Archives of “emotion” tag

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4 Steps to Changing Your Bad Trading Habits

  
  Education
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1. Understand the benefit of change. First, ask yourself if you need to change. Then, ask yourself what you need to change. Identify your current habits and ponder the benefits of changing them. Perhaps while trading you are feeling negative emotions such as stress, anxiety, temptation, or frustration. And ultimately, these emotions cause you to make poor, impulsive and self-destructive decisions. Write down what would happen if you were no longer feeling such negative emotions. That is, what would happen if you were able to remain calm and clear-headed while trading?

2. Dissect the proposed change and benefits. Find as many holes in the prospective change as you can. Don’t just convince yourself that things will become better if you change. Make sure the grass actually is greener on the other side of the fence. Be clear about what you want to change and how you will go about it. Write down the benefits that will take place if you do indeed change.

3. Recognize the situation that triggers your self-destructive action. Write down those all-too-familiar conditions, or circumstances, that lend themselves to activating negativity within you (e.g., all the things done, or said, that push your buttons). Also, write down how you are going to consciously recognize them during the day as they happen. Now, next to each item, write down what systems and processes you will implement to avoid letting that situation become emotional. (more…)

Learning to do nothing

  
  Education
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This is a lesson I keep needing to come back to. I can see that trading for amusement has been my own downfall a thousand times in the last few years, and to just sit at the sidelines can be painful.
learntodonothing
I just read a brilliant quote by the trader John Piper.
“Once able to trade, it is very likely that a person will make the emotional decision to do just that when bored. This timing is unlikely to correspond with a low risk trading opportunity.”

The Five Investing Essential Truths

  
  Education
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5-number

Markets are notoriously hard to read and people see only what they themselves want to see.

Bulls will find reasons why certain stocks will go higher, while at the same time, Bears will find many reasons for the same stocks to go lower.

The seldom-admitted truth is that most of the time, markets exist in some indeterminate state!

The main thing is that you cannot trust consensus and you cannot rely on the “Establishment.”

You can’t find refuge in the herd and you must resist the urge to join the crowd.

Your passion of the moment will most certainly create a disaster over the years!

On the other hand, if you do stick with the following five essential truths, you do stand a better than average chance to invest profitably:

1. Markets are unpredictable and ill-suited to forecasts.

2. Long-term fundamentals are key.

3. Investor emotion leads to volatility.

4. Valuation discipline should guide investment selection.

5. Perspective and patience are always well rewarded.

 

The 10 Commandments

  
Education, Life
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1. Thou shall not go against the trend.
If it be down, let it be down. The market is bigger and stronger than you. 
Follow the market but be one step ahead of the crowd.
2. Thou shall not follow the herd instinct
Just because many people are buying a certain stock does not mean you should follow suit. If people want to buy rubbish stocks, that is their bad luck. Don’t make it yours.
3. Thou shall treat the market as a business, not a casino
The stock market is not meant to be a casino and you should not be there to gamble. 
4.Thou shall not buy high-debted and no-earnings stocks
All companies that folded are highly geared with negative earnings. Don’t buy rubbish shares; don’t buy somebody’s liabilities.
5. Thou shall only buy solvent companies with good-growth prospects
Present earnings are important, but future earnings are more important. That’s why we have companies selling at high PER (Price earnings ratios).
6. Thou shall not be overconfident
Overconfidence leads to overtrading. Once you overtrade, you may not be able to control your own emotion. Fear may set in when the market is not going the way you expect it. It may disrupt your plan, turning your profitable trade into a loss. 
7. Thou shall invest within the comfort zone
Don’t be too greedy; don’t play with borrowed money. Debt is a disease. It can cause you a lot of problem if you are not careful.
8. Thou shall be patient
The market is designed to transfer money from the impatient to the patient. You must have very good reasons before you switch counters. Very often, the shares you sell move up faster than the shares you buy.
9. Thou shall be disciplined
Don’t change your strategy at the eleventh hour. If you have placed a stop-loss in your chart, don’t remove it unless it is replaced with a trailing stop-loss.
10. Thou shall be knowledgable
Investment in knowledge pays the best dividend. No one is so skillful that he cannot better his best. Keep learning for knowledge is boundless

