Archives of “finance” tag

rss

Be Flexible-5 Points to Win in Trading

  
  Education
#  #  #  #  #  #  #  #  #  #  #

Flexibility for the trader  to move with price action is the key to successful trading. You can be rigid with your rules and risk management but you must be flexible when it comes to how the future plays out in price action for any market or stock. It is not those that predict the future that make a lot of money in trading but those that react to what is actually happening that are able to profit from price action.

  1. The ability to change your mind and reverse your trade in the other direction when proven wrong  is a powerful trait.
  2. The ability to admit you are wrong and take your stop loss can save your account.
  3. Put your ego aside and look at what is happening not what you believe should happen.
  4. Trade price action not your opinions.

  5. Always realize the markets are bigger than you are, they are always right.

Trading Rules & A Trading Plan

  
  Education
#  #  #  #  #  #  #  #

There is a saying if you do not know where you are going…how will you get anywhere. There is some what of an analogy with trading and having rules and a trading plan. When you follow trading rules which match your personality along with your trading plan, you are on a path to just let the probabilities occur. Every facet of your trading needs to be thought out. It is not easy developing a trading plan with rules…however once you have it in place & accept the fact that any trade is 50/50 & does not have to work…your edge over time could possibly provide you a rising equity curve.

When you have trading rules & you follow it……you reduce the anxiety and stress levels. You know you need to follow your plan because the only certainty when trading is complete uncertainty. If you think you know where any market is going and do not put on a protective stop…Good luck and would bet you will encounter a huge shock one day.

Part of your trading rules are what to buy or sell

How much to buy or sell

When to get out with a profit or loss… (more…)

George Soros- “The Master of Speculation”

  
  Education
#  #  #  #  #

 sorosSoros: “The Myth”

Soros’ “The Alchemy of Finance” is a seminal investment book… it should be read, underlined, and thought out page-by-page, concept-by-idea. He’s the best pure investor ever… probably the finest analyst of the world in our time.”

-Barton Biggs

Soros: “The Reality”

“My father will sit down and give you theories to explain why he does this or that. But I remember seeing it as a kid and thinking, Jesus Christ, at least half of this is B.S., I mean, you know the reason he changes his position in the market or whatever is because his back starts killing him. It has nothing to do with reason. He literally goes into a spasm, and it’s his early warning sign.”

-George Soros’ son, Robert

George Soros on Himself

“My approach works not by making valid predictions but by allowing me to correct false ones.”

-George Soros

Soros and Exits

“When George is wrong, he gets the hell out. He doesn’t say, ‘I’m right, they’re wrong.’ He says, ‘I’m wrong,’ and he gets out, because if you have a bad position on, it eats you away. All you do is think about it — at night, at your home. It consumes you. Your eye is off the ball completely. This is a tough business. If it were easy, meter maids would be doing it.”

– Alan Raphael (Ex-Soros CIO)

 

Volatile vs. Smooth

  
  Education
#  #  #  #  #  #

“Conventional economic reasoning says that if two stocks have similar expected future cash flows and similar dependence on the market, we prefer the one that is less volatile. But might we not see some advantage to stock in volatile company A, which has survived many crises, over stock in safe, untested company B? Perhaps A’s stresses have allowed evolution of the characteristics that will succeed in the future, whereas B is narrowly positioned for the conditions of the past. In the future, perhaps A’s volatility will allow it to move faster into opportunities and away from dead ends, and to evolve as conditions change.”

– Aaron Brown, Red-Blooded Risk

Why does academia assume lower volatility is better?
How many real world instances have you seen confirming that more volatile = more robust, while smooth = over managed, artificial, and possibly brittle?
What are some of the advantages of embracing volatility — managing it versus shunning it?

EGO-The Trader’s biggest enemy

  
  Education
#  #  #  #  #  #

The trader’s biggest enemy is their own EGO.

Ego: a person’s sense of self-esteem or self-importance.

1. The new traders with big egos always have but confidence in their trading ability before developing competence in trading. New traders that trade before educating themselves are ignorant of their own ignorance.

2. Ego driven traders think they are special and will beat the market, even without putting in the work. They feel this way even though there is no evidence from their past trading success.

3. Most stubbornness in traders arises from the egos refusal to change, to learn, or to accept they are wrong about something.

4. The ego will make you hold a trade that is going against you, in the hope that you can prove yourself right when it reverses.

5. The biggest cause of trading too big of a position size, is ignoring risk management in favor of confidence in an unknown outcome.

6. Arrogant traders will focus on being right about predictions more than developing a robust trading methodology.

7. Ego driven traders put being right above being profitable. Their goal is ego gratification, not profitable trading.

Successful traders trade a plan based on logic, reason, probabilities, historical prices, and risk management.

