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Images for options traders

  
  Education
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I had just started reading David L. Caplan’s book The New Option Secret: Volatility. But today I merely want to share two powerful images from the book that might make it easier for beginning option traders to understand the impact of time on their position. More experienced traders can empathize.

Let me quote Caplan.

“The short premium trader thinks like a troubled adolescent who cannot wait for the time to pass, and move on to the next stage of life. . . . Each day presents the possibility of a major tragedy. The adolescent thinks, ‘When will it be over?’

“The long premium trader worries like an old man who has not yet left his mark on life, but is still trying to. He knows his days are numbered. . . . He says to himself, ‘If I only had more time.’”

Learn To Lose

  
  Education
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Unfortunately, it is the sad reality that the majority of people reading this are not profitable traders. If I could single out the most common culprit for sabotaging your trading it would have to be not being able to take a loss. This is especially prevalent amongst new traders, but I’ve seen this single trading mistake cripple even more experienced traders. In fact, I’ve run across countless traders that are generally successful if not for a few outsized losses. The problem is that these outsized losses are what cripple your account and push you into the negative column. You will never be a successful trader, EVER, until you learn how to take a loss.

Justification Mode

  
  Education
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As most experienced traders will tell you, the most difficult thing about trading well is that you’ve got to learn for yourself how to stop protecting your ego and readily own up to mistakes quickly before they do significant and lasting real damage. No matter how hard you try, you will never be able to entirely separate your ego away from your trading. Those who tell you that you can, are, in my view, just wrong and have little understanding about how to trade well. As long as you are human, you are going to trade with both emotion and ego, but the better traders among us simply learn how to work with both in ways that limit their negative influence.

The psychophysiology of trading

  
  Education
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The paper is old (2002) but still interesting. Andrew W. Lo and Dmitry V. Repin in “The Psychophysiology of Real-Time Financial Risk Processing” report the results of their experiment to measure the emotional responses of ten traders—five highly experienced and five with low to moderate experience. They wired up these traders to plot real-time changes in their skin conductance, blood volume pulse, heart rate, electromyographical signals, respiration, and body temperature.

Although the sample is very small and hence just a first stab, the authors noted some significant differences between the two types of traders. The less experienced traders, for instance, seem to be more sensitive to short-term changes in such market variables as deviations and trend reversals. Both sets of traders, however, saw spikes in their blood volume pulse in the face of volatility events.

Lo and Repin conclude that “emotion is a significant determinant of the evolutionary fitness of financial traders.”

Trading Losses

  
  Education
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Those who have chosen this very unique career of “trader” face a mountain of challenges each day based on ever-changing market conditions. Added to the market challenges are emotions, which can be 90% of the game. You can have a great method, strategy and be taught by the best, but if fear, apprehension or hesitation come up the trader won’t take the trade…..this is an emotional block. All successful and experienced traders learn quickly to become the masters of their emotions. To accept and manage their weaknesses and leverage their strengths.

At first most traders start by researching and determining a method to trade. They do little to emotionally prepare for what’s to come. Yet they quickly find out that their emotions come into play early on, especially if they experience immediate losses. Losing money coupled with one’s own emotional “baggage” can impact the minds thought process and outcome.
My work focuses on the power of the mind and in particular the power of thought. These three problems and solutions do too. Nothing happens without the some form of thought, be it sub-conscience or conscience. After all, isn’t this what we’re left with when sitting in front of our monitors trading? What comes into our minds, as we trade can be avalanches of different thoughts. These thoughts then have the ability to assist us and add to our success or become our worst nightmares resulting in multiple losses.

Traders over time, come to the realization that trading will force them to face ALL their old and current emotional baggage and blocks. And that NOT being able to manage or “dump” the baggage, can hit the bottom line quickly.
When a trader’s plan doesn’t work they tend to blame it on the method, when in reality it usually comes down to an emotion causing them to react inappropriately. We can pick up automatic emotional blocks that prevent us from implementing a method effectively. Many try to get over these emotions on their own, but few master the changes needed.

But lets get specific and to the heart of these three trading problems. The first reason traders lose may seem obvious but in reality it stems from long term social conditioning. It’s their inability to ACCEPT LOSS. Losing generates powerful emotions, such as fear, uncertainty, apprehension, and self-doubt especially with men. And while women today can also be as affected, the data is supported mostly by men as they represent a larger portion of the client base.

