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Fed’s Bullard and Kashkari make case for rate cut

  
  Analysis
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Slowing growth momentum and the lack of inflationary pressure are fuelling the case among Federal Reserve policymakers that a rate cut may be necessary this year in order to stimulate the economy.

A duo of Fed officials — St Louis Fed president James Bullard and Minneapolis Fed president Neel Kashkari — on Friday cited rising global uncertainty as a reason the US central bank should take immediate action to lower rates.

At its latest policy meeting this week, the Federal Open Market Committee voted 9-1 to hold rates steady but signalled a strong possibility of cutting them this year.

Mr Bullard, one of the most dovish members of the Fed board, was the lone dissenter. He said on Friday he pushed for a quarter-percentage point cut at the meeting in order to safeguard against weaker growth, tepid inflation and an increasingly volatile environment.

“I believe that lowering the target range for the federal funds rate at this time would provide insurance against further declines in expected inflation and a slowing economy subject to elevated downside risks. Even if a sharper-than-expected slowdown does not materialise, a rate cut would help promote a more rapid return of inflation and inflation expectations to target,” he said in a brief statement posted on his bank’s website.

Mr Kashkari, a non-voting member of the FOMC, went even further. In an essay published on Friday, he said he argued at this week’s meeting for a 50 bps cut in order to “re-anchor” inflation expectations. (more…)

Gems of Jesse Livermore

  
  Education
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The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.

I don’t know whether I make myself plain, but I never lose my temper over the stock market. I never argue with the tape. Getting sore at the market doesn’t get you anywhere.

Cognitive Biases That Affect Traders

  
  Education
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cognitive_psychology_irrational
Humans have weaknesses that hamper their trading capabilities. Many were developed in ancient times and were important for survival. I will enumerate the most important:
1) Loss Aversion: the strong tendency for people to prefer avoiding losses over acquiring gains

2) Sunk Cost Effect: The tendency to treat money that already has been committed or spent as more valuable than money that may be spent in the future

3) Disposition Effect: the tendency for people to lock in gains and ride losses

4) Outcome Bias: The tendency to judge a decision by its outcome rather then by the quality of the decision at the time it was made

5) Recency Bias: the tendency to weigh recent data or experience more than earlier data or experience

6) Anchoring: the tendency to rely too heavily, or anchor, on readily available information (more…)

How to Counter Your Fear In Trading

  
  Education
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My fears:
1. Holding on to a position and some trashy news or major unexpected world event happens that causes the market to tank, and I do not have the stop loss in place to take money off the table. The market takes all my profits away.
2. Holding on to a losing position and sweating while it continues to either tank or move sideways.
3. Reporting to my son that I stubbornly held on to a losing trade instead of trading my plan, aka, behaving like an idiot!

My learnings to far:
1. Easy to read and talk about cut loss. Emotionally hard to do as we all want to win. Having done some major cut loss, its now easier. I guess practice makes perfect. If a trade/scalp is not going my way, I will cut loss without hesitation. Yes, it may reverse and go my way later after I cut loss. No matter because it could also go the other way! I’m learning to trade my plan. Easy to read about, talk about, very hard to do.
2. I’m working out my stop loss positions to be activated for my value stocks as well in case I don’t have time to react to market conditions
3. Trade with the trend. If trend reverses against me, I cut loss. Hard to fight the trend, and harder to keep hoping day after day that tomorrow will be better.
4. After cutting loss on a losing position, I feel better, mind feels at ease, feel calmer and can think better. Easy to talk about, hard to do.

3 Simple Techniques

  
  Education
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Once you sort through all the trading jargon and strategies, making a good stock trade is much easier than people tend to make it. In other words, most people make stock trading harder than it needs to be.

After all, when trading we are generally dealing with thousands of dollars per holding, so it can be easy for traders to continually second guess and put pressure on themselves before finally pulling the trigger.

Below are 3 simple techniques that will having you making good stock trades more often than not.

  1. Create an entry point – Where is a good spot to buy the stock? Based on your strategy, this could be after a breakout, after a pullback, and so on. Once you choose an entry style stick to it and use it every time.
  2. Create a failure point – This is also know as creating stop losses. Basically determine the eject button before entering the stock. Based on your analysis, this should be the price where the trade is considered a bust when it falls below that price.
  3. Create a price target – It is easy to say a stock will go up, but when do you know when to sell? Are you necessarily tying up your capital in a stock that already saw its boost? By creating a price target before entering a stock, you better utilize your capital as you collect gains and move on to the next stock.

That’s it! Yes, it is really that simple, by determining these 3 critical points, the hardest part of stock trading should be deciding how to spend all that money you made.

Continue to tweak and perfect your criteria for determining these critical points, and eventually you’ll master a surefire trading system.

3 Trading Truth

  
  Education
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TRUTHLINKSHumility:  We are in a business with change.  I have never met a person who has been successful at anything who thought they had it all figured out.  Yes, celebrate and enjoy but tomorrow you start over at the beginning.  Celebrate later and not until the play is over.

