Archives of “habit” tag

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4 Types of Traders

  
  Education
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The first type of profitable discretionary trader is the one who has a natural feel for the market.  When you talk to one of these traders and ask them about their trading at some point you’ll hear them say something about ‘feeling the market was this way or that….’. These are traders who over the years have acquired a lot of implicit knowledge of the market and its participants. They understand what moves markets and they also have the required self-trust to act on their ideas and to protect themselves when they are wrong.  Their personalities allow them to have the self-trust to know their limits and believe in their capabilities. We could call them a ‘natural born trader’; and there are very few of them. Although Jesse Livermore eventually blew-out, he’s an example of this rare type of natural trader.

 The second type of profitable trader – or more accurately temporarily profitable – is the lucky trader; the trader who’s P&L is currently in an up swing but they’ll soon be negative. Often these traders either got lucky with a number of trades and can not replicate it, or they learned the habit of holding onto losing trades and they got lucky when those positions came back. This accounts for the largest number of “profitable traders” – but for these traders the money often leaves faster than it arrived. (more…)

7 -Market Wisdom

  
  Education
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  1. First Things First
    You sure you really want to trade ? It is common for people who think they want to trade to discover that they really don’t.
  2. Examine Your Motives
    Why do you really want to trade ? Did you say excitement ? Then don’t waste your money in market, you might be better off riding a roller coaster or taking up hand gliding.
    The market is a stern master. You need to do almost everything right to win. If parts of you are pulling in opposite directions, the game is lost before you start.
  3. Match The Trading Method To Your Personality
    It is critical to choose a method that is consistent with your your own personality and conflict level.
  4. It Is Absolutely Necessary To Have An Edge
    You cant win without an edge, even with the world’s greatest discipline and money management skills. If you don’t have an edge, all that money management and discipline will do for you is to guarantee that you will gradually bleed to death. Incidentally, if you don’t know what your edge is, you don’t have one.
  5. Derive A Method
    To have an edge, you must have a method. The type of method is not important, but having one is critical-and, of course, the method must have an edge.
  6. Developing A Method Is Hard Work
    Shortcuts rarely lead to trading success. Developing your own approach requires research, observation, and thought. Expect the process to take lots of time and hard work. Expect many dead ends and multiple failures before you find a successful trading approach that is right for you. Remember that you are playing against tens of thousands of professionals. Why should you be any better ? If it were that easy, there would be a lot more millionaire traders.
  7. Skill Versus Hard Work
    The general rule is that exceptional performance requires both natural talent and hard work to realize its potential. If the innate skill is lacking, hard work may provide proficiency, but not excellence.
    Virtually anyone can become a net profitable trader, but only a few have the inborn talent to become supertraders ! For this reason, it may be possible to teach trading success, but only upto a point. Be realistic in your goals.

Short Selling

  
Analysis, Education
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Recommended books on short-selling:

1) How to Make Money Selling Stocks Short by William O’Neil (Wiley, 2005) – [Technical, Swing & Position Trading]
2) Sell & Sell Short by Dr. Alexander Elder (Wiley, 2008) – [Technical, Day Trading]
3) The Art of Short Selling by Kathryn Staley (Wiley, 1997) – [Fundamental]
4) Sold Short by Manuel Asensio (Wiley, 2001) – [Fundamental]
5) Sell Short: A Simpler, Safer Way to Profit When Stocks Go Down by Michael Shulman (Wiley 2009) – [Macro]

The best way to become an effective short seller is by making it a habit of studying hundreds and even thousands of charts every week. Train your eye to see the setups, the accompanying volume, how the MA’s line up, etc. The only way to do this is with practice. Short-selling can become very profitable due to the simple fact that stocks drop faster than they rise (in most cases) and for me, it typically only takes about 1-3 days to make a decent profit of 10% or more.

Trade only the best setups to increase your odds. I do recommend the use of stop losses above key resistance areas due to the fact that losing short positions can cause serious damage if left unattended.

5 Trading Quotes

  
  Education
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Traders who are eternal optimists get absolutely killed because they have a habit of staying in long after the trade has turned into a loser. – Dan Zanger
Good trading is not about being right, it’s about trading right. If you want to be successful, you need to think of the long run and ignore the outcomes of individual trades. – Curtis Faith
Human beings are risk seekers when faced with negative outcomes and risk averse when faced with positive outcomes.
Great traders offer no excuses.
The less I cared about whether or not I was wrong, the clearer things became, making it much easier to move in and out of positions, cutting my losses short to make myself mentally available to take the next opportunity. – Mark Douglas

