Make all your mistakes early in life. He says the more tough lessons you learn early on, the fewer errors you make later. A common mistake of all young investors is to be too trusting with brokers, analysts, and newsletters who are trying to sell you bad stocks.Always make your living doing something you enjoy. This way, you devote your full intensity to it which is required for success over the long-term.
Be intellectually competitive. This involves doing constant research on subjects that make you money. The trick, he says, in plowing through such data is to be able to sense a major change coming in a situation before anyone else.
Make good decisions even with incomplete information. In the real world, he argues, investors never have all the data they need before they put their money at risk. You will never have all the information you need. What matters is what you do with the information you have. Do your homework and focus on the facts that matter most in any investing situation.
Always trust your intuition. For him, intuition is more than just a hunch. He says intuition resembles a hidden supercomputer in the mind that you’re not even aware is there. It can help you do the right thing at the right time if you give it a chance. In fact, over time your own trading experience will help develop your intuition so that major pitfalls can be avoided.
Don’t make small investments. You only have so much time and energy so when you put your money in play. So, if you’re going to put money at risk, make sure the reward is high enough to justify it.
Archives of “pitfalls” tag
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Make all your mistakes early in life. He says the more tough lessons you learn early on, the fewer errors you make later. A common mistake of all young investors is to be too trusting with brokers, analysts, and newsletters who are trying to sell you bad stocks.Wisdom Thoughts for Traders & Investors
1. Make all your mistakes early in life: The more tough lessons you learn early on, the fewer (bigger) errors you make later. A common mistake of all young investors is to be too trusting with brokers, analysts, and newsletters who are trying to sell you something.
2. Always make your living doing something you enjoy: Devote your full intensity for success over the long-term.
3. Be intellectually competitive: Do constant research on subjects that make you money. Plow through the data so as to be able to sense a major change coming in the macro situation.
4. Make good decisions even with incomplete information: Investors never have all the data they need before they put their money at risk. Investing is all about decision-making with imperfect information. You will never have all the info you need. What matters is what you do with the information you have. Do your homework and focus on the facts that matter most in any investing situation.
5. Always trust your intuition: Intuition is more than just a hunch — it resembles a hidden supercomputer in the mind that you’re not even aware is there. It can help you do the right thing at the right time if you give it a chance. Over time, your own trading experience will help develop your intuition so that major pitfalls can be avoided.
6. Don’t make small investments: You only have so much time and energy so when you put your money in play. So, if you’re going to put money at risk, make sure the reward is high enough to justify it.
1. Make all your mistakes early in life: The more tough lessons you learn early on, the fewer (bigger) errors you make later. A common mistake of all young investors is to be too trusting with brokers, analysts, and newsletters who are trying to sell you something.Six Rules of Michael Steinhardt
Michael Steinhardt was one of the most successful hedge fund managers of all time. A dollar invested with Steinhardt Partners LP in 1967 was worth $481 when Steinhardt retired in 1995. The following six rules were pulled out from a speech he gave:
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Ed Seykota – “Everybody Gets What They Want From The Markets”
When Jack Schwagger interviewed legendary trend following trader Ed Seykota for his book “Market Wizards” in 1989, it’s clear he was not ready for the answers that Ed Seykota gave. Not many people are.
But by far the greatest and most provocative answer that Ed gave was that of “Everybody gets what they want out of the market”. Not only did it incite an almost angry response from Schwagger, it has confused and enlightened an entire generation of traders since.
The Famous Ed Seykota Interview
Jack Schwagger asks his interviewee: “Don’t all traders want to win?”
And Ed replies with: “Win or lose, everybody gets what they want out of the market.
“I know one trader who seems to get in near the start of every substantial bull move and works his $10 thousand up to about a quarter of a million in a couple of months. Then he changes his personality and loses it all back again. This process repeats like clockwork. Once I traded with him, but got out when his personality changed. I doubled my money, while he got wiped out as usual. I told him what I was doing, and even paid him a management fee. He just couldn’t help himself. I don’t think he can do it any differently. He wouldn’t want to.
- “He gets a lot of excitement, he gets to be a martyr, he gets sympathy from his friends, and he gets to be the centre of attention. Also, possibly, he may be more comfortable relating to people if he is on their financial plane.
“On some level, I think he is really getting what he wants.”
Does This Sound Like Someone You Know? Maybe Someone You Know… Intimately?
