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The market is the calculator

  
  Education
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If you are attempting to reach 10 via the calculator, there are many and various ways of getting there:  5+5, 2+8, 15-5, 25 –15, or even  2 + 2 –1 –1 –2 –2 +3 +3 +3 + 3.  When it comes to making money in the market our calculator may want to make it to 10 much quicker than the market does and we may want to add 5 + 5 to get there but be prepared for the market to take its own sweet time adding things up.  If all that matters is getting to 10, then make sure the road you take is paved with minuses along with pluses along the way or all your money will be going to the 5508 (punch this number into your calculator and turn it upside down to see what it spells), which will make the employee a very unhappy and broke individual.

Stock trading is easy as long as we understand how to do the math.

Are Great Traders Born or Bred?

  
  Education
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Harvard Business School Mark Sellers, founder of Chicago-based hedge fund Sellers Capital, argues that great traders are born and not bred. He believes that there are seven “structural assets” that cannot be taught, adding, ” They have to do with psychology. You can’t do much about that.”The traits:
1) The ability to buy when others are panicking, and vice versa
2) An obsession with the trading game
3) A willingness to learn from past mistakes
4) An inherent sense of risk based on common sense
5) A confidence in your convictions and a willingness to stick with them
6) An ability to have “both sides of your brain working” (i.e. to go beyond the math)
7) The ability to live through volatility without changing your investment thought process
I  think that some of the concepts discussed here are spot on (and I spend a great deal of time hammering home the importance of #7) , but I disagree with the overall idea that great traders are born, not made. I believe success in trading is not about a specific style, but rather about understanding your personality traits and then developing a trading style (and which product – i.e. stocks, commodities, fx) that fits you best.

10 Things I’ve Learned About Markets

  
Analysis, Education
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1. “There is no such thing as easy money”

2. Events that you think are affected by cardinal announcements like the employment numbers at 8:30 am on Friday are often known to many participants before the announcement

3. Markets that have little liquidity are almost impossible to profit from.

4. When the stock market is way down, policy makers take notice and do what they can to remedy the situation.

5. The market puts infinitely more emphasis on ephemeral announcements that it should.

6. It is good to go against the trend followers after they have become committed.

7. The one constant, is that the less you pay in commissions, and bid asked spread, the more money you’ll end up with at end of day. Too often, a trader makes a fortune on the prices showing when he makes a trade, and ends up losing everything in the rake and grind above.

8. It is good to take out the canes and hobble down to wall street at the close of days when there is a panic.

9. A meme about the relation between today’s events and those of x years ago is totally random but it is best not to stand in the way of it until it is realized by the majorit of susceptibles

10. All higher forms of math and statistics are useless in uncovering regularities.

Cut your losses and let your winners ride

  
  Education
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This quote is the perfect corollary to Livermore’s. Just as he preached “sitting”, letting your winners ride is the same idea. If you have on a position and it’s working, let it make you money. Don’t cut it prematurely for the sake of booking a small profit. Don’t get scared and exit on the first reaction, when all of your trading rules dictate staying in. If it’s a winner, and it’s working, then let it ride. Winners are good—embrace them.

The important flip side is how to treat losing trades. The first lesson is that losers have to be cut at some point.  Otherwise, a losing trade can keep eating away at your P&L, undoing the profits from any winning positions. If you cut losses at a pre-defined level, then they stop—and presumably your wins can be larger than your losses.

The math behind this is compelling. If you assume that your average winner make 1.6x what your average loser loses, then you only need to be right 40% of the time in order to make money consistently. By keeping the leash short on your losses, then you can let the math of statistical expectation work in your favor. Cut losses and let your winners ride.

There is another aspect to this. A loser isn’t just a trade where you get stopped out at a pre-defined loss limit. Imagine a trade that isn’t making money and has just been languishing on your books—this is also a loser. Cut it, free up financial and mental capital  and move on.

