Archives of “financial markets” tag

rss

Managing Emotions

  
  Education
#  #  #  #  #  #  #  #  #  #

The hardest thing about trading is not the math, the method, or picking the right stock, currency, commodity, or futures contract.  The most difficult thing about trading is dealing with the emotions that arise with trading itself. From the stress of actually entering a trade, to the fear of losing the paper profits that you are holding in a winning trade, and most importantly dealing with the emotional lows of a string of losses or the highs of many consecutive wins the bottom line is how you deal with those emotions will determine your long term success in trading more than any other one thing.

To manage your emotions first of all you must trade a robust trading methodology that is profitable and you have to know that it will be a winner in the long term if you stay disciplined. You also must trade your method with proper position sizing and risk management to keep the volume down on your emotions and ego. If you have that the next step is the management of your emotions.

You must understand that every trade is not going to be a winner and not blame yourself for equity drawdowns if you are trading with discipline.

Do not bet your entire account on any one trade, in fact risking only 1% of your total capital on any one trade is the best thing you can do for your stress levels and to bring your risk of ruin to virtually zero. (more…)

Determination & Honesty in Trading

  
  Education
#  #  #  #  #  #

This is probably the single biggest factor which divides the winners from the losers, not just in trading, but in any other walk of life.  Yes, it pays to have money and time on your side, but you could have all the money and time in the world and still fail at trading if you do not have the drive to do well at it.  On the other hand, you could have a lack of resources, but have a greater chance of success because you have the drive to win.  That drive will help you preserver when the going gets tough.

A trader who can admit his mistakes to himself and also recognize his positive traits is one who is likely to succeed.  Honesty gives you clarity, and clarity allows you to make sound decisions which have a basis in reality.  If you do not know yourself and cannot be honest with yourself about your trading activities, you cannot see what is going on.  Imagine getting into a car blindfolded, turning the key, and driving out into rush hour traffic.  That is what trading is like if you are dishonest with yourself.  Another good metaphor would be driving drunk.  An inebriated driver has no idea whether or not he is even making mistakes, and does not hold himself accountable from his actions.  Stay sober and check your windows and mirrors when you trade.

The best pieces of trading advice

  
  Education
#  #  #  #  #  #  #  #

Here is some great trading advice I have gathered around the web. These were either answers from real traders to the question “What is the best trading advice you ever received?” Or it was advice given be successful traders when asked “What one piece of advice would you give to traders?”  There are some gems in here.

Don’t treat trades like their actual cash, separate the thought of money lost and focus on the next gain.

Always use stop losses.

Don’t trade with funds you can’t afford to lose.

Don’t be obsessed by indicators .

Always, always,  put in a trailing stop and take your profit.

Decide what kind of trader you wish to be. Do you want to be a day-trader, a short term trader, or a longer term trader?

The Holy Grail of investing/trading is risk management. If you don’t have an exit strategy or proper position sizing, you are gambling. I recommend all traders spend 90% of their time perfecting risk management, and success will come with time. -Damien Hoffman

Cut losses, cut losses, cut losses. If I followed my own advice, my email would be unlisted or a Hawaii address. -Howard Lindzon (more…)

Rogoff Sees Sovereign Defaults

  
Economy, Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

rogoff01

Feb. 24 (Bloomberg) — Ballooning debt is likely to force several countries to default and the U.S. to cut spending, according to Harvard University Professor Kenneth Rogoff, who in 2008 predicted the failure of big American banks.

Following banking crises, “we usually see a bunch of sovereign defaults, say in a few years,” Rogoff, a former chief economist at the International Monetary Fund, said at a forum in Tokyo yesterday. “I predict we will again.”

The U.S. is likely to tighten monetary policy before cutting government spending, sending “shockwaves” through financial markets, Rogoff said in an interview after the speech. Fiscal policy won’t be curbed until soaring bond yields trigger “very painful” tax increases and spending cuts, he said.

Global scrutiny of sovereign debt has risen after budget shortfalls of countries including Greece swelled in the wake of the worst global financial meltdown since the 1930s. The U.S. is facing an unprecedented $1.6 trillion budget deficit in the year ending Sept. 30, the government has forecast.

“Most countries have reached a point where it would be much wiser to phase out fiscal stimulus,” said Rogoff, who co- wrote a history of financial crises published in 2009. It would be better “to keep monetary policy soft and start gradually tightening fiscal policy even if it meant some inflation.”

Click here to read more

12 Truths-Traders Should Know

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

1. Stock prices run in cycles. Periods of re-pricing are usually quick and powerful and then they are followed by trendless consolidation.

2. Stocks are very highly correlated during drastic selloffs and during the initial stage of the recovery. In general, correlation is high during bear markets.

3. Bull markets are markets of stocks, where there are both winners and losers. When the market averages consolidate, there are stocks that will break out or down, revealing the intentions of institutional buyers.

4. In the first and last stage of a new bull market, the best performers are small cap, low float, low-priced stocks.

5. Try to trade in the direction of the trend. It is not only the path of least resistance, but also provides the best profit opportunities. Have a simple method to define the direction of the trend.

6. Traders’ attention (and market volume) is attracted by unusual price moves. Sudden price range expansion from a consolidaiton is often the beginning of a powerful new trend.

