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9 Rules For Risk Management

  
  Education
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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…)

30 One Liner For Traders -Must Read

  
  Education
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1. Buying a weak stock is like betting on a slow horse. It is retarded.

2. Stocks are only cheap if they are going higher after you buy them

 3. Never trust a person more than the market. People lie, the market does not.

4. Controlling losers is a must; let your winners run out of control.

5. Simplicity in trading demonstrates wisdom. Complexity is the sign of inexperience.

6. Have loyalty to your family, your dog, your team. Have no loyalty to your stocks.

7. Emotional traders want to give the disciplined their money.

8. Trends have counter trends to shake the weak hands out of the market

. 9. The market is usually efficient and can not be beat. Exploit inefficiencies.

10. To beat the market, you must have an edge. (more…)

20 Signs That The Global Economic Crisis Is Starting To Catch Fire

  
  Education
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If you have been waiting for the “global economic crisis” to begin, just open up your eyes and look around.  I know that most Americans tend to ignore what happens in the rest of the world because they consider it to be “irrelevant” to their daily lives, but the truth is that the massive economic problems that are currently sweeping across Europe, Asia and South America are going to be affecting all of us here in the U.S. very soon.  Sadly, most of the big news organizations in this country seem to be more concerned about the fate of Justin Bieber’s wax statue in Times Square than about the horrible financial nightmare that is gripping emerging markets all over the planet.  After a brief period of relative calm, we are beginning to see signs of global financial instability that are unlike anything that we have witnessed since the financial crisis of 2008.  As you will see below, the problems are not just isolated to a few countries.  This is truly a global phenomenon.

Over the past few years, the Federal Reserve and other global central banks have inflated an unprecedented financial bubble with their reckless money printing.  Much of this “hot money” poured into emerging markets all over the world.  But now that the Federal Reserve has begun “tapering” quantitative easing, investors are taking this as a sign that the party is ending.  Money is being pulled out of emerging markets all over the globe at a staggering pace and this is creating a tremendous amount of financial instability.  In addition, the economic problems that have been steadily growing over the past few years in established economies throughout Europe and Asia just continue to escalate.  The following are 20 signs that the global economic crisis is starting to catch fire…

#1 The unemployment rate in Greece has hit a brand new record high of 28 percent. (more…)

What is Risk?

  
  Education
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This is another piece in the irregular Simple Stuff series, which is an attempt to make complex topics simple.  Today’s topic is:

What is risk?

Here is my simple definition of risk:

Risk is the probability that an entity will not meet its goals, and the degree of pain it will go through depending on how much it missed the goals.

There are several good things about this definition:

  • Note that the word “money” is not mentioned.  As such, it can cover a wide number of situations.
  • It is individual.  The same size of a miss of a goal for one person may cause him to go broke, while another just has to miss a vacation.  The same event may happen for two people — it may be a miss for one, and not for the other one.
  • It catches both aspects of risk — likelihood of a bad event, and degree of harm from how badly the goal was missed.
  • It takes into account the possibility that there are many goals that must be met.
  • It covers both composite entities like corporations, families, nations and cultures, as well as individuals.
  • It doesn’t make life easy for academic economists who want to have a uniform definition of risk so that they can publish economics and finance papers that are bogus.  Erudite, but bogus.
  • It doesn’t specify that there has to be a single time horizon, or any time horizon.
  • It doesn’t specify a method for analysis.  That should vary by the situation being analyzed.

(more…)

7 Things Each Trader Has To Accept

  
  Education
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If you truly are serious about being a trader then there are seven things that you will have to accept.

  1. You will have to accept that over the long term at best only 60% of your trades will be winners. It will be much less with some strategies.

  2. Accept that the key to being a successful trader is having big wins and small losses, not big bets paying off. Big bets can lead quickly to you being out of the game after a string of losses.

  3. Accept that the best traders are also the best risk managers, even the best traders do not have crystal balls so they ALWAYS manage their capital at risk on EVERY trade.

  4. If you want to be a better trader then you need to accept that trading smaller and risking less is a key to your success. Risking 1% to 2% of your capital on any single trade is the first step to winning at trading. Use stops and position sizing to limit your losses and get out when your losses grow to these levels.

  5. You must accept that you will have 10 trading losses in a row a few times each year. The question is what your account will look like when they happen.

  6. You have to accept that you will be wrong, a lot.  The sooner you accept you are wrong and change your mind the better off you will be.

  7. If you really want to be a trader then you are going to have to accept the fact that trading is not easy money. It is a profession like any other and requires much work and effort and even years to become proficient. Expect to work for free and pay tuition to the markets through losses until you learn to trade consistently and profitably.

