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Trading commandments

  
  Education
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ten_commandments1.) Respect the price action but never defer to it.

Our eyes are valuable tools when trading, but if we deferred to the flickering ticks, stocks would be “better” up and “worse” down. That’s backward logic.

2.) Discipline trumps conviction.

No matter how strongly you feel on a given position, you must defer to the principles of discipline when trading. Always try to define your risk and never believe you’re smarter than the market.

3.) Opportunities are made up easier than losses.

It’s not necessary to play every day; it’s only necessary to have a high winning percentage on the trades you choose to make. Sometimes the ability not to trade is as important as trading ability.

4.) Emotion is the enemy when trading.

Emotional decisions have a way of coming back to haunt you. If you’re personally attached to a position, your decision-making process will be flawed. Take a deep breath before risking your hard-earned coin. See related link.

5.) Zig when others zag.

Sell hope, buy despair and take the other side of emotional disconnects. If you can’t find the sheep in the herd, chances are you’re it. (more…)

The 10 trading commandments

  
  Education
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1.) Respect the price action but never defer to it.

Our eyes are valuable tools when trading, but if we deferred to the flickering ticks, stocks would be “better” up and “worse” down. That’s backward logic.

2.) Discipline trumps conviction.

No matter how strongly you feel on a given position, you must defer to the principles of discipline when trading. Always try to define your risk and never believe you’re smarter than the market.

3.) Opportunities are made up easier than losses.

It’s not necessary to play every day; it’s only necessary to have a high winning percentage on the trades you choose to make. Sometimes the ability not to trade is as important as trading ability.

4.) Emotion is the enemy when trading.

Emotional decisions have a way of coming back to haunt you. If you’re personally attached to a position, your decision-making process will be flawed. Take a deep breath before risking your hard-earned coin. See related link.

5.) Zig when others zag.

Sell hope, buy despair and take the other side of emotional disconnects. If you can’t find the sheep in the herd, chances are you’re it.

6.) Adapt your style to the market.

Different investment approaches are warranted at different junctures, and applying the right methodology is half the battle. Map a plan before stepping on the field so your time horizon and risk profile are in sync.

7.) Maximize your reward relative to your risk.

If you’re patient and pick your spots, edges will emerge that provide an advantageous risk/reward. There is usually one easy trade per session if you let it show itself.

8.) Perception is reality in the marketplace.

Identifying the prevalent psychology is necessary when assimilating the trading dynamic. It’s not what is, it’s what’s perceived to be that dictates the price action.

9.) When unsure, trade “in between.”

When in doubt, sit it out. Your risk profile should always be an extension of your thought process and when unsure, trade smaller until you establish a rhythm.

10.) Don’t let your bad trades turn into investments.

Rationalization has no place in trading. If you put on a position for a catalyst and it passes, take the risk off — win, lose or draw. Good traders know how to make money but great traders know how to take a loss.

There are obviously more rules but I’ve found these to be common threads through the years. Where you stand is a function of where you sit. So please understand that some of these guidelines may not apply to your particular approach.

As always, I share my process with hopes it adds value to yours. Find a style that works for you, always allow for a margin of error and trade to win, never trade “not to lose.”

And remember — any trader worth his or her salt has endured periods of pain but if we learn from those mistakes, they’ll morph into lessons. For if there wasn’t risk in this profession, it would be called “winning,” not “trading.”

Trading Commandments

  
  Education
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Respect the price action but never defer to it. 
Our eyes are valuable tools when trading but if we deferred to the flickering ticks, stocks would be “better” up and “worse” down and that’s a losing proposition. 
Discipline trumps conviction. 
No matter how strongly you feel on a given position, you must defer to the principles of discipline when trading. Always attempt to define your risk and never believe that you’re smarter than the market. 
Opportunities are made up easier than losses. 
It’s not necessary to play every day; it’s only necessary to have a high winning percentage on the trades you choose to make. Sometimes the ability not to trade is as important as trading ability. 
Emotion is the enemy when trading. 
Emotional decisions have a way of coming back to haunt you. If you’re personally attached to a position, your decision making process will be flawed. Take a deep breath before risking your hard earned coin. 
Zig when others Zag. 
Sell hope, buy despair and take the other side of emotional disconnects (in the context of controlled risk). If you can’t find the sheep in the herd, chances are that you’re it. 
Adapt your style to the market. 
Different investment approaches are warranted at different junctures and applying the right methodology is half the battle. Identify your time horizon and employ a risk profile that allows the market to work for you. 
Maximize your reward relative to your risk. 
If you’re patient and pick your spots, edges will emerge that provide an advantageous risk/reward profile. Proactive patience is a virtue. 
Perception is reality in the marketplace. 
Identifying the prevalent psychology is a necessary process when trading. It’s not “what is,” it’s what’s perceived to be that dictates supply and demand. 
When unsure, trade “in between.” 
Your risk profile should always be an extension of your thought process. If you’re unsure, trade smaller until you identify your comfort zone. 
Don’t let your bad trades turn into investments. 
Rationalization has no place in trading. If you put a position on for a catalyst and it passes, take the risk off—win, lose or draw. 

