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Chess Lesson That Can Really Help Profits

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…)

What are you certain about the market or trading?

If I do not take it will take from me.
You are only as good as your last trade.
Rigidity and complacency ends careers.
Always get paid for taking risk.
A trend never ends when it should.

I am certain that the only way for me to have a chance to be a successful trader is to do daily work and not become lazy or use shortcuts.

I am certain I would rather take every planned trade and lose than not execute a planned trade.

I am certain I am always uncertain before taking a trade. I am certain when I am most relaxed in my mind is when I am doing the right thing regardless of the outcome.

I am certain there is no mathematical (technical) formula to beat the market. If there was, there wouldn’t be a market.

I am certain that opportunities are easier made up for than losses. I add one more: I am certain that the habits or procedures we resist represents our true trading system at that moment.

I am certain that trying to ‘predict’ will end in failure.

I am certain that most of my trades that I convince myself to make investments will end up losing money.  I am certain that if I do not plan a trade including stop loss  points I will be sorry.  I am also certain that I will violate both of the above sometime in the next month.

I am certain that I know myself…. or at least I think I do for the moment.

I am certain that uncertainty is a concept that most traders need to come to terms with before any sort of success will be attained.

Trading To Win

One of the easiest mistakes any trader can make is not a ‘trading’ mistake at all. Rather, the mistake is complacency with his or her trading skills and knowledge. Unfortunately, trading is not like riding a bike – you can (and will) forget how. Obviously you’ll always know how to enter orders, but the efficiency and accuracy of your trading will diminish without constant renewal of your trading mindset.

The reason that most traders don’t undergo psychological self-development is a lack of time, and that’s understandable. However, a good book, DVD or Coaching Class is actually an investment in yourself, and ultimately an investment in your bottom line. Today as a primer, and a challenge, I’d like to review some self-development concepts that Ari Kiev explores in his book ‘Trading To Win, The Psychology Of Managing The Markets‘. This in no way is a substitute for his excellent book, but they are still useful ideas even in this abbreviated form. None of them are going to be new to you, but all of them will be valuable to you.

1. Plan the entire trade before you enter the trade. Have an entry strategy, and an exit point (both a winning exit point and a non-winning exit point). This will inherently force you to look at your risk/reward ratio. Write these entries and exits down in a journal.

2. Eliminate distractions.
It’s difficult enough to find trading time at all if it’s not your regular job. If you’re a part-time trader who trades at work between meetings and phone calls, think about this: there are full-time professional traders who are concentrating on nothing other than taking your money. It’s not that they’re better or smarter than you – they just have the time to focus. If you must trade, set aside blocks of time to study or trade without distraction. Or it may be more feasible to do your trading on an end-of day basis, meaning you
place your orders and do your ‘homework’ the night before when you can
focus on it.

3. Choose a method or a small group of methods, and stick to them.
Far too often we see a trader adopt a new indicator or signal only to see it backfire. Become a master of your favorite signals, rather than a slave to any and every signal. Understand that an indicator will fail sometimes. That’s ok. The sizable winning trades should more than offset the small losing trades initiated by an errant signal. This trading method is designed to eliminate the emotional bias of trading.

4. Choosing not to trade can also be a prudent choice. You’ll frequently hear ‘don’t fight the tape’. The same idea also applies to a flat market – you can’t make stocks do something they’re just not going to do. Wait for good entries into a developing trend rather than force a bad entry into an unclear trend. (more…)

Viewers Tuning Out CNBC

Competition is heating up in the business news segment. The May Nielsen numbers suggest that CNBC’s ratings are being squeezed by the likes of Fox Business Network.

The substantial stock market sell off in May, which was the worst in nearly 50 years, may also have contributed to lower numbers at CNBC. According to Nielsen, CNBC lost 14% of its coveted 25-54 advertising demographic during the business day (5a-7p) versus last year. CNBC’s post-market show Fast Money is down a whopping 17% year over year.

