Archives of “probability” tag

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Trading in the Zone

  
  Education
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These Beliefs are the Seven Principles of Consistency from Mark Douglas’s “Trading in the Zone” I highly recommend picking this book up to add to your collection, because it has benefited me tremendously in understand how beliefs and values play a vital role in one’s trading and ultimate success.

I remember the first time I picked this book up I didn’t “get” it and put it away. About a year later I read it again and it just clicked. I now reference it on a weekly schedule just so the principles in the book stay fresh in my mind and to reinforce what I had learned.

I am a Consistent Winner Because:
1.  I objectively identify my edges.
2.  I predefine the risk in every trade.
3.  I completely accept the risk or I am willing to let go of the trade.
4.  I act on my edges without reservation or hesitation.
5.  I pay myself as the market makes money available to me.
6.  I continually monitor my susceptibility for making errors.
7.  I understand the absolute necessity of these principles of consistent success and , therefore, I never violate them.
Five Fundamental Truths: 
1. Anything can happen.
2. You don’t need to know what is going to happen next.
3. There is a random distribution between wins and losses for any given set of variables that define an edge.
4. An edge is nothing more than an indication of a higher probability of one thing happening over another.
5. Every moment in the market is unique.

Addional Mark Douglas Material in PDF form. (more…)

Probabilities vs. expectations

  
  Education
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I expect to wake up tomorrow morning and not die during the night.

I expect that I will be able to get out of bed and know how to walk to the kitchen.
I expect my car will start.
I expect the other person will stop at the red light.
I expect that I won’t get hit by lightning.
 
Seeing that expectations are what normal everyday life is founded on, is it natural to think that you can expect a stock to trade in a particular direction? Only if you want to become a loser.
The markets and stocks are not everyday life. They have the ability to do anything at any time. The only thing 100% certain is that they are 100% unpredictable.
If you have expectations, it means you have an emotional attachment or interest in an event outcome. Do you expect to make money, have a winning trade, make a right decision? When they happen are you giddy with excitement, gushing to all who will listen that you are so smart. What happens when you are wrong? How about wrong ten times in a row? If you live the highs you will be living the lows. Your expectations will destroy your confidence and thus your account. Your ego will take you back to childhood where you will throw tantrums and stomp your feet looking for a sympathetic ear. “The markets aren’t fair” you say. Well the markets don’t give a shit what your want or when you want it.
Now if instead you trade the probability of a outcome to an event, you can put a wall up between yourself as a person who is on autopilot accepting everyday expectations and you as a successful trader who is ruthless in the execution of your plan. Thinking, trusting and truly believing in probabilities will save the day for you. When you think that “based on my experience, seeing a very similiar situation before, odds are that the near future direction of this stock is this way. However since this event is unrelated in every way to my past memories, I must choose the point at which my decision will be proven wrong and set a protective stop here.”
When you think this way, it doesn’t matter whether you are right or wrong. You are simply carrying out your trading plan based on your experience/edge. Playing the averages. You don’t get hurt by losing trades. You don’t get happy over winning trades. Whatever happens, happens. Being cold and calculating brings you as a trader closer to the machines that are running the show these days. (more…)

Patience, Preparation and Performance

  
  Education
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Everything is difficult before it becomes easy.

With the current volatility of the financial markets, it is extremely important that each of us resolve to be patient in our decisions and not make snap judgments. These can create future disaster.

The most successful individuals around the world have a foundation of processes that they utilize consistently, no matter whether the markets are trending with clear direction or being extremely volatile.

Each of us needs to be patient and allow the trading plans that we use to provide points of execution for trades. We need to be prepared for any and all movements in the market, yet stay committed to our plan and then perform with a self-confidence that ensures that we do not stray away from the steps of our plan.

Patience, preparation and performance surrounded by a solid trading plan along with money and risk management will produce the highest probability for profitable success.

Preparation combined with Opportunity creates a new word I would like to give to you — Prepartunity. Every day provides new opportunities for us. If we are prepared then we will receive the highest results possible.

