Archives of “insights” tag

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Qantas Explosion– from the Cockpit

  
  Education
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This is an absolutely brilliant interview that is full of insights for the market. The interviewee is one of the pilots aboard the Qantas Airbus A380 last month that had an extremely serious uncontained engine explosion shortly after take-off.

In the interview they cover – inter alia – such things as

– The importance of checklists
– Dealing with contradicting signals
– Over-riding systematic considerations in favour of discretionary controls
– Keeping your head during a major catastrophe which constantly shifts its dynamics and has a lot of what we might call negative gamma…rapidly developing, interacting, non-linear issues that can rapidly move beyond your ability to keep up with them
– The importance of training and professionalism
– The importance of excess redundancy and robustness
– The importance of improvisation – and the ability to keep a clear enough head in a panic to ensure your creativity can be brought to bear on the problem.
– Power of teamwork.

Best part are the pictures of the cockpit showing the checklists and procedures they are working through.

As it turns out, this incident was very much more serious than the media ever picked up on. What an amazing story. I’m sure all will benefit greatly from reading this. For myself, I will be referring to this interview many times. A banquet for a lifetime.

Hope it benefits you all as much as it did me. Also hoping Mr. Tucker weighs in with some insights!

Seven Insights for Disciplined Trading

  
  Education
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I’ve always been a fan of Mark Douglas’ work, as my copy of his initial book on trading psychology, The Disciplined Trader, is thoroughly marked up thanks to Douglas’ many innovative ideas about mastering the internal challenges we all face with trading.  His newest book, Trading in the Zone, is full of more great insights. I recently finished reading his excellent follow-up work, and it sparked my review of key points I take out of Douglas’ ground-breaking insights:

1) Develop consistency.  Douglas focuses on how we can create a mindset of consistency by developing beliefs which support us in obtaining this result.  In order to develop consistency, Douglas emphasizes beliefs such as objectively identifying your edges, defining the risk in each trade in advance, accepting the risk to be able to exit a position when a defined loss level is realized, and many other key mindsets that help traders work through the issues they face in taking a trade, making the trade and executing their exit from the trade.

2) Trading is a probability game.  You can’t be a perfectionist and expect to be a great trader. Your losses (that you hope will return to breakeven) will kill you.

3) Jumping in too soon or getting in too late.  These mistakes come from traders not having a well-defined plan of how they will enter the market.  This positions the trader as a reactive trader instead of a proactive trader, which increase the level of emotion the trader will feel in reacting to market movements.  A written plan helps make a trader more systematic and objective, and reduces the risk that emotions will cause the trader to deviate from his plan.

4) Not taking profits on winners and letting winners turn to losers.  Again this is a function of not having a properly thought-out plan.  Entries are easy but exits are hard.  You must have a plan for how you will exit the market, both on your winners and your losers.  Then your job as a trader becomes to execute your plan precisely.

5) Great traders don’t place their own expectations on to the market’s behavior.  Poor traders expect the market to give them something.  When conditions change, a smart trader will recognize that, and take what the market gives. 

6) Emotional pain comes from expectations not being realized.  When you expect something, and it doesn’t deliver as expected, what occurs? Disappointment.  By not having expectations of the market, you are not setting yourself up for this inner turmoil.  Douglas states that the market doesn’t generate pain or pleasure inherently; the market only generates upticks and downticks.  It is how we perceive and respond to these upticks and downticks that determine how we feel.  This perception and feeling is a function of our beliefs.  If you’re still feeling pain when taking a loss according to your plan, you are still experiencing a belief that your loss is somehow a negative reflection on you personally. 

7) The Four Major Fears – fear of losing money, being wrong, missing out, leaving money on the table.  All of these fears result from thinking you know what will happen next. Your trading plan must approach trading as a probabilities game, where you know in advance you will win some and lose some, but that the odds will be in your favor over time.  If you approach trading thinking that you can’t take a loss, then take three losses in a row (which is to be expected in most trading methods), you will be emotionally devastated and will give up on your plan.

Howard Lederer – On Poker And Trading The Markets

  
Education, Video
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Michael Covel just published a new video interview. This one is about what kind of strategies you need to apply in order to win. Although the video is more or less about poker the insights of Howard Lederer can easily be applied to trading. Here’s a passage in the interview I’d like to quote:

It’s not about winning huge pots. It’s about losing less when you lose and winning more when you win.

 

Technically Yours
Anirudh Sethi ,Baroda /India
 

SIMPLIFY

  
  Education
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simplifyWhen we follow a standardized process for trade execution, we help negate the impact that emotions can have on that process.  And when we create a set of rules within which is a subset of rules that allow for less mechanical, more intuitive management of our trades, we can potentially realize additional profits from those intangible insights into market direction without over-exposing our account to risk.  Here is how it works:

  S – Scan your charts .  Create a “Watch List” to help manage your inventory of trading opportunities.

