Archives of “Financial economics” tag

rss

5 Trading Frustrations and Solutions

  
  Education
#  #  #  #  #  #  #  #  #  #

Top Trader Frustrations

  1. I cannot trade my plan!
    • You need to develop the skill to execute your trading plan under duress.
    • Use visualization exercise to see yourself successfully executing your trading plan during the day. The greater level of detail a trader uses in their visualization exercise the greater its effectiveness.
  2. I cut my winning trades too early!
    • Have profit targets
    • Take partial profits
    • Measure each day the missed profits that you could have obtained if you didn’t miss a setup, or if you didn’t cut your winning trades too early.
  3. I am not consistent with my trading
    • Establish a playbook with setups that work for you, and setups that don’t work for you.
    • Define the risk that you should take in setups based on whether they are A+, B, C setups (based on risk/reward and % win rate).
    • Track the amount of risk that you are taking on similar trades, so that the results can be properly analyzed. Risk 30% of your intraday stop loss on a A+ setup, 20% on a B setup, 10% on a C setup, 5% on a Feeler trade.
    • Do a trade review
      • Did I trade the best stocks today?
      • Did I recognize the market structure?
      • Did I push myself outside the comfort zone?
      • Things I did well
      • Things I could improve
  4. I cannot find a profitable trading system
    • Trading is a probability game, setups don’t work all the time, so don’t keep trying and throwing away trading setups without thoroughly testing them.
    • Get exposed to lots of different setups and trade the setups that make the most sense to you and works best for you.
  5. I lack the confidence to take trades
    • Have a detailed trading plan, place orders in advance in possible.
    • Put on feeler trades with 5-10% of the risk that you normally put on. Once you start to become more comfortable you can then put on your regular trades again.

OVERCONFIDENCE in Trading

  
  Education
#  #  #  #  #  #  #  #

It is common for traders to complain of a lack of confidence in their trading, but very often it is overconfidence that does them in. Overconfidence results from a lack of appreciation of the complexity of markets and an underestimation of the challenges of trading them successfully. In a sense, overconfident traders lack respect for the markets. They think that reading about a few setups or buying the newest software will prepare them to make money. Overconfident traders don’t want to work their way up the trading ladder: they resist the idea that screen time is the best teacher. They also chafe at the idea of growing their account. Rather than start with one contract and wait until they’re profitable before trading larger size, they want big positions—and profits—right away. Because they’re so eager to make money—and so sure they can make it—overconfident traders generally trade impulsively. They won’t wait for the setup to form; they’ll jump the gun—and get whipsawed in the process. Instead of being patient and waiting for short-term patterns to align with longer-term patterns, they will take every trade, enriching their brokers in the process. (more…)

How to Become a More Disciplined Trader-15 points

  
  Education
#  #  #  #  #  #  #  #

1.Treat trading as a business.
2. Get someone to keep you on track.
3. Review your trades.
4. Set reasonable trading goals.
5. Tackle the easy problems first.
6. Review your performance.
7. Make trading rules and keep them visible at all times.
8. Make a trading plan.
9. Make a game plan.
10. Have a trading strategy to follow.
11. Ask yourself before every trade, “Is this the right thing to do?”
12. Do your homework.
13. Work hard to improve.
14. Use hypnosis.
15. Just do it.

Warren Buffett: Markets are like sex

  
  Education
#  #  #  #  #  #  #

There’s nothing like getting a big bang for your buck, and no one knows that more than billionaire investor Warren Buffett.

The 83-year-old founder of Berkshire Hathaway, whose investments have consistently beaten the stock market over the past 50 years, shared a few tips in this year’s annual letter to shareholders, including comparing the stock market with sex.
Mr Buffett said new investors tend to buy shares when the markets are rising and optimism is high, only to get disillusioned when prices fall.
Quoting the late money manager Barton Biggs, whose attention to emerging markets in the 1980s marked him as one of the world’s first and foremost global investment strategists, Mr Buffett added: “A bull market is like sex. It feels best just before it ends.”

He advised investors to “keep things simple” by “accumulating shares over a long period, and never sell when the news is bad and stocks are well off their highs”.

20 Naked Truth For Traders

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

1.    You have to have passion for learning to trade; passion is the energy that you need to take you to your goals.

2.    You have to have the perseverance to keep going after you want to give up.  90% of new traders quit when they were very frustrated while 100% of successful traders didn’t quit until they reached their goals

3.    New traders spend too much time looking for what to trade instead of focusing on who they are as traders.  You have to know who you are as trader first then you can start building your trading system.

4.    Traders have to be able to manage their stress by trading inside their current comfort zone. Traders have to grow themselves and trade size step by step.

5.    The vast majority of new traders fail simply because they did not do their homework before they started trading.

6.    A trader has to build a trading system that matches their own personality and risk tolerance levels.

7.    A trader that chooses to be master a specific type of trading method or trading vehicles has a much better chance of success than the traders that just dabble in many different things and never make much progress.