The Power of Habit-Book Review

  
  Education
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A new year is right around the corner, and with it will come the usual host of resolutions—sadly, rarely kept. To be more precise, more than 40% of Americans make New Year’s resolutions and just 8% achieve their goals. Sometimes the goals they set are too daunting, sometimes too vague. And, perhaps the biggest problem with the whole resolution business is that people focus on goals rather than processes.
In 2012 Charles Duhigg, a Pulitzer Prize-winning journalist for The New York Times, wrote The Power of Habit, which spent 62 weeks on the paper’s best seller lists and was named one of the best books of the year by The Wall Street Journal and theFinancial Times. It is now being reissued with an afterword by the author.
I reviewed the book when it first came out and thought I would write a new post now that I have the reissued edition. But then I reread my original piece and decided that I probably couldn’t improve on it. So instead I’ll republish it here.
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“All our life, so far as it has definite form, is but a mass of habits,” William James wrote in 1892. Well, that might be a bit of an overstatement: a researcher in 2006 knocked that “mass” down to “over 40 percent.” Whatever the percentage, we are creatures of habit. In The Power of Habit: Why We Do What We Do and How to Change It (Random House, 2012) Charles Duhigg explores the work that neurologists, psychologists, sociologists, and marketers have done over the past two decades to figure out how habits work and how they change. It’s a fascinating tale. (more…)

7 Unfortunate Habits of Unhappy People

  
  Education
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1.  Playing it too safe.

Don’t play it so safe that you put yourself in situations where none of your potential options satisfy your calling.  Dream your dream, but also realize that you are more than just the dreamer, you are the point of origin for your dream’s reality.

Your dream is your creative vision for your future life.  You must break out of your current comfort zone and become comfortable with the unfamiliar.  Start smashing through those emotional barriers.  Move forward.  Life doesn’t magically give you what you want in your mind; it gives you what you insist upon with your actions.  Read The Power of Habit.

2.  Continuous self doubt.

You will inevitably become who you believe yourself to be.

If you spend enough time saying, “I’m not smart enough, thin enough and rich enough,” it’s likely that you will someday be right.  On the contrary, if you havethe belief that you are smart enough, thin enough and rich enough now to take the next positive step forward, over time you will likely acquire the capacity to be these very things at your desired level of expectation. (more…)

Universal Laws of Success

  
Education, Life
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(1) Law of LOVE – It says in essence – “LOVE ALL PEOPLE AS YOURSELF”. All other rules are subordinate to this one Law – they must NOT conflict with it. It’s biblical. It applies to everything we do – as individuals – families – business teams – organizations – countries. It is Global in its reach.
(2) Law of CAUSE & EFFECT – This is an orderly universe. There are no accidents. Everything happens for a reason. For every effect there’s a cause or a set of causes.
(3) Law of MIND – Thoughts objectify themselves. We ‘become’ what we ‘think about’.
(4) Law of MENTAL EQUIVALENCY – To achieve success in any area, we must have a ‘clear image’ of that success in our mind a mental picture of our idea of success – a vision.
(5) Law of CORRESPONDENCE – Our outer life will mirror our ‘inner’ life. There is a ‘direct correspondence’ between our experiences and our thoughts and attitudes.
(6) Law of BELIEF – Whatever we believe – deeply – becomes our reality (including our belief that we “deserve” Success).
(7) Law of VALUES – What we truly value and believe in is reflected in our ‘actions’, even though our ‘words’ may say otherwise.
(8) Law of MOTIVATION – Everything we do is triggered by our inner desires, urges and instincts – many are subconscious.
(9) Law of SUBCONSCIOUS ACTIVITY – Our subconscious mind ‘alerts us to things around us’ – consistent with our dominant desires and concerns.
(10) Law of EXPECTATIONS – What we ‘expect with confidence’ tends to materialize.
(11) Law of CONCENTRATION – Whatever we concentrate on – and think about repeatedly – becomes more a part of our inner life.
(12) Law of HABIT – Virtually all that we do is automatic – the result of habit. Habits that move us ‘away’ from our goals must be ‘changed’. (more…)

Irrational and Odd Behaviors of Traders

  
  Education
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Anchoring: our habit of focusing on one salient point and ignoring all others, such as the price at which we buy a stock.

Bias Blind Spot: we agree that everyone else is biased, but not ourselves.

Confirmation Bias: we interpret evidence to support our prior beliefs and, if all else fails, we ignore evidence that contradicts it.

Disposition Effect: we prefer to sell shares whose value has increased and keep those whose value’s dropped.

Framing: the way a question or situation is framed can determine your response.

Fundamental Attribution Error: we attribute success to our own skill and failure to everyone else’s lack of it.

Herding: we tend to flock together, especially under conditions of uncertainty.

Illusion of Control: we do things that make us feel in control, even if we’re not.

Loss Aversion: we do stupid things to avoid realizing a loss.

Overconfidence: we’re way too confident in our abilities, which seems to be an in-built bias that we’re unable to overcome without excessive effort.

Learn from your mistakes

  
  Education
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“The single most important advice I can give anybody is: Learn from your mistakes. That is the only way to become a successful trader.”

David Ryan

Make it a habit to review all your trades once a month. Notice where you entered and ask yourself why did you initiated such a position. What was the underlying reason behind your move. Was it pure emotional reaction or strictly following a plan. What were your exit rules and how well did they help you to preserve capital and maximize profits. No other exersize will teach you more about your weaknesses and strengths.

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