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Life Lessons from Trading

In trading, we can all agree that fewer conditions or filters results in better conclusions, better understanding, and less curve fitting. Conditions or filters block information. Too filters can result in less new insight and fewer opportunities.

Here is where trading is a good lesson for life. As we grow older our tendency is to filter out information, people, paths. It’s partly a necessity to avoid the bad or overload, but good things can be missed. Our experience tends to specialize our knowledge and narrow our focus. Though this has some benefit in expertise what opportunities or knowledge or growth may be missed. Ignoring, filtering or refusing to hear or listen to ideas we disagree with or that are different than our own may lead to narrow mindedness, missed opportunity to change and important information. For younger people it might be seen as closing doors. Meeting new people, hearing new ideas, going to new places. Nobel laureates advise not to tighten parameters too tightly as the surprise result may reveal itself. I recommend opening up parameters, let the fresh air in. Let’s not become grumpy old men. We’ve seen closed small minded people and don’t look on them with respect. Broad vision is necessary to see above and beyond the noise. You really need to force yourself against the tendency to close the mind.

Three motivations For Traders

There are three motivations behind taking a trade: monetary reward, educational reward, and/or psychological reward. The first pays the bills, the second will pay the bills, and the last will prevent you from paying the bills.

Whenever I feel the pull of psychological reward, I have the voice saying “do you want to be a trader?” Letting go of the psychological need to take a trade or be right, is hard. Our brain does not know what money is. It listens in terms of chemical releases. Letting go of psychological reward is not easy. It is the most instantaneous form of reward.

The best way I know to give psychological power to money is to make a habit of seeing money as opportunity. Opportunity for financial freedom and opportunity to make another trade. The brain understands opportunity. This needs to be in balance as well.

If you are feeling the psychological pull, take a few seconds and answer the following. (more…)

Big Mistake Done By Traders

The big mistake traders make is labeling challenges as problems.  A challenge is a function of growth, pushing one’s boundaries, becoming more than you presently are.  A problem is a shortcoming, a deficit, something to move past.
If you are never anxious, you are never pushing your boundaries.  Growth requires movement outside our comfort zones.  That brings uncertainty, nervousness, and doubt.  
The big mistake traders make is trying to eradicate uncertainty, nervousness, and doubt.  They want to trade with confidence and conviction.  They want to fearlessly pull the trigger.  So they stay in their comfort zones and they never grow and they never adapt to changing market conditions.
The trader who wants to develop embraces uncertainty, doubt, and fear.  Growth comes from mastering those, not erasing them.
The big mistake traders make is justifying stasis by calling it “sticking to a process”, “controlling emotions”, and “staying disciplined”.  Every uncertainty is a challenge.  Every challenge is an opportunity for growth.  Mastering challenges means we continually evolve our processes and make growth our discipline.  
If you want to overcome a “problem”, find the developmental challenge it brings to you.  Your problem is a gift.  Unwrap it.  Figure out how it will make you better.  Then tackle one small piece of the challenge and set yourself up for success.  Once you’ve gotten that under your belt, tackle the next piece, then the next.  Bryan was right: confidence comes from doing the things we fear, not from living a static life free of uncertainty.  

MARK DOUGLAS -On 5% Successful Traders

douglasquote

There is a reason why so few traders succeed.  It is not for lack of study or effort or passion.  It is not for lack of education or a Bloomberg platform subscription.  It is not because only a select few have access to technical “secrets” (a.k.a. indicators).  No.  So few succeed at trading for the same reason that so few succeed at living an abundant life.

The unsuccessful refuse to think differently when faced with difficulties believing that luck has passed them by.  They do not succeed because the want of instant gratification and its fleeting rewards has replaced the need for sustainable, hard fought, earned rewards indicative of a mindset prepared to tackle failure as nothing but a mathematical equation: here is the problem now let’s find the solution.

The mediocre search for easy answers to difficult problems believing that the right answers to their questions are found somewhere “out there”.   The successful make difficult decisions where there are no easy answers, questioning whether their perception of what is out there is a distorted reflection of what is inside of them.

The best traders, according to Mark Douglas, think differently than others because they know that what is most important is “how they think about what they do and how they’re thinking when they do it.”

Objectivity in Trading -Anirudh Sethi

Image result for Objectivity in tradingTrading is a very interesting field, and also a highly challenging one. Being faced with changing prices, other traders’ actions, and your expectation and hope of making the right decision, is certainly not an ideal situation to make objective choices. Many a time traders feel the stress and tension of it all to be too heavy on their minds, and as a result, their judgement is clouded. They either act too rashly, or are way too slow and cautious.

So we can all agree that for a trader to be objective is definitely no easy feat. However, an objective mindset is indispensable for a successful trader. The market is going to be offering the trader all kinds of information and data, as well as suggestions and comments being made by fellow traders. A trader needs to learn how to be objective as well as have the flexibility to use that information so as to act upon it objectively. This is however easier said than done.