Three of Buffett’s rules

  
  Education
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  • Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.
    If you lose money on an investment, it will take a much greater return to just break even, let alone make additional money. Minimize your losses by finding quality companies that are temporarily selling at discounted prices. Then follow good capital management principles and maintain your trailing stops. Also, sitting on a losing trade uses up time, money and mental capital. If you find yourself in this situation, it is time to move on.
  • The stock market is designed to transfer money from the active to the patient.
    The best returns come from those who wait for the best opportunity to show itself before making a commitment. Those who chase the current hot stock usually end up losing more than they gain. Remain active in your analysis, look for quality companies at discounted prices and be patient waiting for them to reach their discounted price before buying.
  • The most important quality for an investor is temperament, not intellect.
    You need a temperament that neither derives great pleasure from being with the crowd or against it. Independent thinking and having confidence in what you believe is much more important than being the smartest person in the market. Most of the time, the best opportunities are found when everyone else has given up on the stock market. Over-confidence and emotion are the enemies of a high quality portfolio.

Stock Market Wisdom :Benjamin Lee

  
  Education
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Benjamin Lee

“There are laws governing the financial markets just as there is gravity law to keep all things together on the earth.”

  • “Stock market is a battlefield. Always remember to survive in the game first. Only those that survive the battle can enjoy the spoils of the war.”
  • “Never revenge for your losses in share market. It will get you killed.”
  • “It is better to be late, and catch the right worm, than catching the snake’s tail.”
  • “The stock market is always there. It has been there for centuries, and it lives longer than anyone of us here. Therefore, don’t rush and trade all your capital like there is no tomorrow.”
  • “Human is always subject to his own emotion. How many of us can break free from the greed, fear, and unfounded hope that are so common in stock market?”

“Do not underestimate the power of a raging bull, and the strength of a bear in stock market. Both have the power to trample you to death if you fight against them.”

“The secret recipe for success in stock market is simple. 30% in market analysis skills, 30% in risks management, 30% in emotion control, and 10% in luck.”

“Time is the cause, Volume is the fuel, and Price is the result. Of all these three, Time is the greatest factor in determining stock market direction.”

“The worst enemy to any stock traders and investors are Greed, Fear, and unfounded Hope.”

Greed and Fear

  
  Education
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Greed and Fear are two of the strongest emotions that can have major influences on our trading behaviours and hence profitability.

We have all experienced these, from the inability to put a trade on to the gut ache seeing money on the table evaporate.

Recently I have been thinking of these two emotions in a different light. What I want to propose is that these two emotions have very different “time-frames” of operation, with respect to trading. Now I have
no detailed research or data to back this up, but I felt I’d put this out there and see what other traders thought…

Fear = Short Term = Most likely to be experienced before or soon after a trade is placed.

Greed = Longer Term = Emotion that plays a major role further into the trade timeline.

My rationale here is that it is FEAR that (some) people feel before putting on a trade, worrying if they should place the trade or not, once in a trade it is FEAR that makes them start hoping that it wont go
against them.

With GREED, I think this starts to come in later. For instance, if the position has become profitable, then starts to loose and become negative, it is GREED for the money that was on the table that keeps you
in the trade, not fear of loss. As it usually takes time for the trade to become profitable, the emotion of GREED by association is the emotion that takes longer to materialise. Indeed, I would argue that when
you think back to the trades ‘that could have been’, you are more likely to remember the trades that ‘could have’ made you a good return, rather than the quick losses you took?

The Probability of Self-awareness

  
  Education
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With 20 years of trying different things and hearing from others I made an important discovery that has shaped me as a trader and a coach.  What I found is that more people will improve using an approach to change that emphasizes expanding self-awareness and emotional intelligence.

(With so many different approaches advertised as a ‘change process’, I think its important to share what I’ve found to work. That’s really what we have to do, right?  Doing more of what works and less of what doesn’t.)

Very briefly, what I mean by expanded self-awareness is:

1) the recognition that our thinking and our emotions are intertwined and both influence our perception and judgment that leads to our decisions and actions (this view also happens to be consistent what the leading brain scientists are now saying)

2) much of our motivation – the intertwined thinking/emotion that drives our behavior – is actually subconscious, e.g. we assume we are trading the market but on other levels we are also trading our P&L and our feelings about our P&L  (and what our P&L represents to us) is just one example. (more…)

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