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Chess and Trading

  
  Education
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As an avid fan of the game of the KINGS, I have never paid attention before between the amazing similarities between chess and trading, until I read a BRUCE PANDOLFINI book called “Every move must have it’s purpose”

This is an amazing game that is not fully devoted to trading but to the concepts of business and chess and how they look alike.

Understanding the concepts is basic in chess or trading. Concepts are more important than theory.

Let me do a quick lecture about those concepts.

 

The first concepts he points is “Play the board not the opponent”. This is an amazing concept and clearly fits any trader and their psychology. The board is the chart and the opponent in this case is our own emotions. A player must focus on the board and his game only. Same the trader.

 

The second concepts is “ Don’t ignore a good hunch” This can clearly applies to the traders especially like me, who trades intuitive. Many times You do not have an entry setup that fits your rule but it doesn’t violate either but You know there is a big move coming, I can not explain it butyou feel the move and you take it and voila clink$$.You may not understand it because we try to rationalize but our right side of the brain is telling us “this is correct”. Go for it.

 

Third concept “Play with a plan”.We need to have an edge, a methodology and stay with it. In chess if you do not have a strategy you are going to be massacred. Same in the markets. Move your pieces in a nonsensical way and you are out of the game in less than 12 moves. (more…)

Discipline Trading

  
  Education
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-The market pays you to be disciplined.
-Be disciplined every day, in every trade, and the market will reward you. But don’t
claim to be disciplined if you are not 100 percent of the time.
-Always lower your trade size when you’re trading poorly.
-Never turn a winner into a loser.
-Your biggest loser can?t exceed your biggest winner.
-Develop a methodology and stick with it. don?t change methodologies from day to
day.
-Be yourself. Don?t try to be someone else.
-You always want to be able to come back and play the next day. Once you reach
the daily downside limit, you must turn your PC off and call it a day. You can always come back tomorrow.
-Earn the right to trade bigger. Remember: if you are trading poorly with two lots you
must lower your trade size down to a one lot.
-Get out of your losers.
-The first loss is the best loss.
-Don?t hope and pray. If you do, you will lose.
-don?t worry about news. it?s history.
-Don?t speculate. if you do, you will lose.
-Love to lose money. What I mean is to accept the fact that you are going to have
losing trades throughout the trading session. Get out of your losers quickly. Love to get out of your losers quickly.
-If your trade is not going anywhere in a given timeframe, it?s time to exit.
-Never take a big loss. Only a big loss can hurt you. consistency builds confidence and control.
-Learn to sweat out (scale out) your winners.
-Make the same type of trades over and over again ? be a bricklayer.
don?t over-analyze. don?t procrastinate. don?t hesitate. if you do, you will lose.
all traders are created equal in the eyes of the market.
-It?s the market itself that wields the ultimate scale of justice.

Why is self efficacy important

  
  Education
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Life does not come with a neatly designed manual.No one gives you a manual on trading when you start. You have to figure out things on your own.
Traders spend so much time moaning about lack of good training resources or programs. Or claiming this does not work, that does not work. Many of these issues are related to self efficacy.
When I did bulk of my work on Market Breadth there was no book on market breadth. I got the same help manual that you get with Telechart when I started using Telechart. In fact when I did bulk of my work on designing my trading methods, Internet was not such a big source of information.Life is much easier now, you can find so much information for fraction of effort and cost. Same thing that I figured out you can also figure out if you spend sufficient time going in to depth and peeling the layers.
That is the story of every successful independent traders. They figured out the market on their own.

This is where self efficacy becomes very critical. If you have strong perceived sense of self efficacy, you would spend your time and energy on finding solutions to your ignorance problems and overcoming inhibitors.
People with strong sense of self efficacy never have inertia problem. They have intrinsic motivation.
 
See my earlier post on “Three most common problem faced by traders”
The three most common problems when it comes to trading profitably are:

  1. Ignorance
  2. Inhibitors
  3. Inertia

Ignorance problems can be solved by acquiring knowledge. These are easiest problems to fix. If I don’t understand something, I need a strategy to overcome my ignorance. It might be reading, attending courses/training program, researching .

For example many users of Telechart do not know how to use many functionality. That is easily fixable problem.Same is true of say IBD methodology. Many people are ignorant of how say EPS or RS rating is calculated. People of ignorant of momentum or risk management or growth investing.

