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‘The Psychology of Trading-Book Review

  
  Education
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Author Brett Steenbarger has done a great job with this book. He covers what I personally believe is the most important element in trading: psychology.

New traders will probably not last through their first year in the markets without blowing up their accounts by taking losses too personally. Many times draw downs cause traders to start gambling when they become desperate to recover their losses. Many times increasing position size when they should be decreasing it is an ego-driven desperation to get back their losses. Other similar bad mental behaviors creep into our trading careers as dysfunctions in our personal lives cloud our minds from being able to make the right decisions in following our systems and established trading principles.

What this book shows is how to take the proper perspective and observe our greed and fear, enabling us to see them for what they are instead of getting caught up in these powerful emotions that lead to terrible consequences in our accounts and lives.

This book is a very good book on both psychology and trading. It is packed with lessons from the authors patients and his own experiences. What the book shows is that we are the most important element in our trading. We must have the right mind set in trading, and while developing as a trader we need to keep a log of the emotions we feel on our losses and wins to better understand ourselves and why we make emotional charged decisions that we shouldn’t while trading. (more…)

7 Things Traders Must Manage -To get Success in Trading

  
  Education
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1. Traders must be great risk managers.7numbers
“At the end of the day, the most important thing is how good are you at risk control.” -Paul Tudor Jones
2. Traders must manage their own stress.
 Trade position sizes that keep your stress level manageable, if you can’t talk calmly to someone while trading you are trading too big.
3. Traders have to be able to manger their emotions, we have to trade our plan not our greed or fear
“There is nothing more important than your emotional balance.” – Jesse Livermore
4. Traders must manage their ego and need to be right.
“As a trader, you have to decide what is more important—being right or making money—because the two are not always compatible or consistent with one another.” -Mark Douglas
5. Traders must manage entries. When the time is right take the entry. Don’t wait until it is too late and chase, and don’t get in prematurely before the actual signal, also don’t get carried away and be to aggressive trade the right size.
6. Traders must manage the exit. Whatever our exit strategy is we have to take it. Sell at your target, exit into an exhaustion gap, or take the trailing stop, whatever the plan is follow it.
7. We have to manage our thoughts. We have to focus on what is happening right now. Mentally time traveling back into the past and reliving our losses has no value, we have to learn from  our lessons and move forward. Mentally time traveling into the future and believing that big profits await if we take a huge position size and go for it, may be the most dangerous mind set of all. We must manage our mind and focus it on following a tested trading plan.

24 Reasons 95 Percent Traders Don’t Make Money

  
  Education
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  1. Lack of homework on what works.
  2. Allowing big losses in your trading account,
  3. Quitting when they learn trading isn’t easy money.
  4. Inability to trade volatile markets.
  5. Inability to emotionally  manage equity curves.
  6. Trading without a positive expectancy model.
  7. Never committing to one trading strategy.
  8. Changing trading systems.
  9. Trading based on opinions.
  10. Not managing the risk of ruin.
  11. Over thinking their trades.
  12. Reactive trading decisions based on internalizing emotions.
  13. Trading with leverage without understanding the risks.
  14. Trading on margin without understanding it.
  15. Over trading.
  16. Trading without a plan.
  17. Not understanding what it takes mentally to be a trader.
  18. Setting stops in obvious places.
  19. Selling short what looks expensive.
  20. A lack of discipline.
  21. Watching Blue Channels (Whole Day )
  22. Reading PINK PAPERS 
  23. Watching Fundamentals ,Results of Companies (All Manipulative )
  24. Looking and Listening GROWTH ,INFLATION ,IIP ,RBI  (All Manipulative in India )

Market-Neutral Trading-Thomas Carr (Book Review )

