Archives of “judgment” tag

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Essential Qualities of the Speculator

  
  Education
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1. Self-Reliance. A man must think for himself,
must follow his own convictions. George
MacDonald says: “A man cannot have another
man’s ideas any more than he can another
man’s soul or another man’s body.” Self-trust
is the foundation of successful effort.

2. Judgment. That equipoise, that nice
adjustment of the faculties one to the other,
which is called good judgment, is an essential
to the speculator.

3. Courage. That is, confidence to act on the
decisions of the mind. In speculation there is
value in Mirabeau’s dictum: “Be bold, still be
bold; always be bold.” (more…)

Amos Hostetter-Trading Wisdom

  
  Education
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Amos Hostetter: Trading Dont’s

  • Don’t sacrifice your position for fluctuations.
  • Don’t expect the market to end in a blaze of glory. Look out for warnings.
  • Don’t expect the tape to be a lecturer. It’s enough to see that something is wrong.
  • Never try to sell at the top. It isn’t wise. Sell after a reaction if there is no rally.
  • Don’t imagine that a market that has once sold at 150 must be cheap at 130.
  • Don’t buck the market trend.
  • Don’t look for the breaks. Look out for warnings.
  • Don’t try to make an average from a losing game.
  • Never keep goods that show a loss, and sell those that show a profit. Get out with the least loss, and sit tight for greater profits.

Amos Hostetter: Dangers in Trading caused by Human Nature

  • Fear: fearful of profit and one acts too soon.
  • Hope: hope for a change in the forces against one.
  • Lack of confidence in ones own judgment.
  • Never cease to do your own thinking.
  • A man must not swear eternal allegiance to either the bear or bull side.
  • The individual fails to stick to facts!
  • People believe what it pleases them to believe.

What Greed and Fear do ?

  
  Education
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 What greed and fear do:

  • Not setting a stop when the method requires placing a stop (fear of taking a loss).
  • Moving a stop when it shouldn’t have been moved (fear of taking a loss).
  • Removing a stop when it was already in place (fear of taking a loss).
  • Taking profits too early when the signal to exit has not been given (fear of profits being taken).
  • Taking profits too late when the signal is already given (greed).
  • Chasing the market when the entry is already past or no signal was given (greed of missing profits).
  • Not making the entry when the signal is given (fear of losing again).
  • Buying the pullback that is no longer a pullback but a decline (greed based on judgment that it’s now cheaper) or short selling when the rally is now a continued primary direction (fear of losing).
  • Adding on a losing position, i.e. averaging down (fear of losing).

How does a trader go about trading without fear or greed? Although no one can really trade without them, the emotion will still be there, especially when the position is still on. However he can keep them under control by not acting on them.

                                            There are few solutions to this problem:

  1. Write a trading plan for each and every trade and referring to it when he feels the emotion is overtaking him.
  2. Keep a trading journal with each trade taken along with thoughts and emotions during the open position. Recording these moments will reveal how much or how little control he has over emotions that influence or interfering with his trading method.
  3. Use an automated trading system to avoid interacting and interfering with trading. When no trading decisions have to be taken, there is less of a tendency to interfere.
  4. Once the trade is taken and stops and targets are set, walk away from the trading station or go about with other tasks. Stay close and follow every up and down ticks will increase emotions and will eventually affect trading.
  5. Keep the Profits and Loss (P/L) columns out of the desktop. This is the most important factor of all emotions: counting money. By having it readily available emotion will be exaggerated swinging up and down according the profits or losses going up or down. Removing this information is especially recommended for day traders.
  6. Trade small size until emotions are under control. By doing this, it’s obvious that it’s not about making money but about trading the method properly. The further away the thought of money is, the better the emotions are kept at bay.
  7. If trading is technically-based, focus on the charts, not on the quotes windows. Scalpers spend so little time in a position that using quotes and ticks are a necessity. For other traders, these can only increase emotional states.

Market Wisdom from Bernard Baruch

  
  Education
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You don’t read a lot about Bernard Baruchanymore, but his teachings about the market are useful today as they always have been. There are several good books about him including his own“Baruch: My Own Story” which I recommend highly especially for those of you looking for a book to take with you on your summer vacations.

Although I’ve provided several quotes from Bernard Baruch through the years, here are some notes that I’ve taken from reading about him and his market wisdom. Enjoy!

