Archives of “grasp” tag

rss

Fear, Greed & Trading Profits

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

Over the years we’ve noticed a remarkably consistent pattern. A very high percentage of our trainees can trade brilliantly in the simulation program; steady consistent profits, sharp entries and exits, excellent grasp of market conditions and a clear, rational plan for exploiting them

And then they start trading real money.

It’s like somebody turned out the lights. Almost immediately things turn sour; they jump in too soon, get scared out of good positions, hang on to losers and cut their winners short … the exact opposite of what they should be doing, and the exact opposite of what they were doing in the simulation program.

WHAT HAPPENED?

The only difference between real and imaginary – and between good and horrid – is the emotional impact on new traders of having real money at risk. They succumb to the two emotions that drive the market: greed and fear.

Nothing cranks up our emotional responses faster than money. And trading is about nothing else. But successful trading requires a kind of cold, calculating rationality, and any emotion – giddy joy as well as bitter despair – is fatal.

So we see trainees doing things they know are dumb: 

  • They jump on the long side of an uptrend because “they don’t want to miss the trade,” even as the trend is ending.
  • They cling tenaciously to losing  positions hoping the price will come back – an attempt to avoid admitting you made a dumb trade that usually turns a small loss into a big one.  
  • They pull their stops so they won’t get hit. Really! 
  • They become so traumatized by losing that they take excessive risks hoping to get back even.
  • Finally, they quit in despair, close their trading account, burn the computer, and retreat into a dark place to lick their wounds.

None of this is necessary. All of it can be avoided. Here are some things that help. (more…)

Ed Seykota – “Everybody Gets What They Want From The Markets”

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

When Jack Schwagger interviewed legendary trend following trader Ed Seykota for his book “Market Wizards” in 1989, it’s clear he was not ready for the answers that Ed Seykota gave.  Not many people are.

But by far the greatest and most provocative answer that Ed gave was that of “Everybody gets what they want out of the market”.  Not only did it incite an almost angry response from Schwagger, it has confused and enlightened an entire generation of traders since.

The Famous Ed Seykota Interview

Jack Schwagger asks his interviewee: “Don’t all traders want to win?”

And Ed replies with: “Win or lose, everybody gets what they want out of the market.

“I know one trader who seems to get in near the start of every substantial bull move and works his $10 thousand up to about a quarter of a million in a couple of months.  Then he changes his personality and loses it all back again.  This process repeats like clockwork.  Once I traded with him, but got out when his personality changed.  I doubled my money, while he got wiped out as usual.  I told him what I was doing, and even paid him a management fee.  He just couldn’t help himself.  I don’t think he can do it any differently.  He wouldn’t want to.

  • “He gets a lot of excitement, he gets to be a martyr, he gets sympathy from his friends, and he gets to be the centre of attention.  Also, possibly, he may be more comfortable relating to people if he is on their financial plane. 

“On some level, I think he is really getting what he wants.”

Does This Sound Like Someone You Know?  Maybe Someone You Know… Intimately?

Even back then, Ed Seykota had a fantastic grasp on the dangerous psychology pitfalls that almost every trader has to work through before they become a success in the markets. 

So you need to ask yourself: (more…)

Have a Goal

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

There is no reward without risk, and there should be no risk without reward.  Knowing this, there’s absolutely no reason why each trade shouldn’t have some favorable objective associated with it, so set a goal for each trade.  A realistic one that could quite feasibly be reached during the course of the trade.

Perhaps you’ll set a hard target and book profits once that level is reached regardless of how strong the momentum seems at the time.  Or perhaps you’ll plan to book partial profits at intervals along the way.

At the very least, having some idea of a level where your stock could move to is still going to help you formulate a game plan, even if you don’t choose to leave a resting order in that zone to book profits.

If you know your stop and you have some kind of upside expectation, then you’ll have a far better grasp of just what your risk is on a given trade and whether or not it should be taken.

Justin Mamis: ‚When to Sell’ – Inside Strategies For Stock market Profits

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

Time for another excerpt post taken from “When to sell” from Justin Mamis. Probably my favourite author. Do yourself a favour. Buy all his books and read them. Repeat the process. The best education you can get. This will make you a better trader and will provide you with tremendous insight into how markets work and how to deal with all the psychological aspects of trading.

Justin Mamis: ‚When to Sell’ – Inside Strategies For Stock market Profits

Chapter 2: ‘Right is wrong’ pages 23-24

With experience, and with some grasp of what has consistently affected your judgment in the past, you should be able to determine at which times and under what conditions you function best…and when you should be extra-careful, or even stay away entirely. One important thing every professional knows, or ought to know since it is his business to know, is that he doesn’t have to play the game every single minute of every day. The advent of desktop machines and their ability to present right in your face what is actually happening every single minute of every day – and some with bells and whistles to call your attention to some petty and momentary thing that has just happened – has had its effect, though: the less experienced, the less disciplined, have become increasingly short-term oriented and excitable, more, in fact, akin to what we believed in the past that the public could be criticized for, of playing a game, of having a predilection for continually being in the market in one way or another. “Isn’t there one stock worth buying?” was a common question during the massive 1973-74 bear market, and still is. There is no rule that says you always have to have action; yet that is perhaps the most disastrous of all the common errors we’ve noticed. Rather than continually confronting the market on its own inscrutable terms, stop and ask yourself what you know, whether what you know is enough to act upon, and how you are relating to it. Maybe it is a period when the market’s personality conflicts with yours, or something in your extra-market life is hampering your ability to view stock action objectively, or, simply, perhaps it’s a time when the market’s course isn’t clear to anyone. Then it is best to step aside. You owe it to yourself to find out exactly how ready and able you are to play, because it’s yourself you end up playing against.

Go to top