Archives of “probability” tag

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Helpful Lessons

  
  Education
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Helpful Lessons1. Remain Flexible – do not let your bias (”The Market MUST Go Down”) cloud the reality of what’s happening

2. Seek High Probability, Low Risk Set-ups
(In this case, we had the trend, resistance, and a doji working in our favor, and were risking 2 points to play for 8 points)

3. Take Your Stop-Loss when the Trade Fails
(You would have been in a worse situation if you stubbornly held short into the sudden 10-point rally)
(In fact, some of the largest swings occur AFTER a high-probability set-ups has failed … I call this “Popped Stops”)

4.  “Anything Can Happen” in the Market (Mark Douglas)
Even the best set-ups can … and sometimes do… fail and that’s perfectly fine as long as you control risk.
Don’t blame FII’s ,Global Market  or Mutual Funds – trading is a game of probabilities instead of certainties.

Study each day to learn more concepts and do your own end-of-day analysis of the charts to make yourselves even better traders!

Greed and Fear Are Two Sides of the Same Coin

  
  Education
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Merriam-Webster’s dictionary defines greed as simply “… a selfish and excessive desire for more of something (as money) than is needed.” Greed is often referenced as one of the main contributors to trading loss. Greed mangles the mind by distracting the trader from what matters most in the trade, which is quite frankly to protect your capital by prudent planning and following rules. It also distorts your judgment regarding high probability strategies and effective follow-through.  Additionally, it is the other side of the fear coin; that is, greed can arguably be thought of as a fear of not having “enough.”  Of course, having enough is a purely subjective notion, but for the reasonable person, someone who wants more, more, more as in getting every cent in a move, or wanting more than one’s share, is considered “greedy.”  Whether we’re talking about the fear of loss or the fear of not having enough, either way it is a very difficult emotional challenge to getting the trading results that you want.  Now, the question is what do you do about those bouts with fear/greed that takes your trading effectiveness south?  The important thing of course, is to manage your fear/greed one trade and one incident at a time.

Managing errant emotions is one of the most important trading skills that you can develop. Emotions are an inextricable part of being human and cannot be totally taken out of the trading equation.   However, you wouldn’t “want” to take emotions out of your trading even if you could. Yes, negative emotions throw a monkey wrench into your process; for instance, anxiety, fear, greed, guilt, self-doubt, impatience, apathy, to name a few are what mangle your thinking.  (more…)

Random Walk?

  
  Education
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 This book almost convinced me that the markets are a random walk. I can’t really go into the details of why – you have to read it all before this impression begins to sink in. Compound this with the fact that all in all the economists of the world have said “we have no idea why the markets do what they do.” – Thats their conclusion.

So if they have no idea, what chance have I got? You may find within yourself some buried little impulse to “figure this thing out, once and for all.” – I know what thats like. You look at a chart, and you feel as though its on the tip of your tongue, just out of the minds reach if you will. You know that feeling? As if a thin veil could be lifted and you’d see the inner mechanics of it all. You won’t. Many have gone before you who tried, and still you don’t know where price will go next.

I think what happens is that if we make a certain call in one direction, and price happens to go in our direction, we say “I WAS RIGHT”… But we pay less emphasis when we were wrong. Its the old thing of when you want to buy a yellow VW you see them everywhere all of a sudden.

The impression left by the reading of this book doesn’t so much make me want to throw my hands in the air and give up, but rather it emphasizes the importance of things like risk/reward and high probability. Its not about being right or wrong. I also want to do some research into game theory, which is something that was touched on in the book. Its good how this subject constantly throws up new branches of learning.

Qualities of Successful Traders

  
  Education
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Emotional stability. You don’t have to be nuts to trade, but it helps!  That is a joke, of course. Emotional stability is grace under pressure. A successful trader must be able to remain calm in difficult situations. Traders that rank very high on the emotional stability scale have very low anxiety levels, remain calm, relaxed, and have a low suspicion level. They tend to be trusting individuals and are not paranoid. You won’t hear them blame the market makers for forcing the stock to hit their stop and they take responsibility for their actions. Successful traders tend to be well
grounded.
 

Discipline. Successful traders are ones that can follow the rules. They are the guys that drive the speed limit. They tend to be perfectionist and take pride in their work. They like to take a project from start to finish and get joy from completing it successfully. Pilots, trained to follow checklists, tend to make good traders. An impulse oriented individual will have difficulty achieving the discipline to become a successful trader.
 

Intelligence. Bill says that successful traders tend to be intelligent. They need not have the IQ of Einstein but they are above average in intelligence. They tend to be good problem solvers and good with numbers, such as statistics. They understand that trading is based on probability, that not every trade will work as planned.

Trading Vs. Professional Gambling

  
  Education
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Prof.Gambling

Marcel Link in his excellent High Probability Trading is not the first to equate the skills of the professional gambler with the skills needed to succeed as a trader but he does it very convincingly:

[The professional gamblers] don’t take unnecessary risks or gambles. They know when the odds are in their favor and will bet more when the odds get better. If the odds aren’t there, they won’t risk nearly as much, if anything. They know how to protect their winnings, and they know how to call it a day when Lady Luck is blowing on some other guy’s dice. Having this discipline lets them come back to the table the next day. […] (more…)

Three Tips to Better Handle Losses

  
  Education
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helpful_tips_imageIt is very unlikely that a medication is going to help you feel better about a trading loss. There is no simple fix to the emotional problem of losses. No one likes to lose money, and a loss can be very painful. But, being able to take losses is also a part of the trader’s job description. One of our tasks as traders is to take losses as a routine function of the trading role.

