Archives of “emotion” tag

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Trading commandments

  
  Education
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ten_commandments1.) Respect the price action but never defer to it.

Our eyes are valuable tools when trading, but if we deferred to the flickering ticks, stocks would be “better” up and “worse” down. That’s backward logic.

2.) Discipline trumps conviction.

No matter how strongly you feel on a given position, you must defer to the principles of discipline when trading. Always try to define your risk and never believe you’re smarter than the market.

3.) Opportunities are made up easier than losses.

It’s not necessary to play every day; it’s only necessary to have a high winning percentage on the trades you choose to make. Sometimes the ability not to trade is as important as trading ability.

4.) Emotion is the enemy when trading.

Emotional decisions have a way of coming back to haunt you. If you’re personally attached to a position, your decision-making process will be flawed. Take a deep breath before risking your hard-earned coin. See related link.

5.) Zig when others zag.

Sell hope, buy despair and take the other side of emotional disconnects. If you can’t find the sheep in the herd, chances are you’re it. (more…)

Trading Intuition

  
  Education
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I’ve heard from many traders that they often take decisions based on instincts. Actually, all non-quants use intuition in some form or another. If you are not using a program that takes all signals that your system produces, how do you decide between several equally good looking trading setups with similar risk to reward? Do you take them all or do you concentrate on only a few? The odds are that you are doing the latter and your ultimate choice for capital allocation is subconscious.

Even though we are defined by our decisions, we are often completely unaware of what’s happening inside our heads during the decision-making process.
Feelings are often an accurate shortcut, a concise expression of decades’ worth of experience.
The process of thinking requires feeling, for feelings are what let us understand all the information that we can’t directly comprehend. Reason without emotion is impotent. (more…)

Risky cravings

  
  Education
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“When you are threatened with extinction, you act like nothing matters,” said Andrew Lo, a professor at M.I.T. who has studied the role of emotions in trading. Mr. Kerviel, he said, is a case study in loss aversion.

“The best traders are the ones who have controlled emotional responses,” Mr. Lo said. “Professional athletes have the same reaction – they use emotion to psych them up, but they don’t let those emotions take them over.”

29 One Liner Trading Rules

  
  Education
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  • Take no trades without establishing a complete and precise trading plan before the initial trigger.
  • Keep an open mind for new market scenarios based on what the price action and pattern setups provide.
  • Always trade with the trend.
  • Once I am in a trade, stick with the original plan for target and stop-loss – Don’t panic!
  • Make every trade meet the strategy requirements and what happens from there is up to the market.
  • I need to exercise greater patience in both buying and selling.
  • Be more willing to take a position, even if it is very small. It is tough though to gain the confidence to do so as the market has been tough. (more…)

10 Trading Rules

  
  Education
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  1. Always wait for the setup: no setup – no trade. Agree. If your strategy doesn’t provide you a good risk/reward trade to make, then your job is to be patient until it does. Ironically, this often requires you to sit out some very good moves in the market and be inactive at the very same times you want to be aggressive.

  2. The best trades work almost right away. Agree, but with one important caveat – this rule greatly depends upon your strategy. Some strategies will require greater patience than others. If trading short-term, this rule is almost always correct, but if your time frames are longer, then you also have time on your side which requires more patience but that patience can pay off if your analysis is correct.
  3. Never take a big loss. If it doesn’t ‘feel’ right. Remove it! Disagree. Sometimes you have to take a big loss to prevent the risk of an even greater loss. Refusing to take a big loss when a mistake has been made can be very costly. I also disagree with the view that “If it doesn’t feel right, remove it.” Actually, some of the best trades you will ever make in your career are those trades that feel wrong and about as far from “right” as you can make it. Don’t believe me? Think over the last month or so about the trades you missed because they didn’t feel right but your strategy told you to hold or buy them anyway! It is also interesting to me that this rule says to trade by feel and at the same time advises in another rule not to trade by emotion. You can’t do one without the other!
  4. Always perfect your craft and sharpen your skills – good traders are constantly learning. Agree. No matter how skilled, intelligent, and successful you have been, there is always room for improvement. Moreover, because of the ever-growing changing nature of the market, what you do now to trade successfully won’t always work in every situation and the next market environment. Only experience and constant dedication to your job will provide you with the weapons for enduring market success.
  5. Be patient with winning trades – impatient with trades that fight back. Agree. Another good ways of saying – let your winners run and cut your losers short. The truth is that most individual traders and investors do the exact opposite – they sell winners too quickly and they hold losers far too long letting trades that went awry become long-term “trapped” investments. (more…)

Perceptions in Trading -Anirudh Sethi

  
Analysis, Education
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Image result for PerceptionsPerceptions are a normal part of daily life. It is normal to have a perception of someone, something or a situation, but this perception is often judgmental. One tends to allow feelings, emotions and looks to affect the perception. Despite being a normal and inherent part of human psychology, perceptions can be highly problematic if left uncontrolled in the case of traders.