In reality most traders enter the market with many notions and mindsets, as well as certain biases. The goal is to try to make the best possible trading decision, but due to these aspects it is not always the case. All human beings have an innate tendency of trying to be quite certain about a decision they make, and so they sort of seek confirmation for their actions. However in trading you cannot always be fully certain of your choices, and in the vast majority of the cases you will not be. The best you can do is to acquire information so as to make well informed decisions and as a result minimize risk. Speculating in the financial markets is normal, but no matter how much you try to speculate, you can never be completely certain. (more…)

Three Emotions in Trading : FEAR, HOPE, AND GREED

Fear, hope and greed are probably the three most common emotions traders deal with.  Holding on to losers, exiting too early, or jumping in before confirmation are just a few examples of the things we do when emotion manages our trades for us.  Trading without well-defined boundaries can be tempting, especially when things like intuition and “gut feeling” are things we take pride in as human beings.

We’ve all heard stories about how someone’s gut instinct helped them to avoid a dangerous situation or how someone’s intuition led them to make a perfect decision with little or no substantive information to guide them.  As powerful as these abilities may be in our human experience, I’ve learned that they have no place in trading.  I have found that what we perceive as gut instinct or intuition while trading is usually just fear, hope, or greed in disguise.

I address these three specific emotions using three boundaries:

1. Stop Loss- At what price point is my idea proven wrong? 

This boundary addresses the fear of realizing a loss.

2. Time limit- How long do I give this trade to work?

Hoping that a trade will eventually work out as price goes no where only ties up capital that could be used for better trades.

3. Target- At what price point does my idea come to an end?

Having a clear target for your idea keeps you from being greedy (Exiting the majority of a position at the target and letting profits run on the remainder is an effective way to address greed with winning positions).

Two Types of Intuition

I distinguish two types of intuition – inherent and acquired. Inherent is the one you were born with and it is the end product of hundreds of thousands of years of evolution aka trying to survive in the fields. We are wired to seek instant gratification without a deeper thought about the future consequences, we are loss averse and stubborn.

While the inherent (core) intuition is the pre-installed software, each and everyone of us is born with, the acquired intuition is the upgrade we get through life as it is based on everything we experienced. Your brain remembers everything, even if you don’t realize it. Of course you can easily recall only the most vivid memories as depending on your everyday activity the brain has prioritized what is important and what is not.

When it comes to trading or investing, there is a reason you like some patterns more than others. The question is, should you trust your intuition? The contrarian school of thought in the market teaches that you should try to fade your intuition as it usually points you in the wrong direction. This is not always the case. If you have enough experience, your intuition is your biggest edge as it recognizes combinations of patterns and factors invisible for the normal eye. (more…)

Persistence -Self Discipline

Nothing in the world can take the place of Persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan “Press On” has solved and always will solve the problems of the human race.
– Calvin Coolidge

Persistence is the fifth and final pillar of self-discipline.

What Is Persistence?

Persistence is the ability to maintain action regardless of your feelings. You press on even when you feel like quitting.

When you work on any big goal, your motivation will wax and wane like waves hitting the shore. Sometimes you’ll feel motivated; sometimes you won’t. But it’s not your motivation that will produce results — it’s your action. Persistence allows you to keep taking action even when you don’t feel motivated to do so, and therefore you keep accumulating results.

Persistence will ultimately provide its own motivation. If you simply keep taking action, you’ll eventually get results, and results can be very motivating.  (more…)

6 Rules of Michael Steinhardt

1. Make all your mistakes early in life: The more tough lessons you learn early on, the fewer (bigger) errors you make later. A common mistake of all young investors is to be too trusting with brokers, analysts, and newsletters who are trying to sell you something.

2. Always make your living doing something you enjoy: Devote your full intensity for success over the long-term.

3. Be intellectually competitive: Do constant research on subjects that make you money. Plow through the data so as to be able to sense a major change coming in the macro situation.

4. Make good decisions even with incomplete information: Investors never have all the data they need before they put their money at risk. Investing is all about decision-making with imperfect information. You will never have all the info you need. What matters is what you do with the information you have. Do your homework and focus on the facts that matter most in any investing situation.

5. Always trust your intuition: Intuition is more than just a hunch — it resembles a hidden supercomputer in the mind that you’re not even aware is there. It can help you do the right thing at the right time if you give it a chance. Over time, your own trading experience will help develop your intuition so that major pitfalls can be avoided.

6. Don’t make small investments: You only have so much time and energy so when you put your money in play. So, if you’re going to put money at risk, make sure the reward is high enough to justify it.

THE BEST TRADERS ARE HUMBLE

When an ordinary man attains knowledge, he is a sage; when a sage attains understanding, he is an ordinary man.

– Anonymous

With some technical trading knowledge and experience, you become a trader.

But when you become consistent and profitable, you feel ordinary again. This is because you’ve grown aware of the great uncertainty you face in the markets.

You’ve gained a strong appreciation of risk. In fact, your respect for risk is so deep that you would feel humble. And in that sense, you will feel ordinary.