Even back then, Ed Seykota had a fantastic grasp on the dangerous psychology pitfalls that almost every trader has to work through before they become a success in the markets.
So you need to ask yourself: (more…)
19 Quotes from the Book “Hedge Fund Market Wizards”
1. As long as no one cares about it, there is no trend. Would you be short Nasdaq in 1999? You can’t be short just because you think fundamentally something is overpriced.
2. All markets look liquid during the bubble (massive uptrend), but it’s the liquidity after the bubble ends that matters.
3. Markets tend to overdiscount the uncertainty related to identified risks. Conversely, markets tend to underdiscount risks that have not yet been expressly identified. Whenever the market is pointing at something and saying this is a risk to be concerned about, in my experience, most of the time, the risk ends up being not as bad as the market anticipated.
4. The low-quality names tend to outperform early in the cycle, and the high-quality names tend to outperform toward the end of the cycle.
5. Traders focus almost entirely on where to enter a trade. In reality, the entry size is often more important than the entry price because if the size is too large, a trader will be more likely to exit a good trade on a meaningless adverse price move. The larger the position, the greater the danger that trading decisions will be driven by fear rather than by judgment and experience.
6. Virtually all traders experience periods when they are out of sync with the markets. When you are in a losing streak, you can’t turn the situation around by trying harder. When trading is going badly, Clark’s advice is to get out of everything and take a holiday. Liquidating positions will allow you to regain objectivity.
7. Staring at the screen all day is counterproductive. He believes that watching every tick will lead to both selling good positions prematurely and overtrading. He advises traders to find something else (preferably productive) to occupy part of their time to avoid the pitfalls of watching the market too closely.
8. When markets are trending up strongly, and there is bad news, the bad news counts for nothing. But if there is a break that reminds people what it is like to lose money in equities, then suddenly the buying is not mindless anymore. People start looking at the fundamentals, and in this case I knew the fundamentals were very ugly indeed.
9. Buying low-beta stocks is a common mistake investors make. Why would you ever want to own boring stocks? If the market goes down 40 percent for macro reasons, they’ll go down 20 percent. Wouldn’t you just rather own cash? And if the market goes up 50 percent, the boring stocks will go up only 10 percent. You have negatively asymmetric returns.
10. If a stock is extremely oversold—say, the RSI is at a three-year low—it will get me to take a closer look at it.8 Normally, if a stock is that brutalized, it means that whatever is killing it is probably already in the price. RSI doesn’t work as an overbought indicator because stocks can remain overbought for a very long time. But a stock being extremely oversold is usually an acute phenomenon that lasts for only a few weeks. (more…)
Characteristics of Profitable Traders
They are experienced – Probably the most horrifying and worst myth shot out to anyone considering trading for a living is that you will compound millions in an extremely short amount of time. The only true way to make every day profitable comes through experience, and countless hours learning is crucial to longevity of success.
They know the damage they are capable of – Notice I didn’t say potential or profits here. The best traders I know of understand their limits, and seem to focus more on what can go wrong than what can go right. They are not easily convinced of lucrative outcomes, and have a very high sense of self-awareness.
They trade to make money, not to be right – They understand the strengths and possible pitfalls of what it is they do for a living, and use that knowledge to curb their emotional output.
They have an edge and know how to use it – They understand that without it they wouldn’t last long
They have a gameplan, and follow it explicitly – Each trade is planned and opportunities are scouted for before any trading takes place. They steer away from the killer of all killers: overtrading.
They manage risk – Regardless of how much conviction they have on a trade, they will still do what they can to avoid the potential of any losses and understand rule #1 about trading: anything can happen.
They work obsessively – They follow each turn, each piece of info that comes out in regards to their trade, and follow any underlying information relevant to failure or success.
They only access the best information – Information rules in trading, and having some of the best translates to money. Using the wrong information leads to failure.
They think about the trade, not the money behind it – Focusing on money can destroy your means to objectively assess the trade itself.
They are constantly learning – Just when you think you know it all about trading, a new curveball gets thrown your way, not to mention there are continued means and methods to be learned about making money. Even the most highly successful trader I ever knew, a multi-billion dollar portfolio manager, has a team of fundamentalists and technicians come in to train and retrain himself and his traders.
They are active – Activity sparks creativity, a very crucial part of trading.
They have patience – They understand that the money will come, but everything needs to be in place, first.
