Archives of “Financial economics” tag

rss

21 One Liners For Traders

  
  Education
#  #  #  #  #  #  #  #  #  #
  1. It is possible to see that a market is dramatically overbought and prepare for, and then capture, huge gains after the sell off.
  2. Risk small amounts to make big profits.
  3. Bet against times when numerous leaders must agree.
  4. Long hours and a strong work ethic are keys to being a successful trader.
  5. While it is good to trade any market that will turn a profit, specializing in a market can lead to great success.
  6. The markets go down faster than they go up.
  7. If the market will not go down during bad news, it will likely go higher.
  8. The stock market moves in patterns and in cycles. Past price patterns repeat themselves due to human emotions.
  9. Many times traders think a big position order size means that a whale knows something, most times they do not. 
  10. It is okay to skip a trade if you can’t get your entry price.
  11. A momentum move does not just stop, it takes time to roll over.
  12. It is possible to trade successfully by gaming the actions of other traders.
  13. Be aggressive at high probability moments.
  14. Always stay in control of your trading and manage risk.
  15. Focus on risk management as the #1 priority in trading.
  16. Having the right mindset during a big loss that it is just temporary, is the key to coming back and being successful.
  17. Letting profits run is sometimes a great plan.
  18. Being long at all time highs in the indexes is a great strategy.
  19. Great money managers trade with passion.
  20. Even Market Wizards have doubts about winning when entering a trade. 
  21. When the top in a market is reached,  there is a lot of money to be  made shorting as panic selling sets in. 

To Trade or Not to Trade

  
  Education
#  #  #  #  #  #  #  #  #

in trading activity alone does not make money, the right activity at the right time is what makes money. Many times the right thing, is to do nothing.

In your actual trading you have to do four things very well to make money.

You have to know when to get in.

Only enter trades that have the highest probability of success and the best risk/reward ratio. Buy the best monster stocks during up trends. Short the fallen leaders when the game changes and they are under the 50 day. Buy the monster stocks at the gift of the 200 day moving average. Short down trending junk stocks. Go where the trends are.

You have to know when to get out.

When your trade reverses through a key support get out. When the market trend changes get out of your long positions. When your stop loss is hit, get out. When the stock reverses and hits your trailing stop, get out.

You have to know when to stay in. (more…)

The Legendary Turtle Traders

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

Have you ever heard of the legendary Turtle traders? Millionaire trader Richard Dennis set off to find out if traders were just born to trade, or if they could be trained to be successful in the markets from scratch. The answer? If they could follow rules they could be successful.

“I always say that you could publish my trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Almost anybody can make up a list of rules that are 80% as good as what we taught our people. What they couldn’t do is give them the confidence to stick to those rules even when things are going bad.” –Richard Dennis: Founder of the ‘Turtle Traders’ quoted from the book Market Wizards:

The Turtle system proved that the traders that followed the rules went on to be millionaires and to manage money professionally.

Markets – What to buy or sell

  • The Turtles traded all major futures contracts, metals, currencies, and commodities.
  • The turtles traded multiple markets to diversify risk.

Position Sizing – How much to buy or sell

  • Turtle position sizing was based on a markets volatility using the 20 day exponential moving average of the true range.
  • The Turtles were taught to trade in increments of 1% of total account equity,

Entries – When to buy or sell (more…)

To Trade or Not to Trade-The Biggest Question For Traders

  
  Education
#  #  #  #  #  #  #  #

In trading activity alone does not make money, the right activity at the right time is what makes money. Many times the right thing, is to do nothing.

In your actual trading you have to do four things very well to make money.

You have to know when to get in.

Only enter trades that have the highest probability of success and the best risk/reward ratio. Buy the best monster stocks during up trends. Short the fallen leaders when the game changes and they are under the 50 day. Buy the monster stocks at the gift of the 200 day moving average. Short down trending junk stocks. Go where the trends are.

You have to know when to get out. (more…)

9 Secrets for Successful Speculation

  
  Education
#  #  #  #  #  #  #  #

As you read the list below, think about how you can learn more about each secret and adapt it to your own most effective use.

Secret #1: Contrarianism takes courage.

Everyone knows the essential investment formula: “Buy low, sell high,” but it is so much easier said than done, it might as well be a secret formula.

The way to really make it work is to invest in an asset or commodity that people want and need but that for reasons of market cyclicality or other temporary factors, no one else is buying. When the vast majority thinks something necessary is a bad investment, you want to be a buyer—that’s what it means to be a contrarian.

Obviously, if this were easy, everyone would do it, and there would be no such thing as a contrarian opportunity. But it is very hard for most people to think independently enough to risk hard-won cash in ways others think is mistaken or too dangerous. Hence, fortune favors the bold.

Secret #2: Success takes discipline.

It’s not just a matter of courage, of course; you can bravely follow a path right off a cliff if you’re not careful. So you have to have a game plan for risk mitigation. You have to expect market volatility and turn it to your advantage. And you’ll need an exit strategy.

The ways a successful speculator needs discipline are endless, but the most critical of all is to employ smart buying and selling tactics, so you don’t get goaded into paying too much or spooked into selling for too little.

