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Fear-Greed-logic

  
  Education
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Fear – Distress Over Losses

Psychologically, our minds process losses as more significant than a gain of the same amount. In trading, our fear of being wrong will often be used as a reason for staying in a losing position which leaves our accounts vulnerable to larger losses.

The most important part of trading is risk management. If you have a consistent and objective approach to risk management it will allow you cut your losses fast, and hold on to your profits!

Greed – Batting For Home-Runs

Coulda, woulda, shoulda. Those are 3 words that you should eliminate from your trading vocabulary, as they are most often associated with home run trades you missed (hindsight is always 20/20). There are thousands of stocks to choose from – don’t get distracted by potential home run trades. Instead, focus on being disciplined and consistently extracting profits from stocks. No one gets all the winners, focus on your process.

Logic – Remain Disciplined (more…)

10 Trading Books -Every Trader Must Read

  
  Education
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“If there was easy money lying around, no one would be forcing it it into your pockets.” – Jesse Livermore

There is so much garbage out there concerning trading online and the temptation for easy money that many new traders are lured into childish beliefs about getting rich quick, following a guru that can predict the future, or confusing a salesman for a trader. Contrary to popular belief, trading is not about picks, predictions, or personal gurus. Trading is really about entry signals with an edge, following price action, and learning to trade a system that fits who you are as a trader. Real long term profitable trading is about, risk management, robust trading systems, and mental and emotional discipline. I would not trust anyone that did not have those three things at the core of their trading. Here is the right reading path for a new trader to follow to avoid all the hype, foolishness, con-artists, and childishness that arises from ignorance of a solid understanding of the subject of trading in the real world in real time.

Trade Like a Casino: Find Your Edge, Manage Risk, and Win Like the House (Wiley Trading)  “If we are properly managing the risk and adhering to a positive expectancy model, the act of trading a position should be boring.” – Richard Weissman

Trading Without Gambling: Develop a Game Plan for Ultimate Trading Success “If all your decisions were made during nonmarket hours with timing and execution being your main concern during market hours, you will dramatically increase your chances of success.” – Marcel Link

Trend Following (Updated Edition): Learn to Make Millions in Up or Down Markets “Trend followers are the group of technical traders who use reactive technical analysis. Instead of trying to predict a market direction, their strategy is to react to the market’s movements whenever they occur. This enables them to focus on the market’s actual moves and not get emotionally involved with trying to predict direction or duration.” – Michael Covel

Market Wizards, Updated: Interviews With Top Traders “The most important rule of trading is to play great defense, not great offense.” & “Don’t focus on making money; focus on protecting what you have.” – Market Wizards (more…)

Physics To Help Deal With Market Risks

  
  Education
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READANDLEARNMisako Takayasu, a Tokyo Institute of Technology associate professor, spoke with The Nikkei about how “big data” will be used in the future to help market players manage risks based on principles of physics.

Excerpts from the interview follow.

Q: How do you use big data in your research?

A: Big data has allowed us to record human behavior and analyze it mathematically. Broader economic or social phenomena can be observed more clearly (in this way), like particles in physics.

As more and more trading data is accumulated, it is becoming increasingly possible to analyze and predict fluctuations using methods common in physics. The exponential growth of computer calculation speeds has also helped the process.

Q: What can you deduct from market data using these tools?

A: Data on ticks — the smallest increment of movement in the price of a security — can be used to gauge investor sentiment and how volatility is triggered. Market swings cannot be explained by a simple random-walk theory.

Markets become more stable when the number of contrarian investors increases. Conversely, they become unstable when more and more investors follow a market trend.

If market-followers dominate a market as it continues to climb, it will crash in the end. We may be able to explain the dynamics of a bubble with big data.

Q: What are the possible applications of big data in the market? (more…)

Difference between successful and unsuccessful Trader

  
  Education
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“A trader who has a good chance of success has the following attributes: (1) is properly capitalized; (2) treats trading like a business; (3) has a low tolerance of risk; (4) trades only when the market provides an opportunity; (5) can control emotions; (6) has a trading plan; (7) has a risk management plan; (8.) is incredibly disciplined; (9) is focused; and (10) has backtested his trading methodology.”  

“A trader who has a good chance of failure has any of the following attributes: (1) is undercapitalized; (2) lacks discipline; (3) overtrades; (4) does not understand the markets; (5) rushes into trades; (6) chases the market; (7) is afraid of missing a move; (8.) is stubborn and marries a position or idea; (9) misinterprets news; (10) is always looking for home runs; (11) lets losers get too big; (12) takes winners prematurely; (13) takes trading too lightly; (14) takes large risks; and (15) has little control of his emotions.” 