8.    A trader has to write a good trading plan while the market is closed to guide their trading while the market is open. (more…)

10 Friends & 10 Enemies of Traders

  
  Education
#  #  #  #  #  #  #  #  #

A Trader’s 10 Best Friends

  1. Studying the markets to understand what works. $Study
  2. You are comfortable with uncertainty. ????
  3. Being optimistic about winning in the long term. #Winning
  4. You manage risk very carefully on each trade. #RiskofRuin
  5. Thinking in probabilities and asymmetrical trades. #RiskReward
  6. Following your trading plan. #Discipline
  7. Accepting losses. #StopLoss
  8. Letting winners run. #TrendFollowing
  9. A plan on exactly how you will trade. #TradingPlan
  10. A robust trading system. #EDGE

A Trader’s 10 Worst Enemies

  1. Scared to enter a trade.#Fear
  2. Feeling the need to be right on every trade. #Pride
  3. Entering a trade too late or taking profits too soon. #Impatience (more…)

$25 Billion Hedge Fund Manager Explains 'How To Be A Great Trader'

  
  Education
#  #  #  #  #  #  #

Some perspective on ‘efficient markets’ from Elliott Management’s Paul Singer,

The fact that the vast majority of investors and traders cannot (with rare exceptions) beat the markets over long periods of time is not an argument for efficiency.Rather, the reason is that they are mostly doing the same thing sharing the same set of assumptions, and following the same impulses.

The fact that a basic assumption about the world is widely held does not make it true, nor does it make trading and pricing decisions based on that assumption efficient regardless of how liquid markets pricing in that assumption appear to be!

Certainly there are periods of time when some markets and submarkets appear to be efficient, but those who have vision, creativity and an understanding of the broader context of markets will make greater returns and/or attain a superior risk profile (assuming they do not get run over by standing rigidly against the sometimes-deeply false passions of the day expressed by the consensus).

How do the select few more or less continuously make money when the “efficient” markets are moving all over the place? Why do most investors fail, over long periods of time, to keep up with their desired index? And why do some people blow up? (more…)

14 Emotions of Traders-Really Dangerous

  
  Education
#  #  #  #  #  #  #  #  #
  1. Anger- Revenge trading
  2. Fear- Inability to take an entry or hold a winner in a trend.
  3. Disgust- Can lead to loss of a traders confidence.
  4. Happiness- Surprisingly can lead to trading too big and taking on too many positions.
  5. Sadness- Can lead to having difficulty taking the next trade entry or cutting a loss.
  6. Surprise- Can many times lead to making decisions based on emotions and abandoning a trading plan.
  7. Neutral- Trading is a lot of work and only passion and energy can move you toward doing the required homework that leads to eventual success.
  8. Anxiety- Can lead to exhaustion due to excessive stress.
  9. Love- If you truly love trading the markets then only time separates you from success. If you love the wrong things or people it can be destructive.
  10. Depression- Leads to abandoning your trading.
  11. Contempt- Having contempt for the markets or other traders will result in bias and bad decision making.
  12. Pride- Leads to trading too big, not cutting losses fast enough, and wanting to be right and prove something more than being a rational trader.
  13. Shame- Makes it difficult to talk to others about your trading and look at your account capital due to your bad decisions.
  14. Envy- Leads to external focus instead of the internal focus needed to trade successfully.
  15. Trading is only successful long term when it is done with the mind,  emotions are only valuable if they create the energy in you to get you where you truly want to be. Emotions are positive if they protect our psychological boundaries, not so great if they just support an out of control ego. Emotions are great tools at times but terrible masters.

2 Ways to Fail at Trading

  
  Education
#  #  #  #  #  #

Misunderstanding how trading works. Trading is a game of probabilities. No matter what methodology you are using—fundamental, macro or technical; highly quantitative, intuitive, seat of pants, or blend; long term, short term, daytrading—at the end of the day, the expected value of your trades has to be positive, or you aren’t going to make money. There is no free lunch. Though you may get lucky (or unlucky) on a set of trades, over a large set of trades, the Law of Large Numbers rules with an iron fist. There is no way to “game” the system. You can’t take small trades with tiny risk, you can’t sell time premium, you can’t find some magic technical pattern. Yes, all of these things can be part of a working methodology, but that methodology has to have a positive expectancy. To put it simply, it has to work. (Now, you can see that points 1-4 are really basically the same point!)

 Be overconfident. Markets punish hubris and overconfidence with remarkable consistency. (Victor Niederhoffer has written poignantly on this subject.) Overconfidence can hit in many ways. Industry statistics show that most small trading accounts lose money, so, you have to ask yourself, why will you be different? (Hint: answers like “I have a passion for markets. I was successful in this business or this sport. I’m a driven, detail-oriented person,” are probably not strong enough answers. Dig deep. Why will you succeed where so many others have tried and failed?) Overconfidence can creep in in other ways too. After a long string of winning trades, some traders are tempted to get more aggressive and increase their risk… and now they are trading too big, so bad things happen. There’s a sweet spot here—you have to have a degree of confidence, you can’t be afraid, but you have to stay humble. If you don’t, the market will make you humble, one way or another.

Ten Tasks of Top Traders

  
  Education
#  #  #  #  #  #  #  #
  1. Daily self analysis:   Successful trading is 40% risk control and 60% self-control.
  2. Daily mental rehearsal:   Practice being disciplined in your mind before you trade daily.
  3. Developing a low risk idea:   Trade with the odds on your side with a defined risk.
  4. Stalking:   Wait for the entry. Utilize patience and don’t pull the trigger to soon.
  5. Action:   Take the entry when the signal is hit. Do not freeze up. Be definitive.
  6. Monitoring:   Keep an eye on what is happening with your position.
  7. Abort:  Be ready to cut your losses, when you are wrong and hit your stop loss.
  8. Take profits:  Use trailing stop or profit target when one is hit. Allow the market to take you out.
  9. Daily briefing:   Think through your trading & what you did right/wrong based on your trading plan.
  10. Periodic review:   Is your trading working? Do adjustments need to be made?
Go to top