Making the situation more interesting is the fact that CNBC has spent a considerable amount of money bringing in new talent in the wake of Charlie Gasparino’s defection to Fox Business. CNBC also lost Dylan Ratigan to sister network, MSNBC. CNBC has added commentators such as John Carney, Amanda Drury, and Kate Kelly in recent months. Herb Greenberg also just debuted yesterday as CNBC’s Senior Stock Commentator.

CNBC has long been criticized for being too easy on corporate management and for doing too much cheerleading, especially in the go-go years. Now that viewers have a wider selection of business channels to consider, it would appear as if CNBC must step up its game in order to retain its position.

It does not appear as if the network is taking the ratings slump sitting down, however. CNBC has added new shows such as “Strategy Session,” which has yet to debut, and “Options Action.” It will be very interesting to see how this competition between the big three business networks plays out, and how each evolves going forward.

From a viewer’s perspective this seems like a very good development, because it will force Bloomberg, FBN, and CNBC to continually improve and innovate their coverage, whereas in the old days, complacency may have been a tempting alternative.

 

The Right Approach to Losses

First of all, understand that losses are a necessary part of any risk taking activity.  The goal should always be to blunt the impact of  losses as opposed to eliminating the losses altogether.  There is a distinct difference between minimizing the impact of losses versus minimizing the number of losses.  If the money you are risking stands between you and hunger, think twice before placing it on the line.  Risk capital must be true risk capital.

Second, losses are better teachers than wins.  As noted above, wins often lead to complacency.  Losses usually compel you to figure out “why.”  If small and incidental to your overall strategy, they confirm that your plan is  working.  If relatively outsized and/or unexpected, losses make you examine the precedent trades and determine if your strategy should be adjusted.  This is how advancement happens.  Thomas Edison needed nearly 10,000 tries to find filament for an incandescent bulb that would last for more than a few hours.  Of the thousands of attempts that did not produce the bulb, Edison did not see them as failures, but rather as things that didn’t work which was useful knowledge in and of itself.  By knowing what didn’t work, Edison was able to find his way to what did.  Containing and then examining your losses will help you do the same with your trading strategy.

Third, recognize that losses that are kept small relative to your portfolio are a big part of the fuel that propels your account higher.  They say that you are taking prudent steps to grow your account… that you are “in the game.”  The alternative, especially if you accept that losses are a necessary part of trading, is no risk taking or the taking of outsize risk (refusing to cut losers).  Neither of these provide a path to account growth.  If you can find/develop a trading method that allows for (in fact, embraces), many small losses while still delivering profits overall, you will have gone a long way toward eliminating the trepidation that most new traders feel about entering the fray.  You will also be able to stop worrying about having the “right” picks.

Pull out partial Profits

channel-profitsPull a portion of winnings out of the market to prevent trading disci-pline from deteriorating into complacency. It is far too easy to rational-ize overtrading and procrastination in liquidating losing trades by say-ing, “It’s only profits.” Profits withdrawn from an account are much more likely to be viewed as real money.

Opportunity Knocking

OPPORTUNITY KNOCKSTrading provides one of the last great frontiers of opportunity in our economy. It is one of the very few ways in which an individual can start with a relatively small bankroll and actually become a multimillionaire. Of course, only a handful of individuals succeed in turning this feat, but at least the opportunity exists. A rigid stop-loss rule is an essential ingredient to the trading approach of many successful traders. Winning streaks lead to complacency, and complacency leads to sloppy trading.

In Search Of Emotional Discipline

 emotional-discipline
 
 
 
 
 

  • An intra-day watch list keep you organized, focused, and ready to ACT
  • Trading specific candlestick patterns forces you to be consistent in your observations
  • Trading 15 min bars allow the market enough time to marinate and develop patterns
  • 15 min timeframe give you the opportunity to calmly stalk your prey and not rush to judgement (more…)