In the markets, less = more. Less positions, risk, decisions, hours at the screen and opinions of others = more money
Archives of “ethics” tag
rss1+10 Rules for Critical Thinking
- All beliefs in whatever realm are theories at some level. (Stephen Schneider)
- Do not condemn the judgment of another because it differs from your own. You may both be wrong. (Dandemis)
- Read not to contradict and confute; nor to believe and take for granted; nor to find talk and discourse; but to weigh and consider. (Francis Bacon)
- Never fall in love with your hypothesis. (Peter Medawar)
- It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories instead of theories to suit facts. (Arthur Conan Doyle)
- A theory should not attempt to explain all the facts, because some of the facts are wrong. (Francis Crick)
- The thing that doesn’t fit is the thing that is most interesting. (Richard Feynman)
- To kill an error is as good a service as, and sometimes even better than, the establishing of a new truth or fact. (Charles Darwin)
- It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so. (Mark Twain)
- Ignorance is preferable to error; and he is less remote from the truth who believes nothing, than he who believes what is wrong. (Thomas Jefferson)
- All truth passes through three stages. First, it is ridiculed, second, it is violently opposed, and third, it is accepted as self-evident. (Arthur Schopenhauer)
Rules for handling risk are..
· Gather as much information as possible before entering any risk.
· Get a toe wet first, if possible, before the final plunge.
· Risks alone are more valuable than when shoaled with others.
· During the peak moments of risk constantly evaluate and reevaluate.
· Always have a backup plan.
· Always have an exit.
· When in doubt, be bold.
Whatever your brand of risk, these guidelines will keep you afloat to take another, and another, through the discovery of self.
A Few Things About Risk
People have an amazing ability to discount risks that threaten their livelihood. That’s dangerous because people who should be the most experienced experts in a field may be the least able to objectively assess their industry.
Risk has a lot to do with culture. Europeans and Canadians are generally wary of the stock market. For Americans, it’s a pastime. The French prefer raw milk. Americans are warned against it. Canadians are banned from it. Europeans are terrified of nuclear exposure. Americans couldn’t care less. Walk through an international airport and you’ll see one person wearing a face mask to prevent the spread of illness and another letting their kid crawl on the floor. Everyone wants to believe they’re thinking objectively, but most of the time you’re just reflecting the cultural norms of where you were born.
Success is an underrated risk. Jason Zweig once wrote: “Being right is the enemy of staying right — partly because it makes you overconfident, even more importantly because it leads you to forget the way the world works.”
Risk’s greatest fuels are debt, overconfidence, impatience, a lack of options, and government subsidies.
Its greatest enemies are humility, room for error, and government subsidies.
Nothing in the world can give a damn less than risk. Risk doesn’t care about your political views or your morals. It doesn’t care what your view of the market is, or what you were taught in school. It’s an indiscriminate assassin and a master at humbling ideologies.
Managing your luck
You absolutely must have an edge. In the short run, you can get lucky and make money doing something that has no edge, but expected value will catch up with you. Don’t gloss over this point, because it might just be the single most important thing we can say about trading–you have to have an edge.
You must be consistent. You must trade with discipline. Nearly everyone who writes anything about trading says these things, but the why is important: you must be consistent because the market is so random. You cannot change your approach based on short-term results because those short term results are confounded by the level of noise in the market. In other words, you can lose doing the right thing and make money doing the wrong thing. Too many traders make adjustments based on evaluating a handful of trades, and this is likely a serious (fatal) error. See point 1: have an edge, and, now, apply that edge with consistent discipline. Markets are random; you don’t have to be.
Luck matters. There’s no denying that, but so does skill and so does edge. In fact, the more skillful you are as a trader, paradoxically, the more luck matters. (See Mauboussin book and video link near the end of this post.) You can be successful without luck, but the wildly successful traders (who are outliers) always have some significant component of luck. If the overall level of investment skill in the market is rising (far from a certain conclusion, in my opinion), then performance will converge and luck will play a bigger part for the top performers.