Yesterday BANK Nifty proved KUBER BHANDAR to our Subscribers

  
  Education
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building-wealthDon’t drop your Jaw …… Literally it was
 The Message:  Below 9281, non-stop slide upto 9061, 8988. Just Sell
What Happened:  It crashed to 9011, Whooping gain of Rs.270
All subscribers would well be busy in celebrating the mullah !!!!!
 Just see Nifty:  Leave our 5048 Laxman Rekha, it failed to cross y’day high of 5024 and tumbled to 4917 against my level of 4901……… crash of 92 points.  I detailed the tiresomeness of markets in Web-site.
 Do I need to write of Tata Communication & Suzlon hits.

 Now what is the difference between reading WEBSITE and subscribing to my MESSAGES? Write-up is a probability before the market opens and Messages/Promptings are push actions to subscribers under real possible conditions in live market.

 Recollect the old adage: Proof of the pudding is in  ………. !!!!!!!!!!!

The Virtue of Patience

  
  Education
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patienceWaiting for the right opportunity increases the probability of success. You don’t always have to be in the market. As Edwin Lefevre put it in his classic Reminiscences of a Stock Operator, “There is the plain fool who does the wrong thing at all times anywhere, but there is the Wall Street fool who thinks he must trade all the time.”
One of the more colorful descriptions of patience in trading was offered by Jim Rogers in Market Wizards: “I just wait until there is money lying in the comer, and all I have to do is go over there and pick it up.” In other words, until he is so sure of a trade that it seems as easy as picking money off the floor, he does nothing.

RISK in Trading -Anirudh Sethi

  
Analysis, Education
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Image result for risk gifLife is full of risks, and risks are all around you as a trader. In a perfect world there would be no risks and any decision you make will turn out to be the best one. You can hope for win after win, and not even have to worry about the prospect of losing. Yet this is an unrealistic and impossible scenario because as we all know trading is all about risk. However, there is no need to be afraid of risk. We need to accept the fact that it is there, and rather than focusing on fear we need to know how to deal with it and manage it.

This is where risk management comes into play. As a trader you need to be disciplined. You need to know how to understand the way you are thinking. At the end of the day it is all about trading psychology. Trading is not solely about getting an understanding of the market, and the trading skills such as recognizing trading patterns and managing risks. It is also about training yourself to be self-assured without being too risky. It is about being cautious, but not wait too long to take an action. It is about blocking emotions and sentiments which could impair your judgments. The market is constantly changing and you are going to be constantly faced with challenges, and so risk is inevitable. However the risk taht you tae can be calculated.

Thus as a trader you will need to balance out your trading skills with your trading psychology so as to master the mental game of trading. Here are some general rules which can help you in risk management:

  • Emotions have no place in trading. You need to make well planned and well calculated decisions that are not affected by sentiments. Otherwise your decision making process is going to take longer, and in all probability, be skewed.
  • You need to accept that you are not perfect, and so there are going to be times when you succeed, and other times when you fail and lose money. Successes and failures will result in different, and extreme emotions, but these emotions need to be controlled so as to keep thinking straight.
  • In order to minimize risks, many traders are well aware that it is best to opt for diversification. Having an diversified portfolio will help to reduce your risks. Money should be distributed across different kinds of investments so that in case a certain trading decision goes wrong it will be less likely to affect the trader in a dramatic way as one would still have other investments at one’s disposal.
  • Gaining experience is what many traders believe in in order to succeed. Through experience you gain more insight and knowledge, as well as trading skills. However despite their importance, they are not going to be enough to back your progression as a trader. You need to couple this up with clear thinking.
  • You need to have the willingness to take risks. However the risks that you take can be calculated and appropriate. Trading is risky, but in time you will learn how to go about it so as to minimize risks and the results thereafter. For instance, you should only risk money that you can afford to lose. Otherwise, it is best not to trade at all in such cases.

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Uncertainty in Trading

  
  Education
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You just have to deal with it. But there are times where your conviction levels go through the roof. You know damned well that should should be trading. You are comfortable with what you see. Are you taking action?
 