If you overcome your ignorance problem, you might encounter next set of problem.

Inhibitors are things which inhibit us from acting on our knowledge. I know IBD 200 works and how it works and it can be profitable, but I do not have time to input the 200 stocks. Or I know how I can make money trading Double Trouble, but i do not have software to do this for me.

All inhibitors kind of problem require innovation . A little innovation and resourcefulness can solve most inhibitors kind of issues. If A route or scan does not work, you find B route or plan B. When faced with constrains, you have to innovate.

If you are motivated enough trader, you will find solving the ignorance and inhibitors problem is not very difficult. The third set of problem is the most difficult to solve.

Inertia is lack of action on what we know and inability to act on overcoming inhibitors. Inertia makes most people stick to their current orbit of success or performance. You can spend years living suboptimal life and wasting your potential if inertia is your problem.

Inertia problems have one simple solution. A kick in the ass.

 
To overcome all three you need to have higher perceived self efficacy. If you have that then you will find several ways to overcome your ignorance problem. If you have that you will innovate around the inhibitors and if you have that motivation will not be a problem.
The concept of self efficacy is applicable not only to trading but to everything else in your life and career. You will see same thing in organisation, the vast majority is waiting for “the manual”, “the instructions”, “the rules” , “the holy grail” and so on. Few people in any organisation will have the self efficacy to figure out many of the things themselves and they will be the real leaders.
 
The concept of self efficacy is very critical if you have kids and you want them to be successful in life. Much of the school system and learning tools used are not geared to developing self efficacy. Plus parents are so indulgent that they hinder self efficacy development. Kids get rewarded for little efforts.

7 Points for Traders

  
  Education
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  1. You don’t choose the stock market; it chooses you.  A little bit of early trading success can have a profound effect on a person’s soul.  If it does choose you, you’ll have to accept that your life and investing will become forever connected.7numbers
  2. Your methodology must provide an unshakeable foundation that you believe in totally, and you must have the conviction to trade based upon it.   If your belief is tentative or if you don’t have complete faith in your methodology, then a few bad trades will destabilize and erode your confidence. 
  3. A calm mindset that can focus on the execution and not on the outcome is what produces profits.  It takes total emotional control.  You must maintain your balance, rhythm and patience.  You need all three to stay in the game.
  4. The markets are always conniving with ingenious techniques to get you to lose your patience, to get you frustrated or mad, to bait you to do the wrong thing when you know you shouldn’t.  A champion doesn’t allow the markets to get under his skin and take him out of his game.
  5. Like a great painting, all good trades start with a blank canvas.  Winning traders first paint the trade in their mind’s eye so that their emotional selves can reproduce it accurately with clarity and consistency, void of emotions as they play it out in the markets.
  6. The “here and now” is all that matters.  You can’t think about the last trade or the last shot or worry about the future.  You need to put on your “amnesia hat” in order to remain completely unfazed by what came before.  Only by doing so can you be totally absorbed in executing your present trade.
  7. Being prepared and having put in the work results in the bringing together of your intuition and confidence.  The two go hand in hand.  Extraordinary results can be expected when you are able to see it, feel it and trust it. 

7 Weakest Points of Trading

  
  Education
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The weakest part of any trading method is the trader themselves. There are many, many, robust trading systems and methods that do make money in the long term. The problem is the trader having the discipline and mental toughness to trade one of them consistently. The vast majority of time it is not a system failure but traders that fail in this game through one of seven common errors. If you can understand these error and overcome them you could make a lot of money in the right market conditions.

  1. The trader must have the discipline to take the system’s entries and exits.
  2. The trader must have the discipline to take the stop loss on a losing trade when it is hit and not keep holding and start hoping.
  3. No matter the method the trader has to manage risk through proper position sizing, getting greedy and trading too big will blow up even the best systems.
  4. It is the trader that must have the perseverance to stick to the method even during losing periods, and also stick with trading until success is reached.
  5. If a trader can not manage their mind then the stress will break them, I have seen this happen many times. If you can’t handle losing you can’t trade.
  6. The trader must find a robust method, must understand why it has an edge, and must believe in their methodology.
  7. The trader has to know themselves and trade the method that fits their risk tolerance levels and own psychology. (more…)

Trading Wisdom

  
  Education
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If we want to be successful as traders it is crucial that we have great filters. We must filter out all the noise that separates us from the actual price action. In the end it is just us versus the market. We need to seek  to learn how to trade from others and not look for trades. We have to play a lone hand because we have our own tolerance for pain, our own goals, and we should have our own trading plan with a robust methodology. Others do not know our time frame and we do not know theirs. Their position sizing may be ten times what ours is.

