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What golf teaches us about trading- 14 Points

  
  Education
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1. Each golf shot/trade is a learning opportunity. 

2. In golf you play the ball where it lies.  You can hit a great shot and find it in a divot and you must play from there.  In trading you can make a good trade, find yourself underwater in losses, and must trade out of the position. 

3. Golf is an individual sport and trading is an individual occupation, which you must learn to accept.  

4. In golf/trading you must eliminate big numbers. 

5. Golf/trading are skills based sports.  How well you play/trade is determined by your skill level, which you only develop over time. 

6. You, and only you, are responsible for your mistakes. 

7. You will hit bad shots and make bad trades.  You must learn to forgive yourself. 

8. Golf is a game you will never and can never master.  There is a just a continual journey to improve.  Kinda sounds like trading to me. 

9. There are ebbs and flows to the game of golf, where you play well and poorly.  For most, the same is true of trading.  You will have stretches where you trade and see screens well and periods where you trade like a hacker. 

10. The best golfers grind. The best traders grind it out.

11. In golf you are challenged to contain your emotions.  In trading you must contain your emotions.  

12. In golf ever great player has a pre-shot routine.  Every great trader has a process to find excellent trade setups that are best for them. 

13. Golfers visualize success.  Traders should visualize pulling the trigger on good trades. 

14. Practice, practice, practice. Are you willing to put in the work to become great?  

The Trading Beast

  
  Education
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The markets are no place to be unsure of yourself and wishy-washy, it is not a place for 2nd guesses, wishing, hoping, or gambling.  If you want to win in this jungle you need to be an unstoppable beast .

 

  1. Complete confidence in your system and method. You do not jump around in your trading or doubt yourself, it is not about you, it is the system.  Either it wins long term or it doesn’t. Either you have confidence in it or you don’t, make up your mind.
  2. You control risk. You do not expose yourself to being ruined because your bet size is consistently what you are comfortable with. Ten losses in a row is only a small draw down. If you are not afraid of ten losses in a row, what is stressful? NOTHING.
  3. You play follow the leader. You are not the lone wolf, you are going with the market not trying to predict it. Your entries and exits are based on historical patterns not your personal opinions, you are not trying to beat the market you are trying to be on its side, it always wins.
  4. You will not quit.Your exit strategy for your trading career? Never. You plan to never quit playing the greatest game on earth. You are a trader, that is what you do. Not quitting in most areas of life means that you eventually win big, the market is no different.
  5. You don’t need a guru. Your winning system is your guru. You don’t need to ask for a fish, you know how to fish. You only listen if you can learn how to catch more and bigger fish and somebody is a better fisherman than you.

The markets eat up lambs, chickens, pigs, and sloths. However beasts eat well off their prey.

Alpha & Beta: Two Competing Investment Philosophies

  
  Education
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“Where’s the Dow going to be in a year?”

That’s often asked of financial TV guests. From their responses, you’ll detect two distinct investment philosophies emerge. Which answer resonates with you most strongly probably determines the sort of investor you are. It also affects the odds of how well your portfolio is likely to do.

Imagine it is a random Wednesday, and despite my past warnings about noise, you have a television tuned to a financial news station. That very question is posed to two television guests; let’s call them “Alpha” and “Beta.” Their answers — which are quite different — reflect their competing investment schools of thought.

Guest Alpha’s response is very specific. Yet it incorporates so many factors, it’s hard to keep up with. Rather than fill this in with the news of the moment — Fed raising rates! China devaluation! Greek bailouts! Gold collapse! — I have left the details blank so this remains “evergreen.” This not only shows how many variables are involved, but it avoids the emotional response you may have to any of these specific issues.

So Alpha is asked where the Dow will be in a year, and he responds:

“Our view is that the economy in the U.S. continues to _______, and we foresee _______ problems overseas ______. China is _______, and that has ramifications for the Pacific Rim’s ______. Greece is ______ in Europe. The commodity complex is causing _____ for emerging markets. But many sectors of the U.S. economy remain _______, and some sectors overseas are still _______. The valuation issue continues to be _____, and that means _____ for investors. That has ramifications for corporate profits that will be ______. We think the economy is going to do ______, and you know that means inflation will be _____, which will force interest rates to ______. Under these conditions, the sectors most likely to benefit from this are ______, ______ and ______. The companies best positioned to take advantage of this are ____, ____ and ____. Based on all that, we especially recommend an overweight allocation to ____, ____ and ____. Thus, we believe the Dow will be at ______ next year.”

You can turn on FinTV any day of the week and hear some variation of that discussion. (more…)

Richard Rhodes 10+ 8 Trading Rules -Must Read

  
  Education
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If I’ve learned anything in my decades of trading, I’ve learned that the simple methods work best. Those who need to rely upon complex stochastics, linear weighted moving averages, smoothing techniques, Fibonacci numbers etc., usually find that they have so many things rolling around in their heads that they cannot make a rational decision. One technique says buy; another says sell. Another says sit tight while another says add to the trade. It sounds like a cliche, but simple methods work best.

