- Hot stocks are only good when they are in up trends, when the party is over you have to break up with them.
- Hot stocks are great to trade in and out of but you don’t want to turn them into a life long investment.
- A good stock might look great on the outside with it’s price action but it may not have the best fundamentals for getting serious with.
- Hot stocks are great for the short term but for the long term you want a solid investment.
- Be careful with hot stocks they may look great on the outside but they can break your heart at any moment.
- A hot stock can be a lot of fun for awhile but they can be a lot of drama when no one wants them anymore.
- As long as a hot girlfriend is very popular she will be happy but when no one wants to date her she goes into a downward spiral. This applies to hot stocks as well.
Archives of “economics” tag
rssTrading Psychology Quotes
Anyone who claims to be intrigued by the “intellectual challenge of the markets” is not a trader. The markets are as intellectually challenging as a fistfight. Ultimately, trading is an exercise in self-mastery and endurance.
The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading.
Just remember, without discipline, a clear strategy, and a concise plan, the speculator will fall into all the emotional pitfalls of the market – jump from one stock to another, hold a losing position too long, and cut out of a winner too soon, for no reason other than fear of losing profit. Greed, Fear, Impatience, Ignorance, and Hope will all fight for mental dominance over the speculator. Then, after a few failures and catastrophes the speculator may become demoralised, depressed, despondent, and abandon the market and the chance to make a fortune from what the market has to offer. (more…)
15 Trading Rules For Day Traders
Trading rule No 1. Never chase. Forget about the Rupee loss for a moment as the real damage comes from the distraction it creates.
Trading rule No 2. Wait for the break. Most traders buy inside the range, get impatient and as a result they sell on first sign of strength which ends up being the breakout.
Trading rule No 3. Don’t ride the ticks and Rupee profits. It creates emotional turmoil and is draining. Prevention is best cure. Takes the fun out of the game.
Trading rule No 4. Price action trumps everything. Management lie or mislead but price action (money flow) never lies.
Trading rule No 5. Sell the news or a least sell partials. Markets discount everything and over the long run you will be better off.
Trading rule No 6. Always stay in control. Do NOT put yourself in news related coin toss trades, where the risk cannot be managed.
Trading rule No 7. Mind your own business, avoid conflict. If you take offence because someone has disagreed with your trade, then you are such a precious little petal.
Trading rule No 8. Do NOT set targets as all this creates is a premature EXIT. Run a trailer and let that take you out.
Trading rule No 9. Minimise whipsaw at all costs. It’s a trader killer. The root cause of trading failure more often than not, starts with whipsaw.
Trading rule No 10. Do NOT buy stretched breakouts. More often than not they recoil back into the range to flush traders out.
Trading rule No 11. Start will longterm charts and look to catch major breaks/moves. These tend to follow through and it makes it easier to run with winners.
Trading rule No 12. Turn trading rules into habit. There is no point in having trading rules if you dont apply them!
Trading rule No 13. And the most important; only tell your wife about your losers. 🙂
Trading rule No 14. Hit those stops, no questions asked. Hitting your stop and watching a stock rally hurts but not htting your stop and watching the stock fall hurts a hell of alot more.
Trading rule No 15. Avoid Blue Channels during trading hrs.Never Trade on TV Flashes ,Don’t trade on Result day -Untill u are having sure Result with u.Don’t trade on Data flashes about Options -Everything is leaked and known by few Top people
Clever take on how fraudulent the banking system and Wall Street was and still is 15 Lessons from the Movie The Big Short
15 Trading Lessons from the The Big Short
- It’s possible to be right about a market move, but your timing can be too early.
- If you trade too big, you can lose all your capital before you have the time to be proven right.
- AAA agency ratings are more to make their clients who sell bonds happy than to protect investors.
- In markets that are not liquid, you can get in trouble by being right but your assets not reflecting it with a big move.
- When there is no risk of ruin to bankers and mortgage brokers they will risk the ruin of their companies and the world economy in pursuit of quick and easy money.
- When there is little ‘skin in the game’ bankers and mortgage brokers take risks that they are not held accountable for.
- Macro traders have to be able to take a lot of heat and losses on their positions before they are right.
- Hedge fund investors want consistent returns on their money and not drawdowns. They are quick to pull their money out during a losing streak.
- You want to have a large risk/reward ratio on your trades. Betting $1 for a chance to make $20 is a good trade.
- There is a lot of fraud in the financial world.
- Financial fraud is almost never prosecuted in the banking world.
- The SEC has little oversight in the banking industry.
- Bailouts can cause you to lose on a trade you would have made money on.
- You have to take your profits off the table while they are available.
