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Don't Be Fooled By Stock Market Noise

  • The volume of market and economic information is increasing exponentially, but the amount of useful information certainly isn’t.
  • Most of it is just noise, and the noise is increasing faster than the signal; hence, the higher the noise-to-signal ratio.
  • The “signal” is the truth and needs to be taken seriously; the “noise” is what distracts us from the truth and needs to be ignored.
  • This is why the higher the noise-to-signal ratio, the more difficult it becomes to make intelligent investment decisions.
  • Investors must use “filters” to separate the signal from the noise – this will improve their decision-making and investment performance.
 

 

Emotions and Mindset

Emotional stability and discipline is the foundation upon which a trader has to build his trading methodology. Without the ability to control emotions and the impulsive trading decisions emotions cause, the best trading system and the best thought-out risk management approach are useless.

I truly feel that I could give away all my secrets and it wouldn’t make any difference. Most people can’t control their emotions or follow a system.  – Linda Raschke
Markets are never wrong – opinions often are. – Jesse Livermore
I don’t get caught up in the moment. – Ray Dalio
If you argue with the market, you will lose. – Larry Hite
The psychological factor for investing has 5 areas. These include a well-rounded personal life, a positive attitude, the motivation to make money, lack of conflict [such as psychological hang ups about success], and responsibility for results.  -Dr. Van K. Tharp
It is hard enough to know what the market is going to do; if you don’t know what you are going to do, the game is lost. – Alexander Elder 

These quote highlight the fact that, before you get into the nitty-gritty of your trading system and try to tweak your stop loss or take profit placement, you have to work on your discipline. It is not a stop loss order that should have been placed 5 points higher or lower that makes the difference between a consistently losing and a profitable trader, but the degree to how a trader can avoid emotionally caused trading mistakes.

Trader’s Emotions

The hardest thing about trading is not the math, the method, or the stock picking. It is dealing with the emotions that arise with trading itself. From the stress of actually entering a trade, to the fear of losing the paper profits that you are holding in a winning trade, how you deal with those emotions will determine your success more than any one thing.

To manage your emotions first of all you must trade a system and method you truly believe will be a winner in the long term.

You must understand that every trade is not a winner and not blame yourself for equity draw downs if you are trading with discipline.

Do not bet your entire account on any one trade, in fact risking only 1% of your total capital on any one trade is the best thing you can do for your stress levels and risk of ruin odds.

With that in place here are some examples of emotional equations to better understand why you feel certain emotions strongly in your trading:

Despair = Losing Money – Trading Better

Do not despair look at your losses as part of doing business and as paying tuition fees to the markets.

Disappointment = Expectations – Reality (more…)

40 One Liners For Traders

1. Trading is simple, but it is not easy.40 rules

2.  When you get into a trade watch for the signs that you might be wrong.

3.  Trading should be boring.

4.  Amateur traders turn into professional traders once they stop looking for the “next great indicator.”

5.  You are trading other traders, not stocks or futures contracts.

6.  Be very aware of your own emotions.

7.  Watch yourself for too much excitement.

8.  Don’t overtrade.

9.  If you come into trading with the idea of making big money you are doomed.

10.  Don’t focus on the money.

11.  Do not impose your will on the market.

12.  The best way to minimize risk is to not trade when it is not time to trade. 

13.  There is no need to trade five days a week.  

14.  Refuse to damage your capital.

15.  Stay relaxed. (more…)

The Shortest Economics Textbook Ever

LITTLE-BOOK

5-THINGS

1. 95% of economics is common sense 

 

You don’t need a degree to understand it
 
We’ve got this profession wrong; a lot of professional economists think what they do is too difficult for ordinary people. You’d be surprised how often these people are stupid enough to say things, at least in private, like ‘you wouldn’t understand what I do even if I explained it to you’. If you cannot explain it to other people, you have the problem.
 
People express strong opinions on all sorts of things despite not having the appropriate expertise: climate change, gay marriage, the Iraq War, nuclear power stations. But when it comes to economic issues, many people are not even interested, not to speak of not having a strong opinion about them. When was the last time you had a debate on the future of the Euro, inequality in China or the American manufacturing industry, despite the fact that these issues can have a huge impact on your life, wherever you live?

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10-Trading Method Quotes For Traders

1.    “Trade What’s Happening…Not What You Think Is Gonna Happen.” – Doug Gregory
2.    Go long strength; sell weakness short in your time frame.
3.    Find your edge over other traders.
4.    Your trading system must be built on quantifiable facts not opinions.
5.    Trade the chart not the news.
6.    A robust trading system must either be designed to have a large winning percentage of trades or big wins and small losses.
7.    Only take trades that have a skewed risk reward in your favor.
8.    The answer to the question, “What’s the trend?” is the question, “What’s your timeframe?” – Richard Weissman. Trade primarily in the direction that a market is trending in on your time frame until the end when it bends.
9.    Only take real entries that have an edge, avoid being caught up in the meaningless noise.
10.    Place your stop losses outside the range of noise so you are only stopped out when you are likely wrong.

