a slave to the date – they are no substitute for astute observation of the big picture.
    3. The consensus rarely gets it right and almost always errs on the side of optimism – except at the bottom.
    4. Fall in love with your partner, not your forecast.
    5. No two cycles are ever the same.
    6. Never hide behind your model.
    7. Always seek out corroborating evidence.
    8. Have respect for what the markets are telling you.
    9. Be constantly aware with your forecast horizon – many clients live in the short run.
    10. Of all the market forecasters, Mr. Bond gets it right most often.
    11. Highlight the risks to your forecasts.
    12. Get the US consumer right and everything else will take care of itself.
    13. Expansions are more fun than recessions (straight from Bob Farrell’s quiver!).

    Trade Your Plan

      
      Education
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    After yesterday’s close, we received an e-mail from a long-time subscriber, who asked us the following question, “When you see a position that is going against you and the market is dropping, and you are losing money on a trade, but your stop loss hasn’t been hit yet, how do you stay with the position? What is your secret? Do you pullback and look at the big picture or do you simple assume its all noise as long as it doesn’t hit that lower low? This is my biggest problem with tracking your trades and most of the time you are right in holding on.” … Because we thought our answer to his question may be beneficial to other traders as well, we wanted to share our reply to his e-mail, which was…

    “The key point you stated is ‘but your stop loss hasn’t been hit yet.’ When we put on a trade, it’s like entering into a contract, so we try to stay the course and simply follow the plan. Over the years, we’ve found it’s best to stick with our original analysis because we usually plan a trade at night, or in the pre-market, without the stress of live trading. During the trading session, in the heat of the moment, there is so much pressure that we have to fight the voice in our heads telling us to sell the position when everything around is crumbling. It basically comes down to planning the trade and trading the plan…easier said than done, right? Sometimes, if you have a feeling things are going bad, and you’re an active trader, you can maybe sell 1/4 or 1/3 of the position to ease your mind. However, you must have the discipline to get back in once the coast is clear. Try to lay out a plan, write it on paper, and stick to it. The one thing every trader must accept, in order to be successful, is a loss. You must be fully prepared to lose what you’re risking. Once you accept losses as part of the trading game, the pressure to be right is not so intense.

    Robert Meier's Eleven Rules

      
      Education
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    1. Ask yourself what you really want. Many traders lose money because subconsciously their goal is entertainment, not profits.

    2. Assume personal trade responsibility for all actions. A defining trait of top performing traders is their willingness to assume personal responsibility for all trading decisions.

    3. Keep it simple and consistent. Most speculators follow too many indicators and listen to so many different opinions that they are overwhelmed into action. Few people realize that many of the greatest traders of all time never rely on more than two or three core indicators and never listen to the opinions of others.

    4. Have realistic expectations. When expectations are too high, it results in overtrading underfinanced positions, and very high levels of greed and fear – making objective decision-making impossible.

    5. Learn to wait. Most of the time for most speculators, it is best to be out of the markets, unless you are in an option selling (writing) program. Generally, the part-time speculator will only encounter six to ten clear-cut major opportunities a year. These are the type of trades that savvy professionals train themselves to wait for.

    6. Clearly understand the risk / reward ratio. The consensus is that trades with a one to three or one to four risk / reward ration are sufficient.

    7. Always check the big picture. Before making any trade, check it against weekly and monthly as well as daily range charts. Frequently, this extra step will identify major longer-term zones of support and resistance that are not apparent on daily charts and that substantially change the perceived risk / reward ratio. Point & figure charts are particularly valuable in identifying breakouts from big congestion / accumulation formations. (more…)

    Five Steps To Consistent Profits

      
      Education
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    1. Work on yourself and your personal issues so that they don’t get in the way of your trading. This step must be accomplished first; otherwise, it would interfere with each of the other steps.
    2. Develop a business plan as a working document to guide your trading. This business plan is not to raise money, which is the purpose of many business plans. Instead, it’s designed to be a continual work-in-progress to guide you throughout your trading career. The business plan actually helps you with all five of the steps. The plan also includes an overview of the big picture influencing the markets you will be trading and a method for keeping on top of those factors so that you will know when you are wrong.
    3. Develop several strategies that fit your view of the big picture and understand how each of these strategies will perform under various market types. The ultimate goal of this step is to develop something that will work well under every possible market condition. It’s actually not that hard to develop a good strategy for any particular market condition (including quiet, sideways). What’s difficult is to develop one strategy that works well under all market conditions—which is what most people attempt to do. (more…)
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