Archives of “market participant” tag

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The realization that you are alone

  
  Education
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 At some point in time the realization strikes that you are alone in the market – there is only you. The illusion that the market can ‘do’ anything to you falls away and it becomes obvious that you are 100% responsible for everything that happens to your account. You either give yourself money, or else you give your money away – there is nothing else.

The market is one of the few arenas where there are no external constraints, except in the case of a margin call. It never forces you to take a position, long or short, or tells you to get out of your position. It does not say how long to stay in a position or what time to exit, how much profit or loss is enough. There are no external constraints at all, and as such people run riot. You are relying on yourself 100% and there is only ever you to blame.

The above is a core part of a winning trading psychology, yet its difficult to adopt. Shifting the blame is a basic way we defend our ego every single day of the week – yet in the market this practice is absolutely unsupported by price action. How can any other market participant be doing something to you if he is totally unaware of your existence or what position you hold?

Its necessary to really ponder this until the truth of it shines out:

You are alone…

Three Blind Men And The Markets

  
  Education
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elephant-3

A Hindu folktale tells of three blind men encountering an elephant. “It’s a tree,” says one, stroking a leg. “No, no, it’s a snake,” says  another, feeling the trunk. “No, this must be a house,” insists a third, spreading his arms against the bulk of the elephant’s body.
 All three had a different perception of the elephant based on the part they examined, and all three conclusions were wrong. The elephant was larger and more complex than any of the men realized.
 A similar tale is told everyday in the market. Each market participant has different needs, agendas, histories, perceptions, and sees the market completely differently. As with the three blind men examining the elephant: (more…)

Creative Responsibility

  
  Education
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“What good can come from comfort? It’s not going to be art. I think there’s a false ideal out there, to some people — maybe younger people — they might think “I could be an artist and I don’t have to work.”

“But I think calling yourself an artist, you have to work three times as hard as someone with a punch-clock job. Because if you punch in, you have a responsibility at your job, but you can also do what you’re told, and work the machine, whatever you’re doing, do whatever is already there for you… do what’s expected of you of that job.

“But if you are an artist and you have to create something from nothing — there is nothing on this canvas, nothing on this tape, we have to create something that didn’t exist before — that’s ultra-responsibility, super-responsibility isn’t it.”

– Jack White (via Conan O’ Brien)

Traders and investors bear a “creative responsibility” in respect to creating something from nothing… starting with a blank canvas (portfolio) and producing profitable and worthwhile results over time.

This notion reflects the craftsmanship embedded in the investment process… trade selection… methodology and process design…

As an active market participant, do you see yourself as an artist too? How do you embrace the creative responsibility that comes with such?

FEAR

  
  Education
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Fear has a way of making us focus on unfavorable headlines and price action. Fear impacts our ability to evaluate alternatives as it clouds objectivity. Fear is why profits are taken too quickly. Fear is a four letter word that comes in many flavors.

Fear of losing: Nobody wants to lose—doesn’t matter if it’s a spelling bee in the 5th grade or a newly entered long position in a stock that just broke through resistance. Losing sucks. Losing reminds us that perhaps we aren’t as good as we thought (hoped).

Fear of being wrong: Remember that time you blurted out the wrong answer and everyone laughed? Still sticks with you after all these years and screws with your mind. That new short position you just took is about to get squeezed—or at least that’s the thought running through your mind, right?

Fear of missing out: This is where we can really let our imperfections shine as we buy at the top and sell at the bottom. But hey, we didn’t miss out on the action!  Succumbing to the fear of missing a potential move and jumping in mid-stream trumps any good trading plan or preparation. This is a lack of self-discipline and causes much of the psychological damage seen in the markets.

Fear impedes our ability to be creative. Fear suffocates, debilitates, and causes many to wonder “what if…” rather than “why not…” Hope is used as a remedy by the fearful, but often gets smashed and is soon replaced with self-help books, talk therapy and medication.

Courage is what’s needed—the courage to fail.  With proper planning, risk can be managed and success can be found. Having the courage to step off the curb lends itself nicely to creating who you are as a market participant. Define your risk, adhere to your trading plan and fear becomes a fleeting thought rather than a debilitating one.

It’s OK to lose.  Just make sure that it’s within your defined risk/reward and move on.

It’s OK to be wrong. What’s not OK is to be stubborn and stick with a losing
position.

It’s OK to miss out. There are thousands of other names out there, find your trade.

If you want to become a better trader you need to realize that fear cannot be eliminated. It can, however, be used as an edge in your market participation. For me, one of my favorite times to sell premium is after a large, quick move—puts for fear and calls for greed.

“To conquer fear is the beginning of wisdom.” ~ Bertrand Russell

Trading Book Review Of the Week: The Three Skills of Top Trading

  
  Education
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This book is written about how three mutually reinforcing skills make a complete trader.

1). Pattern Recognition and Discretionary Trading.

Using the Wyckoff method you will see chart representations of how hot growth stocks are accumulated in bases for long periods of time. They eventually have pull backs then break out to new highs and trend. You will also see how they eventually have exhaustion tops on high volume that fail to rally and they begin to break down in distribution with lower lows and lower highs. The author encourages discretionary trading through experience by being able to identify market action through the models from past stocks. This work ties in nicely with the school of thought from legendary traders William J. O’Neil, Jesse Livermore, and Nicolas Darvas.

2). Behavioral finance and systems building.

The book teaches that readers must be flexible in their trading. We are merely a ship on a sea of market participant opinions. Follow the prevailing sentiment during the middle of the the trend, and go contrary to it at the extreme tops and bottoms. Hope, fear, and greed are the dangers and the movers of the market that cause support and resistance,  trends, and chart patterns. The action of the stock market is nothing more than a manifestation of mass crowd psychology in action. The Pruden model shows a chart of how accumulation, mark-up, distribution, and markdown works in the market tied to price, volume, sentiment, and time. It truly explains how the price pattern and charts in growth stocks generally play out historically. (more…)

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