  • The first and most important rule is – in bull markets, one is supposed to be long. This may sound obvious, but how many of us have sold the first rally in every bull market, saying that the market has moved too far, too fast. I have before, and I suspect I’ll do it again at some point in the future. Thus, we’ve not enjoyed the profits that should have accrued to us for our initial bullish outlook, but have actually lost money while being short. In a bull market, one can only be long or on the sidelines. Remember, not having a position is a position.
  • Buy that which is showing strength – sell that which is showing weakness. The public continues to buy when prices have fallen. The professional buys because prices have rallied. This difference may not sound logical, but buying strength works. The rule of survival is not to “buy low, sell high”, but to “buy higher and sell higher”. Furthermore, when comparing various stocks within a group, buy only the strongest and sell the weakest.
  • When putting on a trade, enter it as if it has the potential to be the biggest trade of the year. Don’t enter a trade until it has been well thought out, a campaign has been devised for adding to the trade, and contingency plans set for exiting the trade.
  • On minor corrections against the major trend, add to trades. In bull markets, add to the trade on minor corrections back into support levels. In bear markets, add on corrections into resistance. Use the 33-50% corrections level of the previous movement or the proper moving average as a first point in which to add.
  • Be patient. If a trade is missed, wait for a correction to occur before putting the trade on.
  • Be patient. Once a trade is put on, allow it time to develop and give it time to create the profits you expected.
  • Be patient. The old adage that “you never go broke taking a profit” is maybe the most worthless piece of advice ever given. Taking small profits is the surest way to ultimate loss I can think of, for small profits are never allowed to develop into enormous profits. The real money in trading is made from the one, two or three large trades that develop each year. You must develop the ability to patiently stay with winning trades to allow them to develop into that sort of trade.
  • Be patient. Once a trade is put on, give it time to work; give it time to insulate itself from random noise; give it time for others to see the merit of what you saw earlier than they.
  • Be impatient. As always, small loses and quick losses are the best losses. It is not the loss of money that is important. Rather, it is the mental capital that is used up when you sit with a losing trade that is important.

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Ten questions to ask yourself before every trade

  
  Education
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  1. Does this trade fit my chosen trading style? Whether it is:  swing trading, momentum, break out, trend following, reversion to the mean, or day trading?

  2. How big of a position do I want to trade? How much capital am I going to risk? Am I limiting my risk to 1% or 2% of my trading capital?
  3. What is my risk of ruin based on my capital at risk?
  4. Why am I entering the trade here? What is the trigger to trade?
  5. How will I exit with a profit? A price target or trailing stop?
  6. At what price will I know that I was wrong? Where is my stop loss based on the position size?
  7. Will I be able to admit I was wrong and exit the trade if my stop is hit, or will my ego make me hold and hope?
  8. Is the risk small enough that I can emotionally handle the loss without blaming the market?
  9. Can I really risk this money or do I need it for upcoming bills? Trade with risk capital not living expenses.
  10. Am I committed to staying disciplined and following my trading plan on the trade?

I believe the answers to these questions will determine your success in any trade more than anything else.

Trade Like A Casino, Not A Gambler

  
  Education
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Trade Like a Casino: Find Your Edge, Manage Risk, and Win Like the House

Any quick drive through Las Vegas makes it pretty clear who is rolling in the money – the Casinos! Why do gamblers keep going back despite losing most of the time?  Misplaced hope, fantasies about the big win, promising themselves they will walk away when they are up and still winning, and probably the inability to calculate probabilities. These symptoms may sound familiar to new traders who have lost money in the stock market, especially when we were new to trading and had delusions of grandeur about trading theirway to prosperity quickly and easily.

In gambling there are really only two sides to choose to be on, either you are a gambler or you are the house. The gamblers have the long term odds stacked against them. The more they gamble, the more the odds are that they will inevitably lose. The casino has stacked the odds on their side over the  long haul. The more the gambler keeps gambling, the more the odds shift in favor of the casino operator. The more they gamble the greater the chance the gambler will leave empty-handed.

The book featured in this blog post explains the winning principles of trading by using the casino paradigm. Profitable traders operate like casinos, with the odds in their favor over the long term. They have learned to trade with historically, back-tested trading systems that put the odds on their side. Much like casino operators, they risk small amounts of equity per trade (around 1% – 2% of their accounts), so no one trade can hurt them financially and mentally for that matter.

Most unseasoned traders behave like gamblers, with no real advantage. They plunge large bets on stocks so haphazardly that they just have a 50-50 shot like a roulette wheel – red or black. Many times these traders hurt themselves even worse by buying into the market in a downtrend and shorting into a rally,  believing that they can pick the bottom or top. Some new traders would love to have a 50/50 win ratio, many actually to all the wrong things and are no where near a 50% win rate. (more…)

Why it is so easy to blame others for your losses.

  
  Education
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When things don’t go your way in the markets, you can do one of two things:

1) assign blame to a plethora of different parties, entities, conspirators and evil factors or
2) try to figure out what you could have done better or where you might have strayed

#1 is the easy and natural thing to do: it’s hard to admit we screwed up, but it’s easy to blame:

– short sellers

– market maker manipulation

– FIIs

– The RBI

– Centre Govt

– fake government statistics

– Algo Trading

– bad data from some internet finance site

 

A hunch can be trusted if it can be explained

  
  Education
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  • When a hunch hits you, the first thing to do is ask whether a big enough library of data could exist in your mind to have generated that hunch. Ask yourself whether you are genuinely knowledgeable on the particular topic. Have you studied it? Have you been following its ups and downs?
  • Trust your hunch only if you can explain it — that is, only if you can identify within your mind a stored body of information out of which that hunch might reasonably be supposed to have arisen. If you have no such library of data, disregard the hunch.
  • The reason for subjecting hunches to this rigorous testing is that sometimes we get flashes of intuition that aren’t based on good, hard fact. They are airy nothings.
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