    • Baruch started out as most traders do – i.e. losing lots of money because he lacked the knowledge, experience, & discipline. “You have to lose money in order to better yourself.”
      • Real success in the market takes time and money. Unfortunately “most people view the market as the place where the miracle of great and quick riches can be performed with little effort.”
        • Overtrading and holding too many positions in his early years caused Baruch to go broke many times before he developed the discipline to succeed.
          • A successful speculation is “a man who observes the future and acts before it occurs.” Acting swiftly in the market is important.
            • After losing money from the recommendation of others, Baruch focused himself on the facts. “One must search through a maze of complex and contradictory details to get to the significant facts…..Then he must be able to operate coldly, clearly, and skillfully on the basis of those facts.” The challenge for the successful speculator is “how to disentangle the cold hard facts from the rather warm feelings of the people dealing with the facts.” Moreover, “if you get all the facts, your judgment can be right; if you don’t get all the facts, it can’t be right.” (more…)

            Jesse Livermore’s trading rules

              
              Education
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            Lesson Number One: Cut your losses quickly.

            As soon as a trade is contemplated, a trader must know at what point in time he’ll be proven wrong and exit a position. If a trader doesn’t know his exit before he takes the entry, he might as well go to the racetrack or casino where at least the odds can be quantified.

            Lesson Number Two: Confirm your judgment before going all in.

            Livermore was famous for throwing out a small position and waiting for his thesis to be confirmed. Once the stock was traveling in the direction he desired, Livermore would pile on rapidly to maximize the returns.

            There are several ways to buy more in a winning position — pyramiding up, buying in thirds at predetermined prices, being 100% in no more than 5% above the initial entry — but the take home is to buy in the direction of your winning trade –  never when it goes against you.

            Lesson Number Three: Watch leading stocks for the best action.

            Livermore knew that trending issues were where the big money would be made, and to fight this reality was a loser’s game.

            Lesson Number Four: Let profits ride until price action dictates otherwise.

            “It never was my thinking that made the big money for me. It always was my sitting.”

            One method that satisfies the desire for profit and subdues the fear of a losing trade is to take one half of your profit off at a predetermined level, put a stop at breakeven on the rest, and let it play out without micromanaging the position. (more…)

            Why do only 5% of the traders who day-trade end up successful?

              
              Education
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            5percentTwo reasons – #1) Many just want an indicator that is going to reveal the market to them and it is too competitive for that to work.

            #2) The vast majority don’t approach the challenge in a way that will work. To a large degree, this isn’t the trader’s fault because most do what they have been taught by scores of “experts”.

            Here is what will work. Guaranteed.

            1. Never forget that the only thing you want to do is predict that others will buy higher or sell lower in your timeframe.

            2. Settle on a strategy (and set of tactics) that suits your personality and thinking patterns.

            3. Plan to use your judgment in the midst of making decision and entering trades! You are not a robot and you will never become one. Your brain is going to kick-in with its built-in facility for decision making in uncertain situations. In other words, you won’t be able to stop it from making judgments and compelling you to act so… work with it.

            4. Learn to optimize that judgment through simplicity, practice, keeping records and knowing your feelings and emotions.

            5. Manage your Psychological Capital (Mental Energy) more carefully than you manage your trades.

            The money will follow. Your brain will work, your pattern recognition will work and your plan (a realistic one) will indeed be realized.