11 Thoughts on Trading Stress and Emotion

  
  Education
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 *Everyone has a stop-loss level: For some, it’s a price; for others, it’s a pain threshold.11RULES
* It’s not stress and emotion that get in the way of trading; it’s the stress and emotion that results when trading becomes personal: about you, rather than about supply and demand.
* The measure of a trader is how hard he or she works when markets are closed.
* Much bad trading is hormonal: too much testosterone, too little.
* When traders don’t track their results, it’s because they don’t want to know them.
* The best traders have a passion for markets; the worst have a passion for trading. (more…)

Trader Psychology

  
  Education
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  1. Transcending Common Trading Pitfalls
    • All market behavior is multifaceted, uncertain, and ever changing.
    • “I am employing a robust, positive expectancy trading model and am appropriately managing risk on each and every trade.  Losses are an inevitable and unavoidable aspect of executing all models.  Consequently, I will confidently continue trading.”
    • Denial of loss and uncertainty is extremely destructive because it prevents us from thinking in terms of probabilities, planning for the possibility of loss, and consequently from the necessity of consistently managing risk.
    • If we view markets as adversarial we cut ourselves off from emotionally tempered, objective solutions to speculation (opportunities to profit)
    • Blind faith is no substitute for research, methodical planning, stringent risk management, playing the probabilities, and unwavering discipline
    • Depression is a suboptimal emotional state because it allows past losses or missed opportunities to limit our ability to perceive information about the markets in the present
    • We are not our trades; they are merely an activity in which we are engaged
    • Greed is linked to fear of regret, which is the greatest force impeding a trader’s performance outside of fear of loss
    • Market offers limitless opportunities for abundance
    • Trading biases prevent us from objectively perceiving reality, thereby limiting our ability to capitalize on various opportunities in the markets.

(more…)

10 points To Become Great Trader

  
  Education
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  1. Cutting losses short is an edge. Only having small losing trades will save you from the big losses.
  2. Letting your winning trade run as far as it will go is a huge advantage over most traders. Having some huge winning trades will help your overall profitability.
  3. Eliminating the risk of ruin through limiting the total amount of capital you will lose on any one trade will keep your account intact and is an edge over those traders that eventually blow up their trading account.
  4. Proper position sizing will allow you to keep your correct decision making process in place by limiting the emotional impact of any one trade. This is an edge over many others that panic during a big trade and make an emotional decision.
  5. Having the discipline to consistently follow a predetermined written trading plan is an edge over many others that make decisions based on opinions and feelings.
  6. Having the confidence and faith in your trading method to follow it through losing periods is a huge edge. Most drift to new methods right when their last one finally starts working. (more…)

When Buffet Breaks His Rules

  
Analysis, Education
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Reading some headlines, I see that Buffet has “dumped Walmart” and “bought airline stocks” both of which seem to violate his rules: 1. to keep a stock forever and 2. never buy airlines.

It would seem that the math of such a big fund has forced him to change. Buying a small market value stock and riding the exponential growth once it succeeds no longer adds much to his returns. Since he is so diversified with such big companies hanging on forever gives market like returns and one is much more efficient by buying an index. So it would seem he is left with trying to time the market, on big companies and/or sectors, to add value to his shareholders.

My question is has he been successful when he has violated his rules in the past? Or does he like most of us get humbled by the markets when we try something new?

10 Unsuccessful Trading Behaviors

  
  Education
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  1. Refusing to define a loss.
  2. Not liquidating a losing trade, even after you have acknowledged the trade’s potential is greatly diminished.
  3. Getting locked into a specific opinion or belief about market direction.  I.E. “I’m right, the market is wrong.”
  4. Focusing on price and the money
  5. Revenge-trading to get back at the market from what it took from you.
  6. Not reversing your position even when you clearly sense a change in market direction
  7. Not following the rules of the trading system.
  8. Planning for a move or feeling one building, then not trading it.
  9. Not acting on your instincts or intuition
  10. Establishing a consistent patter of trading success over a period of time, and then giving your winning back to the market in one or two trades.

Twenty Rules For Traders

  
  Education
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  • 1. Forget the news, remember the chart. You’re not smart enough to know how news will affect price. The chart already knows the news is coming.
  • 2. Buy the first pullback from a new high. Sell the first pullback from a new low. There’s always a crowd that missed the first boat.
  • 3. Buy at support, sell at resistance. Everyone sees the same thing and they’re all just waiting to jump in the pool.
  • 4. Short rallies not selloffs. When markets drop, shorts finally turn a profit and get ready to cover.
  • 5. Don’t buy up into a major moving average or sell down into one. See #3.
  • 6. Don’t chase momentum if you can’t find the exit. Assume the market will reverse the minute you get in. If it’s a long way to the door, you’re in big trouble.
  • 7. Exhaustion gaps get filled. Breakaway and continuation gaps don’t. The old traders’ wisdom is a lie. Trade in the direction of gap support whenever you can.
  • 8. Trends test the point of last support/resistance. Enter here even if it hurts.
  • 9. Trade with the TICK not against it. Don’t be a hero. Go with the money flow.
  • 10. If you have to look, it isn’t there. Forget your college degree and trust your instincts.
  • 11. Sell the second high, buy the second low. After sharp pullbacks, the first test of any high or low always runs into resistance. Look for the break on the third or fourth try. (more…)
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