Archives of “participation” tag

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Waiting for the market to make sense

  
  Education
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There seems to be an ever increasing chatter about how the market is going to revert to the mean or it is broken or it is undervalued. Whatever it is let me remind you of two important ideas that are found in about any book you will ever read around finance and investing.

The market can stay irrational longer than you can stay solvent and the market’s goal is to extract the most money from the largest group of people.

If I could change the first quote it would say: The market is almost always irrational but when it is rational it pays you enough to forget.

Obviously not an easy sell if you running money. But that does not mean you can not be profitable. In fact, it means the exact opposite. The market gives everyone a chance to win but how much and what you did leading up to that point is the difference.

I would change the second quote to read: The goal of a market is to be healthy, when it is searching for participation equilibrium much money changes hands often to the few that are prepared.

There are many unnatural things that happen to a market. But underlying it wants to find participation equilibrium. It means cutting out the weakest leading the strong lower and allowing the few to pull everything higher. The problem is cycles are getting shorter and power is not as concentrated. If you are confused, imagine how confused the market must be.

Do I think it is important to have those conversations from the start of the post? Yes. But they should be focused on what to do. If the market does x I will look to do y or z and will be more focused on doing z but if m happens I will look more closely at y. (more…)

Core Trading Concepts

  
  Education
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If you are serious about your trading there are some concepts you must know in significant details. Those concepts will help you build a strong foundation on which you can build a trading system. There are seven  concepts you should study:
 
  • Momentum : If you understand this you will understand trends and mean reversion. You will understand why and how momentum works in the market. Most indicators are momentum based. Trend following and buying strength also works, so does mean reversion. They are all part of the momentum phenomenon. 
  • Market Breadth: Stock markets are composite markets. The overall move in market is an aggregate of moves of several hundred or several thousand stocks. So the level of participation in a move is important. 
  • Equity Selection: Because the overall market is a composite of many individual moves, it becomes critical to select right kind of stocks from the universe of stocks. Hence equity selection is extremely critical. You should know various ways in which one can select equities.
  • Market Anomalies: Market anomalies are the distortions in the market. If you base your trading on a proven and statistically significant anomaly, you will be profitable. Absent that no amount of indicators will help you. A through understanding of anomalies will give you an edge.
  • Market Microstructure: Market Microstructure is a branch of finance concerned with the details of how exchange occurs in markets.  Understanding this will tell you how the market operates. The concept of market microstructre is very critical if you are trading very small time frames or are a day trader. Because to be successful on those time frame you need to find exploitable anomalies in market microstructure. You need to understand role played by market makers, automated programs, arbitragers, large fund buyers and so on. Their tactics and behaviour creates certain patterns 
  • Growth investing : Growth investors buy stocks of companies growing faster than the average company in the market. 
  • Value investing : Value investors buy stocks of companies which are cheap or out of favor.

Seven Concepts

  
  Education
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If you are serious about your trading there are some concepts you must know in significant details. Those concepts will help you build a strong foundation on which you can build a trading system. There are seven  concepts you should study:
 

  • Momentum : If you understand this you will understand trends and mean reversion. You will understand why and how momentum works in the market. Most indicators are momentum based. Trend following and buying strength also works, so does mean reversion. They are all part of the momentum phenomenon. 
  • Market Breadth: Stock markets are composite markets. The overall move in market is an aggregate of moves of several hundred or several thousand stocks. So the level of participation in a move is important. 
  • Equity Selection: Because the overall market is a composite of many individual moves, it becomes critical to select right kind of stocks from the universe of stocks. Hence equity selection is extremely critical. You should know various ways in which one can select equities.
  • Market Anomalies: Market anomalies are the distortions in the market. If you base your trading on a proven and statistically significant anomaly, you will be profitable. Absent that no amount of indicators will help you. A through understanding of anomalies will give you an edge.
  • Market Microstructure: Market Microstructure is a branch of finance concerned with the details of how exchange occurs in markets.  Understanding this will tell you how the market operates. The concept of market microstructre is very critical if you are trading very small time frames or are a day trader. Because to be successful on those time frame you need to find exploitable anomalies in market microstructure. You need to understand role played by market makers, automated programs, arbitragers, large fund buyers and so on. Their tactics and behaviour creates certain patterns 
  • Growth investing : Growth investors buy stocks of companies growing faster than the average company in the market. 
  • Value investing : Value investors buy stocks of companies which are cheap or out of favor.

