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The best investors (and traders) are modest

  
  Education
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Let’s face it you suck at investing. Your advisor sucks at investing too.  You have all seen where monkeys picking stocks or throwing darts at a list can do better than many if not all advisors.

But Quartz is out with their annual analysis of just how bad you suck at this game.  If you had picked the best stock to buy every day you could have turned $1000 into $179 billion by mid December. That is a 17.9 billion percent return.

Did you even get a 1 billion percent return? How about 1 million percent? 1000%? 100%? If you did not hit a 100% return then you did not get even 4/10 millionths of what was out there. Translation: You suck at stock picking. People like Jack Bogle will use this type of data to tell you that you are wasting your time even trying and that you should just index your portfolio.

Coincidentally he runs a few dollars in an index fund. I find it more interesting when some manager makes a killing and convinces themselves that they are geniuses. No one in this game is a genius. 100% return sucks remember? (more…)

For The First Time Ever, The "1%" Own More Than Half The World's Wealth: The Stunning Chart

  
Analysis, Education
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oday Credit Suisse released its latest annual global wealth report, which traditionally lays out what has become the single biggest reason for the recent “anti-establishment” revulsion: an unprecedented concentration of wealth among a handful of people, as shown in Swiss bank’s infamous global wealth pyramid, an arrangement which as observed by the “shocking” political backlash of the past year, suggests that the lower ‘levels’ of the pyramid are increasingly unhappy about.
As Credit Suisse tantalizingly shows year after year (most recently one year ago), the number of people who control roughly half of the global net worth, or 45.9% of the roughly $280 trillion in household wealth, is declining progressively relative to the total population of the world, and in 2017 the number of people who were worth more than $1 million was just 36 million, roughly 0.7% of the world’s population of adults. On the other end of the pyramid, some 3.5 billion adults had a net worth of less than $10,000, accounting for just about $7.6 trillion in household wealth. And inbetween is the so-called global middle class – those 1.4 billion people whose rising anger at the status quo made Brexit and Trump possible.

As the report authors write, there is just one group to have benefited from the Fed’s post-crisis monetary policies: ” Our calculations show that the top 1% of global wealth holders started the millennium with 45.5% of all household wealth. This share was about the same until 2006, then fell to 42.5% two years later. The downward trend reversed after 2008 and the share of the top one percent has been on an upward path ever since, passing the 2000 level in 2013 and achieving new peaks every year thereafter. According to our latest estimates, the top one percent own 50.1 percent of all household wealth in the world.”
As the bank then laconically adds, “Global wealth inequality has certainly been high and rising in the post-crisis period.” And as the chart below shows, in 2017, for the first time ever, the richest 1% now controls just over half, or 50.1%, of global wealth. (more…)

Fear-Greed-logic

  
  Education
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Fear – Distress Over Losses

Psychologically, our minds process losses as more significant than a gain of the same amount. In trading, our fear of being wrong will often be used as a reason for staying in a losing position which leaves our accounts vulnerable to larger losses.

The most important part of trading is risk management. If you have a consistent and objective approach to risk management it will allow you cut your losses fast, and hold on to your profits!

Greed – Batting For Home-Runs

Coulda, woulda, shoulda. Those are 3 words that you should eliminate from your trading vocabulary, as they are most often associated with home run trades you missed (hindsight is always 20/20). There are thousands of stocks to choose from – don’t get distracted by potential home run trades. Instead, focus on being disciplined and consistently extracting profits from stocks. No one gets all the winners, focus on your process.

Logic – Remain Disciplined (more…)

DOs and DONTs of any sort of correction

  
  Education
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DOs and DONTS of a market crash

1. DO notice how cyclical markets are
2. DONT react emotionally
3. DO stick with your plan
4. DONT rely on gurus, shamans or talking heads (1000% Avoid Blue Channels )
5. DO note your own state of mind
6. DONT take actions while in a state of discomfort
7. DO notice the panic around you
8. DONT try to time the markets
9. DO look for signs of capitulation
10. DONT confuse the short term for the long term

Bonus: DO have a sense of humor

10 Trading Books -Every Trader Must Read

  
  Education
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“If there was easy money lying around, no one would be forcing it it into your pockets.” – Jesse Livermore

There is so much garbage out there concerning trading online and the temptation for easy money that many new traders are lured into childish beliefs about getting rich quick, following a guru that can predict the future, or confusing a salesman for a trader. Contrary to popular belief, trading is not about picks, predictions, or personal gurus. Trading is really about entry signals with an edge, following price action, and learning to trade a system that fits who you are as a trader. Real long term profitable trading is about, risk management, robust trading systems, and mental and emotional discipline. I would not trust anyone that did not have those three things at the core of their trading. Here is the right reading path for a new trader to follow to avoid all the hype, foolishness, con-artists, and childishness that arises from ignorance of a solid understanding of the subject of trading in the real world in real time.