If you understand the part luck plays in your results, you will realize that emotional reactions to your results are largely inappropriate. Yes, that sentence sounds like something a Vulcan (from Star Trek) would say, but it’s true. Too many traders ride the emotional roller coaster from euphoria to depression based on their short term results, and this really doesn’t make sense because you’re letting luck (random fluctuation) jerk your emotions around. (It is worth considering, though, that this works for some traders and may actually help their performance.)
5 Quotes From Market Wizard Steve Clark
I was so inexperienced that I didn’t have the fear – the fear that cripples people who have been in the business too long. I have seen that so many times. Very few people maintain their ability to take risk throughout their career. Most don’t Most can’t. They have had too many bad things happen to them, too many fat tails, and it damages people – Steve Clark
What Clark is talking about here sounds like the opposite of beginner’s luck. I have seen a number of examples of this in the business world. People who work their whole lives to build something by taking risks suddenly don’t want to take risks anymore. They realize at some point that they now have things that they are no longer willing to lose. They have too much experience watching others fail.
It was a terrible shock to me ego. I began to doubt my ability. It was a very depressing time. It lasted for several months. I’ve seen this happen to many traders, and I have gone through it sever times myself. When you find that you can’t make any money, smaller and smaller losses take on greater and greater emotional significance, and you lose all perspective. – Steve Clark
How to Handle a Justifiable Loss
- Accept the loss and forget about it.
- Record it in your record book and do not rehash it.
- Do not discuss the loss with anyone.
- Do not recruit anyone’s sympathy or sorrow.
- Do not feel sorry for yourself.
- Do not soothe your loss by going overboard on food, drink, or sex.
- Do not feel as if you have been punished.
- Do not punish or hate yourself for losing.
- Do not allow yourself to accept any punishment from loved ones.
- Do not accept ridicule or blame from your broker.
- Do not blame your trading system.
- Do not alter your technique, system, or methods.
- Do not fear making the next trade
- Do not respond by allowing your market studies to fall behind.
AFFIRMING BETTER TRADING
“Any thought put into your mind and nourished regularly, will produce results in your life.” John Kehoe
An affirmation is a statement made in the present about the future as if it had already occurred in the past. Let me say it more simply. An affirmation is a simple statement about what you want to become true in your life. You state it in the present tense as if it were already true. You repeat your hopes and dreams. You declare the opposite of your fears. For example, the fear that you could lose all your money becomes: “I grow my capital through consistently applying my winning methods.”
Be careful to word the affirmation in the present tense. Statements made in the future stay in the future. “Next month I’ll turn my trading around.” stays out there in the future. Now is when you need to turn the trading around.
Affirmations can be repeated to yourself silently or aloud. You can incant them with feeling or whisper them to yourself. You can record them and play them, or write them and read them. A good time to assert them is just as you’re falling asleep or waking up, or any other time of the day. You can say them while you drive or wait in a bank line or as you watch the market or manage a trade. (more…)
"How do I get rid of the fear?"
Alas, this is the wrong question.
The only way to get rid of the fear is to stop doing things that might not work, to stop putting yourself out there, to stop doing work that matters.
No, the right question is, “How do I dance with the fear?”
Fear is not the enemy. Paralysis is the enemy.
RISKING
Trading is all about risk Control !The Following excerpt is from one of my favorite audiotapes ,’Risking ‘by David Viscount.I keep this on my desk to remind me each day to keep “Risking .”Only a person who risks is truly free
To laugh is to risk appearing the fool. To weep is to risk appearing sentimental. To reach for another is to risk involvement. To expose your feelings is to risk exposing your true self. To place your ideas, your dreams before a crowd is to risk their loss. To love is to risk not being loved in return. To live is to risk dying. To believe is to risk despair. To try is to risk failure. But risks must be taken, because the greatest hazard in life is to risk nothing. The person who risks nothing does nothing, has nothing, is nothing. They may avoid suffering an d sorrow, but they cannot learn, feel, change, grow, love, live. Chained by their attitudes they are slaves; they have forfeited their freedom. Only a person who risks is free.