7. Opportunity cost matters a lot. Be in stocks that move. Stocks in a range are dead money. (more…)

What golf teaches us about trading- 14 Points

  
  Education
#  #  #  #  #  #  #  #

1. Each golf shot/trade is a learning opportunity. 

2. In golf you play the ball where it lies.  You can hit a great shot and find it in a divot and you must play from there.  In trading you can make a good trade, find yourself underwater in losses, and must trade out of the position. 

3. Golf is an individual sport and trading is an individual occupation, which you must learn to accept.  

4. In golf/trading you must eliminate big numbers. 

5. Golf/trading are skills based sports.  How well you play/trade is determined by your skill level, which you only develop over time. 

6. You, and only you, are responsible for your mistakes. 

7. You will hit bad shots and make bad trades.  You must learn to forgive yourself. 

8. Golf is a game you will never and can never master.  There is a just a continual journey to improve.  Kinda sounds like trading to me. 

9. There are ebbs and flows to the game of golf, where you play well and poorly.  For most, the same is true of trading.  You will have stretches where you trade and see screens well and periods where you trade like a hacker. 

10. The best golfers grind. The best traders grind it out.

11. In golf you are challenged to contain your emotions.  In trading you must contain your emotions.  

12. In golf ever great player has a pre-shot routine.  Every great trader has a process to find excellent trade setups that are best for them. 

13. Golfers visualize success.  Traders should visualize pulling the trigger on good trades. 

14. Practice, practice, practice. Are you willing to put in the work to become great?  

23 Reasons 95% Traders Don’t Make Money

  
  Education
#  #  #  #  #  #  #  #
  1. Lack of homework on what works.
  2. Inability to manage stress.
  3. Allowing big losses in your trading account,
  4. Quitting when they learn trading isn’t easy money.
  5. Inability to trade volatile markets.
  6. Inability to emotionally  manage equity curves.
  7. Trading without a positive expectancy model.
  8. Never committing to one trading strategy.
  9. Trading based on opinions.
  10. Not managing position sizing.
  11. Not managing the risk of ruin.
  12. Over thinking their trades.
  13. Reactive trading decisions based on internalizing emotions.
  14. Trading with leverage without understanding the risks.
  15. Over trading.
  16. Trading with an account too small.
  17. Trading without a plan.
  18. Trading without stop losses.
  19. Not understanding what it takes mentally to be a trader.
  20. Setting stops in obvious places.
  21. Having only small winners.
  22. Selling short what looks expensive.
  23. A lack of discipline.

Overconfidence & Greed

  
  Education
#  #  #  #  #  #  #  #  #

What most traders often don’t realize until it is too late is how quickly one can lose a lot of money in a single trade often with disastrous consequences.  More often than not this painful experience comes from poor risk management following a period of successful trading. It is natural of course. We are pattern seeking mammals and when something starts working for us we get confident in our abilities and quickly forget we know very little what the market or a given stock may do at any given moment. In short: We easily become overconfident.

It is after a period of successful trading that traders tend to loosen up on good intentioned rules of discipline. They start thinking in term of dollar signs as opposed to the trade discipline. In short they think they can fly. “Look how much money I would have made if I had traded x % of my portfolio”. Stop yourself right there. While it is tempting to play mind games like this no good will come of it. Why? Because you just stepped overtly into the realm of one of the greatest sins of trading:

Once you get greedy you will start abandoning necessary discipline. Nobody, I repeat nobody, no matter how smart they think they are has a fail proof system or process or secret trading technique that guarantees 100% success. I surely don’t. Neither does Goldman Sachs or anybody else. While there may be some HFT firms out there that are trying to algo their way to a perfect system I have news for you: You are not an HFT or an algo. You are an individual trader and as good as you may be: You will have losing trades, things will go against you and oddly enough this will happen when you are at your most vulnerable: When you are overconfident, greedy and overexposed. Something curious tends to happen though when the losing trade occurs:

The 7 Psychological Mistakes Traders make

  
  Education
#  #  #  #  #

  1. Trading too big to “get back to even”.

  2. Going “all in” on one trade that they believe they just can’t lose.

  3. Being on the wrong side of an asymmetric trade.  Being short options for possible small gains if right but big losses if wrong.  In the long term eventually this blows up.

  4. Fighting a trend over and over again, a trend that a trader or investor can not even believe is very dangerous because shorts look better the higher a stock goes and longs look like they are getting a bargain the lower the stock sinks.

  5. In a losing trade the trader starts thinking “add more to a losing position” instead of “I need to cut my loss short”.

  6. The trader believes they are right and the market is wrong.

  7. Traders are trading markets they do not even fully understand and a trader must fully understand the risk and leverage involved  in currencies, futures, options, and commodities to prevent possible blow ups due from ignorance.

If a trader can tightly control risk and position sizes this will get them closer to getting in the club with the 10% of winning traders.

Constructing Diversified Futures Trading Strategies

  
  Education
#  #  #  #  #  #  #  #  #  #  #
  • Once you reach a few million under management, hiring a research staff to improve details is a good idea.
  • Wait for momentum to build in one direction and get on the bandwagon.  Expect to lose about two thirds of the time and so make sure your winners can pay for the losers and leave enough over to cover the rent.
  • Using a single strategy on a single instrument is for people with either extreme skill or for those who simply have a death wish
  • If we put the same notional dollar amount in each trade the portfolio would immediately be dominated by the volatile instruments and not much impact at all would come from the less volatile.
  • Trend following: Buying high and selling higher
  • Non professionals tend to spend an excess of time and energy on the buy and sell rules and neglect diversification and risk
Go to top