Secret #3: Analysis over emotion. (more…)

7 Basic Truths of Trading

  
  Education
#  #  #  #  #  #  #  #  #
  1. Well-defined objectives. Are you trying to beat a certain return hurdle, like inflation or an index? Are you trying to generate 5% or 50% returns per year? You have to understand what you are trying to do and then bend your investment process around it. The other way around isn’t possible.
  2. An understanding of the markets that you will be operating in. Stick to what you know. Narrow your focus so as to make the most of your efforts. You need to know everything about the markets where you’re taking positions.
  3.  A clearly defined methodology for getting into and out of positions. This includes which indicators, news items, fundamental data points you look at and when you take action. This is your checklist—you should have it so well defined that you can be sure of the exact steps along the way. You need a game plan so that you stay consistent and disciplined and don’t get flustered under pressure. It should become automatic and engrained.
  4. This methodology must utilize your strengths and skills and suit your personality. A cerebral, research-driven economist should put that to work, instead of becoming a swing trader based on technical analysis. An adrenaline-fueled athlete should be an intraday trader, not be a long-term trend follower. Remember, every successful trader has a methodology of their own which plays to their strengths and their personality.
  5. This methodology has a positive statistical expectancy– the gains from winners more than outweigh the losses on losing trades. Use your own statistics and the Kelly Formula for a rough guide as to whether or not you have positive statistical expectancy.  On average you want to expect to win on an individual trade, meaning that your expected wins outweigh your prospective losses. That doesn’t guarantee that you will actually profit on each trade, it just means that over a sufficiently large quantity of trades, you will come out ahead.
  6. A well-stated risk management policy for when you get out of losing positions and how you manage risk overall. Cut losers. Let winners ride.  Many people have tried to overthink this rule and ended up losing as a result. Furthermore, you never want to put yourself in a position where you can blow up, so you need to be thinking how you can avoid taking excessive risk in the first place. Just remember Warren Buffett’s Two Rules:A framework for sizing positions. This is related to risk management— obviously, you don’t want to take a position that’s over a certain size, ever. But you may also want to size positions according to certain specific critieria, such as your conviction in the position or volatility in the market. Or they could all be the same size. Nonetheless, your methodology has to be able to address it and come up with a well-reasoned answer.
    1. Never Lose Money.
    2. Never Forget Rule #1.

Who we are as individuals is how we trade in the markets – Weaknesses and Strengths of Traders

  
  Education
#  #  #  #  #  #  #

Ambitious

Makes and follows long term business plan

•Unambitious

Will ignore long term business plan

•Calm

Will handle times of market volatility and make smart decisions

•Worrying

Will panic when markets are volatile and make stupid decisions

•Cautious

Strictly follows Stop-Loss rules and Protects Trading Capital

•Rash

Will not be diligent with Stop losses and will risk trading capital

•Cheerful

Handles losses and down times in markets (more…)

Trading Psychology Lesson-Naked Truth

  
  Education
#  #  #  #  #  #  #

A good analyst is someone who can figure out that markets are going from Point A to Point B;

A good trader is someone who can navigate the path from Point A to Point B;

A good investor is someone who can weather the path from Point A to Point B;

Good analysts often are not good traders.

Good traders often are not good investors.

Good investors often are not good traders.

Good traders and investors often need to hire good analysts.

So much of success boils down to knowing who you are and accepting that.

Links For Traders -Investors

  
Education, LINKS
#  #  #  #  #  #

Interesting reads:

Scott Nations, The Complete Book of Option Spreads and Combinations-Book Review

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

If you trade options, you’d do well to have Scott Nations’ Complete Book of Option Spreads and Combinations (Wiley, 2014) in your reference library. It’s an intermediate-level book that explains the structure of more spreads than most people will ever trade but that they should understand nonetheless. A case in point: a conversion or a reversal, a combination that is rarely executed as a package but that “a smart retail trader might end up having on.” (p. 209) It’s better to know in advance what this position is and how to deal with it.
There’s an abundance of information available online about option spreads and combinations, and Nations of necessity covers much of the same territory. But he proceeds more analytically, and he deals with issues that most online descriptions ignore, such as ways to mitigate wide bid/ask spreads. Take, for instance, the long call condor. Nations looks at an AAPL call condor that, using midpoint pricing, costs 18.87 and that, buying on the ask and selling on the bid would cost 0.63 more. What if we were to replace the in-the-money call spread “with something that’s out-of-the-money and has bid/ask spreads similar to the bid/ask spreads of these other out-of-the-money options?” That is, what if we sold a put spread with the same strikes instead of buying that call spread—and again sold at the bid and bought at the ask? Instead of paying a 0.63 penalty, we now pay only 0.27. This “new, magical structure” is an iron condor. (pp. 201-202)
In eleven chapters this book deals with vertical spreads, covered calls, covered puts, calendar spreads, straddles, strangles, collars, risk reversal, butterflies, condors and iron condors, and conversion/ reversal. Every strategy is encapsulated in cheat sheets and, more importantly, is illustrated with examples, complete with tables and figures. Here, for instance, is the graph of a vertical spread he analyzes, which includes the probability of profitability—something he explains how to calculate on the previous page.
(more…)

Go to top