WISDOM FROM BERNARD BARUCH – For Traders & Investors

From the SAME AS IT EVER WAS file: Bernard Baruch, a colleague and friend of Jesse Livermore’s, who made a fortune shorting the 1929 crash, and then who later advised presidents Woodrow Wilson and Franklin D. Roosevelt on economic matters, listed the following investment rules in his autobiography published in 1958 entitled Baruch: My Own Story.  These rules are still as applicable today.


1.  Don’t speculate unless you can make it a full-time job.
2.  Beware of barbers, beauticians, waiters–of anyone–bringing gifts of “inside” information or “tips.”(Avoid  Blue channels )
3.  Before you buy a security, find out everything you can about the company, its management and competitors, its earnings and possibilities for growth. (Don’t Trust Indian Management )
4.  Don’t try to buy at the bottom and sell at the top.  This can’t be done–except by liars.
5.  Learn how to take your losses quickly and cleanly.  Don’t expect to be right all the time.  If you have made a mistake, cut your losses as quickly as possible.
6.  Don’t buy too many different securities.  Better have only a few investments which can be watched.
7.  Make a periodic reappraisal of all your investments to see whether changing developments have altered their prospects.
8.  Study your tax position to know when you can sell to greatest advantage.
9.  Always keep a good part of your capital in a cash reserve.  Never invest all your funds.
10.  Don’t try to be a jack of all investments.  Stick to the field you know best.

Jesse Livermore’s Best 10 Quotes & Free Link to His Book

Here is a list of the ten most powerful quotes from Jesse Livermore’s book “How to Trade in Stocks.” Livermore was one of the greatest stock market operators of our time and his quotes stand the test of time. No one made more money in the markets or came back from more bankruptcies than Jesse Livermore. He successfully shorted the Great Depression crash for one of the biggest trading wins in history. While his weakness was not managing his risk of ruin his strength was he could become a millionaire trading during a trending market over and over starting with a small stake. While in the end he decided to take his own life he lived his life as the world’s greatest trader for half a century.

“Do not anticipate and move without market confirmation—being a little late in your trade is your insurance that you are right or wrong.” -Jesse Livermore

“The good speculators always wait and have patience, waiting for the market to confirm their judgment.” -Jesse Livermore

“{Limit} interest in too many stocks at one time.  It is much easier to watch a few than many.” -Jesse Livermore

“Experience has proved to me that the real money made in speculating has been: “IN COMMITMENTS IN A STOCK OR COMMODITY SHOWING A PROFIT RIGHT FROM THE START. ” -Jesse Livermore

“As long as a stock is acting right, and the market is right, do not be in a hurry to take a profit. You know you are right, because if you were not, you would have no profit at all. Let it ride and ride along with it. It may grow into a very large profit, and as long as the “action of the market does not give you any cause to worry,” have the courage of your convictions and stay with it.” -Jesse Livermore

“It is foolhardy to make a second trade, if your first trade shows you a loss. ” “Never average losses. ” Let that thought be written indelibly upon your mind.” -Jesse Livermore

“One should never sell a stock, because it seems high-priced.” -Jesse Livermore

“Profits always take care of themselves but losses never do. ” The speculator has to insure himself against considerable losses by taking the first small loss. In so doing, he keeps his account in order so that at some future time, when he has a constructive idea, he will be in a position to go into another deal, taking on the same amount of stock as he had when he was wrong.” -Jesse Livermore
“It is significant that a large part of a market movement occurs in the last forty-eight hours of a play, and that is the most important time to be in it.” -Jesse Livermore

“A speculator should make it a rule each time he closes out a successful deal to take one-half of his profits and lock this sum up in a safe deposit box. The only money that is ever taken out of Wall Street by speculators is the money they draw out of their accounts after closing a successful deal.” -Jesse Livermore

Link to Jesse Livermore’s Book “How to Trade in Stocks”

Eurozone December inflation stays low at 0.8%

The eurozone’s annual inflation rate for December has just been confirmed at 0.8 per cent, in line with expectations and the preliminary reading of the data.

Eurostat, the EU’s offical data provider, also confirmed that prices in the last month of 2013 rose by 0.3 per cent from November in the shared currency area.

From the full release:

The largest upward impacts to euro area annual inflation came from electricity (+0.11 percentage points), tobacco (+0.08) and restaurants & cafés (+0.05), while telecommunications (-0.14), fuels for transport (-0.13) and medical & paramedical services (-0.07) had the biggest downward impacts.

The European Central Bank’s inflation target is 2 per cent.

If inflation stays significantly below target in the months ahead, it is likely to stoke calls for the ECB to do more. If price pressures were to continue to disappoint, the most likely options would be another cut to the benchmark main refinancing rate or negative deposit rates, which amount to a levy on banks for funds parked in the central bank’s coffers. (more…)