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To Be Right vs Making Money

the_thinkerThere is a strong psychological bias to be right about we do with our investment. In most people, this bias greatly oversides the desire to make a profit overall in our approach, or it inhibits us from reaching our true profit potential. Most people have overwhelming needs to control the market. As a result, they end up with the market controlling them.

No Patience on Entry

Anticipating a signal that never comes is common for traders monitoring the market closely and eager to get some money working. For example, a good buying opportunity arises when a stock breaks from an ascending triangle. Jumping in ahead of the breakout is not an ideal situation because the probability of success buying an ascending triangle is not as good as buying a breakout from one. What causes this mistake? I think a fear of missing out on the maximum amount of profit or the fear of too much risk in buying a stock are the two most common mistakes. Essentially, the two guiding forces of the stock market are at work here; fear and greed. By buying early, we can realize a greater profit when the stock does breakout since we will have a lower average cost. Or, by buying early we can reduce risk since a breakout followed by a pull back through our stop will result in a smaller loss as we have a lower average cost. What tends to happen, however, is that the stock does not break out when expected and instead pulls back. This either leads to an unnecessary loss or an opportunity cost of the capital being tied up while other opportunities arise.

The Solution

The simple and obvious solution is to wait for the entry signal, but there are also some things you can do to help yourself stay disciplined. Rather than watch potentially good stocks tick by tick, use an alarm feature to alert you to when they actually make the break. Watching stocks constantly is somewhat hypnotic, and I think the charts can talk you in to making a trade. However, letting the computer watch the stock may help you avoid the stock’s evil trance. Another good solution is to focus on different thoughts when considering a stock. Don’t think about potential profits, don’t think about minimizing losses. Instead, focus in on the desire to execute high probability trades. It takes time to reprogram yourself, so persevere.

7 Simple Ways To Say “No”

1. “I can’t commit to this as I have other priorities at the moment.”

If you are too busy to engage in the request/offer, this will be applicable. This lets the person know your plate is full at the moment, so he/she should hold off on this as well as future requests. If it makes it easier, you can also share what you’re working on so the person can understand better. I use this when I have too many commitments to attend to.

2. “Now’s not a good time as I’m in the middle of something. How about we reconnect at X time?”

It’s common to get sudden requests for help when you are in the middle of something. Sometimes I get phone calls from friends or associates when I’m in a meeting or doing important work. This method is a great way to (temporarily) hold off the request. First, you let the person know it’s not a good time as you are doing something. Secondly, you make known your desire to help by suggesting another time (at your convenience). This way, the person doesn’t feel blown off.

3. “I’d love to do this, but …”

I often use this as it’s a gentle way of breaking no to the other party. It’s encouraging as it lets the person know you like the idea (of course, only say this if you do like it) and there’s nothing wrong about it. I often get collaboration proposals from fellow bloggers and business associates which I can’t participate in and I use this method to gently say no. Their ideas are absolutely great, but I can’t take part due to other reasons such as prior commitments (#1) or different needs (#5).

4. “Let me think about it first and I’ll get back to you.”

This is more like a “Maybe” than a straight out “No”. If you are interested but you don’t want to say ‘yes’ just yet, use this. Sometimes I’m pitched a great idea which meets my needs, but I want to hold off on committing as I want some time to think first. There are times when new considerations pop in and I want to be certain of the decision before committing myself. If the person is sincere about the request, he/she will be more than happy to wait a short while. Specify a date / time-range (say, in 1-2 weeks) where the person can expect a reply.

If you’re not interested in what the person has to offer at all, don’t lead him/her on. Use methods #5, #6 or #7 which are definitive.

5. “This doesn’t meet my needs now but I’ll be sure to keep you in mind.”

