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Lessons from the spanish flu:

Learning from history

 Here are a selection of interesting pieces I have come across in learning lessons from the ‘Spanish’ flu of 1918.  Now the two pandemics are different. Our COVID19 pandemic primarily targets older people, while the Spanish flu hit those in the 20-30’s age bracket. The Spanish flu claimed over 45 million, but almost certainly never started in Spain!
What is the value of a single life (answer $10 million?) Check out this article for an interesting piece commenting on some research by Harvard University economist Robert Barro who argues that social distancing in 1918 did not work to reduce deaths because it did not last long enough. Barro argues that 12 weeks of social distancing works much better than 4-6 weeks.
What was the general approach taken during the Spanish flu of 1918? Check out this BBC article for a discussion of different approaches to the outbreak.
Pandemics come in waves – This National Geographic piece picks up the fact that pandemics tend to move in waves. A key takeaway is that we are unlikely to see a ‘one and done’ reaction. It is more likely to see a few waves of infections until we have a successful vaccine. Take a look at the Spanish flu waves seen in 1918/1919 in the chart below:
Learning from history  
This an interesting Guardian piece: It seems that epidemics follow a similar pattern: They are ignored or dismissed until they are impossible to turn a blind eye too. That was very similar to the path of this pandemic.

Armageddon in the oil market reportedly cost Bank of China customers $85 million

A painful lesson for retail investors

Margin

The outrage against the Bank of China has been a trending topic on social media this week, as thousands of retail investors saw their life savings vanquished in betting on the oil market via the bank’s wealth management products.

These things were marketed with names like “crude oil treasure” before the Bank of China joined other major institutions to suspend trading and sales of such products after the wipeout in the market saw oil prices turn negative in the May futures contract.
The investors were betting on an increase in prices but were caught out as the front month contract at the time crashed hard and hit negative for the first time ever.
Bloomberg is reporting that the Bank of China settled the May futures contract for the product at the Monday close of around -$37.63 per barrel, resulting in $28 million of initial losses and a further $57 million as prices plunged into negative territory.
It is such a shame that many of the investors involved in this incident will see everything taken away from them in just one day. But it is a reminder to those new in the market that there is a difference between investing/trading and gambling.
If you do not understand the rules and when you are faced with a heap of uncertainty, it creates fear. And fear is the number one enemy of every investor/trader.
When we are fearful, we make bad decisions that we otherwise would not normally make. In this example, perhaps the Bank of China is also partly at fault but when you do not understand the magnitude of the risks involved, you are gambling with your luck.
In this case, these people were caught on the wrong side of the trade as the market did not agree with their view. And by not understanding the risks associated with the product, they were not able to define and limit their risk levels accordingly.
It is an extremely painful lesson for those involved but it is one that we can learn from and apply to other areas in our trading.

Amidst the gloom – Italian hospital saves Covid-19 patients lives by 3D printing valves

No, not forex, but some human ingenuity, creativity and hard work in application:

  • massive number of people who require intensive care and oxygenation in order to live through the infection long enough for their antibodies to fight it. This means that the only way to save lives at this point – beyond prevention – is to have as many working reanimation machines as possible.
  • a Northern Italian hospital needed a replacement valve for a reanimation device and the supplier had run out with no way to get more in a short time.
  • a company in the area, Isinnova, brought a 3D printer directly to the hospital and, in just a few hours, redesigned and then produced the missing piece
  • On the evening of Saturday 14th (the next day) Massimo reported that “the system works”
  •  At the time of writing, 10 patients are accompanied in breathing by a machine that uses a 3D printed valve. 
What great news amidst the crisis.
No, not forex, but some human ingenuity, creativity and hard work in application:

World Bank cuts global growth forecasts for 2019 and 2020

They see some upside risks as trade risks cool

  • Cuts 2019 to 2.4% from 2.6% (lowest since crisis)
  • Cuts 2020 to 2.5% from 2.7%
  • Cuts 2020 emerging markets forecast to 4.1% from 4.6%
  • Forecasts 2020 trade growth at 1.9% vs 1.4% in 2019
  • Says growth in less developed regions far below levels needed to meet poverty-reduction goals

In a deeper breakdown, they boosted the 2020 US growth forecast while cutting China and Europe. On the whole, this isn’t great news for the global economy but it’s nothing surprising.