Hedge Fund Market Wizards – Joe Vidich

  
  Education
#  #  #  #  #  #  #  #  #  #  #

A critical distinction of all great investing books is that every time you re-read them, you find insights that you somehow missed the previous times. Recently I had the opportunity to re-read some of the chapters in Hedge Fund Market Wizards. The section about equity traders is my favorite one, so I delved into it again. In this post, I am featuring some interesting observations from Jack Schwager’s conversation with Joe Vidich:

1. Position sizing is a great way to manage risk

The larger the position, the greater the danger that trading decisions will be driven by fear rather than by judgment and experience.

If you are diversified enough, then no single trade is particularly painful. The critical risk controls are being diversified and cutting your exposure when you don’t understand what the markets are doing and why you are wrong.

It is really important to manage your emotional attachment to losses and gains. You want to limit your size in any position so that fear does not become the prevailing instinct guiding your judgment. Everyone will have a different level. It also depends on what kind of stock it is. A 10 percent position might be perfectly okay for a large-cap stock, while a 3 percent position in a highflying mid-cap stock, which has frequent 30 percent swings, might be far too risky.

2. Charts are extremely important.

One of the best patterns is when a stock goes sideways for a long time in a narrow range and then has a sudden, sharp up move on large volume. That type of price action is a wake-up call that something is probably going on, and you need to look at it. Also, sometimes whatever is going on with that stock will also have implications for other stocks in the same sector. It can be an important clue. (more…)

Traders Should Have These 5 Qualities

  
  Education
#  #  #  #  #  #  #  #  #

1) Capacity for Prudent Risk-Taking – Successful young traders are neither impulsive nor risk-averse. They are not afraid to go after markets aggressively when they perceive opportunity;
2) Capacity for Rule Governance – Successful young traders have the self-control needed to follow rules in the heat of battle, including rules of position sizing and risk management;
3) Capacity for Sustained Effort – Successful young traders can be identified by the productive time they spend on trading–research, preparation, work on themselves–outside of market hours;
4) Capacity for Emotional Resilience – All young traders will lose money early in their development and experience multiple frustrations. The successful ones will not be quick to lose self-confidence and motivation in the face of loss and frustration;
5) Capacity for Sound Reasoning – Successful young traders exhibit an ability to make sense of markets by synthesizing data and generating market and trading views. They display patience in collecting information and do not jump to conclusions based on superficial reasoning or limited data.

A common trait you'll see among the world's best investors

  
  Education
#  #  #  #  #  #  #

In 1968, a self-described “gun-slinging nitwit,” fresh out of Harvard Business School, Grantham played the go-go market at its peak. By 1970, he had lost all of his money. “I like to say I got wiped out before anyone else knew the bear market started,” Grantham recalled years later.

Think about that. The man who today relentlessly warns of risk began his investing career by losing all of his money and then sitting through a 12-year bear market.

What lasting impact did this have on his outlook? How did this experience influence his opinion of markets today?

Likely, a lot.

People like to assume they can think objectively. But you and I are just a product of the experiences we’ve had in life. And most of those experiences were random and out of our control. Would Grantham hold his bearish stance if, by luck, he began his investing career at the start of a bull market? Or doubled his money his first year out of college, rather than losing it all?

There’s evidence to suggest the answer is “no.” (more…)

Waiting for the market to make sense

  
  Education
#  #  #  #  #  #  #  #  #

There seems to be an ever increasing chatter about how the market is going to revert to the mean or it is broken or it is undervalued. Whatever it is let me remind you of two important ideas that are found in about any book you will ever read around finance and investing.

The market can stay irrational longer than you can stay solvent and the market’s goal is to extract the most money from the largest group of people.

If I could change the first quote it would say: The market is almost always irrational but when it is rational it pays you enough to forget.

Obviously not an easy sell if you running money. But that does not mean you can not be profitable. In fact, it means the exact opposite. The market gives everyone a chance to win but how much and what you did leading up to that point is the difference.

I would change the second quote to read: The goal of a market is to be healthy, when it is searching for participation equilibrium much money changes hands often to the few that are prepared.

There are many unnatural things that happen to a market. But underlying it wants to find participation equilibrium. It means cutting out the weakest leading the strong lower and allowing the few to pull everything higher. The problem is cycles are getting shorter and power is not as concentrated. If you are confused, imagine how confused the market must be.

Do I think it is important to have those conversations from the start of the post? Yes. But they should be focused on what to do. If the market does x I will look to do y or z and will be more focused on doing z but if m happens I will look more closely at y. (more…)

Warren Buffett will earn your annual salary in the time it takes you to read this article

  
  Education
#  #  #  #  #

There’s no doubt that Warren Buffett is ridiculously rich but if you made a few pips on the USD/JPY dip today and you’re feeling flush, then take a quick look at this tool that shows how much of a drop in the bucket your salary is compared to the $13.5 billion Uncle Warren made last year.

And if you’re admiring Messi’s magnificence today note that it took Buffett less than two days to earn Messi’s $64m paycheck last year.

Go to top