Trade Like a Casino: Find Your Edge, Manage Risk, and Win Like the House (Wiley Trading)  “If we are properly managing the risk and adhering to a positive expectancy model, the act of trading a position should be boring.” – Richard Weissman

Trading Without Gambling: Develop a Game Plan for Ultimate Trading Success “If all your decisions were made during nonmarket hours with timing and execution being your main concern during market hours, you will dramatically increase your chances of success.” – Marcel Link

Trend Following (Updated Edition): Learn to Make Millions in Up or Down Markets “Trend followers are the group of technical traders who use reactive technical analysis. Instead of trying to predict a market direction, their strategy is to react to the market’s movements whenever they occur. This enables them to focus on the market’s actual moves and not get emotionally involved with trying to predict direction or duration.” – Michael Covel

Market Wizards, Updated: Interviews With Top Traders “The most important rule of trading is to play great defense, not great offense.” & “Don’t focus on making money; focus on protecting what you have.” – Market Wizards (more…)

Great Trading Books -Just Read If U Have Time

  
  Education
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MY-LIBRARY

Trading Psychology :

  • “Trading to Win: The Psychology of Mastering the Markets”
  • “Trading in the Zone: Maximizing Performance with Focus and Discipline”
  • “The Psychology of Risk: Mastering Market Uncertainty”
  • “The Mental Strategies of Top Traders: the Psychological Determinants of Trading Success”
  • “Hedge Fund Masters: How top Hedge Funds Set Goals, Overcome Barriers and Achieve Peak Performance”
  • “Mastering Trading Stress: Strategies for Maximizing Performance”
    • Prior to his passing, I had been organizing a conference with Dr. Kiev.  He revolutionized the hedge fund industry in terms of trader performance
  • “Psychology of the Stock Market” – G.C. Selden
    • The book was written in 1912, but offers great insight in stock market speculation.
  • “On Managing Yourself” – Dr. Mario F. Conforti
  • “As a Man Thinketh” – James Allen
    • A timeless classic in my opinion.
  • “Fighting Attachment in Trading” – Jon Ossoff (Active Trader, August 2011)
  • “The Crowd: A Study of the Popular Mind” – Gustave Le Bon, 1896
  • “Who Are You?” – Linda Bradford Raschke (SFO, Aug. / Sept. 2003)
    • Linda has made a number of contributions to trading and I have utilized several of her general market observations and concepts.
  • “Maintain Your Mindset: Using the Three R’s & Positive Thinking” – Linda Bradford Raschke (SFO, July 2004)
  • “The Hour Between Dog and Wolf: Risk Taking, Gut Feelings and the Biology of Boom and Bust” – John Coates, 2012
  • “Deny Your Inner Gamble Monkey” – MarketWatch.com (December 11, 2012)
  • “Why Smart Traders Do Dumb Things: Understanding Prospect Theory” – David Silverman (SFO, July 2005)
  • “Self-Attribution Bias in Consumer Financial Decision-Making: How Investment Returns Affect Individuals’ Belief in Skill” – Arvid O. I. Hoffmann Thomas Post
  • “Conquering Sabotage Traps in Your Trading” – Adrienne Toghraie – INO.com
  • “Five Guiding Principles of Trading Psychology” – Brett N. Steenbarger, Ph.D.
    • Brett is one the must follows in the field of trading psychology. He has written so much on the topic and all is easily accessible on the web.
  • “Explaining the Wisdom of Crowds: Applying the Logic of Diversity” – Michael J. Mauboussin (Legg Mason, Mar.2012)
  • “The Playbook: An Inside Look at How to Think Like a Professional Trader” – Mike Bellafiore, 2014
    • The most comprehensive book I’ve read on what it takes to become a professional trader.  A lot of books talk about the concept, but this lays out a step-by-step blueprint. Very well written.

(more…)

Physics To Help Deal With Market Risks

  
  Education
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READANDLEARNMisako Takayasu, a Tokyo Institute of Technology associate professor, spoke with The Nikkei about how “big data” will be used in the future to help market players manage risks based on principles of physics.

Excerpts from the interview follow.

Q: How do you use big data in your research?

A: Big data has allowed us to record human behavior and analyze it mathematically. Broader economic or social phenomena can be observed more clearly (in this way), like particles in physics.

As more and more trading data is accumulated, it is becoming increasingly possible to analyze and predict fluctuations using methods common in physics. The exponential growth of computer calculation speeds has also helped the process.

Q: What can you deduct from market data using these tools?

A: Data on ticks — the smallest increment of movement in the price of a security — can be used to gauge investor sentiment and how volatility is triggered. Market swings cannot be explained by a simple random-walk theory.

Markets become more stable when the number of contrarian investors increases. Conversely, they become unstable when more and more investors follow a market trend.

If market-followers dominate a market as it continues to climb, it will crash in the end. We may be able to explain the dynamics of a bubble with big data.

Q: What are the possible applications of big data in the market? (more…)

11 Thoughts on Trading Stress and Emotion

  
  Education
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 *Everyone has a stop-loss level: For some, it’s a price; for others, it’s a pain threshold.11RULES
* It’s not stress and emotion that get in the way of trading; it’s the stress and emotion that results when trading becomes personal: about you, rather than about supply and demand.
* The measure of a trader is how hard he or she works when markets are closed.
* Much bad trading is hormonal: too much testosterone, too little.
* When traders don’t track their results, it’s because they don’t want to know them.
* The best traders have a passion for markets; the worst have a passion for trading. (more…)

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.

(more…)

10 points To Become Great Trader

  
  Education
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  1. Cutting losses short is an edge. Only having small losing trades will save you from the big losses.
  2. Letting your winning trade run as far as it will go is a huge advantage over most traders. Having some huge winning trades will help your overall profitability.
  3. Eliminating the risk of ruin through limiting the total amount of capital you will lose on any one trade will keep your account intact and is an edge over those traders that eventually blow up their trading account.
  4. Proper position sizing will allow you to keep your correct decision making process in place by limiting the emotional impact of any one trade. This is an edge over many others that panic during a big trade and make an emotional decision.
  5. Having the discipline to consistently follow a predetermined written trading plan is an edge over many others that make decisions based on opinions and feelings.
  6. Having the confidence and faith in your trading method to follow it through losing periods is a huge edge. Most drift to new methods right when their last one finally starts working. (more…)
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