The Trading Plan- Discipline

Trying to win in the markets without a trading plan is like trying to build a house without blue prints – costly (and avoidable) mistakes are virtually inevitable. A trading plan simply requires a personal trading method with specific money management and trade entry rules.
Discipline was probably most frequent word used by the exceptional trades that I interviewed.
There are two reasons why discipline is critical. 

  • Its a prerequisite for maintaining effective risk control.
  • You need discipline to apply your methods without second guessing and choosing which trade to take.

A final word, remember that you are never immune to bad trading habits – the best you can do is to keep them latent. As soon as you get lazy or sloppy, they will return !

Ways to Increase Willpower For Traders

  • Plan in advance and operate on the basis of habit
    • You need to have a trading plan that covers all permutations that the market can possibly throw at you. You need less willpower to follow a clearly defined plan than to try adhering to broad principles in reaction to the market.
    • Keep practicing applying your trading plan, so that you can make following the rules a habit. It is like driving, the more you do the less effort it requires progressively.
  • Motivate yourself, remind yourself of the importance of what you are doing
    • You need to remind yourself of the importance of achieving good trading results, of the importance of not throwing your hard-earned money away.
    • Use visualization techniques to picture situations where you follow your trading plan successfully. Thinking that you have lots of willpower actually makes it so.
    • Think of some trader you admire that have lots of self-control and unfazed by market movements (e.g. Ed Seykota)
  • Exercise your willpower
    • Willpower is like a muscle, the more you exert your willpower in whatever tasks, the greater your capacity for self-control.
    • You can get yourself to follow rules such as sitting up straight, opening doors with your left hand, etc.
  • Have sufficient food
    • Exercising willpower uses up glucose. Being hungry means you don’t have the energy to exert willpower.
  • Have sufficient rest
    • You can replenish your ‘willpower’ stores through sleep. Get sufficient sleep every day.

42 Wisdom Points For Traders

  1. First Things First
    You sure you really want to trade ? It is common for people who think they want to trade to discover that they really don’t.
  2. Examine Your Motives
    Why do you really want to trade ? Did you say excitement ? Then don’t waste your money in market, you might be better off riding a roller coaster or taking up hand gliding.
    The market is a stern master. You need to do almost everything right to win. If parts of you are pulling in opposite directions, the game is lost before you start.
  3. Match The Trading Method To Your Personality
    It is critical to choose a method that is consistent with your your own personality and conflict level.
  4. It Is Absolutely Necessary To Have An Edge
    You cant win without an edge, even with the world’s greatest discipline and money management skills. If you don’t have an edge, all that money management and discipline will do for you is to guarantee that you will gradually bleed to death. Incidentally, if you don’t know what your edge is, you don’t have one.
  5. Derive A Method
    To have an edge, you must have a method. The type of method is not important, but having one is critical-and, of course, the method must have an edge.
  6. Developing A Method Is Hard Work
    Shortcuts rarely lead to trading success. Developing your own approach requires research, observation, and thought. Expect the process to take lots of time and hard work. Expect many dead ends and multiple failures before you find a successful trading approach that is right for you. Remember that you are playing against tens of thousands of professionals. Why should you be any better ? If it were that easy, there would be a lot more millionaire traders.
  7. Skill Versus Hard Work
    The general rule is that exceptional performance requires both natural talent and hard work to realize its potential. If the innate skill is lacking, hard work may provide proficiency, but not excellence.
    Virtually anyone can become a net profitable trader, but only a few have the inborn talent to become supertraders ! For this reason, it may be possible to teach trading success, but only upto a point. Be realistic in your goals.
  8. Good Trading Should Be Effortless
    Hard work refers to the preparatory process – the research and observation necessary to become a good trader – not to the trading itself.
    “In trading, just as in archery, whenever there is effort, force, straining, struggling, or trying, it’s wrong. You’re out of sync; you’re out of harmony with the market. The perfect trade is one that requires no effort.”
  9. Money Management and Risk Control
    Money management is even more important than the trading method. 