A trader cannot allow perceptions to cloud his/her judgement and decisions. Perceptions can be deceiving and they thus need to be kept in check as they could lead to erroneous decisions.

In a perfect world, a trader will manage to be completely rational. He/she would be able to assess all facts so as to base decisions and choices on sound information and data. Such a perfect scenario would not allow emotions, perceptions and feelings to come into the picture. As a result the decision making process and the resultant decisions should be ideal. However this is an unreal scenario as we all know that this is not possible in a real world. This is what makes trading psychology so interesting, and yet so complicated and complex. However one should consider this in a positive way as it after all lies at the foundation of why the market and the life of a trader is so challenging and exciting.

The basic idea is to try to keep perceptions under control as much as possible. Despite all efforts though, even seasoned traders may find it hard to be veyr rational at times. One cannot forget that there is tension, pressure, emotion and various other aspects which come into play while a trader is trying to make up his/her mind about the best and the safest course of action. (more…)

Repetition Repetition Repetition

  
  Education
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In Daniel Coyle’s The Talent Code we learn the three rules of deep practice.  Rule number two is Repeat It.

“Nothing you can do – talking, thinking, reading, imagining- is more effective in building skill than executing the action, firing the impulse down the nerve fiber, fixing errors, honing the circuit.”

This explanation reveals why it is impossible to transfer trading prowess from one person to another.  You can’t talk, think, read, or imagine your way to elite performance.  The key lies in the “doing”, going through the motions.  Now that’s not to say talking or reading about trading isn’t helpful.  It is.  I pick up tons of insight from talking with other investors and traversing the trading blogosphere.  I’m like a hungry orphan hiding below the tables of successful traders just hoping they’ll drop a few morsels of wisdom I can chew on.  Yet it’s not a substitute for “executing the action”.  Nothing replaces sitting in front of my computer, monitoring positions, assessing  potential trades and most importantly pulling the trigger. (more…)

Trading is all about YOURSELF

  
  Education
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lgBelieveInYourselfTrading has to do a lot with yourself. Trading is not about the market.

You have to get your emotion and psychology right before you go to trade. Without the good emotion or feeling of the day, you will be most likely be losing during that day.

Do Not Trade, If …
– You cannot afford to lose the money. (Prepare to lose)
– You have a Bad day (quarrel with wife/child/boss).
– You are Sleepy
– You are Not comfortable in trading
– Technology failed You

Do not be afraid that you will lose the opportunity for the ride up or down. There are plenty of opportunity out there in the market everyday.

Remember: If you trade, you will lose money. If you don’t trade, at least you wont lose money.

The funny thing that i found out … People will lose money if they care about their money but people will make money if they don’t care about the money.
Get yourself right first and the money will come to you.

6 Trading Rules for Traders

  
  Education
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  • Devise a trading plan and follow it. I believe the best trading strategy is the one you’ve been able to review, back test and fits your trading style and risk tolerance. It is important that you know all vitals of the trade (the entries, possible exit targets, and where your stops may be prior to placing your trade orders.) By having a concrete plan, you assist in removing the emotion out of the equation.
  • Stick with the trend!There’s a reason why the cliché “The trend is your friend” exists. It’s because it’s true! Successful traders will always tend to follow the trend when trading. Remember, if you trade with the trend, you have the majority of the market on your side.
  • Control your emotions.This by far is the hardest thing for any trader to do. After all, it has been said that emotional control is 90‐95% of trading and the rest is your strategy. Therefore, I can’t say it enough times… Figure out a way to trade without emotions. To help with this matter, I believe it’s vital that you trade only with capital you can afford to lose. If you are using money that you need to pay your bills, you will almost certainly get emotional about every trade you make. In addition, I found that the more confident you are about your trading strategy, the better the chances are that you can trade with little emotional stress.
  • Record your trades in a trade journal.When I first started trading, I was a bit lax about this concept. But once I started doing recording my actions, I found that I was able to identify my strengths and weaknesses. I take about 30‐45 minutes each day after I’m finished trading for the day to review my trades and to analyze any disconnect from my original plan. This helps me strengthen my conviction of my plan.
  • Never trade unless the signal is clear.There are times when the market can confuse you. For me, confusion is a clear cut signal to keep out of the market. I always want my trades to be high probability signals. My signal has generated a winning percentage of more than 70%. So if I’m uncertain about a signal why would I want to take it, knowing that the chance of it winning is more like a coin toss or less? To me, that is gambling… and I do not consider myself a gambler.
  • Never make trades because you are bored. Sitting on the sidelines waiting for your next trade signal to line up can be very unsettling. Many traders have learned that trading out of boredom can blow out your account in a hurry. For me, trading out of boredom while failing to follow your trading signal is gambling.
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