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The Same Winning Principles

  
  Education
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In life, as in trading, the right mindset is crucial for success. You must be confident in your decisions because they are based on cause and effect, not on emotions or opinion. Negative people who are unsure of themselves are not successful in any field. You need faith in yourself and your methods to be able to persevere and not give up before reaching success.

• You can risk too much and lose it all in your business, life, marriage, friendships or family. You have to measure the potential cost of every action. One affair can cost you your marriage, just like one big trade with too much risk can cost you all your capital.

• In business there are certain methods which bring in customers and turn a profit, and others which cause a business to turn away customers and lose money. Trading is similar: methods which turn a consistent and long-term profit are essential for success.

• Having unrealistic expectations in a marriage, job, or business will lead to unhappiness and failure just like it will in trading. You have to set realistic expectations so
you do not get discouraged easily and quit in any of these areas. You have to be satisfied that the results are worth your effort over the long term. You need to understand what to expect before you begin a marriage, a job, a business, or trading. (more…)

Max Gunther set forth basic trading principles called The Zurich Axioms

  
  Education
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On Risk:
– Worry is not a sickness but a sign of health – if you are not worried, you are not risking enough.
– Always play for meaningful stakes – if an amount is so small that its loss won’t make any significant difference, then it isn’t likely to bring any significant gains either.
– Resist the allure of diversification.

On Greed:
– Always take your profit too soon.
– Decide in advance what gain you want from a venture, and when you get it, get out.

On Hope:
– When the ship starts sinking, don’t pray. Jump.
– Accept small losses cheerfully as a fact of life. Expect to experience several while awaiting a large gain.

On Forecasts:
– Human behaviour cannot be predicted. Distrust anyone who claims to know the future, however dimly.

On Patterns:
– Chaos is not dangerous until it starts to look orderly. (more…)

One of the best Trading Psychology books I've ever read!

  
  Education
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“Psychology of Intelligence Analysis” by Richards J Heuer, Jr., published by the CIA’s Center for the Study of Intelligence, 1999.

woman-reading
 

Available as a pdf download from this webpage
 

Ok, so it’s a CIA book written for Intelligence Analysts, not a trading book written for traders. However, the information available in this book is superb. Well written and easy to follow. This is an excellent source of information on how we think, and the cognitive biases which undermine our ability to process information and conduct market analysis.
 

VERY APPLICABLE TO TRADING. HIGHLY RECOMMENDED.
 

Here’s what’s it covers:

 

Part 1 – Our Mental Machinery

  • Chapter 1: Thinking About Thinking

  • Chapter 2: Perception: Why Can’t We See What Is There to Be Seen?

  • Chapter 3: Memory: How Do We Remember What We Know?

Part 2 – Tools for Thinking

  • Chapter 4: Strategies for Analytical Judgment: Transcending the Limits of Incomplete Information

  • Chapter 5: Do You Really Need More Information?

  • Chapter 6: Keeping an Open Mind

  • Chapter 7: Structuring Analytical Problems

  • Chapter 8: Analysis of Competing Hypothesis

Part 3 – Cognitive Biases

  • Chapter 9 – What Are Cognitive Biases?

  • Chapter 10 – Biases in Evaluation of Evidence

  • Chapter 11 – Biases in Perception of Cause and Effect

  • Chapter 12 – Biases in Estimating Probabilities

  • Chapter 13 – Hindsight Biases in Evaluation of Intelligence Reporting

Part 4 – Conclusions

  • Chapter 14 – Improving Intelligence Analysis

 

Available as a pdf download from this webpage

Trading Principles

  
  Education
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• In life, as in trading, the right mindset is crucial for success. You must be confident in your decisions because they are based on cause and effect, not on emotions or opinion. Negative people who are unsure of themselves are not successful in any field. You need faith in yourself and your methods to be able to persevere and not give up before reaching success.

• You can risk too much and lose it all in your business, life, marriage, friendships or family. You have to measure the potential cost of every action. One affair can cost you your marriage, just like one big trade with too much risk can cost you all your capital.

• In business there are certain methods which bring in customers and turn a profit, and others which cause a business to turn away customers and lose money. Trading is similar: methods which turn a consistent and long-term profit are essential for success.

• Having unrealistic expectations in a marriage, job, or business will lead to unhappiness and failure just like it will in trading. You have to set realistic expectations so
you do not get discouraged easily and quit in any of these areas. You have to be satisfied that the results are worth your effort over the long term. You need to understand what to expect before you begin a marriage, a job, a business, or trading.

• Those who succeed in all areas of life are the ones who can manage stress the best. The best way to manage stress is to increase what you can handle step by step so that you grow into new circumstances. Another way to manage stress is to avoid actions which get you into situations you are uncomfortable with.

The 3 Laws that Govern Stock Prices

  
  Education
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Contrary to popular belief by the majority of the general population and even investors and traders stocks are not tied to their fundamental values or even the companies that sold the shares to raise capital. Stock prices are tied to simply what the current buyer and seller in the market is willing to exchange ownership for. That is what determines price, nothing else. So the big question is what are the rules that govern the change in a stocks price?

The laws of economics governs price movement in the market. There are three laws articulated by legendary trader and market pioneer Richard Wyckoff that captures what causes current price reality and what changes it.

The Law of Supply and Demand

The excess of demand (buyers) over supply (sellers) causes a stock’s price to go up. The excess of supply over demand causes a stock’s price to go down.

The price is determined by the law of supply and demand.

The price moves up and down to balance the supply and demand to the equilibrium.

“The stock is only worth the other people are willing to pay for it”— (more…)

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