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Ed Seykota on Trading Heat

Ed Seykota:

Seasoned traders know the importance of risk management. If you risk little, you win little. If you risk too much, you eventually run to ruin. The optimum, of course, is somewhere in the middle.

Placing a trade with a predetermined stop-loss point can be compared to placing a bet: The more money risked, the larger the bet. Conservative betting produces conservative performance, while bold betting leads to spectacular ruin. A bold trader placing large bets feels pressure — or heat — from the volatility of the portfolio. A hot portfolio keeps more at risk than does a cold one. Portfolio heat seems to be associated with personality preference; bold traders prefer and are able to take more heat, while more conservative traders generally avoid the circumstances that give rise to heat. In portfolio management, we call the distributed bet size the heat of the portfolio. A diversified portfolio risking 2% on each of five instrument & has a total heat of 10%, as does a portfolio risking 5% on each of two instruments.

Our studies of heat show several factors, which are:

1. Trading systems have an inherent optimal heat.

2. Setting the heat level is far and away more important than fiddling with trade timing parameters.

3. Many traders are unaware of both these factors.

THE MOST COMMON ERROR IN STOCK MARKET RESEARCH

Jeff Miller of Dash of Insight wrote a brilliant post on common research mistakes. It can be found here.

He breaks it down into two things:  Selecting the Right Data and Comparison.

Selecting the Right Data.  As the saying goes, if you torture the data for long enough it will tell you anything.  There is so much data out there that you can make it say whatever you want.  The most important thing about finding the right data is accepting the limitations of it and understanding it.  Look at this way, I like a fast car but insurance and gas will cost more. Does that justify the tradeoffs for me?  Yes.  You?  Maybe.  All data is local.

Comparison.  Mr. Miller calls is comparison but I prefer the word context.  Most anyone can look at a data or chart and come to a reasonable outcome.  Data records it does not tell the story.  It can can tell a story but for the most part they are without context.  Yes you can throw a couple more pieces of data in and get closer but who knows.  Think about how ridiculous it would sound if I showed you a picture from 1950′s Chicago and asked you what it was like.

What Mr. Miller didn’t mention, probably because of time or my inabilities, is that data is secondary to what we do with it.  For the most part we are untrained at using it.  We are 14 year olds at the Playboy mansions. We get data F@#%&ed, data blocked, data complacent or whatever you want to call it.

Karl Marx in America

Karl Marx is probably dancing somewhere. Because, in America right now, the government owns the automobile industry, the insurance industry, the mortgage industry and the banking industry. The government suddenly owns huge parts of the American economy – that’s what Karl Marx said he wanted, and he didn’t have to fire a shot.

RISK in Trading -Anirudh Sethi

Image result for risk gifLife is full of risks, and risks are all around you as a trader. In a perfect world there would be no risks and any decision you make will turn out to be the best one. You can hope for win after win, and not even have to worry about the prospect of losing. Yet this is an unrealistic and impossible scenario because as we all know trading is all about risk. However, there is no need to be afraid of risk. We need to accept the fact that it is there, and rather than focusing on fear we need to know how to deal with it and manage it.

This is where risk management comes into play. As a trader you need to be disciplined. You need to know how to understand the way you are thinking. At the end of the day it is all about trading psychology. Trading is not solely about getting an understanding of the market, and the trading skills such as recognizing trading patterns and managing risks. It is also about training yourself to be self-assured without being too risky. It is about being cautious, but not wait too long to take an action. It is about blocking emotions and sentiments which could impair your judgments. The market is constantly changing and you are going to be constantly faced with challenges, and so risk is inevitable. However the risk taht you tae can be calculated.

Thus as a trader you will need to balance out your trading skills with your trading psychology so as to master the mental game of trading. Here are some general rules which can help you in risk management:

  • Emotions have no place in trading. You need to make well planned and well calculated decisions that are not affected by sentiments. Otherwise your decision making process is going to take longer, and in all probability, be skewed.
  • You need to accept that you are not perfect, and so there are going to be times when you succeed, and other times when you fail and lose money. Successes and failures will result in different, and extreme emotions, but these emotions need to be controlled so as to keep thinking straight.
  • In order to minimize risks, many traders are well aware that it is best to opt for diversification. Having an diversified portfolio will help to reduce your risks. Money should be distributed across different kinds of investments so that in case a certain trading decision goes wrong it will be less likely to affect the trader in a dramatic way as one would still have other investments at one’s disposal.
  • Gaining experience is what many traders believe in in order to succeed. Through experience you gain more insight and knowledge, as well as trading skills. However despite their importance, they are not going to be enough to back your progression as a trader. You need to couple this up with clear thinking.
  • You need to have the willingness to take risks. However the risks that you take can be calculated and appropriate. Trading is risky, but in time you will learn how to go about it so as to minimize risks and the results thereafter. For instance, you should only risk money that you can afford to lose. Otherwise, it is best not to trade at all in such cases.

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15 Biggest Insurance Claims in Modern History

Biggest Insurance Claims

15. Most-Expensive Pet

The most-expensive claim stood at $22,000 and it was in 2010 for feline renal surgery. Apparently, the pet as not a pedigree feline, but just a good-old gutter cat that somebody had decided to insure.

14. Rowan Atkinson

The British actor that is famous for his role as Mr. Bean had the most expensive automobile-insurance claim in history. The actor crashed his £640,000 McLaren F1, resulting in a payout by his insurance company for £900,000 in repairs. The insurance company had agreed to pay out that much since the price of that car had risen to in the region of £3.5 million when the accident happened in 2011. Prior to this, the highest payout by an insurance company for a car had stood at just over £300,000.

13. Bugatti Veyron

In 2007, engineers crashed 2 Bugatti Veyrons while running tests for a prototype. Each of the vehicles was worth over $800,000.

