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Sharpen Your Trading With Occam's Razor

  
  Education
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 Would you believe that a 14th century priest, and his concepts, can help make you a better trader?  Well, English logician and Franciscan friar William of Ockham really can make you a better trader.


Ockham developed the concept commonly referred to as Occam’s Razor.  Simply put, this principle favors the simple over the complex, when there is a choice to be made, or a path to be followed.


How can this apply to trading? A few different ways.


First, if you are a system trader, perhaps your approach has too many rules, too many parameters, or too much optimizing.  While every parameter you add might make your system better historically, the more parameters you have, the less prone the system is to work going forward.  Simpler concepts and simple rules tend to be based on fundamental market principles – ones that aren’t as likely to change.


Second, if you are a discretionary trader, you might trade off of news reports from Blue Channels  and multiple other sources.  Multiple news sources might give you more data, but does it really give you more knowledge?  You might find that with multiple, conflicting pieces of information, you actually can’t trade at all – rather, you are a victim of “analysis paralysis.”


Third, maybe your trading office looks like the control room for the Space Shuttle. If you try to trade off all of the information shown on all the screens, you might just find yourself overwhelmed.  It is better to stick to a few monitors of information, and know that information very well.  The best traders don’t need a dozen monitors to trade well – usually 1 or 2 monitors is plenty.


Many new traders tend to think that that more complicated they make trading, the easier it will be to “solve” the markets.  Instead, they should be listening to William of Ockham, and making things simpler.  Simple, done correctly, can lead to more profits, and stand the test of time better than complicated approaches.

Mastering the Trade, quotes by John F. Carter

  
  Education
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masteringthetradeThe quotes below are provided by John F. Carter, master day trader; pulled directly from his new book Mastering the Trade.

I had just completed this book today evening and this is 2nd time read this book.

This may be the best quote of all:
“The financial markets are naturally set up to take advantage of and prey upon human nature. As a result, markets initiate major intraday and swing moves with as few traders participating as possible. A trader who does not understand how this works is destined to lose money”

“The financial markets are truly the most democratic places on earth. It doesn’t matter if a trader is male or female, white or black, American or Iraqi, Republican or Democrat. It’s all based on skill.”

“A trader, once in a position, can deceive himself or herself into believing anything that helps reinforce the notion that he or she is right”

“…professional traders understand this all too well, and they set up their trade parameters to take advantage of these situations, specifically preying on the traders who haven’t figured out why they lose”

“…markets don’t move because they want to. They move because they have to.”

“After all, the money doesn’t just disappear. It simply flows into another account – an account that utilizes setups that specifically take advantage of human nature.” (more…)

40 TRADING TIPS

  
  Education
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1. Trading is simple, but it is not easy.