There are other times where your
conviction level is low, or not there at all. There is a split second cue in the back of your brain that says “I don’t know what is going on here”. Are you listening to it and backing off? Or are you letting your conscious mind, emotions/greed etc. take over?
The probability for a successful outcome shares a positive correlation with what level your ‘conviction meter’ is. If its high, your chances of a successful outcome increase. If low, you can imagine just as poor of a result.
Listen to your level of conviction. If it is strong, act upon it. If weak or in question, don’t do anything at all. Typically, you have a short window of opportunity to decide where you stand. Take advantage of it.
 
 

Uncertain Outcome, Consistent Result

  
  Education
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Every trader knows trading is a probability game. However, very few can internalize and live by the true meaning of what it means to be a probability game.

Mark Douglas, the author of “Trading in the Zone”, explains it well.     Someone who masters the probability game produces uncertain outcome but consistent result.   The best example to illustrate this concept is the casino business.     The casino holds on the average 4.5% probability advantage over the player. It does not know whether the next hand will be a winner or a loser against the player, but the casino is certain that they always win given enough bets.     Therefore casinos do not care if a player is going through a winning streak, as long as he is not cheating.

That’s exactly how traders need to think about his trades.    Market is random.    Anything can happen to the current trade.   A trader can increase his probability of winning either through fundamental or technical analysis but the best analysis can never produce a 100% certainty.  In reality, the highest win rate that the best analysis can produce is far from 100%.   However,  as long as the trader has a trading plan that can produce positive expected value,  he can expect consistent result over a reasonably large number of trades,  just like the casino. (more…)

5 Characteristics of Successful Trader

  
  Education
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Knowledge – A trader must put in the time and effort to study and learn the proper skills in order to be successful. Whether that is through technical or fundamental analysis, one must invest in their education. They must completely understand their market, and its ideal as a beginner to focus on one market and be a specialist. A part of the knowledge and education is devising a game plan or strategy for trading. Writing down your rules and sticking to your trading plan is a key to success.

 Controlling your emotions – The ability to control your fear and greed is paramount to success. A successful trader will have a balanced emotional state regardless if he/she is winning or losing. Ensuring the trader has a clear head and is able to pull the trigger and take trades every time an opportunity presents itself.

  Patience – A successful trader can sit on the sidelines for days waiting for the proper setup. They don’t jump into a trade just for the sake of trading. Yes there may be opportunities, but the smart trader waits for trades that meet their trading rules and system. Over trading by beginner traders is a big obstacle to overcome. A need to always be in the market will lead to taking trades that are likely too risky. Learn patience, it’s a key to success. A winning trader usually has an extraordinary amount of self control, and often the best trade is no trade.

 Discipline – There are no 100% winning traders and taking losses are part of the trading profession. It is about finding high probability opportunities and managing the risks on each trade. A trader must stick to their trading plan and discipline is the key to success.

Confidence – Having the confidence in yourself and your system to make your profit or take a loss when your method tells you to is a winning trait. Confidence usually comes from experience and knowledge.

Getting Comfortable with Uncertainty

  
  Education
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A trader who is comfortable with uncertainty has the capacity to stay relaxed in unclear situations and make high probability decisions with a strong degree of conviction.

As a trader, how many times have you asked yourself “Is this the right call?”
If you are like most other traders, the answer should be “nearly all the time.”
How about we break this down and think about it from a different angle.

New Perspective:
Let’s consider the possibility that it is NOT your job to make “The Right Call” but rather to make an intelligent, data-point-supported guestimate of what “The Right Call” could be and then monitor, adjust, and possibly liquidate that decision as it develops over time.

Viewing it this way takes the pressure off, doesn’t it? In fact, it may even get you more Comfortable with Making Decisions during Uncertainty.

My point is, like golf, trading is not a game of perfect. Successful traders just don’t waste their time trying to be “RIGHT;” instead they are focused on MAKING MONEY.

Top performers in any field practice their game, establish a plan and TRAIN themselves to execute when the widow of opportunity appears. So why would we think trading should be any different? In the end, winning is not about being right, it is about getting the job done.

Keep your eye on the ball and your head in the game!

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