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Chess Lesson That Can Really Help Profits

  
  Education
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There are useful parallels between chess and trading.  In the below quotation there is actually more than one lesson for those willing to consider it.   

Pal Benko, a chess grandmaster said: 

“Patience is the most valuable trait of the endgame player. In the endgame, the most common errors, besides those resulting from ignorance of theory, are caused by either impatience, complacency, exhaustion, or all of the above.” 

1) Ignorance of theory

2) Impatience / Patience

3) Complacency

4) Exhaustion

See this 1 chess lesson morphed into 4 lessons:

Let me have a little go at highlighting some things that we can perhaps learn from this chess quote that apply to trading.  (I’d love it if you told me yours in the comment section below. Go on, be brave and join in – dialogue is good :-))

1) Ignorance of Theory 

Ed Seykota has been recorded as saying something like: until you master the basic literature and spend some time with successful traders, you might consider confining your trading to the supermarket.  

Naturally with trading, getting comfortable with the basics is an important step.  Make sure, however, not to end up one of those paralysed and stuck in student mode.  At some point you have to be willing to move from student to trader. One of the useful ways of ‘spending time with traders’ if you are not employed in a trading firm is to utilise things like Stocktwits, trading groups, forums etc. (more…)

12 Great Chess Quotes For Traders

  
  Education
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Some great chess quotes from Garry Kasparov that can apply to chess, trading, or life.chess-trading

  1. You must know what questions to ask and ask them frequently. Questions are what matters. Questions, and discovering the right ones, are the key to staying on course.
  2. The top achievers believe in themselves and their plans, and they work constantly to ensure those plans are worthy of their belief.
  3. Personal style is not generic software that you can download. You must instead recognize what works best for you and then, through trial and error, develop your own method- your own map.
  4. We must also avoid being distracted from our strategic path by the competition.
  5. Play the opening like a book, the middle game like a magician, and the endgame like a machine.
  6. You may learn much more from a game you lose than from a game you win.  You will have to lose hundreds of games before becoming a good player.
  7. Chess is everything: art, science, and sport. (more…)

The Difference Between Skill and Luck

  
  Education
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Basketball comes closest to chess in terms of being the game with the most skill involved. In comparison, hockey looks more like the lottery (and don’t even ask about trading). 

The bottom line is that the law of smaller numbers allows for more variance in individual player and game outcomes in a sport like baseball or hockey – in baseball the most skilled hitter only gets up to bat a few times per game and in hockey the star players aren’t on the ice much more than a period or two out of three. Less plate appearances or ice time can mean that it is more likely that a fluke of some sort, good or bad luck, can make an impact.  This is in contrast to basketball where there are only five players at any time and the stars typically play most of the game – more playing time means a bigger sample, by extension this means less variance.

Eight Questions That Go Bump in the Night

  
  Education
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Why do the gurus who proclaim a “feel” for the market tell us to eliminate emotions from trading?

Would 80% of traders make money instead of losing it by placing trades through “enrichers” instead of “brokers”?

Why do people who offer programs on making a living from trading make their livings from offering programs?

Why do beginners think they’d have an easier time beating professionals at trading than at golf, boxing, racecar driving, or chess?

Why are so many market newsletters bullish or bearish, when the most common market outcome is little or no change?

What happens when contrary opinion is the dominant school of thought?

Why do trend followers follow trend following once it goes out of favor?

If exchanges make more money than brokers; brokers make more money than market makers; and market makers make more money than traders, is the answer to success in the markets to always have people who are your customers?

10 Lessons for Traders

  
  Education
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1. Trading affects psychology as much as psychology affects trading – This was really the motivating factor behind my writing the new book. Many traders experience stress and frustration because they are trading poorly and lack a true edge in the marketplace. Working on your emotions will be of limited help if you are putting your money at risk and don’t truly have an edge.

2. Emotional disruption is present even among the most successful traders – A trading method that produces 60% winners will experience four consecutive losses 2-3% of the time and as much time in flat performance as in an uptrending P/L curve. Strings of events (including losers) occur more often by chance than traders are prepared for.

3. Winning disrupts the trader’s emotions as much as losing – We are disrupted when we experience events outside our expectation. The method that is 60% accurate will experience four consecutive winners about 13% of the time. Traders are just as susceptible to overconfidence during profitable runs as underconfidence during strings of losers.

4. Size kills – The surest path toward emotional damage is to trade size that is too large for one’s portfolio. We experience P/L in relation to our portfolio value. When we trade too large, we create exaggerated swings of winning and losing, which in turn create exaggerated emotional swings. (more…)

Top Ten Reasons Not to Trade– and Why You Should Do It Anyway

  
  Education
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#1 Trading creates no greater good
– like when you buy grain futures, the price skyrockets, and you make a killing! A poor farmer plants more seeds as a consequence, third world children get affordable bread, hmm, did I say you make a living?

#2 Trading makes you selfish
– and that’s why filthy rich old speculators turn to philanthropy.

#3 Staring at screens all day is not healthy
– which is true, and why slow lunch hours are perfect for physical exercise.

#4 Staring at screens all day is not good for your social skills
– which is why traders are out having fun when the market is closed. (Don’t “normal” people spend evenings in front of the TV?)

