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80% of trading is behavioral

  
  Education
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80% of trading is behavioral, maybe only 20% is based on the other things that a trader does. Like much of personal finance it is not the math but the behavior that makes all the difference. Most people’s problem with being broke does not lie in their budget it is due to their behavior of spending too much money becasue they lack self control. The inability to say no to yourself in the present is what leads to most of the problems that we encounter at a future time. You can’t out earn stupid and you can’t budget away a lack of self control or work ethic. The same applies to trading.

Wanting to be a trader is only the beginning, once you make that decision you have to do the work to learn how to create a winning trading system. Having a robust trading methodology is still by far not enough it has to be expressed in a trading plan that also controls risk and fits your personalty. Even then, a trading plan is not enough you still have to follow it with discipline consistently for it to work out for you in the long term and make you profitable. But wait, there’s more…. you have to have the passion and perseverance in the market to shake off a losing streak and draw down and keep going. A great trading method is useless if you quit before you give it a chance to hit the big winning streak. (more…)

10 Reasons Trading is So Difficult ,Why Only 5% Traders Across Globe Mint Money

  
  Education
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  1. You can back test a system as much as you want but when you start trading it the profitability will be determined by the market conditions not past price history. What looks great on paper can lose on a lot of consecutive trades right at the start.
  2. Your stop can be hit and then the market go in the direction you were positioned for.
  3. Sometimes that pullback that you are waiting for to buy never comes until the trend is over.
  4. Sometimes every momentum signal you buy will be a loser for a long time.
  5. Many times the market whipsaws you in a position for absolutely no reason you can understand.
  6. Sometimes your biggest position sizes are losing trades and your smallest position sizes are the winners.
  7. There is no ‘market’ you are trading against a herd of people all making decisions for many different reasons, and they are not predictable.
  8. You can feel foolish under performing buy and holders during straight up bull markets when you’re trading in and out.
  9. Some trading lessons can’t be learned they have to be experienced with real money.
  10. Money is made and kept based on the math of probabilities, risk, and reward not because a trader is the smartest but because they are the most flexible and adaptable.

22 Trading Principles -By Paul Tudor Jones

  
  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. 
  22. Guys from Tennessee can trade!

A modern French Karl Marx Jr

  
Analysis, Education
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Thomas Piketty’s new book Capital in the Twenty-First Century named to seem similar to Das Kapital supposedly proves that capital is bad for everyone, and some people owning a lot of it is REALLY bad.

The solution? Tax the heck out of their wealth, and globally because destroying wealth will create more of it. All data-driven, because in France economists are not respected and need to prove their case. Since Marx Sr. had such a pleasant impact, who knows what this book destined to be “something big” and much appreciated in a thorough Harvard Business Review review will bring?

10 Ten Reasons Traders Lose Their Discipline

  
  Education
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10-Losing discipline is not a trading problem; it is the common result of a number of trading-related problems. Here are the most common sources of loss of discipline, culled from my work with traders:

10) Environmental distractions and boredom cause a lack of focus;

9) Fatigue and mental overload create a loss of concentration;

8) Overconfidence follows a string of successes;

7) Unwillingness to accept losses, leading to alterations of trade plans after the trade has gone into the red;

6) Loss of confidence in one’s trading plan/strategy because it has not been adequately tested and battle-tested;

5) Personality traits that lead to impulsivity and low frustration tolerance in stressful situations;

4) Situational performance pressures, such as trading slumps and increased personal expenses, that change how traders trade (putting P/L ahead of making good trades);

3) Trading positions that are excessive for the account size, created exaggerated P/L swings and emotional reactions;

2) Not having a clearly defined trading plan/strategy in the first place;

1) Trading a time frame, style, or market that does not match your talents, skills, risk tolerance, and personality.