 

7 concepts that can make you a better trader

  
  Education
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  • Momentum : If you understand this you will understand trends and mean reversion. You will understand why and how momentum works in the market. Most indicators are momentum based. Trend following and buying strength also works, so does mean reversion. They are all part of the momentum phenomenon. 
  • Market Breadth: Stock markets are composite markets. The overall move in market is an aggregate of moves of several hundred or several thousand stocks. So the level of participation in a move is important. 
  • Equity Selection: Because the overall market is a composite of many individual moves, it becomes critical to select right kind of stocks from the universe of stocks. Hence equity selection is extremely critical. You should know various ways in which one can select equities.
  • Market Anomalies: Market anomalies are the distortions in the market. If you base your trading on a proven and statistically significant anomaly, you will be profitable. Absent that no amount of indicators will help you. A through understanding of anomalies will give you an edge.
  • Market Microstructure: Market Microstructure is a branch of finance concerned with the details of how exchange occurs in markets.  Understanding this will tell you how the market operates. The concept of market microstructre is very critical if you are trading very small time frames or are a day trader. Because to be successful on those time frame you need to find exploitable anomalies in market microstructure. You need to understand role played by market makers, automated programs, arbitragers, large fund buyers and so on. Their tactics and behaviour creates certain patterns 
  • Growth investing : Growth investors buy stocks of companies growing faster than the average company in the market. 
  • Value investing : Value investors buy stocks of companies which are cheap or out of favor.

Active learning is the key

  
  Education
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Research shows that you can learn more in few days than you can learn in a year. A focused approach to solving a problem where you put lot of efforts in short period of time leads to expansion of you ability to process and analyse information. That is survival mechanism.  
This is the principle used by armies to train people. Intense burst of 4-5 days of learnings lead to more learning than a long  drawn out plan. Once you get in to learning zone, you would learn more quickly. The more load you add to a learner more efficient he becomes in processing the information.
The most effective learning state is where you are loaded with more work than you can handle and you are continuously challenged. If you go back and look at your own intense learning phases you would see this. Goal of learning skills and procedural stuff is not knowledge acquisition but to change your perceived self efficacy belief.
Learning is complete when your self efficacy beliefs change. Self efficacy beliefs change if you experience mastery experience. When do you experience mastery experience ? When you stretch yourself.
The other pre requisite to experiencing a mastery experience is you have to be actively doing a task. That is why passive video based methods and trading guides and self paced programs, though popular do not work as well as bootcamp kind stretch sessions. Bootcamp style learning methods involve active participation and active learning style.
If you really want to improve your trading results you should look seriously at learning models and select a method which will enhance your skills faster. In a bootcamp kind of environment, you just have to focus like crazy  for  3-5 and try and keep up with the intense pace of learning. The grater demand put on learning capabilities in such methods results in enhancing your own efforts. As a result of that  you will find your abilities will improve dramatically in just days. 
There is abundance of information in public domain to learn trading in the form of books, curses, ebooks, videos, and so on. But most of it puts a trainee in passive learning mode.There is no active effort the trainee has to make . So it becomes like watching porn, it does not improve your actual sex life. 

7 concepts that can make you a better trader

  
  Education
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New traders spend lot of time on indicators, scans, or chart pattern. Lot of that effort is wasted. Instead they should focus on core concepts.

 
If you understand core concepts you will find understanding the market and techniques used by traders easier. All the indicators and techniques are based on some underlying core concept. Many times the people who promote some of these indicators do not understand the core concept or purposefully package their indicators as something that is anti thesis of a core concept.
 

If you are serious about your trading there are some concepts you must know in significant details. Those concepts will help you build a strong foundation on which you can build a trading system. There are seven  concepts you should study:
  • Momentum : If you understand this you will understand trends and mean reversion. You will understand why and how momentum works in the market. Most indicators are momentum based. Trend following and buying strength also works, so does mean reversion. They are all part of the momentum phenomenon. 
  • Market Breadth: Stock markets are composite markets. The overall move in market is an aggregate of moves of several hundred or several thousand stocks. So the level of participation in a move is important. 
  • Equity Selection: Because the overall market is a composite of many individual moves, it becomes critical to select right kind of stocks from the universe of stocks. Hence equity selection is extremely critical. You should know various ways in which one can select equities.
  • Market Anomalies: Market anomalies are the distortions in the market. If you base your trading on a proven and statistically significant anomaly, you will be profitable. Absent that no amount of indicators will help you. A through understanding of anomalies will give you an edge.
  • Market Microstructure: Market Microstructure is a branch of finance concerned with the details of how exchange occurs in markets.  Understanding this will tell you how the market operates. The concept of market microstructre is very critical if you are trading very small time frames or are a day trader. Because to be successful on those time frame you need to find exploitable anomalies in market microstructure. You need to understand role played by market makers, automated programs, arbitragers, large fund buyers and so on. Their tactics and behaviour creates certain patterns 
  • Growth investing : Growth investors buy stocks of companies growing faster than the average company in the market. 
  • Value investing : Value investors buy stocks of companies which are cheap or out of favor.
These are the core concepts around which all trading strategies revolve.

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