Archives of “greed and fear” tag

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The emotions in markets are off-the-charts

  
Analysis, Education
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Do you feel it?

comic about warnings
Fear is the strongest emotion but greed isn’t far behind.
What we’re seeing in the markets and in the world right now is extreme emotion. Collectively, I believe that COVID-19 has left everyone an emotional wreck.
We all agree that the fears from the virus have diminished but what has replaced that is a mess. It’s all anecdotal but I’ve come to believe the series of events around the coronavirus has elevated individual and collective emotions — like every day is a full moon.
The fear around the virus has left some kind vacuum and people are trying to fill it.
You see it in people’s lives, in protests, in anger but you’re also seeing it in markets. There has never been a market like this. People are throwing away their hard-earned savings on idiotic gambles on bankrupt companies.
But it’s not just the stupidest of the stupid. The uncertainty in the world is extreme and there’s no reflection of that in risk assets. The transition from fear to greed to euphoria is nonsense.

(more…)

Fear, Greed & Trading Profits

  
  Education
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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…)

Traders :It’s OK To Be Emotional

  
  Education
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Read any book or blog about trading and you’ll be told controlling one’s emotions is a key skill needed to trade well. On the surface, this sounds like good advice. After all, greed and fear are killers at a trading desk right? 
But the evidence doesn’t back up such a notion.

These writers are saying you must be very calm and not get too excited. You must keep an even keel and not ride an emotional roller coaster – as if to imply emotional restraint is a desired state.

I’ve never completely agreed with this concept because I know from casual observation most successful people are very emotional.

SOME EXAMPLES

  • Michael Jordan, Tiger Woods – very intense, very emotional!
  • Bobby Knight, Coach K – love them or hate them, they’re extremely emotional and extremely successful.
  • Muhammad Ali – intensity, passion, showmanship and yes, emotion.
  • Paul Tudor Jones – if you can get your hands on a copy of the PTJ 60-minute documentary the subject supposedly bought up, you’d learn he has off-the-charts competitiveness, intensity and is very emotional.

THE TRADING TEMPERAMENT

Yet it’s a rarity to meet a calm trader, who doesn’t seem to be overly intense or competitive, become successful. This doesn’t mean you have to hurl your keyboard out the window every time you lose money.It’s just means you aren’t likely to succeed if you don’t have a little fire in your gut.

Trading is tough. It takes years of study and practice. Without a strong emotional drive, it’s unlikely a newbie would be willing to put in the time necessary to get good. (more…)

Greed & Fear

  
  Education
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Emotions, emotions and emotions, trading will always full of them, movement of the market based on them. Our rush to buy or sell sometimes overflow our plans. The common  traders question was “Why did I do this or do that?”

What is driving us to get into the market when we are not prepared and exit on completely different prices, which completely disagree with our plans? Two major factors, Greed and Fear.

Greed come when market goes as we expected then we want more! We believe it will continue for very long time. We forgot that everything changes. For successful trading you need a good strategy and discipline to execute that strategy. No matter how good it is, trading is completely useless without proper execution of the strategy.

We Fear when we afraid to miss the profitable move or to loose the money. And until fear and greed will dominate us, our results will be very unstable. And worse if our money management is not the strongest point, this is the weakest point for emotional traders, will soon will be out of money, before we even had a chance to establish ourself as a trader.

TECHNICAL ANALYSIS FOR IDIOTS

  
  Education
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The outline of the book is very simple and well designed, consisting of four parts: Introduction to Technical Analysis, Tools For Technical Analysis, Time to Trade, and Trading Mechanics.  There is a wealth of information here so let’s look at a few nuggets.

INTRODUCTION TO TECHNICAL ANALYSIS

Arps does a good job of explaining the purpose of technical analysis as a way to “help you anticipate potential changes in the direction of market prices resulting from crowd behavior driven by the emotions of greed and fear” and not as a “business of absolute predictions.”  All too often the new trader considers technical analysis to be the answer to predicting future price action; Arps tempers this expectation with a good analogy:  “Like weather forecasting, technical analysis doesn’t result in absolute predictions about the future.  Instead, technical analysis can help investors anticipate what is “likely” to happen to prices over time.”  After laying the foundation Arps begins to build a firm structure by covering topics that include market structure, charting, and various swing patterns.