I – Identify a high probability set up.    

 M – Map out the trade’s entry point, stop-loss exit point, and profit exit point. 

P – Pull the trigger.  By systematizing the process as we are talking about here, the anxiety associated with executing a trade is greatly reduced.  Instead of focusing on whatever issues keep you from pulling the trigger, your focus is on following a procedure, a set of instructions.  Mapping out and understanding exactly what our risk is also reduces the anxiety of entering a trade.    

 L – Let the market do its thing.  It’s not very often that you won’t have to take some heat on a trade.  It’s a great feeling when a trade goes in your favor immediately and stays that way.  But that’s the exception and not the rule.  As a good friend of mine would say, “Let it breathe!”  (more…)

Know When to Trade (and When Not to Trade)

  
  Education
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Successful traders know when to trade: they trade when their system tells them to. That might seem like an obvious point, but people too often forget it during the excitement of actually having money on the line.
A trader should be governed by his or her system, not by the circumstances of the moment, the market, or the outcome of a few trades. Keep a long-term perspective which focuses on developing a consistent, repeatable strategy. You won’t know what is successful or what fails if you constantly change your reasons for trading.
It is hardest to keep this kind of control when you’re experiencing losses. But this is also the most crucial time to be consistent. Otherwise, you won’t know how to avoid downturns in the future, or how to prevent them from becoming too damaging. (more…)

9 Lessons From The Greatest Trader Who Ever Lived

  
  Education
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One of the good guys (for me, at least) has always been Jesse L. Livermore. He’s considered by many of today’s top Wall Street traders to be the greatest trader who ever lived.
Leaving home at age 14 with no more than five bucks in his pocket, Livermore went on to earn millions on Wall Street back in the days when they still literally read the tape.
Long or short, it didn’t matter to Jesse.
Instead, he was happy to take whatever the markets gave him because he knew what every good trader knows: Markets never go straight up or straight down.
In one of Livermore’s more famous moves, he made a massive fortune betting against the markets in 1929, earning $100 million in short-selling profits during the crash. In today’s dollars, that would be a cool $12.6 billion.
That’s part of the reason why an earlier biography of his life, entitled Reminiscences of a Stock Operator, has been a must-read for experienced traders and beginners alike.
A gambler and speculator to the core, his insights into human nature and the markets have been widely quoted ever since.
Here are just a few of his market beating lessons: 

On the school of hard knocks:

The game taught me the game. And it didn’t spare me rod while teaching. It took me five years to learn to play the game intelligently enough to make big money when I was right.

On losing trades:

Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocket book and to the soul.

On trading the trends:

Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the fluctuations. In a bull market the game is to buy and hold until you believe the bull market is near its end. (more…)

Jack Schwager on Market Sense and Nonsense

  
Education, Video
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This is Jack as analyst, not as trader interviewer. I think the insights herein will benefit investors especially over traders, although both are served well. Jack totally destroys the EMH in this book. He also debunks a great deal of conventional wisdom for the investor, which I think will be shocking at first. Why? Conventional wisdom “feels good” and to go against the grain so to speak as an investor takes a great deal of emotional intelligence — and a strong inner voice — which most investors don’t have. Good trading and investing oftentimes does not “feel” good at all. It’s much easier for a newbie or amateur to go with the crowd and succumb to one’s emotions. What feels safe is normally not a proper risk management decision for the untrained.

At the end of each chapter, Jack delineates several “Misconceptions” that I believe are worth the price of the book. One in particular deals with when it’s NOT a good idea to just blindly buy the S&P 500 after it’s gone up a certain amount.

Market Sense and Nonsense is an objective take on popular investment themes that is backed with a great deal of data to support its claims. I think the conclusions in this book will surprise most of its readers and that’s a good thing. At least they will be armed with strong arguments to bring up with their advisors.

Great lines from :Ed Seykota

  
  Education
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“In The Trading Tribe, Ed extends his paradoxical insights about trading and life. ‘We need to experience our feelings. If we resist them, we wind up creating dramas in our lives and in our trading so that we have to experience them.'”

“Everyone knows traders who violate their rules, second guess their systems, give up on winners, stick with losers, and swear they won’t do it again…. Rather than counseling strength, steely discipline, or automation, Ed again turns apparent common sense on its head,. He encourages traders to embrace and celebrate their feelings, especially the ones they are unwilling to feel.”“‘Win or lose, everybody gets what they want from the market. Some people like to lose, so they win by losing money….'”

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