Candlesticks: Patterns Signalling Range-Trading

  
  Education
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  • Doji
    • Psychological state of uncertainty.
  • Engulfing / Outside bars
    • This pattern must appear after a preceding trend in the price.
    • An outside bar would have taken out the stops of both the bulls and the bears, with no follow-through. Hence both sides become less confident and this leads to range-trading behavior.
  • Hammer bottom
    • After a downtrend, the market opens near to the previous close, drops a lot, before closing the period up towards the level at which it opened.
    • Signals an end of the downtrend where the next period will be characterised by range trading.
  • Shooting star
    • After an uptrend, the market opens near the previous close, rallies a lot, but closes the period down towards the level at which it opened.
    • Signals that that supply and demand have become more balanced, and this balance can mean range trading.
  • Hanging man
    • After an uptrend, market does not rise much but falls a lot, before closing back up near to the level at which it opened.
    • This is bearish, and represents the last buyers getting into the uptrend.

The Psychology of the Stock Market-Book Review

  
  Education
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In the great game that is trading, the game never really changes.

New technology is introduced; new methodologies are dreamed up; new investment fads come and go. But the essentials of trading are the same now as they were generations ago.

There is a class of books that brings home this timelessness. Four of the best are The Money Game by Adam Smith; Devil Take the Hindmost by Edwin Chancellor; Extraordinary Popular Delusions and the Madness of Crowds by Charles MacKay; and of courseReminiscences of a Stock Operator by Edwin Lefevre (with the guidance of Jesse Livermore).

The oldest of the above is MacKay’s book, published in 1841. The Psychology of the Stock Market, by G.C. Selden, is another addition to the “timeless classics” list.

Though published in 1912, Selden’s book could have been published yesterday. This makes complete sense, as the main topic — human psychology — has not changed at all in the past century. (more…)

2 Thoughts For Traders

  
  Education
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It is impossible to make money trading without an edge.

There are many ways to create an edge in the markets, but one this is true—it is very, very hard to do so. Most things that people say work in the market do not actually work. Treat claims of success and performance with healthy skepticism. I can tell you, based on my experience of nearly twenty years as a trader, most people who say they are making substantial profits are not. This is a very hard business.

Every edge we have is driven by an imbalance of buying and selling pressure.

The world divides into two large groups of traders and investors: fundamental traders who base decisions off of financial analysis, understanding of the industry and a company’s competitive position, growth rates, assessment of management, etc. Technical traders base decisions off of patterns in prices, volume or related data. From a technical perspective, every edge we have is generated by a disagreement between buyers and sellers. When they are in balance (equilibrium), market movements are random.

6 Reasons -Why Traders Fail ?

  
  Education
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1. Lack of direction. Traders often fail to establish clear goals and create plans to achieve those goals. When traders fail to develop complete business and trading plans before entering the market they are setting themselves up for failure.

2. Impatience. This occurs when traders try to accomplish too much too soon, or expect to get results far faster than is truly possible. This creates a situation where they are likely to become frustrated and deviate from their plan.

3. Greed. When traders try too hard to make a lot of money in a short period of time, failure isn’t far behind.

4. Taking action without thinking it through first. All trade entries, modifications and exits should be carefully planned out in advance. Randomly entering, modifying and exiting positions based on moment by moment emotional thoughts creates large losses.

5. Indecisiveness. A trader who is unable to make key decisions in the face of difficulty is dangerous to himself. Any major decisions should have been planned for in their trade plan. In the event they planned poorly and don’t know what to do, their decisive decision should be to exit.

6. Diffusion of effort. A traders who tries to trade too many things will miss opportunities and market cues that are obvious to a trader who is focused on a limited number of tasks.

Trading Errors When Trend Following

  
  Education
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Who really wants to define a loss? Only smart trend followers. Most people think they can postpone a loss. They become investors instead of traders. Many refuse to define a loss. I have seen traders not close a losing trade, after they realized that the trade’s potential is greatly diminished and has gone against them. They want to right. All the way to the poor house. This is a typical trading error when trend following. You need an exact plan when you are trend following. You can not make it up as you are going. This is what losers do. Besides having the exact plan you must believe in it and follow it. Do not think of the money. Think in terms of percentages. Follow your rules and stay in the marathon of trend following. Successful trend following is not about tips or magic indicators. It is about you and how you approach the markets. You must be willing to take losses once it is clear the trade is not working.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts, commodity options or forex can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results. You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.

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