- “Whenever you find yourself on the side of the majority, it is time to pause and reflect.” – Mark Twain
Short Term Trading and Day Trading Is No Nostrum
Consider an excerpt from Trend Following:
When you trade more or with higher frequency, the profit that you can earn per trade decreases, whereas your transaction costs stay the same. This is not a winning strategy. Yet, traders still believe that short-term trading is less risky. Short-term trading, by definition, is not less risky, as evidenced by the catastrophic blowout of Victor Niederhoffer and Long Term Capital Management (LTCM). Do some short-term traders excel? Yes. However, think about the likes of whom you might be competing with when you are trading short term. Professional short-term traders, such as Jim Simons, have hundreds of staffers working as a team 24/7. They are playing for keeps, looking to eat your lunch in the zero-sum world. You don’t stand a chance.
Unfortunately, the flaws in day trading are often invisible to those who must know better. Sumner Redstone, CEO of Viacom, was interviewed recently and talked of constantly watching Viacom’s stock price, hour after hour, day after day. Although Redstone is a brilliant entrepreneur and has built one of the great media companies of our time, his obsession with following his company’s share price is not a good example to follow. Redstone might feel his company is undervalued, but staring at the screen will not boost his share price.
DOs and DONTs of any sort of correction
DOs and DONTS of a market crash
1. DO notice how cyclical markets are
2. DONT react emotionally
3. DO stick with your plan
4. DONT rely on gurus, shamans or talking heads (1000% Avoid Blue Channels )
5. DO note your own state of mind
6. DONT take actions while in a state of discomfort
7. DO notice the panic around you
8. DONT try to time the markets
9. DO look for signs of capitulation
10. DONT confuse the short term for the long term
Bonus: DO have a sense of humor
The Gravitational Constant of Markets
The gravitational constant, G, is 6.7 x 10^-11 N-MM/kg. Is there a similar G in financial markets for the super hot stocks? It is conventional wisdom that information is analyzed faster and better today than 20 years ago. If that is true, then G has increased. But is it true? Or is the constant really human nature?
An anecdote:
Iomega, the (in)famous disk drive manufacturer that was going to take over the world, ipo-ed in June 1996. It went parabolic. And then flamed out. It took 22 months to trade back at its IPO price before descending into oblivion and a takeover by EMC for about 3$/share in 2008.
GoPro, the hip portable camera manufacturer (with a surfing dude for a CEO) was going to take over the world (and was the next BIG media company), ipo-ed in June 2014. It took 17 months for this stock to trade back at its IPO price amidst a flameout — and with yesterday’s news of a loss, is on its way to oblivion — to be acquired by Sony? for about $3/share in about 5 years? (more…)
Physics To Help Deal With Market Risks
Misako Takayasu, a Tokyo Institute of Technology associate professor, spoke with The Nikkei about how “big data” will be used in the future to help market players manage risks based on principles of physics.
Excerpts from the interview follow.
Q: How do you use big data in your research?
A: Big data has allowed us to record human behavior and analyze it mathematically. Broader economic or social phenomena can be observed more clearly (in this way), like particles in physics.
As more and more trading data is accumulated, it is becoming increasingly possible to analyze and predict fluctuations using methods common in physics. The exponential growth of computer calculation speeds has also helped the process.
Q: What can you deduct from market data using these tools?
A: Data on ticks — the smallest increment of movement in the price of a security — can be used to gauge investor sentiment and how volatility is triggered. Market swings cannot be explained by a simple random-walk theory.
Markets become more stable when the number of contrarian investors increases. Conversely, they become unstable when more and more investors follow a market trend.
If market-followers dominate a market as it continues to climb, it will crash in the end. We may be able to explain the dynamics of a bubble with big data.
Q: What are the possible applications of big data in the market? (more…)
11 Thoughts on Trading Stress and Emotion
*Everyone has a stop-loss level: For some, it’s a price; for others, it’s a pain threshold.
* It’s not stress and emotion that get in the way of trading; it’s the stress and emotion that results when trading becomes personal: about you, rather than about supply and demand.
* The measure of a trader is how hard he or she works when markets are closed.
* Much bad trading is hormonal: too much testosterone, too little.
* When traders don’t track their results, it’s because they don’t want to know them.
* The best traders have a passion for markets; the worst have a passion for trading. (more…)
9 Rules by Nassim Taleb’s Risk Management
Rule No. 1- Do not venture in markets and products you do not understand. You will be a sitting duck.
Rule No. 2- The large hit you will take next will not resemble the one you took last. Do not listen to the consensus as to where the risks are (that is, risks shown by VAR). What will hurt you is what you expect the least.
Rule No. 3- Believe half of what you read, none of what you hear. Never study a theory before doing your own observation and thinking. Read every piece of theoretical research you can-but stay a trader. An unguarded study of lower quantitative methods will rob you of your insight.
Rule No. 4- Beware of the nonmarket-making traders who make a steady income-they tend to blow up. Traders with frequent losses might hurt you, but they are not likely to blow you up. Long volatility traders lose money most days of the week.
Rule No. 5- The markets will follow the path to hurt the highest number of hedgers. The best hedges are those you alone put on. (more…)