            49 Trading Rules for Traders

              
              Education
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            1. Usually they liquidate the good trades and keep the bad ones. Many traders don’t realize the news they hear and read has, in many cases, already been discounted by the market.
            2. After several profitable trades, many speculators become wild and unconservative. They base their trades on hunches and long shots, rather than sound fundamental and technical reasoning, or put their money into one deal that “can’t fail.”
            3. Traders often try to carry too big a position with too little capital, and trade too frequently for the size of the account.
            4. Some traders try to “beat the market” by day-trading, nervous scalping, and getting greedy.
            5. They fail to pre-define risk, add to a losing position, and fail to use stops.
            6. They frequently have a directional bias; for example, always wanting to be long.
            7. Lack of experience in the market causes many traders to become emotionally and/or financially committed to one trade, and unwilling or unable to take a loss. They may be unable to admit they have made a mistake, or they look at the market in too short a timeframe.
            8. They overtrade.
            9. Many traders can’t (or don’t) take the small losses. They often stick with a loser until it really hurts, then take the loss. This is an undisciplined approach…a trader needs to develop and stick with a system.
            10. Many traders get a fundamental case and hang onto it, even after the market technically turns. Only believe fundamentals as long as the technical signals follow. Both must agree.
            11. Many traders break a cardinal rule: “Cut losses short. Let profits run.”
            12. Many people trade with their hearts instead of their heads. For some traders, adversity (or success) distorts judgment. That’s why they should have a plan first, and stick to it.
            13. Often traders have bad timing, and not enough capital to survive the shake out.
            14. Too many traders perceive futures markets as an intuitive arena. The inability to distinguish between price fluctuations which reflect a fundamental change and those which represent an interim change often causes losses.
            15. Not following a disciplined trading program leads to accepting large losses and small profits. Many traders do not define offensive and defensive plans when an initial position is taken.
            16. Emotion makes many traders hold a loser too long. Many traders don’t discipline themselves to take small losses and big gains.
            17. Too many traders are underfinanced, and get washed out at the extremes.
            18. Greed causes some traders to allow profits to dwindle into losses while hoping for larger profits. This is really lack of discipline. Also, having too many trades on at one time and overtrading for the amount of capital involved can stem from greed.
            19. Trying to trade inactive markets is dangerous.
            20. Taking too big a risk with too little profit potential is a sure way to losses. (more…)

            51 Professional Trading Tips

              
              Education
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            1. Trading is simple, but it is not easy.

            2.  When you get into a trade watch for the signs that you might be wrong.

            3.  Trading should be boring.

            4.  Amateur traders turn into professional traders once they stop looking for the “next great indicator.”

            5.  You are trading other traders, not stocks or futures contracts.

            6.  Be very aware of your own emotions.

            7.  Watch yourself for too much excitement.

            8.  Don’t overtrade.

            9.  If you come into trading with the idea of making big money you are doomed.

            10.  Don’t focus on the money.

            11.  Do not impose your will on the market.

            12.  The best way to minimize risk is to not trade when it is not time to trade. 

            13.  There is no need to trade five days a week.  

            14.  Refuse to damage your capital.

            15.  Stay relaxed.

            16.  Never let a day trade turn into an overnight trade.

            17.  Keep winners as long as they are moving your way.

            18.  Don’t overweight your trades.

            19.  There is no logical reason to hesitate in taking a stop.

            20.  Professional traders take losses because they trust themselves to do what is right.

            21.  Once you take a loss, forget about it and move on.

            22.  Find out what loss parameters work best for your setup and adjust them accordingly.

            23.  Get a feel for market direction by “drilling down” (looking at multiple time frames).

            24.  Develop confidence by knowing and executing your trade setups the same way every time.

            25.  Don’t be ridiculous and stupid by adding to losers.

            26.  Try to enter a full size position right away.

            27.  Ring the register and scale out of your position.

            28.  Adrenaline is a sign that your ego and your emotions have reached a point where they are clouding your judgment.

            29.  You want to own the stock before it breaks out and sell when amateurs are getting in after the move.

            30.  Embracing your opinion leads to financial ruin.

            31.  Discipline is not learned until you wipe out a trading account.

            32.  Siphon off your trading profits each month and stick them in a money market account.

            33.  Professional traders risk a small amount of money on their equity on one trade.

            34.  Professional traders focus on limiting risk and protecting capital.

            35.  In the financial markets heroes get crushed.

            36.  Stick to your trading rules and you will never blow up your trading account.

            37.  The market can reinforce bad habits.

            38.  Take personal responsibility for each trade.

            39.  Amateur traders think about how much money they can make on each trade.  Professional traders think about how much money they can lose.

            40.  At some point all traders realize that no one can tell them exactly what is going to happen next in the market.

            41.Losing trades don’t diminish you as a person. You’re also not your winning trades. They are just by-products of the business you’re in.

            42.Act in your best interest – placing a trade because you’re afraid of missing out on a big move is NOT acting in your best interest.

            43.Flawless execution comes from forming a habit. A habit is formed when it is repeated over and over again. Start practicing.

            44.Don’t let personal/external factors affect the trading for thou judgment is clouded. Let the market show you what to do. Always.

            45.Make sure your trading goals are 1) realistic, 2) attainable, 3) measurable. If they don’t meet these criteria, then the goal is nothing.

