Archives of “hindsight” tag

rss

Trading Time Frames

  
  Education
#  #  #  #  #  #  #

Trading across multiple-time frames must be one of the hardest things to do as a trader. Many I know have chosen to avoid this completely while others wait patiently until all time frames correlate with their general read, which sometimes can take weeks if not months depending on the various time frames in question.

—Some struggle with the volatility of the tape, while others struggle with a psychological bias. At present I am struggling with the different pictures on different time frames. Currently I have trades on both sides of this argument taking index shorts against the weekly pattern while playing daily longs as they setup. The net gain has been a whole bunch of nothing which is making me ask the question if the different trades are worth it or if it would have been better to simply wait for one picture to resolve itself and correlate with the other. In hindsight this certainly sounds like it would have been the smarter play.

—Patience is never fun but until we have some solid resolution I still believe it to be the best play.

There’s that ‘P’ word again…

Trade with Discipline

  
  Education
#  #  #  #  #  #  #  #  #

1. never EVER add to a losing position. EVER! If it’s not working, why add good money to bad? At this point, you are in damage control mode. It’s another thing if you are trying to pyramid into a position. For example: You go into a trade with 1/3 size, add another 1/3 and add the final 1/3 in an attempt to build a full position in a stock you feel strongly about. I do not mind that. But adding money to a full position which is not working is a BIG NO in my book! You never want any ONE trade to ruin your entire week or month folks. DISCIPLINE!

2. NEVER ever compromise your stop loss. I know a nice ran away bull market makes everyone think that’s okay to remove the stop loss or lower the stop loss to much lower levels because eventually the stock will bottom and rebound. BE EXTREMELY CAREFUL guys! This is absolutely NOT what we are trying to do as traders. This is basically turning your trades into investments just because you cannot handle the pain of a small loss. It is much easier to dig yourself back form a 2-3% loss than a 10-15% loss. Hindsight is always 20-20 and most of you will say “gosh, i shoulda stuck to the original stop”. Trust me, life will be much less stressful taking occasional small stop losses along the way then being stuck in “hold and hope” mode.

Improving Your Decision Making Skills

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

One of my all-around favorite quotes on trading is actually about poker.
It comes from cash game pro Tommy Angelo, who says, “The best way to get better at poker is to get better at everything and let poker rise with the tide.”
An intimidating thought for some. To REALLY up your game (be it poker, trading, or something else entirely) you have to improve as a competitor. As a human. As a thinking, acting, decision-making machine.
For others, though, this thought is not intimidating but inspiring. “Raising the game,” i.e. getting better at everything, is part of the attraction in the first place.
To that end, trading is all about making decisions.
And making good decisions is not just an art, but a skill set — an area of focus where you can learn and practice and improve. (more…)

Larry Hite quote about Chance

  
  Education
#  #  #  #  #  #  #  #  #  #  #
“Life is nothing more than a series of bets and bets are really nothing more than questions and their answers. There is no real difference between, ’should I take another hit on this Blackjack hand?’ and ‘Should I get out of the way of that speeding and wildly careening bus?’ Each shares two universal truths: a set of probabilities of potential outcomes and the singular outcome that takes place. Everyday we place hundreds if not thousands of bets – large and small, some seemingly well considered and others made without a second thought. The vast majority of the latter, life’s little gambles made without any thought, might certainly be trivial. ‘Should I tie my shoes?’ Seems to offer no big risk, nor any big reward. While others, such as the aforementioned ’speeding and wildly careening bus’ would seem to have greater impact on our lives. However, if deciding not to tie your shoes that morning causes you to trip and fall down in the middle of the road when you finally decide to fold your hand and give that careening bus plenty of leeway, well then, in hindsight the trivial has suddenly become paramount.”
Larry Hite, Trader

Two types of confidence.

  
  Education
#  #  #  #  #

 

Having confidence in a trade is easy. You do not know what is going to happen, blinded by opportunity. Every trade is new. Easy to convince yourself that this time it will be a winner. This takes no effort other than convincing yourself. This is what is described in  first circle. You can look at a chart and imagine you can do it. Hindsight. As a new trader I was very confident, but I was confident in myself.

Having confidence in trading is much harder. It requires you to have confidence in every trade. You have to look at a series of trades and results not just one. True confidence comes from a trading plan and process. This is what  describes in his second circle. Hindsight cannot be used. This is about execution. Execution does not lie and you cannot hide from it. As I matured I had confidence in myself as a trader after doing the work.

BETS

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

There are just four kinds of bets. There are good bets, bad bets, bets that you win, and bets that you lose. Winning a bad bet can be the most dangerous outcome of all, because a success of that kind can encourage you to take more bad bets in the future. You can also lose a good bet, but if you keep placing good bets, over time, the law of averages will be working for you.”