If someone is pitching a deal/opportunity which isn’t what you are looking for, let him/her know straight-out that it doesn’t meet your needs. Otherwise, the discussion can drag on longer than it should. It helps as the person know it’s nothing wrong about what he/she is offering, but that you are looking for something else. At the same time, by saying you’ll keep him/her in mind, it signals you are open to future opportunities. (more…)

Trading: The Difference Between Playing Offense & Defense

The sooner traders learn to carefully manage risk the better off they will be. So many new traders come in with only the thoughts of profits dancing in their heads. This is equivalent to a football team only focusing on scoring points and not planning their defense.In trading you must play both sides of the ball. You have to be able to score points against the market and not allow the market to score back those points on you.

Your entries are your offense and your exits are your defense.

Letting a winner run is your offense, cutting your loser short is your defense.

Your automatic buy stop is your offense and your automatic stop loss is your defense.

Buying a monster stock is an offensive move, planning on how you will exit with your profits is your defensive move.

Identifying a trend is your offensive play creating a trading plan on how to trade it is your defensive play.

Your choice on what to trade is playing offense, choosing your position size is playing defense.

Your watch list is playing offense choosing how much capital to risk on any one trade is playing defense.

In trading your wins are not permanent and your profits can be taken back, when you score you have to next ensure that you are not scored on. The goal of keeping your profits has to be far above the desire for making quick money with big risk.

My notes on Reminiscences of a Stock Operator

Of course there is always a reason for fluctuations, but the tape does not concern itself with the why and wherefore.

My plan of trading was sound enough and won oftener than it lost. If I had stuck to it I’d have been right perhaps as often as seven out of ten times.

What beat me was not having brains enough to stick to my own game.

But there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying or selling stocks daily or sufficient knowledge to make his. play an intelligent play.

The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.

It takes a man a long time to learn all the lessons of all his mistakes. They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side. It took me longer to get that general principle fixed firmly in my mind than it did most of the more technical phases of the game of stock speculation.

My losses have taught me that I must not begin to advance until I am sure I shall not have to retreat. But if I cannot advance I do not move at all. I do not mean by this that a man should not limit his losses when he is wrong. He should. But that should not breed indecision.

I was still ignoring general principles; and as long as I did that I could not spot the exact trouble with my game. (more…)

14 Ways To Acquire Knowledge

14 WAYS TO ACQUIRE KNOWLEDGE

  1. PRACTICE

Consider the knowledge you already have — the things you really know you can do. They are the things you have done over and over; practiced them so often that they became second nature. Every normal person knows how to walk and talk. But he could never have acquired this knowledge without practice. For the young child can’t do the things that are easy to older people without first doing them over and over and over.

[…]

Most of us quit on the first or second attempt. But the man who is really going to be educated, who intends toknow, is going to stay with it until it is done. Practice!

  1. ASK

Any normal child, at about the age of three or four, reaches the asking period, the time when that quickly developing brain is most eager for knowledge. “When?” “Where?” “How?” “What?” and “Why?” begs the child — but all too often the reply is “Keep still!” “Leave me alone!” “Don’t be a pest!”

Those first bitter refusals to our honest questions of childhood all too often squelch our “Asking faculty.” We grow up to be men and women, still eager for knowledge, but afraid and ashamed to ask in order to get it.

[…]

Every person possessing knowledge is more than willing to communicate what he knows to any serious, sincere person who asks. The question never makes the asker seem foolish or childish — rather, to ask is to command the respect of the other person who in the act of helping you is drawn closer to you, likes you better and will go out of his way on any future occasion to share his knowledge with you.

Ask! When you ask, you have to be humble. You have to admit you don’t know! But what’s so terrible about that? Everybody knows that no man knows everything, and to ask is merely to let the other know that you are honest about things pertaining to knowledge.

  1. DESIRE (more…)

Excellence Is A Drive From "Inside"

excellence793681A gentleman was once visiting a temple under construction. In the temple premises, he saw a sculptor making an idol of God. Suddenly he saw, just a few meters away, another identical idol was lying.

Surprised he asked the sculptor, “Do you need two statutes of the same idol”. “No” said the sculptor. “We need only one, but the first one got damaged at the last stage”. The gentleman examined the sculptor. No apparent damage was visible.