To help make losses more of a routine event rather than an event that throws us into emotional turmoil, here are three key tips to help you better handle losses:

1. Have a trading edge. Define your setups well and be sure they have an edge. By an edge I mean that these setups have a certain probability of winning over a large number of trades. In other words, based on your experience or historical testing, your trade setup should possess a positive expectancy that over, say, 100 trades some percentage (e.g., 67%) will be winners and produce a sufficient profit over loss to make the trade worthwhile. If you don’t have a trading edge, you are likely trading random patterns and you are likely to have many, many losses. (more…)

When should traders be in or out of the market?

  
  Education
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There are times when traders should NOT be in the market. There are other times when the market is rocking and traders should get aggressive. How can you tell the difference? Here are 5 helpful tips.

1) Accumulation and Distribution Days: When should traders go to cash? Follow the big boys! The big institutions control the market, so pay attention to their actions by tracking accumulation anddistribution days. When institutional selling builds up over a short period of time (2-4 weeks) AND leading stocks start to break down, that is a great sign to start raising cash. Why? Because 4 out of 5 stocks move in the general direction of the market. I don’t care how good the company is, when the market’s in a downtrend, you don’t want to fight it.

2) Uptrends and Downtrends: Don’t get caught up with the terms Bull and Bear market. Just recognize if we are in an uptrend or a downtrend. For example, use the 50-day moving average on the NASDAQ Composite as a general indicator to be in or out of the market. Above the line usually means we’re in an uptrend and it’s a green light to be in stocks…below the line, downtrend and red light.

3) Scale In: When conditions start to improve, SLOWLY scale back in. There’s no reason to rush. Take a few positions and test the waters. If the rally is for real, there will be PLENTY OF TIME to make money. If you are wrong, at least you can get out quick with minimal damage and protect your portfolio. Think Defense First!

4) Buy the Strongest Earnings & Sales Growth: When markets are in a confirmed uptrend, what stocks should you buy? Be in the best! Don’t settle for low rate stocks. Look for companies that have strong earnings and sales growth. Why be in dead-money stocks with little growth potential? We’re in this to make money, right? So be in stocks that have a higher probability of moving up!

5) Fundamentals AND Technicals: Why does it only have to be one or the other? Why not USE BOTH! We want as many factors as possible in our favor when trading the market. Therefore, start with strong fundamental companies AND combine the proper technical timing to identify ideal entry points to effect your best risk vs reward trades. (more…)

The Easiest Daytrade To Make

  
Analysis, Education
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ss-7853536-potOfGold Essentially there are 3 timeframes to trade when it comes to “daytrades”:

1) the open

2) the close

3) and everything else in between

As you know by now, #3 is really the toughest to trade. It is the lowest probability trade of the three types, and your stops frequently get hit. Frequently, even if we get the direction right it is not very profitable because we get whipsawed like crazy. However, this is where many trades can be made, so the scalps do add up to a good chunk if you know what you’re doing.

So those who had joined us and getting Intraday calls-ofcourse having upperhand and minting money. (more…)

Trade Management & Psychology (One Liners )

  
  Education
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  • Let winners run. While momentum is in phase, the market can run much further than might be expected. Do not exit winners without reason!
  • Be quick to admit when wrong and get flat.
  • Sometimes a time stop is the right solution. If a position is entered, but the anticipated scenario does not develop, then get out.
  • Remember: if one thing isn’t happening the other thing probably is.
  • Flat is a legitimate position.
  • Be careful of correlations. Several positions can often equal one large position bearing unacceptable risk. Respect the potential for correlations to change—you have to deal with today’s correlation, not the correlation that existed when you put on the position.
  • The crowd is not always wrong.
  • Most trading problems come from an incorrect perception of risk. If you’re trading with an edge, the “risk” of any trade being a loser is not actually a risk at all.
  • Intuition is real, but all traders develop it. Intuition, alone, is not an edge.
  • Intuition must be trained properly. It is very easy to develop incorrect intuition due to cognitive biases and the nature of the market.
  • Mental capital is just as important as financial capital. Protect both.

Observation, Experience, Memory and Mathematics

  
  Education
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“Observation, experience, memory and mathematics – these are what the successful trader must depend on. He must not only observe but remember at all times what he has observed. He cannot bet on the unreasonable or the unexpected, however strong his personal convictions may be about man’s unreasonableness or however certain he may feel that the unexpected happens very frequently. He must bet always on probabilities – that is, try to anticipate them. Years of practice at the game, of constant study, of always remembering, enable the trader to act on the instant when the unexpected happens as well as when the expected comes to pass.

“A man can have great mathematical ability and an unusual power of accurate observation and yet fail in speculation unless he also possesses the experience and the memory. And then, like the physician who keeps up with the advances of science, the wise trader never ceases to study general conditions, to keep track of developments everywhere that are likely to affect or influence the course of the various markets. After years of the game it becomes a habit to keep posted. He acts almost automatically. He acquires the invaluable professional attitude that enables him to beat the game – at times! (more…)

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