Before we trade we should have a watch list, a risk percent per trade, a methodology, and a trading plan. We should be running our trading like a business not a casino. Information and opinions can bias our trading. Be very careful about the information that you let into your mind. You should attempt to trade as close to your system and methodology as possible without allowing anyone’s opinions our thoughts to come between you and the charts. Actual price action is the king everyone’s opinions are just that, opinions. (more…)

Trading psychology

  
  Education
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  • Trading psychologyStop trying to outsmart the market. NO ONE knows exactly where it will go.
  • With each decision you make comes stress:
    • The more decisions you make, the more likely you are to be wrong.
    • The more decisions you are used to making, the more pressure you’ll put on yourself to make even more decisions.
    • No one can be that right.
  • Forget about the “whys’ of the market. After all is said and done, the reasons will be known.
  • Don’t apply logic. Markets move on emotions — period!
  • Plan your trade and trade your plan.
  • Reduce the amount of decisions you make.
  • Make decisions and live with them (also a life lesson!).
    • Good decisions come from experience.
    • Experience comes from bad decisions.

    • A Bad Teacher

      
      Education
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    The World’s Worst Teacher

    The market often rewards bad behavior. You exit a stock because your stop is hit. You are okay with this because you followed your plan. The market then immediately reverses. You begin to think, “If only I stayed with the position.” The next time the market goes against you, you decide you are not going to get tricked again. This time though, the market does not reverse and what started out as a small manageable loss is now huge.

    The market will give you loss after loss forcing you to abandon a methodology right before it takes off without you. On the flip side, the market will lull you into a false sense of confidence. You trade larger and larger, taking on excessive risk. You print money until your risks become so excessive that one or two bad trades wipe you out.

    Learn from the market, but realize that sometimes it can be a lousy instructor.

    Principles of Peak Performance

      
      Education
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    peak-performanceThe first principle of peak performance is to put fun and passion first. Get the performance pressures out of your head. Forget about statistics, percentage returns, win/loss ratios, etc. Floor-traders scratch dozens of trades during the course of a day, but all that matters is whether they’re up at the end of the month.

    Don’t think about TRYING to win the game – that goes for any sport or performance-oriented discipline. Stay involved in the process, the technique, the moment, the proverbial here and now.! A trader must concentrate on the present price action of the market. A good analogy is a professional tennis player who focuses only on the point at hand. He’ll probably lose half the points he plays, but he doesn’t allow himself to worry about whether or not he’s down a set. He must have confidence that by concentrating on the techniques he’s worked on in practice, the strengths in his game will prevail and he will be able to outlast his opponent.

    The second principle of peak performance is confidence. in yourself, your methodology, and your ability to succeed. Some people are naturally born confident. Other people are able to translate success from another area in their life. Perhaps they were good in sports, music, or academics growing up. There’s also the old-fashioned “hard work” way of getting confidence. Begin by researching and developing different systems or methodologies. Put in the hours of backtesting. Tweak and modify the systems so as to make them your own. Study the charts until you’ve memorized every significant swing high or low. Self-confidence comes from developing a methodology that YOU believe in. (more…)

    Mirage

      
      Education
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    MiragenewProfits resulting from the violation of one’s own system or methodology constitute the most treacherous mirage of success. We’ve all been tempted at one time or another to suspend our collection of pre-defined rules (so painstakingly accumulated, yet so easily put aside) for the possibility that for this one particular moment, distinguished from all others, things might be different. And perhaps we were right — this time — and the register rung. Yet for those of us who have chosen the way of the System, the momentary suspension of discipline is a transgression beyond profit or loss. For no matter the what the outcome of the trade executed, the damage has already been done — any gains secured in such a manner will only serve as future tuition until that particular lesson is learned. This must be understood before forward progress can occur, for unless process takes precedence over result, the cycle repeats ad infinitum.

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