“Where is the damage” asked the gentleman.

“There is a scratch on the nose of the idol. Where are you going to keep the idol”.

“The sculptor replied that it will be installed on a pillar 20 feet high. When the idol will be 20 feet away from the eyes of the beholder, who is going to know that there is scratch on the nose?” The gentleman asked.

“The sculptor looked at the gentleman, smiled and said “God knows it and I know it “.

The desire to excel should be exclusive of the fact whether someone appreciates it or not. Excellence is a drive from “Inside” not “Outside“.

Master Talk Presents…William Eckhardt!

“One adage that is completely wrongheaded is that you can’t go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke taking large losses, professionals go broke by taking small profits. What feels good is often the wrong thing to do. Human nature does not operate to maximize gain but rather to maximize the chance of a gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance. Two of the cardinal sins of trading – giving losses too much rope and taking profits prematurely – are both attempts to make current positions more likely to succeed, to the severe detriment of long-term performance. Don’t think about what the market’s going to do; you have absolutely no control over that.
Think about what you’re going to do if it gets there. It is a common notion that after you have profits from your original equity, you can start taking even greater risks because now you are playing with “their money”. We are sure you have heard this.
Once you have profit, you’re playing with “their money”. It’s a comforting thought. It certainly can’t be as bad to lose “their money” as “yours”? Right? Wrong. Why should it matter whom the money used to belong to? What matters is who it belongs to now and what to do about it. And in this case it all belongs to you.”

Defination of Great Trader

Great traders that we have had the pleasure to know and to be around, on exchange floors and on trade desks, had certain repeatable traits that all level traders can learn, or take something from;

  • Empathy and the ability to listen.
  • Faith in their own ability to get things done, if life and in work.
  • Humility, and a willingness to accept defeat as graciously as accepting success.
  • Desire to work towards, and not to just expect, having more success than defeat.

They listened more than they spoke. They had two ears and one mouth and had learned to use them in the right proportion. The ability to listen, either to a mentor, to your inner self, or to the market, is critical for success.

They had an undying faith and belief in their own ability, and accepted that most things that went wrong were probably outside of their control, because they planned their work. Their brutal honesty with themselves and with others allowed them to develop a faith in their own ability that was beyond the norm.

They were humble, and understood that they were not smarter, stronger, nor wiser than others; they just knew that there were few others that had more faith in their own ability to follow something through and to achieve their goals. (more…)

Trading Quotes for Traders

The tape tells the truth, but often there is a lie buried in the human interpretation
~~Jesse Livermore~~

 
 Your human nature prepares you to give up your independence under stress. when you put on a trade, you feel the desire to imitate others and overlook objective trading signals. This is why you need to develop and follow trading systems and money management rules. They represent your rational individual decisions, made before you enter a trade and become a crowd member.
~~A. Elder~~

 
 Charts not only tell what was, they tell what is; and a trend from was to is (projected linearly into the will be) contains better percentages than clumsy guessing
~~R. A. Levy~~ 

 
The biggest risk in trading is missing major opportunities, most of enormous gains on my accounts came from 5% of trades.
~~Richard Dennis~~

 
Take every gain without showing remorse about missed profits, because an eel may escape sooner than you think
~~Joseph de la Vega~~

 
Losing is part of trading. The best traders don’t get perturbed by losing trades, since over the long run they know they will be successful more often than not. When you are afraid of losing, you end up losing or missing opportunities because you are afraid to trade.
~~Trading to Win, Ari Kiev~~

 
In trading, the vast market consists of neophytes who are looking for magical answers to make lots of money quickly and with little risk. They want specific ideas. They want to be told exactly what to do. Those looking for such things will not find them. They will not be successful as long as they continue to favor the easy over the
truth.
~~Curtis Faith ~~ 

 
The difficulty in trading lies not in the concepts but in the application.
Curtis M. Faith