Archives of “financial markets” tag

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10 Friends & 10 Enemies of Traders

  
  Education
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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…)

Patience, Preparation and Performance

  
  Education
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Everything is difficult before it becomes easy.

With the current volatility of the financial markets, it is extremely important that each of us resolve to be patient in our decisions and not make snap judgments. These can create future disaster.

The most successful individuals around the world have a foundation of processes that they utilize consistently, no matter whether the markets are trending with clear direction or being extremely volatile.

Each of us needs to be patient and allow the trading plans that we use to provide points of execution for trades. We need to be prepared for any and all movements in the market, yet stay committed to our plan and then perform with a self-confidence that ensures that we do not stray away from the steps of our plan.

Patience, preparation and performance surrounded by a solid trading plan along with money and risk management will produce the highest probability for profitable success.

Preparation combined with Opportunity creates a new word I would like to give to you — Prepartunity. Every day provides new opportunities for us. If we are prepared then we will receive the highest results possible.

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

  
  Education
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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…)

UK Trader Fined 60,000 Pounds For Outsmarting Algos

  
Analysis, Education
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Yet another UK trader is being punished by overzealous regulators for an accomplishment that should instead have earned him accolades: Outsmarting the machines.
In a case that echoes some of the circumstances surrounding the scapegoating of former UK-based trader Nav Sarao, former Bank of America Merrill Lynch bond trader Paul Walter has been fined 60,000 pounds by the FCA for a practice that regulators call ‘algo baiting’.
Algorithm baiting is similar to spoofing – a practice that has been banned by stock-market regulators as those markets have embraced high-frequency trading practices that have broken markets and made them more vulnerable to this type of manipulation. But fixed income markets, like the Dutch loan market Walter is accused of manipulating, have been slower to embrace HFT-type trading. Because of this delay, Walter is a pioneer. Using BrokerTec, a popular fixed-income trading platform, Walter would place a bunch of bids for a given bond, triggering trend-following algos to follow suit. Then he would quickly cancel the bids. Here’s a more complete explanation per the Financial Times. 

 Mr Walter entered bids for Dutch state loans that pushed up their price. Then, when other algorithmic trades followed him in response and raised their bids, Mr Walter sold to them and cancelled his quote. This happened 11 times between July and August 2014 while he was working for the bank, the FCA said, while on one occasion he did the opposite. He netted a total of €22,000 profit from this “algo baiting”.

Mark Steward, the head of FCA enforcement, said the FCA would remain “vigilant” in detecting abusive practices like “algo bating”. Of course, programmers could also build better algorithms, stamping out the practice without any help from the government.
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14 Emotions of Traders-Really Dangerous

  
  Education
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  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.

The Wall Street Book Everyone Should Read

  
  Education
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In 1997, though, such arguments were pretty close to unheard of. Which is what makes Doug Henwood’s book Wall Street, published that year, such an amazing document. Along with explaining in clear if caustic terms how financial markets work, the book prefigures almost every criticism of the financial system that’s been levied since the crisis of 2008. An overleveraged housing market?Check. A link between financial sector growth and income inequality? Check. A natural tendency toward instability in financial markets? Check.

I don’t want to paint Henwood, who edits a newsletter called the Left Business Observer, hosts aweekly radio show, and knows more about economic indicators than anyone has a right to, as some kind of Nostradamus. In Wall Street he doesn’t so much make predictions as expose, in his crotchety, almost absurdly erudite way, the inconsistencies and contradictions in conventional views of how the financial world is supposed to work. (more…)

5 Market Insights from Paul Tudor Jones

  
Analysis, Education
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Paul Tudor Jones is one of the most emblematic figures in the hedge fund industry. His best percentage returns happened during severe market corrections: 126% after fees in 1987 when U.S. markets lost a quarter of their market cap in one day. 87% in 1990 when the Japanese stock market plunged. 48% during the tech crash of 2000-2001. He returned 5% in 2008. His funds have underperformed in the past 8 years. He charges 2.75% management fee and 27% performance fee, which significantly above the industry average of 2 and 20.

Outside of financial markets. PTJ founded the Robin Hood foundation, which attempts to alleviate problems caused by poverty in NYC.

The biggest conundrum when studying successful money managers is do you pay attention to what they are doing today or do you focus on what they were doing before they became widely popular, were managing a lot less money and had a lot higher returns?

Here PTJ talks about how new powerful trends often start – basically, a big price expansion from a long base.

The basic premise of the system is that markets move sharply when they move. If there is a sudden range expansion in a market that has been trading narrowly, human nature is to try to fade that price move. When you get a range expansion, the market is sending you a very loud, clear signal that the market is getting ready to move in the direction of that expansion.

PTJ on risk management

If I have positions going against me, I get right out; if they are going for me, I keep them… Risk control is the most important thing in trading. If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in.

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Ten Tasks of Top Traders

  
  Education
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  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?

Traders , keep notes on the following

  
  Education
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*  How you prepared for the day/week:  What was your market preparation?  What research did you conduct or consume?  What did you read?  What conversations did you have, and with whom?  How did you eat?  Sleep?  Exercise?  Prepare yourself mentally?

*  How you generated your trading ideas:  Where did the ideas come from?  What was the process that led to the ideas?  What made them good ideas?  What gave you “edges” in your trades?
*  How you expressed your ideas:  What market(s) did you use to express your views?  What instruments?  How did your expressions provide you with superior risk/reward?  If you held multiple positions, how did you size them relative to each other and gauge their correlations?
*  How you managed your positions:  What kind of trade planning did you do?  How did you size positions and gauge your risk taking?  How did you manage your risk?  What led you to scale into or out of your positions?
*  How you managed your performance:  How did you review your performance?  What did you learn?  How did you use your learning to improve your future performance?   (more…)

20 Quotes From -Trading in the Zone :Mark Douglas

  
  Education
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1.) When it comes to trading, it turns out that the skills we learn to earn high marks in school, advance our careers and create relationships with other people, turn out to be inappropriate for trading.  Traders must learn to think in terms of probabilities and surrender all of the skills acquired to achieve in virtually every other aspect of life.

2.) Within 9 months of moving to Chicago, I had lost nearly everything I owned.  My losses were the result of both my trading activities and my exorbitant lifestyle, which demanded that I make a lot of money as a trader.

3.) You don’t need to know what’s going to happen next to make money.  Anything can happen.  Every moment is unique, meaning every edge and outcome is truly a unique experience.  The trade either works or it doesn’t.

4.) More or better market analysis is not the solution to his trading difficulties or lack of consistent results.  It is attitude and “state of mind” that determine his results.  A winner’s mindset means learning how to think in probabilities.

5.) The edge means there’s a higher probability of one outcome than another.  The greater your confidence, the easier it will be to execute your trades.

6.) Do you ever feel compelled to make a trade because you are afraid that you might miss out?

(more…)

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