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Trading Difficulties -One Liners

  
  Education
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Trading Difficulties

  • Cut winning trades short even though you know your trade setup is solid.
  • Failed to pull the trigger on a perfectly good trade because of fear of loss.
  • Let losing trades run hoping for a return to breakeven.
  • Added to a losing position in the hope that the market would turn around.
  • Made profi ts in the morning but gave them back in the afternoon.
  • Became more aggressive after losing money.
  • Took unplanned trades when the market suddenly moved.
  • Stopped trading or reduced position size after a loss.
  • Traded greater position size than prudent money management practice would advise.
  • Held trades longer than they should have been held looking for a “home run.”
  • Failed to take a perfectly sound setup because the last two trades were losers.
  • After a day of big profits, your confidence soared and your trading suffered.
  • Consistently made small money but have been unable to elevate your trading performance.

These trading difficulties hurt. They not only hurt your account, but they also cause mental and emotional suffering. No other profession tests your psychology as does trading. These difficulties and unskilled trading behaviors arise from the underlying mental and emotional challenges traders face.

Trader Psychology

  
  Education
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  1. Transcending Common Trading Pitfalls
    • All market behavior is multifaceted, uncertain, and ever changing.
    • “I am employing a robust, positive expectancy trading model and am appropriately managing risk on each and every trade.  Losses are an inevitable and unavoidable aspect of executing all models.  Consequently, I will confidently continue trading.”
    • Denial of loss and uncertainty is extremely destructive because it prevents us from thinking in terms of probabilities, planning for the possibility of loss, and consequently from the necessity of consistently managing risk.
    • If we view markets as adversarial we cut ourselves off from emotionally tempered, objective solutions to speculation (opportunities to profit)
    • Blind faith is no substitute for research, methodical planning, stringent risk management, playing the probabilities, and unwavering discipline
    • Depression is a suboptimal emotional state because it allows past losses or missed opportunities to limit our ability to perceive information about the markets in the present
    • We are not our trades; they are merely an activity in which we are engaged
    • Greed is linked to fear of regret, which is the greatest force impeding a trader’s performance outside of fear of loss
    • Market offers limitless opportunities for abundance
    • Trading biases prevent us from objectively perceiving reality, thereby limiting our ability to capitalize on various opportunities in the markets.

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Timeless Qualities Essential to Speculation

  
  Education
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    1. Self-reliance: A man must think for himself and must follow his own convictions. Self-trust is the foundation of successful effort.
    2. Judgment: That equipoise, that nice adjustment of the faculties of one to the other, which is called good judgment—essential to the speculator.
    3. Courage: That is, confidence to act on the decisions of the mind. In speculation, there is value in the dictum: Be bold, still be bold; always be bold.
    4. Prudence: The power of measuring the danger, together with a certain alertness and watchfulness, is very important. There should be a balance of prudence and courage; prudence in contemplation, courage in execution.
    5. Pliability: The ability to change an opinion, the power of revision. He who observes and observes again is always formidable.

The “Greek Issue”-Fascinating flowchart

  
Analysis, Education
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It is wrong to think that contagion stems only from Grexit. An excessive compromise with Greece could result in moral hazard, particularly in relation to structural reforms. This could undermine the medium-term stability of the euro area. The tail risk is that Greek politicians try to leverage too much the fear of Grexit “contagion risk”. We complete our analysis by looking at the vulnerability of other euro peripherals and the ex-post tools to limit contagion.

The 7 rules of Managing Risk

  
  Education
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1.)Overcome fearRisk Management

2.) Remain flexible – When you don’t know what’s going to happen, the best strategy is to be ready for anything.

3.) Take reasoned risks – reasonable exposure and positive edges only.

A Reasoned risk is more like an educated guess rather than a roll of the dice.  A Reasoned risk limits exposure so that one or a few trades will not affect the trader’s account too adversely should the trades turn out badly.  Great traders aren’t gamblers.

4.) Prepare to be wrong

5.) Actively seek reality

6.) Respond quickly to change – When a trader determined a place to get out of the trade, a competent trader will respond quickly and get out, thereby reducing his exposure to continued uncertainty to zero.

7.) Focus on decisions, not outcomes.

The power of fear

  
  Education
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Fear is the emotion of survival.

Before every game or before the first trade of the day there is always that little bit of uncertainty. That feeling in your stomach. For me it always went away as soon as the first hit or the dink of my first order getting filled. Same is true with my fear of public speaking.

It was not always that way. I had to do the work, be prepared, and convince myself whatever the outcome I would work to achieve a better outcome the next time. Eventually the fear of not doing became worse than the fear of doing.

Like I always say, do it once, the good habits that is. (more…)

Trade Management & Psychology (One Liners )

  
  Education
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  • Let winners run. While momentum is in phase, the market can run much further than might be expected. Do not exit winners without reason!
  • Be quick to admit when wrong and get flat.
  • Sometimes a time stop is the right solution. If a position is entered, but the anticipated scenario does not develop, then get out.
  • Remember: if one thing isn’t happening the other thing probably is.
  • Flat is a legitimate position.
  • Be careful of correlations. Several positions can often equal one large position bearing unacceptable risk. Respect the potential for correlations to change—you have to deal with today’s correlation, not the correlation that existed when you put on the position.
  • The crowd is not always wrong.
  • Most trading problems come from an incorrect perception of risk. If you’re trading with an edge, the “risk” of any trade being a loser is not actually a risk at all.
  • Intuition is real, but all traders develop it. Intuition, alone, is not an edge.
  • Intuition must be trained properly. It is very easy to develop incorrect intuition due to cognitive biases and the nature of the market.
  • Mental capital is just as important as financial capital. Protect both.

7 Points To Follow If You Are A Trader

  
  Education
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  1.  Expect long hours of study and research. Assume you will lose money in the beginning.
  2. A person interested in becoming a trader must have the mindset of an entrepreneur. Risk, irregular income, and spending money to make money, are all part of the business.
  3. You must trade like a business person and not a gambler. Gamblers need not apply; go to Vegas instead.
  4. Risk management will be your priority. Too much risk exposure will eventually lead you to be an unemployed trader with no trading capital.
  5. You are your own human resource department. Be prepared to manage your own greed and fear.
  6. To keep your morale up, you must keep all your losses small, and allow your winning trades to be as large as possible.
  7. Jesse Livermore’s quote for potential candidates: “The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.”

Risk, Reward and Uncertainty

  
  Education
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“From an early age, we are all conditioned by our families, our schools, and virtually every other shaping force in our society to avoid risk. To take risks is inadvisable; to play it safe is the counsel we are accustomed both to receiving and to passing on. In the conventional wisdom, risk is asymmetrical: it has only one side, the bad side. In my experience—and all I presume to offer you today is observations drawn on my own experience, which is hardly the wisdom of the ages—in my experience, this conventional view of risk is shortsighted and often simply mistaken. My first observation is that successful people understand that risk, properly conceived, is often highly productive rather than something to avoid. They appreciate that risk is an advantage to be used rather than a pitfall to be skirted. Such people understand that taking calculated risks is quite different from being rash. This view of risk is not only unorthodox, it is paradoxical—the first of several paradoxes which I’m going to present to you today. This one might be encapsulated as follows: Playing it safe is dangerous. Far more often than you would realize, the real risk in life turns out to be the refusal to take a risk.”

Life is fraught with risk. There is no getting away from it. However we try to control the direction of our lives, there are times when we fail. Therefore, we might as well accept that life is a game of chance. If life is a game of chance, to one degree or another, we must be comfortable with assessing odds in the face of risk.

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