Hedge Fund Managers' Vernacular

  
Analysis, Education, Life
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As there is a considerable amount of industry-specific jargon used in Hedge Fund Managers’ monthly reports, please see the below glossary to explain some of the more arcane terminology.

* Challenging conditions = double-digit down month

* Cautiously optimistic = single-digit down month

* Constrained risk profile = we bottled it at the bottom

* Alpha = imaginary friends

* Beta = punting

* Alternative Beta = punting in stuff we can’t spell

* Negative gamma = we lost money, but it wasn’t our fault

* Positive gamma = we lost money, but it wasn’t our fault

* Theta/Kappa = our research department has been on a junket

* Negative correlation = everyone else made money

* Prudent cut in leverage = we went to Antigua for our holidays

* Liquidity issues = “Thank-you for calling XYZ International Capital Markets. Unfortunately all our sales operatives are receiving their P45s at present. Your call is important to us, so please try again later, perhaps if there is ever another bull market in this rubbish…”

* Re-optimised portfolio = we threw out the baby, bathwater and the bath

* With hindsight… = ouch

* Healthy growth in AUM = how bad must the opposition be?

* Modest outflows = they wanted to redeem the lot, but our small print is world-class

* Material outflows = would anyone like to re-invest in my new minicab venture?

Ten Trading Commandments

  
  Education
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Respect the price action but never defer to it.

The action (or “eyes”) is a valuable tool when trading but if you defer to the flickering ticks, stocks would be “better” up and “worse” down—and that’s a losing proposition. This is a particularly pertinent point as headlines of new highs serve as sexy sirens for those on the sidelines. 
Discipline trumps conviction.

No matter how strongly you feel on a given position, you must defer to the principles of discipline when trading. Always try to define your risk and, above all, never believe that you’re smarter than the market. 
Opportunities are made up easier than losses. 
It’s not necessary to play every move, it’s only necessary to have a high winning percentage on the trades you choose to make. Sometimes the ability not to trade is as important as trading ability.
Emotion is the enemy when trading. 
Emotional decisions always have a way of coming back to haunt you. If you’re personally attached to a position, your decision making process will be flawed. It’s that simple.  (more…)

9 Trading Option Books from our Library

  
  Education
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Get Rich With Options While the publisher choose an aggressive title for this book it does lay out four good option trading strategies. Selling puts on stocks that you want to own at lower prices anyway, option credit spreads, selling covered calls or income on long term holdings, and my personal favorite: deep-in-the-money call options. Very few ever discuss the power of buying DITM call options where you control the full upside of a stock for less risk and with far less capital.

The Bible of Option Strategies This is the encyclopedia of option strategies covering everyone that I know of. You get a description of each strategy along with specific metrics for each one on the steps in creating it, the rationale to trade it, if it is net debit or credit, the effect of time decay on the strategy, appropriate time period, selecting the right stocks and options, risk profile, the Greeks, the advantages and disadvantages and how to best exit the trade. This book is meant as a reference book but I read it through cover to cover.

Trading Stock Options Complete reverse from the above book, this is like the Cliff’s Notes of complex trading strategies. The author shows how he trading real option trades for big profits and a few some smaller losses. He simplifies many strategies to make the understandable especially playing long strangles and straddles through earnings by betting on actual post earnings volatility being greater than the volatility that is priced in to the options through Vega.

Trading On Corporate Earnings This is a great book on how to best play holding through earnings announcements by using options instead of stock. (more…)

The Ten Trading Commandments

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Respect the price action but never defer to it.

The action (or “eyes”) is a valuable tool when trading but if you defer to the flickering ticks, stocks would be “better” up and “worse” down—and that’s a losing proposition. This is a particularly pertinent point as headlines of new highs serve as sexy sirens for those on the sidelines. 
Discipline trumps conviction.

No matter how strongly you feel on a given position, you must defer to the principles of discipline when trading. Always try to define your risk and, above all, never believe that you’re smarter than the market. 
Opportunities are made up easier than losses. 
It’s not necessary to play every move, it’s only necessary to have a high winning percentage on the trades you choose to make. Sometimes the ability not to trade is as important as trading ability.
Emotion is the enemy when trading. 
Emotional decisions always have a way of coming back to haunt you. If you’re personally attached to a position, your decision making process will be flawed. It’s that simple. 
Zig when others Zag.

Sell hope, buy despair and take the other side of emotional disconnects in the context of controlled risk. If you can’t find the sheep in the herd, chances are that you’re it. 
Adapt your style to the market. (more…)

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