Men are socially conditioned to succeed from the time they enter the world. From little boys being read, “The Little Train That Could” to the environments that surround them as they grow up. They are guided to be become achievers. Influenced by family, friends, education, and career environments they are encouraged to seek professions of Doctors, Lawyers, and Bankers. Images and social metaphors reinforce them. Striving to be right, number one, the breadwinner, and the best, always seeking perfectionism. They are socially conditioned to be the family providers. Add to this various cultural pressures and demands and men have a built-in fundamental obligation to succeed. (more…)

Learn To Lose

  
  Education
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LEARN TO LOSEUnfortunately, it is the sad reality that the majority of people reading this are not profitable traders. If I could single out the most common culprit for sabotaging your trading it would have to be not being able to take a loss. This is especially prevalent amongst new traders, but I’ve seen this single trading mistake cripple even more experienced traders. In fact, I’ve run across countless traders that are generally successful if not for a few outsized losses. The problem is that these outsized losses are what cripple your account and push you into the negative column. You will never be a successful trader, EVER, until you learn how to take a loss.

20 Skills for the Trader

  
  Education
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1.      Know the difference between trading and investing.  We are traders, NOT investors.  ••  Disciplineis doing the right thing at the right time…every time! Survival in this business is dependent on the right decisions.

2.      Don’t let losers run!  Always use stops .  Riskmanagement is very, very important in your trading.  Don’t be stubborn in holding a position. Remember, while you may not be wrong often, The Market Is Always Right.  The best traders are the first to admit (to themselves and the market) that they made a mistake.

 3.      Trade only price pattern set-ups.

 4.      Trade for skill, NOT the money.  If you’re focused on the money aspect of trading…you’re not focused on the ‘trade’.  And SCARED MONEY NEVER WINS!

5.      Concentrate on what you are trade.  Each market has personalities, habits and friends…get to know them all.

 6.      Focus on your executions.  Remember, every execution is a trade.  Money is valuable…don’t leave it on the table. (more…)

Six trading lessons from speculator Jesse Livermore

  
  Education
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Stock operator’s reminiscences useful in today’s market

If you ask traders to choose the most influential trading book, more than likely, they’ll mention Reminiscences of a Stock Operator by Edwin LeFevre. This book describes the experiences of one of the world’s greatest stock speculators, Jesse Livermore.

Many of the anecdotal lessons included in the book are well known to experienced traders. For example: the market is always right; don’t over-trade; never argue with the tape; use stop losses, and always trade with the primary trend of the market.

Almost anyone can learn the mechanics of trading. It’s the psychological pitfalls that make trading one of the most challenging activities. No matter your skill level, it’s important to remember and obey the rules of engagement — another word for discipline.

With that in mind, this book contains dozens of important lessons. Here are a few of my favorites:

1. Learn how to lose

Livermore (speaking through the fictional character of Larry Livingston) complains how he’s made a series of trading mistakes that cost him a lot of money, although he wasn’t completely wiped out. The losses, he admits, were painful but educational:

“There is nothing like losing all you have in the world for teaching you what not to do,” he says. “And when you know what not to do in order not to lose money, you begin to learn what to do in order to win.”

After going broke three times in less than two years, Livermore has this advice: “Being broke is a very efficient educational agency.” He says that you learn little from your winners because they often take care of themselves. It’s the losers that will teach you lessons to last a lifetime. And as long as you don’t make the same mistake twice, you always have the opportunity to trade another day. (more…)

Markets Traders Have a Wild Imagination

  
  Education
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WILD IMAGAINATION
Traders lose because of their imagination and hope that it is disguised in the form of hope. Non-experienced traders can make very good guesses on directions at times, however they just choose not to place specific trading targets for their trading. If they do, they also remove them because of rapid moves in their favor. Now the interesting part starts: they start to imagine levels that they would like the market to move towards.  That never happens unless the market is in a strong trending move.

Why does this process occur?

Simple: traders hope to gain as much as they possibly can. Therefore, they get the “if” scenario wandering off with their thoughts. They want to max out on a move almost wishing to take the max point.

The thought that one trade could cover the losses of another trade is also preventing traders from setting realistic goals for price targets.

Book Review : Cloud Charts: Trading Success with the Ichimoku Technique by

  
  Education
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David Linton’s Cloud Charts provides a good introduction for new traders seeking to learn more about Ichimoku (or Cloud Charts).

It is divided into 3 sections with a total of 16 chapters.

The first section (comprising of 7 chapters) deals with general Technical Analysis

The second section (comprising of 5 chapters) introduces the reader to Ichimoku

The last section (comprising of 3 chapters) discuss more about Advanced Cloud Chart Techniques.

For the experienced traders, it is possible to skip the first 7 chapters and head straight to the second section where it introduces the Ichimoku indicators, the constructions of the chart and the various signals for trading.

In my opinion, the author (David Linton) is able to depicts pretty clearly on the construction of the charts; how various Ichimoku indicators are constructed and how it is represented on Ichimoku.

As a trader, there are times where we choose to neglect the construction of the indicators. On hindsight, I am glad that the chapters reinforce my understanding of the charts and its possible implications when I am looking for support/resistance and the possible change in trend.

One important aspect of Ichimoku charts is the use of colours to differentiate different ‘moving averages’ and the change in cloud direction (or kumo twist). The book did not fall short in this area with all the charts in colour. (more…)

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