TOOLS FOR TECHNICAL ANALYSIS

Part 2 covers the technical of technical analysis.  Here Arps dissects just about every tool available to traders from trendlines to moving averages; oscillators to point and figure charts; and price to support and resistance.  These tools help the trader better  anticipate future price direction by considering recent price support/resistance areas, overbought/oversold areas, trending/consolidation conditions, divergence, etc.  “Answers to these questions can alert you in advance as to when prices are likely to change direction and thus provide you with powerful information that can significantly improve your trading profits.”  Much of what is covered here is your traditional meat and potatoes but there is a little extra gravy, such as Arps’ own Fear-Greed Index, a chapter on Volume Float analysis, made popular by Steve Woods, and the Jackson Probability Zones, a method named after J.T. Jackson.

TIME TO TRADE

Understanding the basics of technical analysis is one thing: applying it to current market conditions is quite another.  In part 3, Arps discusses how to use technical analysis for building the skills necessary to become a successful trader.  What is of particular interest to me is Arps discussion of developing a trading plan, which, he says, consist of four parts:  rules for entry, rules for exit, money management rules, and the selection of a strategy.  Anyone who has traded for any length of time will quickly point out that the trader may have more degrees in technical analysis than a thermostat but if he does not have a plan for using that knowledge it will be worthless.  In fact, it could be dangerous.  Arps does a great job of cautioning the would be trader who believes that technical analysis knowledge is key when it is not.  “There are several reasons to have a trading plan, but probably the biggest is the way it simplifies things.  Decision making becomes very clear cut.  The trading plan defines what is supposed to be done, when, and how.  Just follow the plan.  The plan serves as a roadmap to entering and holding, profit taking, or cutting losses.  Writing down your plan gives you an immediate edge over most traders and investors.”  Bottom line: the trader’s edge is following a plan; not the plan itself.

TRADING MECHANICS

In part 4, Arps takes the trader through the (more…)

Advantages of Technical Analysis

  
  Education
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  • Technical analysis is a bit of a misnomer since it is really not that technical. A better name for the use of charts to make investment decisions might be risk/reward analysis or even market psychology. Sure, there are some complex mathematical concepts involved with some of its more esoteric indicators. But at its core, technical analysis is simply a method of determining if a stock or the market as a whole is worth buying or selling. Once we identify this we are way ahead of the game with regard to assembling a winning portfolio.
  • Simply stated, technical analysis is the study of data generated from the market and from the actions of people in the market. Such data includes price levels that have served as turning points in the past, the amounts of stock being bought and sold each day (volume), and the rate of change of price movements (momentum) over a given span of time. (more…)

Between Theory And Fear

  
Analysis, Education
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Hell tortures you to stop learning.

 George Soros is setting up institutions to study the failure of economic thinking. They have succeed in demonstrating failure, he said this afternoon at the CEU in Budapest, but not in discovering what to do about it. 
The source of the problem, he explained, is relying too much on theory, on knowledge, and not on how our not knowing what to do makes us act in ways that change the world, which world we don’t see because we expect it to conform to our theories. We need to be able to discard our theories when they are proven wrong, and we need to understand that no general theory is enough, because our actions are constantly changing the world we need to respond to and understand.
 
So I said to him after his talk:
 
– You have divided human activity in two parts, theory, and manipulation. Theory doesn’t work, and manipulation of markets is based on crowd behavior, that is, fear. But since ancient Greece, the parts to human activity have been divided into not two, but three: you have left out practical action.
 
Practical action differs from manipulation, fearfully following and leading each other, in that its end is making learning easier. It’s purpose is outside of itself, in the part of life where we learn, where we find beauty, what makes life good.
 
Why not establish institutions that study how economic relations are practical: what forms of cooperation lead to a life of learning and freedom from manipulation, and which don’t. And study how to make the transition from the present institutions based entirely on greed and fear to the kind we need to have. Do you understand?
 
– I have studied maximization of happiness.
 
– No that’s not what I mean. Counting results of fear based behaviors: doing that is living still in the world of the theoretical and the manipulative. We need to study how to cooperate, study what forms of cooperation help us learn to make our lives better.
 
Let’s go, says George Soros assistant, urging him as she has been doing for the last few minutes as we talked. OK, I say, I tried. You remember me, right?
 
– Yes, he nods his head.
 
I’d asked him for a job the day before when I saw him walking down the street from the University to his hotel.
 
Practical necessity. I need to get out of this hell of Budapest, this place putting pressure on me not to learn.
 
People say it is difficult to diagnose the political problems of our times, but I don’t see the difficulty. We’re together in this hell trapped between theory and fear.

