You don't have to understand why prices are moving to profit from them. The best way to learn to trade is by trading.
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rssIn Trading :Money is the score card, but the performance engine is love of the game.
One of the great challenges of trading is that it requires intense and singular concentration on markets, but also an equal focus on one’s performance in those markets. That combination of market awareness and self-awareness enables traders to make the most of their “edges” in markets while also cultivating fresh sources of edge.
It is interesting that very successful traders usually don’t achieve monetary success and then walk away from markets. That is because what drives them is not just the outcome, but also the process: the ongoing challenges of market mastery and self-mastery. Even after the money has been made, the game retains its appeal.
If your motivation is primarily to make money, you probably won’t get to the point of career success, because the inevitable periods of drawdown will sap whatever drive is present. When the motivation is mastery, losing periods provide fuel for reflection, learning, and improvement.
Feedback in Real Life
If market or individual stock a has a positive predictive correlation with market b, and b had a positive predictive correlation with market a, then there is positive feedback, and an explosive growth when a is up would occur. Similarly, if there is a positive predictive correlation, i.e. the serial correlation of a with b say one day forward is 0.2, then market a goes down. If there is a negative predictive correlation of market a with market b, then when a goes up, b will tend to go down, and vice versa, and there will be a stable equilibrium between the two with each pulling the other in opposite directions.
The situation is very similar to what occurs in all feedback circuits in electronics, including what you seen in any kind of amplifiers where there is negative feedback to maintain stability.
What are the markets that have positive predictive correlation with each other, i.e. when a is up today, b tends to go up tomorrow, and when b is up today, a tends to go up tomorrow? There aren’t many. And when such occurs, it is only for a limited time. So you have to be on your toes if you wish to use positive feedback. All this can be quantified with varying degrees of reality and rigor.
Traders Must Follow These Rules
More important than any entry system….Money management and trading psychology are much important
Keep Losses Small…
Trade with stops
Trade in the direction of the trend
Doubling down is a sure way to lose money and blow up
Trade with a complete plan knowing exactly what to buy/sell…how much to buy/sell and know exactly when the trade does not work… (more…)
He was once probably the richest man. They were bringing in $1B a year in profits in 1978.
During its heyday, Pablo Escobar’s drug cartel spent $2,500 per month on rubber bands for bricks of cash. Mental Floss has a interesting profile of the drug lord.
The profits were astronomical at every step. In 1978 each kilo probably cost Escobar $2,000 but sold to Lehder and Jung for $22,000, clearing Escobar $20,000 per kilo. In the next stage they transported an average of 400 kilos to south Florida (incurring some additional expenses in hush money for local airport authorities) where mid-level dealers paid a wholesale price of $60,000 per kilo; thus in 1978 each 400-kilo load earned Escobar $8 million and Lehder, Ochoa, and Jung $5 million each in profits. Of course the mid-level dealers did just fine: after cutting the drug with baking soda each shipment retailed on the street for $210 million, almost ten times what they paid for it.
Soon Lehder was hiring American pilots to fly a steady stream of cocaine into the U.S., paying them $400,000 per trip. At one trip per week, in 1978 this translated into wholesale revenues of $1.3 billion and profits of $1 billion.
Trading is Mental Game -5 points
1. A trader can only build confidence to take a real time trade entry after they have done the necessary homework in back testing through multiple market environments to know the probabilities of success and the possibilities of failure. Understanding how the markets have behaved with past price patterns can give the trader the boldness they need to push the submit button on their broker’s screen.
2. Understanding the price level where your stop loss on a trade will be and also your potential price target will give you a good idea of the risk and reward dynamics of a trade set up. It is easier to trade when you know that you are risking $100 for a chance to make $300 and the odds are on your side with a great entry.
3. Structuring your position sizing so that if your stop is hit you will only lose 1% of your total trading capital will eliminate much of your fear of failure. The urgency and importance of any one trade should be converted into the calm assurance of knowing that the current trade is just one of the next one hundred trades. You can overcome the majority of anxiety around trading when you simply trade small enough so that any one trade or a string of trades will not affect your long term trading success.
4. Trading what you know and are familiar with is low stress trading. Trading a chart pattern, stock, or index that you have traded for years is familiar territory. Also trading markets inside your circle of competence creates confidence. Only trade futures, options, stocks, bonds, forex, and indexes that you understand. Many traders drown chasing unfamiliar waterfalls.
5. A lot of performance confidence comes from having a detailed trading plan on what you will do before the market opens and the faith in yourself to execute that plan after the market opens. Knowing that your decisions will be based on the facts and the reality of price action and that you will not be swept away with emotions and ego while trading can allow you to rise above anxiety and instead operate with faith in yourself and your system
12 Signs You’re in a Bad Trade
- Your entry is based on your opinion not a valid signal.
- Your bet is that a trend will change with no reason behind the bet.
- You are entering out of greed after a big move.
- If you are wrong about the trade you will suffer a huge loss.
- You enter a trade with no stop loss.
- You enter a trade with no exit strategy to bank any profits.
- You enter based on someone’s opinion.
- You enter a trade because you are bored.
- You are trading a market you have done zero back testing or chart studies on.
- You are trading futures or option contracts you do not understand.
- You are trading with confidence even though you have zero confidence.
- You have no idea what the hell you are doing.
European manufacturing PMI at 29-month high (Full Detail )
Eurozone-wide manufacturing data for November has met forecasts, reaching their best level since June 2011 as national-level numbers from the sector also beat expectations.
The Markit purchasing managers’ index survey for the shared currency area came in at 51.6, just ahead of the 51.5 predicted in a poll undertaken by Reuters.
Any reading above 50 indicates growth.
Markit said:
The recovery in the eurozone manufacturing sector accelerated again in November. Although the pace of expansion remained modest overall, the real positives were that growth extended into a fifth successive month with the rate of increase hitting a near two-and-half year high.
At national level:
- Italy’s PMI reading for the month was 51.4, better than the 50.9 forecast
- Germany’s index came in at 52.7, narrowly ahead of expectations of 52.5
France’s manufacturing sector continued to shrink, but by less than expected, with its PMI reading 48.4 against expectations of 47.8
15 Steps Must For Traders
- Commit to doing the work to become a successful trader.
- Study the top resources for trading success.
- Decide what level of annual returns you want to make on average.
- Decide the maximum capital draw down level you can tolerate and accept.
- Become a reactive trader not a predictive trader, learn how to trade price action.
- Focus on a system with a winning risk/reward ratio. Bigger winning trades than losing trades.
- Build and back test a trading methodology that is profitable over many different market environments and meets your requirements.
- Write a trading plan that quantifies entries, exits, positions sizing, and your rules.
- If you have the personalty to trade this system and plan with real money then proceed.
- Eliminate the risk of ruin by never losing more than 1% of trading capital on any one trade. (more…)
10 Laws of Stock Market Bubbles
- Debt is cheap.
- Debt is plentiful.
- There is the egregious use of debt.
- A new marginal (and sizeable) buyer of an asset class appears.
- After a sustained advance in an asset class’s price, the prior four factors lead to new-era thinking that cycles have been eradicated/eliminated and that a long boom in value lies ahead.
- The distance of valuations from earnings is directly proportional to the degree of bubbliness.
- The newer the valuation methodology in vogue the greater the degree of bubbliness.
- Bad valuation methodologies drive out good valuation methodologies.
- When everyone thinks central bankers, money managers, corporate managers, politicians or any other group are the smartest guys in the room, you are in a bubble.
- Rapid growth of a new financial product that is not understood. (e.g., derivatives, what Warren Buffett termed “financial weapons of mass destruction”).