  
  Education
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Thomas Carr is the CEO of an advisory and trader training service, designer of a MetaStock add-on toolkit, and partner in an investment firm. Known online as Dr. Stoxx, he is the author of Trend Trading for a Living and Micro-Trend Trading for Daily Income. His latest work is Market-Neutral Trading: Combining Technical and Fundamental Analysis into 7 Long-Short Trading Systems (McGraw-Hill, 2014).
Carr is an excellent marketer which, as might be expected, is the downside of this book. Without the tools that he sells, the reader cannot implement all of the book’s strategies. He may not even gain the confidence to trade any of them since Carr admits that “blindly following a set of systems” doesn’t work. When real money was on the line, he traded “in a very detached, mechanical fashion” and lost a lot of money—both in his own account and in a small fund for clients. By contrast, he made a lot of virtual money for the subscribers of his newsletters. The difference (aside from the obvious real vs. paper money distinction) was that he added discretion when making calls for his newsletters. He applied “God-given skills of discretionary analysis, skills that [had] been honed by years of apprenticeship under some of the great masters of the game, in addition to a long slog of real-time, real-money trading experience.” (p. 131) How does a trader learn the discretion that is necessary to make trading systems profitable? “You need to find a mentor who already has it and sit by their side for a while.” (p. 134) Yes, Carr is also a mentor.
Now that you know that, without a further outlay of funds to Carr, you won’t be able to trade all of the systems described in this book and that, even if you can trade them all, you will still lose money if you don’t overlay them with a large dose of discretion (gained only by spending still more money), what does this book have to offer?  (more…)

A few thoughts from Ari Keiv

  
  Education
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Top Five Quotes From Market Wizard Ari Kiev:

One of the therapies for depressed and suicidal patients is to help them become more self-reliant and assertive. These same skills are applicable to athletes and traders as well. – Kiev

This was the first of a number of interesting comparisons Kiev made between athletes, traders, and other psychiatric patients. The big take-away for me was a reminder that regardless of what you are doing, it takes an enormous amount of effort to become a world-class talent.

More specific to this reference, I can see why Kiev would want to encourage traders to become more self-reliant and assertive. This would give them a feeling of control and responsibility for their outcomes. This would likely remove the buy and hope aspect of trading and force the trader to focus on the things that they can actually control, like risk and position size.

If you’re going to make it, then you have to start today to do those things that are compatible with what someone who is performing at that level is doing. Most people don’t believe it is possible and settle for not succeeding, or at least not succeeding at the level they have chosen. You have to be willing to put yourself on the line and go for it, even with the thought that you will feel humiliated if you don’t make it after you have promised that you would. – Kiev

This quote had a big impact on me. It makes perfect sense and reminded me of little league coaches telling me that you’ll play how your practice. Kiev takes that a step further by adding that you have to believe success is possible or you are doomed from the start. In the interview, he discussed how he forces traders to set lofty goals for themselves and then use those goals to determine what they need to accomplish on a daily basis.

This is one of the biggest struggles I face in both trading and life in general. The name of this site was actually a derivative of the fact that I didn’t like talking about stocks at work because I was afraid people would point out what I didn’t know. That type of fear has held me back for years, so it is enlightening that Kiev commented on it.

Promising the result commits you to doing it and leaves you no alternative but to do it if you are going to live by your word. Letting others know that you have set a goal and are committed to achieving it makes it more likely you will achieve that goal, whether it is in the realm of athletics, trading, or something else. – Kiev (more…)

10 Trading Principles of George Soros

  
  Education
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“I’m only rich because I know when I’m wrong…I basically have survived by recognizing my mistakes.”

Understanding that he was not always right enabled him to cut losses short and position size right.

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

Soros’ is flexible in his trades, he changes his mind and reverses positions when needed. He does not marry his trades.

“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

George Soros knows that the key to profitability for him is more about big wins and small losses than his winning percentage. 

“The markets are always on the side of exuberance or fear. It’s fear and greed. Right now greed has the better of it, which is rather nice (for investors) as long as it doesn’t get out of hand,”

Market trends are caused more by the extremes of  investors emotions than fundamental reasons.

“Once we realize that imperfect understanding is the human condition there is no shame in being wrong, only in failing to correct our mistakes.”

The problem is not in a losing trade but in failing to cut the loss or add to a losing position.

“The worse a situation becomes, the less it takes to turn it around, and the bigger the upside.”

The more extended a trend gets from its average the greater the odds of a snap back and reversion to that mean.

