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Apply Will Power in Trading

  
  Education
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Much of successful trading has to do with having the discipline, the willpower, to follow the trading plan. And much of a good trading plan goes counter to a human’s natural reactions to the market. Hence the greater your willpower, i.e. the better you are able to have self-control or self-regulation, the better your trading.

Below are some key points from the article and Roy Baumeister’s YouTube videos, and my thoughts on how they apply to trading.

The Nature of Willpower

  • Willpower is a limited resource that gets depleted when you use it.
    • I typically find that my trading at the early part of the session is good. I would follow my trading plan well and profits usually follows. However towards the later part of the morning, I start to make mistakes and go counter to my trading plan, that’s when my results suffer.
    • Be aware of when you have run out of juice. I find that once I start make a few consecutive trades that violate my trading plan, I recognize that my willpower has been depleted, I am not making good decisions, so I go take a break, or stop trading for the day entirely.
    • Some traders recommend not trading for more than 3 hours a day. Yes you may miss a run away market after you stop trading, but recall your experiences when the market trended very well the entire day but yet you lost money. To extract money from the marketsrequires willpower to make the right trading decisions. When you are not able to follow your trading plan, the probabilities favor you giving money to the markets instead, regardless of the market situation.
  • When your willpower is depleted, you feel your emotions more intensely (more…)

21 One Liners For Traders

  
  Education
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  1. It is possible to see that a market is dramatically overbought and prepare for, and then capture, huge gains after the sell off.
  2. Risk small amounts to make big profits.
  3. Bet against times when numerous leaders must agree.
  4. Long hours and a strong work ethic are keys to being a successful trader.
  5. While it is good to trade any market that will turn a profit, specializing in a market can lead to great success.
  6. The markets go down faster than they go up.
  7. If the market will not go down during bad news, it will likely go higher.
  8. The stock market moves in patterns and in cycles. Past price patterns repeat themselves due to human emotions.
  9. Many times traders think a big position order size means that a whale knows something, most times they do not. 
  10. It is okay to skip a trade if you can’t get your entry price.
  11. A momentum move does not just stop, it takes time to roll over.
  12. It is possible to trade successfully by gaming the actions of other traders.
  13. Be aggressive at high probability moments.
  14. Always stay in control of your trading and manage risk.
  15. Focus on risk management as the #1 priority in trading.
  16. Having the right mindset during a big loss that it is just temporary, is the key to coming back and being successful.
  17. Letting profits run is sometimes a great plan.
  18. Being long at all time highs in the indexes is a great strategy.
  19. Great money managers trade with passion.
  20. Even Market Wizards have doubts about winning when entering a trade. 
  21. When the top in a market is reached,  there is a lot of money to be  made shorting as panic selling sets in. 

Thermodynamics and the Market

  
  Education
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Does Prigogine’s principle have any predictive market implications?

Well if you move from thermodynamics to information theory entropy, and consider the information content of market prices, then there are two clear analogies:

1. There should be local, transient edges (Prigogine, market prices self-organizing to minimize the rate of information loss).

2. Those edges are decaying (Second Principle, “Changing cycles”).

The Legendary Turtle Traders

  
  Education
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Have you ever heard of the legendary Turtle traders? Millionaire trader Richard Dennis set off to find out if traders were just born to trade, or if they could be trained to be successful in the markets from scratch. The answer? If they could follow rules they could be successful.

“I always say that you could publish my trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Almost anybody can make up a list of rules that are 80% as good as what we taught our people. What they couldn’t do is give them the confidence to stick to those rules even when things are going bad.” –Richard Dennis: Founder of the ‘Turtle Traders’ quoted from the book Market Wizards:

The Turtle system proved that the traders that followed the rules went on to be millionaires and to manage money professionally.

Markets – What to buy or sell

  • The Turtles traded all major futures contracts, metals, currencies, and commodities.
  • The turtles traded multiple markets to diversify risk.