5 Trading Pitfalls and how to Solve Them
Pitfalls
1. Focusing on the P & L
2. Losing objectivity while in a trade
3. Becoming emotional about a trade
4. Lacking confidence: exiting early, failing to put a trade on, not sizing up
5. Difficulty adapting to a changing market
Solutions
1. Quantify success base on the caliber of the trade (i.e. high quality entries/exits).
2. Continuously ask yourself, “is my original reason WHY I entered this trade still there?”
3. While you are in a trade, ask yourself, if I had no position on right now, what would I do? Buy? Sell Short? Do nothing? Then re-evaluate your trade size and direction.
4. Confidence should always come from within. Step#1: Write bullet list of data points proving WHY you are a skilled trader. Step #2: Prime yourself each morning by reading it over to yourself. Could be the most valuable 30 seconds you spend each day.
5. Flip your perspective by keeping track of what is not working (by default this tells you what IS working).
Keep your eye on the ball and your head in the game!
Keep Your EGO out of Trading.
“Of all the traps and pitfalls in life ,self-disesteem is the deadliest ,adnd the hardest to overcome;for it is a pit designed and dug by our owen hands ,summed up in the phrase ,’It’s no use-I can’t do it .'” -Maxwell Maltz
The ego had no place in trading.An unstable ego will attach itself to anything you do.And trading is not exception.You cannot use the trading arena as an area to prove your worth or your capability.It will just bring your trading and your self-esteem to new lows.
If your ego is getting in the way of your trading,you need to build up your self-esteem.One way to do this to begain to appreciate yourself.Pay attention to what you’re doing that’s good.Give yourself recognisation for the little things you do as you go through the day.Make lists of your accomplishments.Make lists of your positive attributes.Each day ask yourself ,”What did I today that I’m proud of ?”Ask yourself ,”In what way an I improving ? “
Six trading lessons from speculator Jesse Livermore
Stock operator’s reminiscences useful in today’s market
If you ask traders to choose the most influential trading book, more than likely, they’ll mention Reminiscences of a Stock Operator by Edwin LeFevre. This book describes the experiences of one of the world’s greatest stock speculators, Jesse Livermore.
Many of the anecdotal lessons included in the book are well known to experienced traders. For example: the market is always right; don’t over-trade; never argue with the tape; use stop losses, and always trade with the primary trend of the market.
Almost anyone can learn the mechanics of trading. It’s the psychological pitfalls that make trading one of the most challenging activities. No matter your skill level, it’s important to remember and obey the rules of engagement — another word for discipline.
With that in mind, this book contains dozens of important lessons. Here are a few of my favorites:
1. Learn how to lose
Livermore (speaking through the fictional character of Larry Livingston) complains how he’s made a series of trading mistakes that cost him a lot of money, although he wasn’t completely wiped out. The losses, he admits, were painful but educational:
“There is nothing like losing all you have in the world for teaching you what not to do,” he says. “And when you know what not to do in order not to lose money, you begin to learn what to do in order to win.”
After going broke three times in less than two years, Livermore has this advice: “Being broke is a very efficient educational agency.” He says that you learn little from your winners because they often take care of themselves. It’s the losers that will teach you lessons to last a lifetime. And as long as you don’t make the same mistake twice, you always have the opportunity to trade another day. (more…)
5 Major Trading Pitfalls you must avoid at all costs!
Pitfall #1. Betting the farm. Let’s be realistic. Not every trade is going to be a winner. Here is a simple rule for you to remember. Never commit more than 10% to any one position. When I was trading in the pits in Chicago I heard for the first time about the “RIOTRADE”. Simply put, you take a huge position in the market. If it works out, you are a hero. If you lose, you leave home and head for Brazil. Again, NEVER BET THE FARM ON ANY POSITION.
Pitfall #2. Planting too few seeds. This one goes hand in hand with the first pitfall. The key here is diversification and following several markets. Ken watches 30 markets and looks for profit opportunities in each one as they occur. PLANT MORE SEEDS AND YOU CAN ENJOY MORE WINNERS.
Pitfall #3. Jumping the gun. Patience, patience, patience. This is perhaps one of the toughest things for traders to remember, particularly after they have taken some good money out of the market. JUMPING INTO A MARKET BEFORE ALL INDICATORS ARE POSITIVE CAN CAUSE UNNECESSARY LOSSES. (more…)