12. Ice Slip 

In 2012 in Virginia one winter a resident of an apartment building went outside and slipped on the ice and the snow. A few bones were broken in the resident’s legs and complications led to the person being amputated of their lower legs. The claim was settled for a payout in compensation of $7.75 million because the landlord of the building had failed to clear the ice and snow in front of the building. He was therefore held responsible and it stands as the highest payout. (more…)

10 Great Quotes of Jesse Livermore

“Do not anticipate and move without market confirmation—being a little late in your trade is your insurance that you are right or wrong.” -Jesse LivermoreJL-ASR

“The good speculators always wait and have patience, waiting for the market to confirm their judgment.” -Jesse Livermore

“{Limit} interest in too many stocks at one time.  It is much easier to watch a few than many.” -Jesse Livermore

“Experience has proved to me that the real money made in speculating has been: “IN COMMITMENTS IN A STOCK OR COMMODITY SHOWING A PROFIT RIGHT FROM THE START. ” -Jesse Livermore

“As long as a stock is acting right, and the market is right, do not be in a hurry to take a profit. You know you are right, because if you were not, you would have no profit at all. Let it ride and ride along with it. It may grow into a very large profit, and as long as the “action of the market does not give you any cause to worry,” have the courage of your convictions and stay with it.” -Jesse Livermore

“It is foolhardy to make a second trade, if your first trade shows you a loss. ” “Never average losses. ” Let that thought be written indelibly upon your mind.” -Jesse Livermore

“One should never sell a stock, because it seems high-priced.” -Jesse Livermore

“Profits always take care of themselves but losses never do. ” The speculator has to insure himself against considerable losses by taking the first small loss. In so doing, he keeps his account in order so that at some future time, when he has a constructive idea, he will be in a position to go into another deal, taking on the same amount of stock as he had when he was wrong.” -Jesse Livermore
“It is significant that a large part of a market movement occurs in the last forty-eight hours of a play, and that is the most important time to be in it.” -Jesse Livermore

“A speculator should make it a rule each time he closes out a successful deal to take one-half of his profits and lock this sum up in a safe deposit box. The only money that is ever taken out of Wall Street by speculators is the money they draw out of their accounts after closing a successful deal.” -Jesse Livermore

Trading lessons from the road

Two lessons from the road:

– It only takes a small slip-up to create big negative effects. Conversely, the road to success in many of life’s ventures seems to be more incremental. Think of the engineering behind cars, space shuttles etc. One small error can lead to total disaster, but for everything to work, so many things have to be ‘right’. A related pattern is the  carry trade in the currency market, where returns are incremental as the high yielding currencies slowly appreciate, but when we witness episodes of carry trade unwinding, things are not nearly as orderly.

– Missing my junction would be less of a problem if I was less tired and fatigued, because I would feel less downhearted at having to do the additional driving. However, it is when we have energy and are wide awake that we are least likely to miss our junctions, and we are more likely to miss them when we least want to. This reminds me of insurance not working when it comes to claiming, of correlations heading to one in times of crisis, and of markets being flush with liquidity, only for it to dry up right when it counts.

See the wonder of our Technical OCTOPUS, Unstoppable

Germans may stop Octopus from forecasting, but out charts are eternal. 

In Today morning’s web-site write up, under BSE Sensex banner all time zone edges were mentioned.  As forecasted NF started tumbling from exactly 5454 high.

 Our Repeated message since 1st hr of trade today was:  Short NF with stoploss of 5455-

5463 for a downward target of 5384,5344.  Exit& Short IT and Bank indexes too.

Alert :Stoploss NF 54555463.Below 5440 will kiss 5399-5385 in panic.Dont jump and buy.Sell any stock and every stock with keeping stop of today’s high…save this mssge.

 

Red ALERT :Watch 5985 for CNX IT.Break will create panic and then watch panic in all IT Stocks,Nonstop slide upto 5914-5891 not ruled out.

ALERT :Bank NF below 9978 problem for Bulls.It will crash to kiss 9838-9791 in hrs.Already told to sell and go short any stock or Index with stop of today’s high.

We need not tell u what happened by the end of the day. 

Our subscribers don’t need any insurance, for their wealth or health since our promptings take care of both.

Written many times ,We are having Bad Habit to Mint Money every moment ,every hr & every day…….its not our fault.

Right Moment song………..for all of u

Updated at 16:02/14th July/Baroda

 

21 Things a Trader Should Know About Trading

1. Never try to make money the same way twice in a row.lip25

2. Don’t trade inactive markets.

3. Don’t assume that the relation between your two favorite markets will stay the same from year to year.

4. Be alert to big minimums on Monday as they tend to reverse.

5. Try not to sell markets that have big drifts upwards like stocks.

6. Try to go with with the central banks.

7. Be one with the idea that has the world in its grip and be on the side of the market that will further that grip.

8. Never go for small profits as the vig is too great relative to your gain as a %.

9. Don’t trade when a loved one is very sick. (more…)

Best Disclaimer Language Ever

I like a legal department that has a sense of humor. This is the standard disclaimer that Contango Oil & Gas Company (MCF) includes with their quarterly earnings reports:

Lawyer Stuff
The future is unknowable. We have good intentions but all of our projections and estimates will be wrong, and could be materially wrong. Wildcat exploration is expensive, speculative and potentially dangerous. An offshore spill or explosion would be enormously expensive. We have insurance but it may not be enough. You could lose your entire investment. Don’t be lazy – read our 10-Q’s, 10-K’s and press releases, and if you lose money – please no tears.
“Don’t forget about risk-free T-bills in your portfolio…After inflation and taxes you’ll likely only lose 5-10% of your investment.”
– Contango V.P. Investor Relations