“Life is nothing more than a series of bets and bets are really nothing more than questions and their answers. There is no real difference between, ’should I take another hit on this Blackjack hand?’ and ‘Should I get out of the way of that speeding and wildly careening bus?’ Each shares two universal truths: a set of probabilities of potential outcomes and the singular outcome that takes place. Everyday we place hundreds if not thousands of bets – large and small, some seemingly well considered and others made without a second thought. The vast majority of the latter, life’s little gambles made without any thought, might certainly be trivial. ‘Should I tie my shoes?’ Seems to offer no big risk, nor any big reward. While others, such as the aforementioned ’speeding and wildly careening bus’ would seem to have greater impact on our lives. However, if deciding not to tie your shoes that morning causes you to trip and fall down in the middle of the road when you finally decide to fold your hand and give that careening bus plenty of leeway, well then, in hindsight the trivial has suddenly become paramount.”

Book Review : Cloud Charts: Trading Success with the Ichimoku Technique by

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

David Linton’s Cloud Charts provides a good introduction for new traders seeking to learn more about Ichimoku (or Cloud Charts).

It is divided into 3 sections with a total of 16 chapters.

The first section (comprising of 7 chapters) deals with general Technical Analysis

The second section (comprising of 5 chapters) introduces the reader to Ichimoku

The last section (comprising of 3 chapters) discuss more about Advanced Cloud Chart Techniques.

For the experienced traders, it is possible to skip the first 7 chapters and head straight to the second section where it introduces the Ichimoku indicators, the constructions of the chart and the various signals for trading.

In my opinion, the author (David Linton) is able to depicts pretty clearly on the construction of the charts; how various Ichimoku indicators are constructed and how it is represented on Ichimoku.

As a trader, there are times where we choose to neglect the construction of the indicators. On hindsight, I am glad that the chapters reinforce my understanding of the charts and its possible implications when I am looking for support/resistance and the possible change in trend.

One important aspect of Ichimoku charts is the use of colours to differentiate different ‘moving averages’ and the change in cloud direction (or kumo twist). The book did not fall short in this area with all the charts in colour. (more…)

7 Psychological habits

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

1. Overconfidence and optimism

Most of us are way too confident about our ability to foresee the future, and overwhelmingly too optimistic in our forecasts.

This finding holds across all disciplines, for both professionals and non-professionals, with the exceptions of weather forecasters and horse handicappers.

Lesson: Learn not to trust your gut.

2. Hindsight

We consistently exaggerate our prior beliefs about events.

Market forecasters spend a lot of time telling us why the market behaved the way it did. They’re great at telling us we need an umbrella after it starts raining as well, but it doesn’t improve our returns. We’re all useless at remembering what we used to believe.

Lesson: Keep a diary, revisit your thinking constantly.

3. Loss aversion

We hurt more when we sell at a loss than we feel happy when we (more…)

Focus & Anticipation

  
  Education
#  #  #  #  #  #

Focus: Once all of the little things are taken care of you can now focus on what is important, the market. This will dramatically improve your execution. You can only execute well over time if it is you and the market. You can take more intelligent risks because you have more of the RIGHT information. Have you ever been in a trade, then when you go back to review a trade, you realize you missed something important? More than likely that is a process problem. It is important to accurately attribute the importance of that information and realize that hindsight is a horrible recorder. I would rather make that decision when I can do something about it. This takes trial and error but a pattern will develop and once it does it is your responsibility to constantly monitor it for change.

Anticipation: Anticipation is key in trading because the market is always leaving cues to what it is going to do next or that what it is going to do next is not tradeable. We teach our traders to have a progression, much like a quarterback would. Anything can happen and having a progression will help you to take advantage of it.

One of the best Trading Psychology books I've ever read!

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

“Psychology of Intelligence Analysis” by Richards J Heuer, Jr., published by the CIA’s Center for the Study of Intelligence, 1999.

woman-reading
 

Available as a pdf download from this webpage
 

Ok, so it’s a CIA book written for Intelligence Analysts, not a trading book written for traders. However, the information available in this book is superb. Well written and easy to follow. This is an excellent source of information on how we think, and the cognitive biases which undermine our ability to process information and conduct market analysis.
 

VERY APPLICABLE TO TRADING. HIGHLY RECOMMENDED.
 

Here’s what’s it covers:

 

Part 1 – Our Mental Machinery

  • Chapter 1: Thinking About Thinking

  • Chapter 2: Perception: Why Can’t We See What Is There to Be Seen?

  • Chapter 3: Memory: How Do We Remember What We Know?

Part 2 – Tools for Thinking

  • Chapter 4: Strategies for Analytical Judgment: Transcending the Limits of Incomplete Information

  • Chapter 5: Do You Really Need More Information?

  • Chapter 6: Keeping an Open Mind

  • Chapter 7: Structuring Analytical Problems

  • Chapter 8: Analysis of Competing Hypothesis

Part 3 – Cognitive Biases

  • Chapter 9 – What Are Cognitive Biases?

  • Chapter 10 – Biases in Evaluation of Evidence

  • Chapter 11 – Biases in Perception of Cause and Effect

  • Chapter 12 – Biases in Estimating Probabilities

  • Chapter 13 – Hindsight Biases in Evaluation of Intelligence Reporting

Part 4 – Conclusions

  • Chapter 14 – Improving Intelligence Analysis

 

Available as a pdf download from this webpage

Go to top