1. Markets tend to return to the mean over time.
2. Excesses in one direction will lead to an opposite excess in the other direction.
3. There are no new eras – excesses are never permanent.
4. Exponential rising and falling markets usually go further than you think.
5. The public buys the most at the top and the least at the bottom.
6. Fear and greed are stronger than long-term resolve.
7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chips.
8. Bear markets have three stages.
9. When all the experts and forecasts agree – something else is going to happen.
10. Bull markets are more fun than bear markets.
Archives of “handful” tag
rssHow good is your WHY?
I’ve been taking a minor natural break in trading over recent weeks, and in the meantime I’ve been pondering the power of the “WHY” I have when entering trades. You need a good why, no matter what you are doing in life, but especially when you walk into one of the toughest and most volatile markets in the world and put your money on the line.
What’s your WHY?
I can see looking back that the vast majority of my trading had a feeble why behind them; no wonder I lost cash hand over fist. Really my reason for entering was that I just wanted to enter, thats all. The second problem most likely is that even when I THOUGHT I had a good reason, the idea behind it was faulty.
So you can have no reason to enter, or you can have a wrong reason to enter.
Also I notice on the forums that the VAST MAJORITY of newbie / semi newbie traders there are trying to formulate their own personal why. Their own UNIQUE system, inventing unique indicators.
They think that the idea of the game is to outsmart everyone else in the market; to be unique. The obsession with system creation or inventing new indicators has being unique and outsmarting everyone else behind it as a hidden motivation. The thing with markets though is that its not about you, its about consensus. If you invent your own amazing oscillator and you are the only person in the world looking at it, then how good a reason is this to enter the market? How much consensus do you have behind you? Who supports your decision? Who agrees with you?
Probably nobody, except a handful by pure chance.
There’s more to say on this, but ponder your WHY when you pull the trigger. How good is that why?
Skill versus Hard work
Is trading success dependent on innate skills? Or is hard work suffi-cient? There is no question in my mind that many of the supertraders have a special talent for trading. Marathon running provides an appro-priate analogy. Virtually anyone can run a marathon, given sufficient commitment and hard work. Yet, regardless of the effort and desire, only a small fraction of the population will ever be able to run a 2:12 marathon. Similarly, anyone can learn to play a musical instrument. But again, regardless of work and dedication, only a handful of individuals possess the natural talent to become concert soloists. 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 pro-vide proficiency, but not excellence.
In my opinion, the same principles apply to trading. Virtually any-one 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 up to a point. Be realistic in your goals.
Trading Commandments From A Samurai
1. “Accept everything just the way it is.”
= accept the market reality in front of you.
2. “Do not seek pleasure for its own sake.”
= don’t trade for pleasure
3. “Do not, under any circumstances, depend on a partial feeling.”
= don’t jump or out of trade on shallow half-baked impulsive feelings.
4. “Think lightly of yourself and deeply of the world.”
= don’t take your trading skills too seriously, take the ability of market to surprise seriously.
5. “Be detached from desire your whole life long.”
= make money, but don’t let money make you.
6. “Do not regret what you have done.”
= smile at your mistake, laugh off your profit.
7. “Never be jealous.”
= what you’ve got is good and enough and incomparable
8. “Never let yourself be saddened by a separation.”
= a loss is never final. it either stays back as lesson or returns as profit.
9. “Resentment and complaint are appropriate neither for oneself or others.”
= accept the reality, keep the power with yourself by not complaining.
10. “In all things have no preferences.”
= don’t measure your profit or loss, just measure them by the lesson or experience.
11. “Do not act following customary beliefs.”
= dare to think!
12. “Do not collect weapons or practice with weapons beyond what is useful.”
= a handful of tools are enough if you are willing to submit.
13. “Do not fear death.”
= do not fear unforeseen loss.
14. “Do not seek to possess either goods or fiefs for your old age.”
= don’t trade under pressure to accumulate profit. if you remain alive, markets will always be there. just keep learning the game.
15. “Respect Buddha and the gods without counting on their help.”
= respect luck, acknowledge god’s blessing, but don’t drag them in the market.
How good is your WHY?
I’ve been taking a minor natural break in trading over recent weeks, and in the meantime I’ve been pondering the power of the “WHY” I have when entering trades. You need a good why, no matter what you are doing in life, but especially when you walk into one of the toughest and most volatile markets in the world and put your money on the line.
What’s your WHY?
I can see looking back that the vast majority of my trading had a feeble why behind them; no wonder I lost cash hand over fist. Really my reason for entering was that I just wanted to enter, thats all. The second problem most likely is that even when I THOUGHT I had a good reason, the idea behind it was faulty.
So you can have no reason to enter, or you can have a wrong reason to enter.
Also I notice on the forums that the VAST MAJORITY of newbie / semi newbie traders there are trying to formulate their own personal why. Their own UNIQUE system, inventing unique indicators.
They think that the idea of the game is to outsmart everyone else in the market; to be unique. The obsession with system creation or inventing new indicators has being unique and outsmarting everyone else behind it as a hidden motivation. The thing with markets though is that its not about you, its about consensus. If you invent your own amazing oscillator and you are the only person in the world looking at it, then how good a reason is this to enter the market? How much consensus do you have behind you? Who supports your decision? Who agrees with you?
