How does someone know that they reached the trader’s mindset?
Here are a Few Characteristics :
- No anger whatsoever.
- Confidence and being in control of the self. (more…)
Archives of “BSE Sensex Trades” tag
rssPoor Money Management
People lose money at the stock market for very simple reasons:
- They don’t have a method at all. They rely on other people opinions.
- People don’t have a winning method. The method they are trading has a negative expectancy. (more…)
10 Trading Mistakes !
- Refusing to define a loss.
- Not liquidating a losing trade, even after you have acknowledged the trade’s potential is greatly diminished.
- Getting locked into a specific opinion or belief about market direction. From a psychological perspective this is equivalent to trying to control the market with your expectation of what it will do: “I’m right, the market is wrong.” [private] (more…)
The Broker and The Dead Donkey
A broker named, Jean Paul, moved to Texas and bought a donkey froman old farmer named Ben for $100. The farmer agreed to deliver thedonkey the next day.
The next day, Ben drove up and said, “Sorry, but I have some bad news.The donkey died.””Well, then, just give me the money back,” said the broker”Can’t do that. I went and spent it already.” Replied Ben”OK, then. Just unload the donkey,” said Jean Paul.”What ya going to do with him?” asked Ben.”I’m going to raffle him off,” said Jean Paul.”You can’t raffle off a dead donkey!” uttered Ben.”Sure can. Watch me. I just won’t tell that he’s dead,” said Jean Paul.A month later Ben met up with the Cajun and asked, “What happenedwith that dead donkey?””I raffled him off, I did. I sold 500-hunderd tickets at two dollars apieceand made a profit of $898,” said Jean Paul.”Didn’t anyone complain?” inquired Ben.”Just the guy who won. So I gave him his two dollars back,” said the broker
11 Rules for Better Trading
Trading in the markets is a process, and there is always room for self improvement. So as we start the new year, here are my 11 rules that help me navigate the markets. By no means is this list exhaustive or exclusive.
Rule #1 Be data centric in your approach : Take the time and make the effort to understand what works and what doesn’t. Trading decisions should be objective and based upon the data.
Rule #2 Be disciplined : The data should guide you in your decisions. This is the only way to navigate a potentially hostile and fearful environment. (more…)
2009…Heads or Tails?
Adam Smith (1723 – 1790) in “The Money Game” wrote:
“Prices have no memory and yesterday has nothing to do with tomorrow. Every day starts out fifty-fifty!”
If the above statement is to be trusted, then you could just take the 50 – 50 odds, expand their daily time horizon to a yearly one, and decide whether or not to “stay in the stock market game” in 2009!
Decide on just a flip of a coin?
Given the past year’s negative returns, what does this “flip” imply for the investors’ chances this coming year?
Well, that is a matter of asking the question the right way!
If you assume that the years are flipping randomly, and that there is no bias for any year, then you could ask if it is fair enough to assume that flipping through a calendar is otherwise the same as just flipping a coin?
Let’s assume that you were just flipping a coin. Then, YES …
The odds of one flip would always be 50 – 50!
Indeed, you might be led to start questioning about how fair the coin actually would be! In this case, you really should look back and base your expectations on historical econometric analysis and try to establish how fair the coin would be!
But if you are guessing that some things do look like a flip of a coin, shouldn’t you also assume that just because we had a negative year, we’re now going to get a positive one?
Who knows … Investments based on that kind of speculation might actually end up yielding a positive result!
But the odds are still only 50 – 50!
On the other hand …
I do know that …
I will get a much better than 50 -50 chance!
What Does A Trader Do ?
One thing that I couldn’t accept as an attorney (for the five minutes I seriously considered that as a profession) was that I’d be confronted with the temptation to make money from projects and clients with whom I did not want to work. The wealth that is created from doing a law-job is wealth that comes from the support of, allegiance to, and active promotion of a client’s business. (more…)
The Seven Mistakes Novie Traders Make
MISTAKE ONE
Lack of Knowledge and No Plan
It amazes us that some people expect to trade the stock market successfully without any effort. Yet if they want to take up golf, for example, they will happily take some lessons or at least read a book before heading out onto the course. (more…)
Eight Cognitive Biases That Affect Trading
- Loss Aversion – The tendency for people to have a strong preference for avoiding loses over acquiring gains.
- Sunk Costs Effect – The tendency to treat money that already has been committed or spent as more valuable than money that may be spent in the future. (more…)
Cutting Losses
I simply cut my losses and by doing so kept them small. I’ve had my share of bad decisions in my trading career and keeping losses small in order to avoid huge losses is the toughest part.
Why is that so? From a psychological point of view nobody wants to sell at a loss as in most situations in life making mistakes and admitting them is associated with being a loser. That’s why most people prefer sticking to a losing position. They don’t want to be labeled a loser. So they start hoping their position will turn around and end up being a huge winner. The stock then keeps tanking. Then they hope they will be able to sell for a break even. The stock then goes down even more. That’s when being objective and balanced isn’t possible anymore. Losses have become huge and they are trapped.
The cost is simply huge. You lost money. You lost time. There’s an opportunity cost as well as during that time other stocks would have made you a profit. You lost huge amounts of energy as you couldn’t get this stock out of your mind.
Notice I’ve made ample use of the word ‘huge’. Avoid huge losses at all cost. Avoid thinking in terms of huge gains as well. Stay balanced. Stay focused and calm.