Position Sizing – How much to buy or sell

  • Turtle position sizing was based on a markets volatility using the 20 day exponential moving average of the true range.
  • The Turtles were taught to trade in increments of 1% of total account equity,

Entries – When to buy or sell (more…)

The Trader’s Journey

  
  Education
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  • A grand call to adventure. Who would not want to make a pile of money working from the comfort of your own computer screen?
  • Finding a mentor. Good mentors matter! Few of us who have succeeded would have done so without some help.
  • Crossing over into an “unreal” world. Markets are crazy. When we look deeply into markets, maybe we become a little crazy ourselves, and we certainly become disconnected from ordinary reality.
  • Facing dire challenges. The emotional highs and lows of trading can be extreme. Is there a trader alive who hasn’t been awake at 4am wondering if they can ever do this, why they ever tried in the first place, how they could be so stupid to make the same mistakes over and over, and what they were going to do tomorrow? (This is probably not the time to mention that we only write stories about the heroes that complete the journey! A lot of dragons feasted very well, for a very long time.)
  • Failure somehow, perhaps almost miraculously, is transformed to success.
  • We figure out how to incorporate our trading activities into the everyday world, and discover that things probably weren’t quite as exotic or difficult as we had thought.

See? Trading is not truly about learning patterns. It is not about learning some math. It is not about skill development, and it is not even about risk management. All of these things are important, but the real work of trading is work on ourselves.

Your greatest enemy as a trader

  
  Education
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“Most people think that they’re playing against the market, but the market doesn’t care. You’re really playing against yourself. You have to stop trying to will things to happen in order to prove that you’re right. Listen only to what the market is telling you now. Forget what you thought it was telling you five minutes ago. The sole objective of trading is not to prove you’re right, but to hear the cash register ring.” – Marty Schwartz

The last point includes two very important concepts:

1) Don’t let your ego get in the way of a trade

2) YOU are always responsible for the outcome

First, although a trader needs confidence and trust in his abilities and his method, he has to understand that he cannot control the outcome. The market dictates what is going to happen and a trader’s job is to react accordingly. If you personalize losses and want to will a trade to win, it usually ends in a disaster. Therefore, think process-oriented, realize losses fast and move on to the next trade.

Additionally, blaming outside circumstances or the markets leads to emotional trading and delusional thinking. Although the market dictates what is going to happen, YOU are the one who is making the trading decisions. You are entering and exiting trades and, therefore, you have to understand that over the long term, you are the most important factor of your trading strategy.

A Short Note

  
Analysis, Education
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“Jack Bogle likes “cheap” index funds. I don’t know why as they are risky and expensive considering the heavy losses, limited “work” involved and lack of skill. If a firm “manages” $1 trillion and charges “only” 20bp, that is $2 billion PROFIT every year even when returns are negative and retirement plans are wrecked! Lose investors’ hard-earned money? It’s the market’s fault not theirs, right? Get someone to make a list of stocks for a benchmark, buy them, and then endure many years below the high water mark! Who would invest in such a dangerous product as an index fund? No-one with fiduciary responsibility.”

Who we are as individuals is how we trade in the markets – Weaknesses and Strengths of Traders

  
  Education
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Ambitious

Makes and follows long term business plan

•Unambitious

Will ignore long term business plan

•Calm

Will handle times of market volatility and make smart decisions

•Worrying

Will panic when markets are volatile and make stupid decisions

•Cautious

Strictly follows Stop-Loss rules and Protects Trading Capital

•Rash

Will not be diligent with Stop losses and will risk trading capital

•Cheerful

Handles losses and down times in markets (more…)

Trading Psychology Lesson-Naked Truth

  
  Education
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A good analyst is someone who can figure out that markets are going from Point A to Point B;

A good trader is someone who can navigate the path from Point A to Point B;

A good investor is someone who can weather the path from Point A to Point B;

Good analysts often are not good traders.

Good traders often are not good investors.

Good investors often are not good traders.

Good traders and investors often need to hire good analysts.

So much of success boils down to knowing who you are and accepting that.

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