Perspective: Trading is emotional.  Eliminating the highs and lows is important because it takes out so much energy.  Yes it would have been cool to dive into the end zone but I would have had to pick myself off the ground and had to be on the extra point team the next play. The low is never as low or the high is never as high as it is in reality, generally.  Having perspective is how it all evens out.

Preparation:  When asked why athletes make better traders I always respond because they are willing to work long hours for the few times when it all lines up.  For football, you train 6 months the play a season.  You have 12 games.  You spend 4 days preparing, 1 day playing, 1 day reevaluating, and 1 day resting.  We prepare for those times and we always are waiting for the next time.  One trade can make your day, one week can make your month, one month can make your year, one year can make your career. (more…)

The Greatest Trading Loss

  
  Education
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The Greatest Trading Loss

 Trading-loss

What is the greatest risk you face in trading?

 

Is it loss of money?

 

Certainly, that’s what most traders believe. I tend to disagree though. In my opinion we have something much greater at risk, that very few of us consider during the ‘learning phase’.

 

The American political journalist and author, Norman Cousins, is quoted as saying, ‘Death is not the greatest loss in life. The greatest loss is what dies inside us while we live.’

 

Along similar lines, I would argue that loss of capital is not the greatest loss in trading. The greatest loss is what we lose from within. (more…)

There's nothing you can do

  
  Education
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You might be at a stage of feeling very frustrated with yourself.

I know what this feels like – you begin to marvel at your own lack of discipline and ability to do what you know. It’s like “Arrgh! Why can’t I just WAIT for the damn setup?! Why am I such a screw up at this?!”

Speaking from experience, it’s frustrating because you just want to get on. You have plans and goals and now you see that your own idiocy is preventing you from making any progress towards them. All I can say is that there’s nothing you can do about this period except keep going and wait for it to pass… It’s deeply ingrained. You have to trade through it; six months, a year, two years… Grit your teeth and plow on.

In a way, you have to relax into your own ability to seemingly pick every wrong move in the market. Just accept it. Providing you are not losing big money, you CAN relax into it. The good news is you are in fact building up a tolerance to taking losses during this period – you ARE actually developing a skill. It’s called “risk tolerance.”

If you’re still in that “God dammit!” phase then do this: just keep losing and losing, but begin to try to take the losses without any emotional reaction what so ever and move immediately to the next trade.

Once you can do this, you then move on to learning to let go of your need to have success NOW. This combines with learning to do nothing in the market – learning to wait. Why not wait, you’re gonna lose anyway right? So you might as well wait…

Now you’re building up patience. This is a foundation that leads to a little magic further down the track, when you get to the point where you see that you could take any system and trade it properly to discover its true potential. All those millions of methods you tried for 3 days and abandoned in disgust now sit there like a pile of spare parts in the bike shed. You become interested in them again – there could actually be a few decent ideas amongst that lot.

So learn to lose.
Then learn to wait to lose.

You will be building risk tollerance and patience. There are more steps after that, but there is no way to skip this process, it has to be gone through by all.

Six Insights for Disciplined Trading

  
  Education
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1) Trading is a probability game.  You can’t be a perfectionist and expect to be a great trader. Your losses (that you hope will return to breakeven) will kill you.

2) Jumping in too soon or getting in too late.  These mistakes come from traders not having a well-defined plan of how they will enter the market.  This positions the trader as a reactive trader instead of a proactive trader, which increase the level of emotion the trader will feel in reacting to market movements.  A written plan helps make a trader more systematic and objective, and reduces the risk that emotions will cause the trader to deviate from his plan.

3) Not taking profits on winners and letting winners turn to losers.  Again this is a function of not having a properly thought-out plan.  Entries are easy but exits are hard.  You must have a plan for how you will exit the market, both on your winners and your losers.  Then your job as a trader becomes to execute your plan precisely.

4) Great traders don’t place their own expectations on to the market’s behavior.  Poor traders expect the market to give them something.  When conditions change, a smart trader will recognize that, and take what the market gives. 

5) Emotional pain comes from expectations not being realized.  When you expect something, and it doesn’t deliver as expected, what occurs? Disappointment.  By not having expectations of the market, you are not setting yourself up for this inner turmoil.  Douglas states that the market doesn’t generate pain or pleasure inherently; the market only generates upticks and downticks.  It is how we perceive and respond to these upticks and downticks that determine how we feel.  This perception and feeling is a function of our beliefs.  If you’re still feeling pain when taking a loss according to your plan, you are still experiencing a belief that your loss is somehow a negative reflection on you personally. 

6) The Four Major Fears – fear of losing money, being wrong, missing out, leaving money on the table.  All of these fears result from thinking you know what will happen next. Your trading plan must approach trading as a probabilities game, where you know in advance you will win some and lose some, but that the odds will be in your favor over time.  If you approach trading thinking that you can’t take a loss, then take three losses in a row (which is to be expected in most trading methods), you will be emotionally devastated and will give up on your plan.

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