#5 The market is a casino
– where scrupulous gamblers make it easier (and more important) for sane traders to make a living. (more…)

Chess and Trading

  
  Education
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As an avid fan of the game of the KINGS, I have never paid attention before between the amazing similarities between chess and trading, until I read a BRUCE PANDOLFINI book called “Every move must have it’s purpose”

This is an amazing game that is not fully devoted to trading but to the concepts of business and chess and how they look alike.

Understanding the concepts is basic in chess or trading. Concepts are more important than theory.

Let me do a quick lecture about those concepts.

 

The first concepts he points is “Play the board not the opponent”. This is an amazing concept and clearly fits any trader and their psychology. The board is the chart and the opponent in this case is our own emotions. A player must focus on the board and his game only. Same the trader.

 

The second concepts is “ Don’t ignore a good hunch” This can clearly applies to the traders especially like me, who trades intuitive. Many times You do not have an entry setup that fits your rule but it doesn’t violate either but You know there is a big move coming, I can not explain it butyou feel the move and you take it and voila clink$$.You may not understand it because we try to rationalize but our right side of the brain is telling us “this is correct”. Go for it.

 

Third concept “Play with a plan”.We need to have an edge, a methodology and stay with it. In chess if you do not have a strategy you are going to be massacred. Same in the markets. Move your pieces in a nonsensical way and you are out of the game in less than 12 moves. (more…)

Three Principles of Trading Psychology

  
  Education
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Principle #1: Trading is a performance activity – Like the playing of a concert instrument or the playing of a sport, trading entails the application of knowledge and skills to real time performances. Success at trading, as with other performances, depends upon a developmental process in which intensive, structured practice and experience over an extended time yield competence and expertise. Many trading problems are attributable to attempts to succeed at trading prior to undergoing this learning process. My research suggests that professional traders account for well over three-quarters of all share and futures contract volume. It is impossible to sustain success against these professionals without honing one’s performance–and by making sure that you don’t lose your capital in the learning process. Confidence in one’s trading comes from the mastery conferred by one’s learning and development, not from psychological exercises or insights.
 
Principle #2: Success in trading is a function of talents and skills – Trading, in this sense, is no different from chess, Olympic events, or acting. Inborn abilities (talents) and developed competencies (skills) determine one’s level of success. From rock bands to ballet dancers and golfers, only a small percentage of participants in any performance activity are good enough to sustain a living from their performances. The key to success is finding a seamless fit between one’s talents/skills and the specific opportunities available in a performance field. For traders, this means finding a superior fit between your abilities and the specific markets and strategies you will be trading. Many performance problems are the result of a suboptimal fit between what the trader is good at and how the trader is trading.
 
The core skill of trading is pattern recognition – Whether the trader is visually inspecting charts or analyzing signals statistically, pattern recognition lies at the heart of trading. The trader is trying to identify shifts in demand and supply in real time and is responding to patterns that are indicative of such shifts. Most of the different approaches to trading–technical and fundamental analysis, cycles, econometrics, quantitative historical analysis, Market Profile–are simply methods for conceptualizing patterns at different time frames. Traders will benefit most from those methods that fit well with their cognitive styles and strengths. A person adept at visual processing, with superior visual memory, might benefit from the use of charts in framing patterns. Someone who is highly analytical might benefit from statistical studies and mechanical signals. 

Chess and Trading

  
  Education
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Many a trading firm looks for a history of athletic participation in the search for trading talent.  While athletics, as performance domains, share some characteristics with portfolio management and trading, the overlap is far from perfect.  Both athletics and trading are competitive activities, and both require practice and disciplined performance.  It is not surprising that the personalities that gravitate to competitive sports are also drawn to market competition.

What differentiate athletics and trading, however, are the requisite cognitive skills.  The pattern recognition and deep analyses typical of short-term traders and investors are not necessarily skills required of sprinters, weightlifters, baseball outfielders, or football linemen.  Many sports require rapid hand-eye coordination; not necessarily explicit decision-making under conditions of risk or uncertainty.  Across many trading firms and types of trading, I have not found a strong correlation between athletic achievement and trading success.

(more…)

4 Points to be Successful Traders

  
  Education
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1) Diversify: If you have a pattern you  trade successfully, you don’t have to grow your size. Instead, look to diversify  to a different pattern (different market, different time frame) not correlated  with the first. You’ll smooth out your returns, as one pattern makes money while  the other experiences drawdown. You’ll also achieve the portfolio manager’s goal  of superior return for less risk exposure.
2) Review Entries: Review your trades for the week and see how much heat  you took on your winners. This will give you an idea of how good your entries are.
3) Review Exits: Review your trades for the week and see if the market  went in your favor or against you after you exited. This will give you an idea  of how good your exits are.
4) Work Orders: Get into the habit of working orders to buy at bid, sell  at offer or to place orders between the bid and offer to avoid paying a price  that is out of line with “fair value”. For the frequent trader, the single tick saved by good execution adds up over time.
The successful traders I’ve worked with never stop working on themselves. This is equally true of successful athletes, musicians, and chess champions. Small, steady improvements can create massively greater performance over time.

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