Lessons of the Legendary Traders

  
  Education
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What do the worlds best Trading masters differently than the average investor? Can the average investor learn from the Player Legends success stories and their techniques used? What do the most famous Players have in common that can be applied by the average talented trader?

Before we should give some insights on those questions lets have a look at some of the most successful Trade jockey Legends:

Nicolas Darvas turned an $ 36000 account into $ 2000000 in 18 months!!!
Ed Seykota, a Turtle Financier, turned $ 5’000 into $ 15’000’000 in 12 years!!!
Jesse Livermore made several multi-million USD fortunes in the early 1900’s
Richard Dennis, another Turtle Player, made between $ 100 and $ 200 000.000
George Soros is believed to be one of the greatest Trade jockey of all time!!!

The results are quite impressive and some different amazing Financiers should be added easily to the list above. Why do these guys have such tremendous results?

There are common factors, that can be observed through most of the successful Pitbull Legends:

They have a Strategy that they strictly follow.
Most of them have a trend-following average trading style.
Most of them have a mid- to long-term approach. Some of them burned their fingers over the preceding 3 years and some even lost a fortune. Here are some examples of observed behaviour patterns:

Losses are not slice early enough.
Investment with a short-term horizon become long-term horizon in hope of raising asking prices.
People listen to the advise of their invested $ Trade facilitators and Analysts.
People risk coin in hot issues recommended by colleagues of their colleagues.
People have no plan for their investments.
Money Management is not considered at all.
Greed and fear is omnipresent.

What can average talented trading insiders learn from the above and how can the mistakes listed above be avoided? The after key notches can be learned from some of the most successful Trading expert Legends:

Each investor has its own personality. Some of the investor have a very aggressive paper trading style and are stockmarket trading very frequently. Some prefer shares as different are increased risk oriented and speculate in contracts. Other players want only spend a minimum of effort. An investor need to reflect on his outline and choose a note trading approach that fits his personality.

A trade needs to be completely planned in advance. g. when they go on holiday, when they move house etc. But do they have a plan when they invest? An investor needs to have a method that helps him to be prepared for all scenarios of a exchange. One needs to know in advance when to buy, how much to buy, when to exit. Once a buy / sell is executed the bottom line of the instrument (stock, promise note, fixed interest paper etc.

The most important component of a stock trading method is Cash Management? Surprised? Lots of pitbulls and super traders spend most of their time developing a very advanced trade entry strategy. But the entry methodology contributes only approximately 15% to the success of a Note trading Method based on academic studies.
The most important question of a Paper trading Technique is how much to risk bucks and how many deals to trade at the same time.

A can do attitude is required to buy / sell successfully. Why? Because with phrases like it should be great, but I cant or one day perhaps I should succeed in the lottery, but until then I must work hard they have already lost.

EMOTIONS-GREED and FEAR

  
  Education
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Emotions, emotions and emotions, trading will always full of them, movement of the market based on them. Our rush to buy or sell sometimes overflow our plans. The common Forex traders question was “Why did I do this or do that?”

What is driving us to get into the market when we are not prepared and exit on completely different prices, which completely disagree with our plans? Two major factors, Greed and Fear.

Greed come when market goes as we expected then we want more! We believe it will continue for very long time. We forgot that everything changes. For successful trading you need a good strategy and discipline to execute that strategy. No matter how good it is, trading is completely useless without proper execution of the strategy.

We Fear when we afraid to miss the profitable move or to loose the money. And until fear and greed will dominate us, our results will be very unstable. And worse if our money management is not the strongest point, this is the weakest point for emotional traders, will soon will be out of money, before we even had a chance to establish ourself as a trader.

The PROPER Use Of Hope and Fear

  
  Education
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If you’ve been involved in the markets for any length of time you will no doubt have heard of the twin pillars of market psychology, Hope and Fear (or sometimes Greed and Fear).

In fact, if you’ve ever been involved in an endeavour where you have something on the line – a business, a wager, a job, or even a date – you will have experienced Hope and Fear in some form and the devastation it can play on your psychology.

Experiencing Hope

For most traders, Hope looks like this:

They’ve just bought a stock or commodity, and they hope that it goes up.  Of course, this is the name of the game, we all hope it goes up if we are buying!  But then the stock starts to fall, and instead of selling out, the trader holds on with the hope that it will rise again.  The more the stock falls, the more they hope and pray that it will rise.

But they don’t realise – Hope does not equal Action.  And only our Actions make money in the stock market.

Experiencing Fear (more…)

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