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IF TRADING WERE ONLY A MATTER OF MAKING MONEY

If trading were only a matter of making money, reading this book wouldn’t be necessary. Putting on a winning trade or even a series of winning trades requires absolutely no skill. On the other hand, creating consistent results and being able to keep what we’ve created does require skill. Making money consistently is a by-product of acquiring and mastering certain mental skills. The degree to which you understand this is the same degree to which you will stop focusing on the money and focus instead on how you can use your trading as a tool to master these skills. – Mark Douglas

making money

The Market As Uncertain Possibility — an Ocean of Possibility

Imagine the market as the totality of possibility. Unlimited in potential in any direction at any time. Potential for profit. Potential for loss. Potential beyond your capacity to ever comprehend. What you know is that the market goes up and down. Rarely does it stay unchanged for any length of time. Then imagine you as an observer watching the market. The market is an ocean of possibility, while you, the observer, represent someone in a small boat navigating in this infinite sea of possibility. What do you, as a buyer or seller, see? The tide goes in, the tide goes out. Storms come and go. There is no telling what this ocean of possibility is really going to do at any given time. 
Yet, depending on the skill of the navigator of the boat in this ocean of infinite possibility, he either harvests what the ocean is willing to give him or he keeps looking for what he wants from the ocean. If his vision is locked on finding what he is looking for, he becomes blind to other possibility that the ocean presents. The ocean, as well as the market, does not know the fisherman is there. It is incapable of wanting to help or hurt the fisherman. Possibility opens and possibility closes irrelevant to the fisherman. The ocean simply is. 
Opportunity and disaster both exist as possibility to the navigator of the boat in the sea of possibility. It is the discernment of the navigator, beyond fear, that opens or closes possibility in the market. Until fear is taken off-line, the fisherman of possibility sees through the eyes of fear and can not see the potential of a long term beneficial relationship with the ocean of possibility called the market.

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Burton Pugh Quotes written 87 Years Back -Still Valid for Traders


Burton Pugh, a well known trader, market commentator, and writer in the 1930s wrote numerous books, one of which discussed his trading methodology and the psychology behind it.  Even after 87 years some things never change and most likely never will.  Here is a list of some of the great nuggets of wisdom found in his book A Better Way to Make Money.
1.  The secret to losing money in the market is to know why.  “The losers “were ‘playing the market’, not using it intelligently.  The fellow at the other end of the deal, who was using it intelligently, not ‘playing the market’, is the one who got the money.”

2.  “It is an undeniable fact that indiscriminate trading in a hectic market will send one to financial oblivion quicker than any other known process.”

3.  “The most careful preparation-a systematic plan-is one of the essentials of success.”

4.  “Market action is not complex but surprisingly simple.  Yet it is often made to appear complex by newspaper forecasters and market letter writers.”

5.  “Market action is human nature in action.”

6.  All market movements are based on “two deep-seated and entirely natural emotions:  the desire for gain and the fear of loss.”

7.  “So anxious are people to find some talisman, some magic wand, that will help them secure the hidden riches of the market, that they will try anything from coin-flipping to crystal gazing to secure the desired assistance.”

8.  “What marvelous results could be attained in the business of making money if those who buy stocks would take a little time to learn a few simple facts about the market in which they are blindly reposing their faith.”

9.  “Market students are continually diverted from making true evaluations of securities and commodities because they study the statistics made by prices instead of the psychology of prices.”

10.  “Adopt one system of trading and stick to it, just as you employ and stick to one physician in whom you learn to have confidence.”

11.  “One of the most important points in your market education is to learn as early as possible that the customary and supposedly weighty market news is of very small importance.  The news only looks important.”

12.  “Don’t trade just because you can afford to lose.”

13. “Practice makes perfect is an old copybook adage that works well in the market place.”

14.  “If a trade fails to come out right, the error will be found in the operator-not the market.”

15.  “Trading is simple another form of business.  Treat it as such.”

16.  “Trend to the investor is like the vein of gold to the miner, who must follow the vein faithfully if he expects to get the yellow metal.”

17.  “Stocks are made to buy and sell…not to be bought and held.”

18.  No matter what a thing costs, stocks or otherwise, “it is worth only what you can somebody to pay for it.”

19.  People will always be prone to be extravagantly optimistic or dolefully in the slumps and “in this action is unlimited wealth for the men who realize this fact and will use it with confidence and decision.”

20.  “Success is the most desirable thing in the world, but it is an eliminating contest.  It may trample the thoughtless trader into the dust, but it will pour large treasure into the laps of those who work in sincere harmony with its laws.”

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