Desire -Skill

  
  Education
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The Desire
If you are trading just for the money you will quit before you are successful, Why? Anyone without a love for the game will quit during the long difficult learning process. After hundreds of hours of work and years of trading with nothing but a loss to show for all the effort anyone with common sense will think it is too hard and just quit. Those with a love and passion for trading will eventually succeed and usually make six figures or become a millionaire for their efforts. Those that do a cost benefit analysis in the first few years will generally quit due to the math.
The Skill
A trader must have the skill to trade in three dimensions. The management of the mind,  the method, and money management are all crucial for success. Traders must have the discipline and perseverance to trade robust systems through different market environments without giving up. They must have the ability to accept and deal with their thoughts and emotions as they arise during both winning and losing streaks. Risk must be managed on every single trade without the ego causing bets so big that they put your future trading at risk. The trader must also have the skill to not let fear take away the traders ability to pull the trigger on a good entry.

Ed Seykota On Trading

  
  Education
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“Pyramiding instructions appear on dollar bills. Add smaller and smaller amounts on the way up. Keep your eye open at the top.”

“It can be very expensive to try to convince the markets you are right. Markets are fundamentally volatile. No way around it. Your prolem is not in the math. There is no math to get you out of having to experience uncertainty.”

“Here’s the essence of risk management: Risk no more than you can afford to lose, and also risk enough so that a win is meaningful. If there is no such amount, don’t play.”

“To avoid whipsaw losses, stop trading.”

11 Things I’ve Learned About Markets

  
  Education
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1. “There is no such thing as easy money”

2. Events that you think are affected by cardinal announcements like the employment numbers at 8:30 am on Friday are often known to many participants before the announcement

3. It’s bad to try to make money the same way several days in a row

4. Markets that have little liquidity are almost impossible to profit from.

5. When the stock market is way down, policy makers take notice and do what they can to remedy the situation.

6. The market puts infinitely more emphasis on ephemeral announcements that it should.

7. It is good to go against the trend followers after they have become committed.

8. The one constant, is that the less you pay in commissions, and bid asked spread, the more money you’ll end up with at end of day. Too often, a trader makes a fortune on the prices showing when he makes a trade, and ends up losing everything in the rake and grind above.

9. It is good to take out the canes and hobble down to wall street at the close of days when there is a panic.

10. A meme about the relation between today’s events and those of x years ago is totally random but it is best not to stand in the way of it until it is realized by the majorit of susceptibles

11. All higher forms of math and statistics are useless in uncovering regularities.

4 Trading Mistakes

  
  Education
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1.  Do the Math
 

Sit down and go over your expected Risk to Reward Ratio for each trade.  If you have already been trading for a period of time sit down and analyse how much you are making each trade and your winning %.  These two numbers will help you formulate a solid profit goal.  No trading strategy works 100% of the time so you need to work out how much you lose per losing trade vs. how much you make per winning trade and then figure in your percentages.  From there you should have a realistic idea of how much you can expect to make in through your trading. 

2.  Don’t Expect Instant Returns
 

Trading is a business and like any other business it requires not only capital investment but time investment as well.  It takes time to find your rhythm and develop your trading skills.  Try not to be to hard on yourself during the learning phase and remember to focus on the positive aspects of your trading.  The vast majority of traders lose money and this number is even higher with traders who are just starting out.  Factor this in when you are setting your goals.

3.  Skill vs. Profits
 

Try to come up with goals that are not directly tied to your P&L statements.  For example, set a goal of following your rules for every trade for an entire trading day.  Once that is completed shoot for an entire week, then a month, and pretty soon you will be doing following your rules without even realising it.   Train yourself to develop your trading skills and reward yourself when you reach those goals. 

4.  It Takes Money
 

It takes money to make money.  Small accounts are fantastic for testing out whether or not trading is for you but when you get serious and want to go full time make sure you have enough capital to support your business.  Solid traders should expect to make 8% in the market over the course of a month.  That equates to 96% over a given trading year.  Make sure this figure allows you to have the lifestyle that you are expecting. 

The market is the calculator

  
  Education
#  #  #  #  #  #  #

If you are attempting to reach 10 via the calculator, there are many and various ways of getting there:  5+5, 2+8, 15-5, 25 –15, or even  2 + 2 –1 –1 –2 –2 +3 +3 +3 + 3.  When it comes to making money in the market our calculator may want to make it to 10 much quicker than the market does and we may want to add 5 + 5 to get there but be prepared for the market to take its own sweet time adding things up.  If all that matters is getting to 10, then make sure the road you take is paved with minuses along with pluses along the way or all your money will be going to the 5508 (punch this number into your calculator and turn it upside down to see what it spells), which will make the employee a very unhappy and broke individual.

Stock trading is easy as long as we understand how to do the math.

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