Probably nobody, except a handful by pure chance. (more…)
Confidence, Discipline and Consistency
Consistently profitable trading comes down to just three simple things. The three are the trading psychology, the system, and the risk and money management. Trading psychology means the big 3: discipline, confidence and consistency.
The trading psychology takes precedence because it is needed to make sure that the other two are followed. When they are not followed, a good system and sound risk and money management rules are of limited value. When you have trading psychology that is not achieved through sheer will, you can have the discipline, confidence and consistency that make the most of your rules and system.
Sticking to your system for any length of time is nearly impossible without having confidence in your system. A trader may be able to focus intently on their discipline, and may even be able to stick to it for a time, but often the first handful of losing trades will kill that confidence and with it goes the discipline.
When the sting of a string of losses comes along, especially for a trader that has not established a solid confidence in their system, the temptation to deviate from the system, to second-guess it, is very strong. The natural impulse to avoid the pain is great and only grows with each subsequent loss. Faith in the system drops each time another loss occurs, even if the loss came to be from the deviation from the system. In these circumstances, doubts, fear and anxiety usually run high.
So what is a trader to do to avoid this situation, or to remedy it if this situation has already been encountered?
A great deal of trading psychology comes from expectations and reality. Frustration comes when expectations aren’t met by reality. When a person doesn’t know what to expect, then anxiety set in. When a person knows what to expect and what to do, then confidence is there. Worst case is when the primary point of reference is the recent and painful losses, and only slightly less difficult to be confident when matters feel very uncertain.
Since trading is an activity where losing trades will occur, the best way to establish confidence is to have a way to know what to expect – from the trading system. What is the way to make this happen? The trader can see what can realistically be expected and what can’t through system analysis and looking at the system metrics. The metrics give one a realistic and measured look at the capabilities and limitations of a system, particularly how many losing trades might be encountered during an overall profitable period of time. The primary benefit regarding the trader’s trading psychology is in the way the numbers from the analysis put things in a perspective that fends off the anxiety and doubt and makes for much easier discipline.
Once this is achieved, then the trader should track their metrics to ensure consistency and continuous improvement. It happens quite commonly for traders to experience major breakthroughs once they put in place the habit of analyzing their system and tracking the metrics. Confidence, discipline and consistency are the natural result of this activity, and frequently initiating this practice marks the turning point in the careers of many traders. It is vital as part of trading psychology that one properly analyze the metrics and track their numbers, as backtesting alone will only help to a limited degree.
The strategy of one of the best-performing hedge fund
Norway is not what you would call a hotbed for hedge funds. Due to restrictive regulatory requirements and an almost uniformly long-only focused investor-community, there are only a handful of hedge funds managed out of Norway.
Despite this, Norwegian Warren Short Term Trading (WST) is one of the best performing hedge funds in the world. Since the fund’s inception in November 2011, its return has been 46.7% with a net 2012-return of 29.1% after fees (pdf).
WST hedge fund manager Peter Chester Warren explains how this works:
Our hypothesis is that most of what happens in the markets during a single day is noise created by orders, rumors and other temporary influences and that there is no informational value in this. Unlike our other funds, we do not try to separate the signal from the noise in WST but accept it for being just noise. … Time is instead spent on creating mathematical and statistical models meant to uncover short-term human behavior.
This is a significantly different strategy than that of most other hedge funds, which typically own assets over a period of time. WST rarely owns assets longer than a few minutes or sometimes even a few seconds.
And every day when the asset manager goes to sleep, he holds zero assets. Then, when he gets back in to the office the next day, he starts from scratch again, looking for tiny opportunities in the markets using a combination of correlations, math and experience. (more…)
Opportunity Knocking
Trading provides one of the last great frontiers of opportunity in our economy. It is one of the very few ways in which an individual can start with a relatively small bankroll and actually become a multimillionaire. Of course, only a handful of individuals succeed in turning this feat, but at least the opportunity exists. A rigid stop-loss rule is an essential ingredient to the trading approach of many successful traders. Winning streaks lead to complacency, and complacency leads to sloppy trading.
10 Trading Lessons
1. Markets tend to return to the mean over time.
2. Excesses in one direction will lead to an opposite excess in the other direction.
3. There are no new eras – excesses are never permanent.
4. Exponential rising and falling markets usually go further than you think.
5. The public buys the most at the top and the least at the bottom.
6. Fear and greed are stronger than long-term resolve.
7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chips.
8. Bear markets have three stages.
9. When all the experts and forecasts agree – something else is going to happen.
10. Bull markets are more fun than bear markets.
10 Lessons
1. Markets tend to return to the mean over time.
2. Excesses in one direction will lead to an opposite excess in the other direction.
3. There are no new eras – excesses are never permanent.
4. Exponential rising and falling markets usually go further than you think.
5. The public buys the most at the top and the least at the bottom.
6. Fear and greed are stronger than long-term resolve.
7. Markets are strongest when they are broad and weakest when they narrow to a
handful of blue-chips.
8. Bear markets have three stages.
9. When all the experts and forecasts agree – something else is going to happen.
10. Bull markets are more fun than bear markets.