            46.You want to own the stock before it breaks out, then sell it to the momentum players after it breaks out. If you buy breakouts, realize that professional traders are handing off their positions to you in order to test the strength of the trend. They will typically buy it back below the breakout point—which is typically where you will set your stop when you buy a breakout. (In case you ever wondered why you get stopped out on a lot of “failed” breakouts).

            47.Amateur traders always think, “How much money can I make on this trade!” Professional traders always think, “How much money can I lose on this trade?” The trader who controls his or her risk takes money from the trader whose head is in the clouds.

            48.. Siphoning out your trading profits each month and sticking them in a money market account is a good practice. This action helps to focus your attitude that this is a business and not a place to seek thrills. If you want an adventure, go live in Minnesota for a winter. If you want excitement, deliberately forget your anniversary. Just don’t trade.Adrenaline is a sign that your ego and your emotions have reached a point where they are clouding your judgment. Realize this and immediately tighten your stop considerably to preserve profits or exit your position.

            49.

            50.Averaging down on a position is like a sinking ship deliberately taking on more water.

            51.You Need MONEY -MIND-METHOD & Target to get success in Trading.If u miss any one of them…its my challenge to anybody in World …U will never ever be succesful !!

            Updated at 22:45/07th Sept/Baroda

            Trading and alpine climbing

              
              Education
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            “To climb mountains is to make decisions…. Good decisions are contextual, based on actual circumstances, and cannot be reduced to a set of rules…. In fact rules, guidelines, and codes, although useful for introducing concepts, ultimately become counterproductive when it comes to actually making choices… The simplest climb involves circumstances far too complex to be adequately addressed by rules. The mountain environment itself forces you to rely on your own skills of observation, your understanding of what you observe, and an accurate assessment of risks and of your own abilities.”

            The authors continue: “Rules must be replaced by that mysterious quality called judgment. The acquisition of judgment begins with a mountaineer’s very first climb and continues throughout the climber’s entire career. It is a process that cannot be bypassed nor ever be considered complete.”

            Principles that help guide decision making are:

            Anticipate changes. “Continually look forward. Every change in terrain, route difficulty, or hazard may require a new strategy, mode of movement, or protective system to deal with new circumstances.” (p. 15)

            Keep options open. “Any given decision can either maximize or limit other possible options in the future.”

            Analyze benefits and costs. “Addressing one risk or solving one problem often entails introducing other risks or aggravating other problems.”

            Maintain momentum. “Staying focused on forward movement means always being a little bit stressed, but in such a potentially dangerous environment, some level of stress is, arguably, appropriate.”

            Gather information. “Preparing ahead of time will give you a head start…. Above all, remember what you see. Every glimpse is a new piece of the puzzle.”

            Recognize and correct errors. “Rather than expecting perfection, strive to recognize errors as early as possible, and take steps to correct the situation. Do not carry on blindly, hoping that everything will work out. Denial causes delay, piling error upon error until only good luck can prevent things from spiraling out of control.” (p. 16)

            Assess your own skill and knowledge. “An honest and dispassionate self-critique is indispensable. For example, the capacity to observe, predict, and respond to cues improves over time, just as movement skills and climbing ability improve with practice; but on the other hand, competence can be degraded temporarily by states such as fear or fatigue or by inadequate information and inaccurate perception.” (p. 17)

            Alpine climbers take on considerably more risk than traders. After all, traders lose only money; climbers can lose their lives. But the way to the top demands similar decision-making processes.

            Trading Wisdom – Andrew Gordon

              
              Education
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            Legendary stock trader Jesse Livermore had it right: The big money is in the big moves … and the trick to making the big money is knowing how to sit tight and ride the trend for all it’s worth. As obvious as that may seem, many investors have trouble doing it.

            They are, as cognitive psychologists like Daniel Kahneman and Amos Tversky would say, “risk-averse.” The pain they experience in losing money is far greater than the pleasure they experience in making it. As a result, these investors typically sell their investments too soon for fear of incurring a real or even a paper loss.

            To profit the most from an investment, you need to be able to wait long enough for it to achieve its full potential. So if you’re “risk-averse” by nature, it might be a good idea for you to avoid paying too much attention to the news. If you’re watching television and the nightly business report comes on, change the channel. Set aside the business section of the paper to read on a rainy day. Ignore cocktail chatter about investing. That way, you’re more likely to stick to your trading plan instead of letting your emotions overpower your better judgment. 

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