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The trading lessons are simple—but not so easy

  
  Education
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Trading Lesson1. Be with the trade you are in at the moment.  Stop trying to control anything but your own trade.  The markets are going to do exactly what they want to and when they want to. YOU have the power to control what YOU feel, think, believe and do.

2.  All that matters for you is the trade you are in.  You may never see that trade again.  Savor it, cherish it and be with it for as long as it lasts.

3. Celebrate your victories with yourself.  Celebrate the trade and with the trade.  The instruction is to refrain from boasting or grandiose behavior when you make a winning trade.  The markets will humble you, and pride always comes before a fall. Napoleon said that the most dangerous moments come with victory. Decry and avoid hubris.

Also celebrate your defeats with yourself and the trade because they are mistakes.  Mistakes are our greatest teachers because it is through them that we learn. What do we learn?  Not to make them again!

Constantly strive to look inward, to know yourself, to raise yourself to the highest level of authenticity.  Be rigorously honest about who you are.

Taking personal responsibility for your thoughts, feelings and actions is the first step to true inner peace—both in trading and in life.  Never forget the ten most important words you can ever and always ask yourself:

Am I doing the best I can do right now?

The ultimate victory in competition is derived from the inner satisfaction of knowing that you have done your best and that you have gotten the most out of what you had to give…

Biases That Cause You To Make Mistakes

  
  Education
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You are your own worst enemy.

Those are the six most important words in investing. Shady financial advisors and incompetent CEOs don’t harm your returns a fraction of the amount your own behavior does.

Here are 15 cognitive biases that cause people to do dumb things with their money.

1. Normalcy bias
Assuming that because something has never happened before, it won’t (or can’t) happen in the future. Everything that has ever happened in history was “unprecedented” at one time. The Great Depression. The crash of 1987. Enron. Wall Street bailouts. All of these events had never happened… until they did. When Warren Buffett announced he was looking for candidates to replace him at Berkshire Hathaway, he said he needed “someone genetically programmed to recognize and avoid serious risks, including those never before encountered.“ Someone who understands normalcy bias, in other words.

2. Dunning-Kruger effect
Being so bad at a task that you lack the capacity to realize how bad you are. Markus Glaser and Martin Weber of the University of Mannheim showed that investors who earn the lowest returns are the worst at judging their own returns. They had literally no idea how bad they were. “The correlation between self-ratings and actual performance is not distinguishable from zero” they wrote.

3. Attentional bias
Falsely thinking two events are correlated when they are random, but you just happen to be paying more attention to them. After stocks plunged 4% in November 1991, Investor’s Business Daily blamed a failed biotech bill in the House of Representatives, while The Financial Times blamed geopolitical tension in Russia. The “cause” of the crash was whatever the editor happened to be paying attention to that day.

4. Bandwagon effect
Believing something is true only because other people think it is. Whether politicians or stocks, people like being associated with things that are winning, so winners build momentum not because they deserve it, but because they’re winning. This is the foundation of all asset bubbles. (more…)

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