2.  When you get into a trade watch for the signs that you might be wrong.

3.  Trading should be boring.

4.  Amateur traders turn into professional traders once they stop looking for the “next great indicator.”

5.  You are trading other traders, not stocks or futures contracts.

6.  Be very aware of your own emotions.

7.  Watch yourself for too much excitement.

8.  Don’t overtrade.

9.  If you come into trading with the idea of making big money you are doomed.

10.  Don’t focus on the money.

11.  Do not impose your will on the market.

12.  The best way to minimize risk is to not trade when it is not time to trade. 

13.  There is no need to trade five days a week.  

14.  Refuse to damage your capital.

15.  Stay relaxed.

16.  Never let a day trade turn into an overnight trade.

17.  Keep winners as long as they are moving your way.

18.  Don’t overweight your trades.

19.  There is no logical reason to hesitate in taking a stop.

20.  Professional traders take losses because they trust themselves to do what is right.

21.  Once you take a loss, forget about it and move on.

22.  Find out what loss parameters work best for your setup and adjust them accordingly.

23.  Get a feel for market direction by “drilling down” (looking at multiple time frames).

24.  Develop confidence by knowing and executing your trade setups the same way every time.

25.  Don’t be ridiculous and stupid by adding to losers.

26.  Try to enter a full size position right away.

27.  Ring the register and scale out of your position.

28.  Adrenaline is a sign that your ego and your emotions have reached a point where they are clouding your judgment.

29.  You want to own the stock before it breaks out and sell when amateurs are getting in after the move.

30.  Embracing your opinion leads to financial ruin.

31.  Discipline is not learned until you wipe out a trading account.

32.  Siphon off your trading profits each month and stick them in a money market account.

33.  Professional traders risk a small amount of money on their equity on one trade.

34.  Professional traders focus on limiting risk and protecting capital.

35.  In the financial markets heroes get crushed.

36.  Stick to your trading rules and you will never blow up your trading account.

37.  The market can reinforce bad habits.

38.  Take personal responsibility for each trade.

39.  Amateur traders think about how much money they can make on each trade.  Professional traders think about how much money they can lose.

40.  At some point all traders realize that no one can tell them exactly what is going to happen next in the market.

Ten questions to ask yourself before every trade

  
  Education
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  1. Does this trade fit my chosen trading style? Whether it is:  swing trading, momentum, break out, trend following, reversion to the mean, or day trading? Does this trade fit into the parameters of who I am as a trader, or is it just based on my own fear or greed?

  2. How big of a position do I want to trade? How much capital am I going to risk? Am I limiting my risk to 1% or 2% of my trading capital? Knowing where my stop will be how big should my position size be to limit my risk?
  3. What are the odds of my risk of ruin based on my capital at risk?
  4. Why am I entering the trade here? What is the entry trigger to take the trade? Is this a quantified entry on my trading plan?
  5. How will I exit with a profit? A price target or trailing stop? (more…)

HOW DISCIPLINE HELPS IN TRADING

  
  Education
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“Discipline in executing each and every trade according to your trading methodology is the secret to your success. If you want to improve your trading, what you need to do is very simple. Before you enter any trade, imagine that you will have to explain this trade to a panel of your peers, by explaining to them the reason for your entry, your money, trade, and risk management guidelines, and why you exited the trade. Imagine having to explain why you chose this particular market and this particular time frame, along with how you set objectives for the trade, and how you determined where your initial protection would be. If you can truly do this, I strongly believe that you can be successful.

Just prior to entering every trade, try to imagine yourself executing the trade perfectly. Imagine how it will feel when you enjoy having made money with your trading.

Yes I know, you don’t have time to do that. Why? Because you never plan your trades ahead of time. You probably don’t have a strategy, and instead of waiting patiently for trade that meets your well-defined parameters and your thought-out plan, you just jump in the minute you think you see something that looks good.

You need to take a lesson from a spider. The spider waits patiently in his web until some unsuspecting insect flies into the spider’s trap.

Secret to trading success: You

  
  Education
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“You are the weakest part of your system”. That is a defeatist statement and completely untrue. It makes your expectation to fail easier to accomplish and more importantly it makes failure easier to handle. It shifts the pressure away from you and unto fate.

Would you fly on an airline if their motto was “Our pilots are the weakest part.” I do not think so. You are your system. Even if your system is automated you added the inputs, parameters.

Taking responsibility for your action is not easy. Taking control of the outcomes of trading or life is a huge responsibility. You will have moments of weakness, but you are not weak. The market does not go straight up and either does the road to success.

HOW DISCIPLINE HELPS IN TRADING

  
  Education
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“Discipline in executing each and every trade according to your trading methodology is the secret to your success. If you want to improve your trading, what you need to do is very simple. Before you enter any trade, imagine that you will have to explain this trade to a panel of your peers, by explaining to them the reason for your entry, your money, trade, and risk management guidelines, and why you exited the trade. Imagine having to explain why you chose this particular market and this particular time frame, along with how you set objectives for the trade, and how you determined where your initial protection would be. If you can truly do this, I strongly believe that you can be successful.

Just prior to entering every trade, try to imagine yourself executing the trade perfectly. Imagine how it will feel when you enjoy having made money with your trading.

Yes I know, you don’t have time to do that. Why? Because you never plan your trades ahead of time. You probably don’t have a strategy, and instead of waiting patiently for trade that meets your well-defined parameters and your thought-out plan, you just jump in the minute you think you see something that looks good.