“If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” (more…)

4 Types of Problems For Traders

  
  Education
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1) Problems of training and experience – Many traders put their money at risk well before they have developed their own trading styles based on the identification of an objective edge in the marketplace. They are not emotionally prepared to handle risk and reward, and they are not sufficiently steeped in markets to separate randomness from meaningful market patterns. They are like beginning golfers who decide to enter a competitive tournament. Their frustrations are the result of lack of preparation and experience. The answer to these problems is to develop a training program that helps you develop confidence and competence in identifying meaningful market patterns and acting upon those. Online trading rooms, where you can observe experienced traders apply their skills, are helpful for this purpose.

2) Problems of changing markets – When traders have had consistent success, but suddenly lose money with consistency, a reasonable hypothesis is that markets have changed and what once was an edge no longer is profitable. This happened to many momentum traders after the late 1990s bull market, and it also has been the case for many scalpers after volatility came out of the stock indices. Here the challenge is to remake one’s trading, either by retaining the core strategy and seeking other markets with opportunity or by finding new strategies for one’s market. The answer to these problems is to reduce your trading size and re-enter a learning curve to become acquainted with new markets and methods. Figuring out how you learned the markets initially will help you identify steps you need to take to relearn new patterns. 

3) Situational emotional problems – These are emotional stresses that are recent in origin and that interfere with decision making and performance. Some of these stresses might pertain to trading, such as frustration after a slump or loss. Some might stem from one’s personal life, as in a relationship breakup or increased financial pressures due to a new home or child. Very often these problems create performance anxieties by putting the making of money ahead of the placing of good trades. The answer to these problems is to seek out short-term counseling to help you gain perspective on the problems and cope with them effectively. 

(more…)

10 Characteristics of Successful Traders

  
  Education
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1) The amount of time spent on their trading outside of trading hours (preparation, reading, etc.);
2) Dedicated periods to reviewing trading performance and making adjustments to shifting market conditions;
3) The ability to stop trading when not trading well to institute reviews and when conviction is lacking;
4) The ability to become more aggressive and risk taking when trading well and with conviction;
5) A keen awareness of risk management in the sizing of positions and in daily, weekly, and monthly loss limits, as well as loss limits per position;
6) Ongoing ability to learn new skills, markets, and strategies; (more…)

Universal Lessons

  
  Education
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What follows are some of the most well-known investment disciplines along with a lesson or two from each that every investor should be able to use in their own strategy.

Focused Value Investing: Buying stocks that are underpriced in relation to their intrinsic value.
Lesson(s): It’s important to invest from the perspective that stocks represent an ownership interest in a business. You get your share of corporate profits from the stocks you own and over the long-term the value of the business should be reflected in the stock price.

Quantitative Investing: Using a systematic, mathematical approach to make buy and sell decisions within a portfolio.
Lesson(s): A rules-based, objective approach to investing is a great way to take out the emotions which can trip up so many investors and introduce biases into the investment process. Automating good decisions can reduce costly mistakes.

Technical Analysis: Studying charts, past prices and volume for security and market analysis by using patterns.
Lesson(s): An understanding of the history of the financial markets is extremely important to be able to define your tolerance for risk and gain the correct perspective on what couldhappen in terms of gains and losses. And at the end of the day markets rise and fall because of supply and demand.

Index Investing: Owning the entire market/index at a low cost.
Lesson(s): Beating the market is hard. Keeping your expenses, activity and turnover to a minimum is a prudent way to earn your fair share of the market’s return over time. (more…)

1+14 Mental Behavior of Traders

  
  Education
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  1. Boredom: The trader wants some “action” so they put on a trade. Trades are for when entry signals are hit not to alleviate boredom.

  2. Pessimism: The trader starts to have a negative attitude about losing money. Be positive if you are learning form losses becasue you are paying tuition for this education.
  3. Frustration: Frustration comes from expectations not being met. Don’t focus on your P& L, focus on executing your trading plan.
  4. Overwhelm: Focus and simplicity are the keys to profits, complexity and lots of information are the road to be overwhelmed and unprofitable.
  5. Disappointment: Disappointment should not come from losing trades, disappointment should only come because of a lack of discipline in trading your plan.
  6. Doubt:Only trade a system AFTER you have thoroughly researched, back tested, or studied it in real time. Trade only with proven faith in a system, naive hope quickly leads to doubt and failure. (more…)
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