(more…)

India's GDP growth to crawl at 4.7% in second quarter: ZyFin

  
  Education
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Barely over a week ahead of release of the official GDP data, research and analytical firm ZyFin today estimated India’s economy to expand by 4.7% in the  second quarter of the current financial year. The methodology used by ZyFin is distinct  and it claimed that it uses variables  which are lead indicators to the official data. If GDP indeed grows by this rate, the Finance  Ministry’s hopes of  GDP growth between 5-5.5%  in 2013-14 may be dashed.  

 
In the first quarter of the current financial year, the GDP expanded at a four-year bottom of 4.4%. At that time, ZyFin had estimated a growth of 4.5%. 
 
“We still believe that the economy is in a crisis mode and much below what the economy used to grow at a pace of around 8%”, Debopam Chaudhuri, Vice President of Research and Development at Zyfin told Business Standard.
 
However, even if the economy grows at this pace, it would be at a year high — both according to official and ZyFin estimates. In the second quarter of 2012-13, the economic growth was higher at 5.2% as per official estimates and by ZyFin’s calculations it was 5.1%.
 
“While the estimates indicate a sluggish recovery, high inflation, weak consumer sentiment and a slowing services sector will constrain any sustained recovery”, said the firm. (more…)

Daniel Kahneman: The riddle of experience vs. memory -VIDEO

  
Education, Video
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Using examples from vacations to colonoscopies, Nobel laureate and founder of behavioral economics Daniel Kahneman reveals how our “experiencing selves” and our “remembering selves” perceive happiness differently. This new insight has profound implications for economics, public policy — and our own self-awareness

 

Trading is Mental Game -5 points

  
  Education
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1.    A trader can only build confidence to take a real time trade entry after they have done the necessary homework in back testing through multiple market environments to know the probabilities of success and the possibilities of failure. Understanding how the markets have behaved with past price patterns can give the trader the boldness they need to push the submit button on their broker’s screen.

2.    Understanding the price level where your stop loss on a trade will be and also your potential price target will give you a good idea of the risk and reward dynamics of a trade set up. It is easier to trade when you know that you are risking $100 for a chance to make $300 and the odds are on your side with a great entry.

3.    Structuring your position sizing so that if your stop is hit you will only lose 1% of your total trading capital will eliminate much of your fear of failure. The urgency and importance of any one trade should be converted into the calm assurance of knowing that the current trade is just one of the next one hundred trades. You can overcome the majority of anxiety around trading when you simply trade small enough so that any one trade or a string of trades will not affect your long term trading success.

4.    Trading what you know and are familiar with is low stress trading. Trading a chart pattern, stock, or index that you have traded for years is familiar territory. Also trading markets inside your circle of competence creates confidence. Only trade futures, options, stocks, bonds, forex, and indexes that you understand. Many traders drown chasing unfamiliar waterfalls.

5.    A lot of performance confidence comes from having a detailed trading plan on what you will do before the market opens and the faith in yourself to execute that plan after the market opens. Knowing that your decisions will be based on the facts and the reality of price action and that you will not be swept away with emotions and ego while trading can allow you to rise above anxiety and instead operate with faith in yourself and your system

12 Signs You’re in a Bad Trade

  
  Education
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  1. Your entry is based on your opinion not a valid signal.
  2. Your bet is that a trend will change with no reason behind the bet.
  3. You are entering out of greed after a big move.
  4. If you are wrong about the trade you will suffer a huge loss.
  5. You enter a trade with no stop loss.
  6. You enter a trade with no exit strategy to bank any profits.
  7. You enter based on someone’s opinion.
  8. You enter a trade because you are bored.
  9. You are trading a market you have done zero back testing or chart studies on.
  10. You are trading futures or option contracts you do not understand.
  11. You are trading with confidence even though you have zero confidence.
  12. You have no idea what the hell you are doing.

European manufacturing PMI at 29-month high (Full Detail )

  
Analysis, Education
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Eurozone-wide manufacturing data for November has met forecasts, reaching their best level since June 2011 as national-level numbers from the sector also beat expectations.

The Markit purchasing managers’ index survey for the shared currency area came in at 51.6, just ahead of the 51.5 predicted in a poll undertaken by Reuters.

Any reading above 50 indicates growth.

Markit said:

The recovery in the eurozone manufacturing sector accelerated again in November. Although the pace of expansion remained modest overall, the real positives were that growth extended into a fifth successive month with the rate of increase hitting a near two-and-half year high.

At national level:

  • Italy’s PMI reading for the month was 51.4, better than the 50.9 forecast
  • Germany’s index came in at 52.7, narrowly ahead of expectations of 52.5

  • France’s manufacturing sector continued to shrink, but by less than expected, with its PMI reading 48.4 against expectations of 47.8

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