You need to take a lesson from a spider. The spider waits patiently in his web until some unsuspecting insect flies into the spider’s trap.

Have you been flying into any of my traps? I wait for trades that meet my expectations, trades that fit my plan. I wait patiently, and being kind-hearted I don’t want any of my readers to land in my web. I’d rather the unsuspecting are readers of someone else’s newsletter. But it’s amazing how often I get to feed.”

10 Thing u should learn from Market

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

This is so true, in the markets, in everything. Those who happen upon money where it DID come to them easily, it seems, as a witness, have had it very fleetingly. In my own case, although I am supremely confident in the profitabliity of what I am doing, in practically any market, in virtually any “regime,” doesn’t mean it’s easy. It works like clockwork and is incredibly painful and distressing. It would be so much easier to simply sell buckets of blood.”

2. It’s bad to try to make money the same way several days in a row
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. One should not make one’s analysis more precise than one’s actual trading could ever possibly be.

8.If the rational mind has not determined the parameters of a trade, then upon execution, the lizard brain will decide.
9. Never go on vacation with open trading positions.
10.  All higher forms of math and statistics are useless in uncovering regularities.
Technically Yours/ASR TEAM/BARODA/INDIA

10 rules for Rookie Day Traders

  
  Education
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1. The three E’s: enter, exit, escape

Rule No. 1 is having an enter price, an exit price, and an escape price in case of a worst-case scenario. This is rule number one for a reason. Before you press the “Enter” key, you must know when to get in, when to get out, and what to do if the trade doesn’t work out as expected.

Escaping a trade, also known as using a stop price, is essential if you want to minimize losses. Knowing when to get in or out will help you to lock in profits, as well as save you from potential disasters. 

2. Avoid trading during the first 15 minutes of the market open

Those first 15 minutes of market action are often panic trades or market orders placed the night before. Novice day traders should avoid this time period while also looking for reversals. If you’re looking to make quick profits, it’s best to wait a while until you’re able to spot rewarding opportunities. Even many pros avoid the market open.

3. Use limit orders, not market orders

A market order simply tells your broker to buy or sell at the best available price. Unfortunately, best doesn’t necessarily mean profitable. The drawback to market orders was revealed during the May 2010 “flash crash.” When market orders were triggered on that day, many sell orders were filled at 10-, 15-, or 20 points lower than anticipated. A limit order, however, lets you control the maximum price you’ll pay or the minimum price you’ll sell. You set the parameters, which is why limit orders are recommended. (more…)

3 Steps to Controlling Emotions and Gaining Trading Discipline

  
  Education
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1. Know what you are going to do before you do it.

A Master Chess Player is at least 6 moves ahead of his opponent at every step in the game of Chess. A Master Trader identifies the market participants in that stock at that moment, determines when the next level of market participants will buy, decides a specific price for entry, and has one or more exit strategies planned for that stock trade before he ever places an order. In other words: he knows what he is going to do before he initiates the trade and has all of his various strategies worked out for all the different scenarios that can happen to that trade. He is prepared for all situations and ready to trade.

2. Develop your own unique Trading Style.

Too often traders simply follow the crowd. Instead you should develop your own unique trading style. A trading style is not a strategy. It is a set of parameters or rules that you adhere to strictly, ignoring rare anomalies that occur in your trading from time to time that go against your rules. Your trading style should also ignore gimmicks, fads, and ‘hot new strategies’ that are constantly being promoted to crowd traders. If you establish a set of parameters for your trading, write those rules down, and follow them while ignoring the crowd mentality of most small retail traders, you will begin to establish strong emotional control in your trading decisions. The trick is writing the parameters down and then sticking to those rules. Emotions want traders to ignore rules.

3. Ignore the Money.

Don’t trade for the money. Trade because you can’t imagine doing anything else. Trade because it is the most enjoyable and rewarding profession you can do. You can have a passion for studying charts without letting passion rule your decisions. Highly successful people, in any career, do not do their job because of the money, they do it because they love what they are doing and can’t imagine doing anything else. The money is secondary to doing the job that gives them purpose and self-esteem. Money is not the ultimate motivator, purpose and self-esteem are.

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