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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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Self-awareness

1) the recognition that our thinking and our emotions are intertwined and both influence our perception and judgment that leads to our decisions and actions (this view also happens to be consistent what the leading brain scientists are now saying)

2) much of our motivation – the intertwined thinking/emotion that drives our behavior – is actually subconscious, e.g. we assume we are trading the market but on other levels we are also trading our P&L and our feelings about our P&L  (and what our P&L represents to us) is just one example.

3) when we understand (self-awareness) the underlying/subconscious motivation for our behavior we are in a better position to choose an alternative.

Obviously, nothing can guarantee change or improvement (contrary to many claims made by pseudo “experts”), but at least an approach that emphasizes expansion of awareness puts the odds in your favor. (more…)

Intuition

A hunch can be trusted if it can be explained.

Though intuition is not infallible, it can be a useful speculative tool, if handled with care and skepticism. 
If you are hit by strong hunch – put it to the test. Trust it only if you can explained it. That is only if you can identify within your mind a stored body of information out of which that hunch must reasonably be supposed to have arisen. 
Be wary of any intuition that seems to promise some outcome you want badly.

THE SUCCESSFUL TRADER … ACCORDING TO MARK DOUGLAS

 

douglasquote

There is a reason why so few traders succeed.  It is not for lack of study or effort or passion.  It is not for lack of education or a Bloomberg platform subscription.  It is not because only a select few have access to technical “secrets” (a.k.a. indicators).  No.  So few succeed at trading for the same reason that so few succeed at living an abundant life.

The unsuccessful refuse to think differently when faced with difficulties believing that luck has passed them by.  They do not succeed because the want of instant gratification and its fleeting rewards has replaced the need for sustainable, hard fought, earned rewards indicative of a mindset prepared to tackle failure as nothing but a mathematical equation: here is the problem now let’s find the solution.

The mediocre search for easy answers to difficult problems believing that the right answers to their questions are found somewhere “out there”.   The successful make difficult decisions where there are no easy answers, questioning whether their perception of what is out there is a distorted reflection of what is inside of them.

The best traders, according to Mark Douglas, think differently than others because they know that what is most important is “how they think about what they do and how they’re thinking when they do it.”

Ultimate Goal For All Traders

In my opinion, this is the ultimate goal for all traders: Get to the point where you can make confident decisions on your own and trade with complete independence. While I tremendously respect the opinion of my colleagues, I DO NOT rely on them. I can turn off Blue Channels, and all communication to the outside world…and still be fine with making my own decisions and letting THE MARKET tell me if I’m right or wrong. I apologize if this sounds cocky, but it’s simply the truth.

How do you get to this point? Make decisions and learn from them! I openly admit that I have made TONS of mistakes in the market, and I still make mistakes EVERY DAY. The key is I’ve learned from them and now try my best to minimize those mistakes. As Tony Robbins says: “Good decisions come from experience, and experience comes from bad decisions.” The key is to MAKE a decision without worrying that you might be wrong. As long as you learn from it, you can correct it the next time. Again, just make the decision! Who knows, it might end up being a good one 

Wealth Principles

  • Your income can grow only to the extent you do
  • If you want to change the fruits, you will first have to change the roots.  If you want to change the visible, you must first change the invisible.
  • Money is a result, wealth is a result, health is a result, illness is a result, your weight is a result.  We live in a world of cause and effect.
  • Thoughts –> Feelings–>Actions–>Results TFAR
  • When the subconscious mind must choose between deeply rooted emotions and logic, emotions will almost always win
  • If your motivation for acquiring money or success comes from a non-supportive root such as fear, anger, or the need to “prove” yourself, your money will never bring you happiness
  • The only way to permanently change the temperature in the room is to reset the thermostat.  In the same way, the only way to change our level of financial success “permanently” is to reset your financial thermostat.
  • Consciousness is observing your thoughts and actions so that you can live from true choice in the present moment rather than being run by programming from the past.
  • You can choose to think in ways that will support you in your happiness and success instead of ways that don’t.
  • Money is extremely important in the areas in which it works, and extremely unimportant in the areas in which it doesn’t.
  • When you are complaining, you become a living breathing “crap magnet”
  • There is no such thing as a really rich victim!

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CHARLES T. MUNGER AND THE PRESCRIPTION FOR A LIFE OF MISERY

On June 13, 1986 Charles T. Munger delivered the commencement address at Harvard University.

In it, Munger borrows from an earlier commencement address by the late night host Johnny Carson.  Carson shared with the  graduating class that although he could not not tell them how to be happy, he could share with them from personal experience how to be miserable.

Carson’s prescription for a life of misery?

  1. ingestion of  chemicals to alter mood or perception
  2. envy
  3. resentment

Munger adds to Carson’s prescription with four more ways to guarantee a life of misery:

  1. be unreliable: do not faithfully do what you have promised yourself or others
  2. learn everything you possibly can from your own personal experience, minimizing what you can learn from the good and bad experience of others, living and dead
  3. go down and stay down when you get your first, second, and third severe reverse in the battle of life (i.e., if at first you do not succeed then do not try again)
  4. ignore evidence contrary to your opinion by remaining certain in your views

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3 Thoughts On Freud And Trading

1) We internalize our sense of self from our significant relationship experiences.Relationships serve as a kind of psychological mirror, by which we can experience ourselves through others. If our relationships are positive and healthy, we’re more apt to internalize a positive sense of self. It’s only a small step from this insight to the realization that we have a relationship with *all* of our life activities. We experience ourselves through our trading: over time trading without an edge and without proper risk control virtually ensures that our trading will take a personal toll.

2) We defend ourselves against sources of anxiety. These defense mechanisms may keep us from becoming anxious, but they often are maladaptive and create problems in social and work situations. If we’re feeling inadequate or vulnerable, we might defend against these feelings by jumping into trades or by avoiding markets altogether. What we do to manage our feelings often is the opposite of what we need to do to properly manage our money and positions.

3) We tend to replay conflicts in past relationships in our current relationships. These unresolved problems reappear in different situations until we find resolution. Many trading problems occur when we act out our needs for recognition and self-worth in our trades. The trader who breaks rules when trading and takes undue risk often is needing the markets to provide desired emotional experiences, not just profits. To the degree that we act out our personal issues in markets, we can’t be fully focused on those markets.

A summary of Freud’s view would be the dictum that those who fail to learn from history are condemned to repeat it. It is our repetitive patterns across situations of uncertainty and gain/loss that can take us away from doing what we know to be best.

The Wisdom Of Simplicity

“The art of art, the glory of expression and the sunshine of the light of letters, is simplicity.” ~ Walt Whitman

Life is simple; we only make it complex. We spend our lives unconsciously covering our authenticity with outer identity until at some point we begin wondering “where everything went wrong.” But the tragedy for many people is that the wondering never begins and life’s simple beauty is not rediscovered.

I use the word “rediscovered” because you already know that life can be simple because you experienced it as a child. If you are normal, you spent much of your life since then trying to become something other than yourself. But normal is not healthy; success in the unreal world means failure in the real one.

The power and virtue of simplicity is a universal truth; it’s wisdom applies to all areas of life. What are some ways you can declutter, simplify and return to your authentic Self? Here are a few ideas that can help.

  • Instead of finding new things to add to your life, find things to remove.
  • If you want to increase income, decrease expenses.
  • Do less thinking and do more wondering.
  • Turn down the noise.
  • Go to the woods.
  • Listen to a child. (more…)