| Harvard Business School Mark Sellers, founder of Chicago-based hedge fund Sellers Capital, argues that great traders are born and not bred. He believes that there are seven “structural assets” that cannot be taught, adding, ” They have to do with psychology. You can’t do much about that.”The traits: 1) The ability to buy when others are panicking, and vice versa 2) An obsession with the trading game 3) A willingness to learn from past mistakes 4) An inherent sense of risk based on common sense 5) A confidence in your convictions and a willingness to stick with them 6) An ability to have “both sides of your brain working” (i.e. to go beyond the math) 7) The ability to live through volatility without changing your investment thought process I think that some of the concepts discussed here are spot on (and I spend a great deal of time hammering home the importance of #7) , but I disagree with the overall idea that great traders are born, not made. I believe success in trading is not about a specific style, but rather about understanding your personality traits and then developing a trading style (and which product – i.e. stocks, commodities, fx) that fits you best. |
Archives of “risk” tag
rssBlackstone's Byron Wien Discusses Lessons Learned in His First 80 Years
Here are some of the lessons I have learned in my first 80 years. I hope to continue to practice them in the next 80.
- Concentrate on finding a big idea that will make an impact on the people you want to influence. The Ten Surprises which I started doing in 1986 has been a defining product. People all over the world are aware of it and identify me with it. What they seem to like about it is that I put myself at risk by going on record with these events which I believe are probable and hold myself accountable at year-end. If you want to be successful and live a long, stimulating life, keep yourself at risk intellectually all the time.
- Network intensely. Luck plays a big role in life and there is no better way to increase your luck than by knowing as many people as possible. Nurture your network by sending articles, books and emails to people to show you’re thinking about them. Write op-eds and thought pieces for major publications. Organize discussion groups to bring your thoughtful friends together.
- When you meet someone new, treat that person as a friend. Assume he or she is a winner and will become a positive force in your life. Most people wait for others to prove their value. Give them the benefit of the doubt from the start. Occasionally you will be disappointed, but your network will broaden rapidly if you follow this path.
- Read all the time. Don’t just do it because you’re curious about something, read actively. Have a point of view before you start a book or article and see if what you think is confirmed or refuted by the author. If you do that, you will read faster and comprehend more.
- Get enough sleep. Seven hours will do until you’re sixty, eight from sixty to seventy, nine thereafter which might include eight hours at night and a one hour afternoon nap.
- Evolve. Try to think of your life in phases so you can avoid a burn-out. Do the numbers crunching in the early phase of your career. Try developing concepts later on. Stay at risk throughout the process.
- Travel extensively. Try to get everywhere before you wear out. Attempt to meet local interesting people where you travel and keep in contact with them throughout your life. See them when you return to a place. (more…)
Ed Seykota Quotes Collection
Markets
The markets are the same now as they were five or ten years ago because they keep changing-just like they did then.
Short-Term Trading
The elements of good trading are cutting losses, cutting losses, and cutting losses.
Outcomes
Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.
I think that if people look deeply enough into their trading patterns, they find that, on balance, including all their goals, they are really getting what they want, even though they may not understand it or want to admit it.
Market Trends
The trend is your friend except at the end where it bends.
Charles Faulkner tells a story about Seykota’s finely honed intuition when it comes to trading: I am reminded of an experience that Ed Seykota shared with a group. He said that when he looks at a market, that everyone else thinks has exhausted its up trend, that is often when he likes to get in. When I asked him how he made this determination, he said he just puts the chart on the other side of the room and if it looked like it was going up, then he would buy it… Of course this trade was seen through the eyes of someone with deep insight into the market behavior.
Predicting the Future (more…)
How To Make Your Own Luck in Trading
The only place luck has in trading is that you will hopefully be on the right side of unexpected moves due to surprises. In trading you should trade in such a way that good luck will benefit you and bad luck will not destroy you. In my trading luck has little to do with my profits. I trade when the probabilities are on my side based on what the chart is saying about the current action of buyers and sellers in a stock. New traders hoping for luck belong in Las Vegas not the stock market. Trade the trends, play the odds, manage the risk, have faith in yourself that you have the discipline to trade your winning plan.
- I do not trade on luck I trade with probabilities being on my side.
- I manage my risk carefully so bad luck on one trade does not blow up my trading account.
- I trade in the direction of the markets current trend to enable me to stay on the right side of strong moves.
- I trade in the direction of the markets current trend so the odds are on my side of being right.
- I buy the strongest stocks and sell short the weakest stocks.
- When I am wrong I do not hope for luck I just get out of a losing trade.
- When I buy options I buy the in the money options with the odds in my favor not the far out of the money ones that require some luck.
- I primarily buy options instead of selling them so I can get big moves for small fees instead of small fees for big risks.
- I only risk 1% of my capital per trade so I do not blow up my account with a string of bad trades.
- I trade with confidence in my myself and my method not hoping for luck.
Key Ingredients to Performing Your Best
1. Passion. You must be passionate about what you re doing and having fun. Passion first, then performance.
2. Confidence. Top performance comes from having a high degree of confidence. You must have the confidence that you can take control and face adversity. You must also be confident that you will have a favorable outcome over time.
3. Concentration. Peak performance comes from exceptional CONCENTRATION. You must concentrate on the process, though, not the outcome A sprinter who is in the lead is thinking about the wind on their face, how relaxed their arms are, feeling the perfect stride…they are totally in the moment. The person who does NOT have the edge is thinking, “Oh, that runner is pulling ahead of me…I don’t know if I have enough wind to catch the leader…” They are tense and tight because they are thinking about the outcome, not the
process.
4. Resiliency. Great performances come from being able to rebound quickly and forget about mistakes.
5. Challenge. Great performance comes from pushing yourself and trying to overcome limitations. Staying in the safe zone becomes a monkey on your back. Challenge yourself to take that hard trade. Manage it. If it does not work out, so what…your risk was limited and you can pat yourself on the back for taking the hard trade in the first place.
6. See and DO … don’t think! Great performance comes from turning off the brain
and becoming automatic. This is being in the Zone …in the groove. You can’t overanalyze the markets during the trading day.
7. Relaxation. When you are relaxed, your reflexes and timing are superior because
you are loose.
Ed Seykota’s Magic Trading System
1: Do not stress about whipsaws – one good trend pays for them all.
A whipsaw is when you enter a stock, but get stopped out quickly. In a period of whipsaws, this may happen many times. This can be frustrating to a trader or investor, and it may cause them to change their system. But the fact is that one good trend will pay for all of these whipsaws, and if you change your system you lose the benefit of that!
2: When you Catch a Trend, ride it to the end.
Your system must be able to jump on a trending stock (for instance, up if you are going long), but then also be able to ride that trend to the end. Many novice traders will jump out of stocks before they are finished trending because they are scared the market has gone too far. Let your system tell you when the trend is ending, and only exit once it does.
3: When you show a loss, give the loss a toss.
Every single successful money manager ever interviewed has said something along the lines of: “Cut your losses short”. Get rid of your losses. Keep your winners. And once you have your system don’t second guess it! Being stopped out is part of the process.
4: We know if our risk is right when we make a lot of money, but can still sleep at night.
Risk is the amount of risk per trade (the price between your entry and your stop loss), and how much your total risk is (regarding how many positions you have open at one time). (more…)
Control & Focus
Know what you can control and what you can’t. You can’t control the market, but you can control how you react to the market. Before you can become a consistent trader, you must first control how you respond to the market and your actions. We can always be in control of ourselves and how we act. Being able to regulate our actions has a lot to do with how we see ourselves as a trader, our vision for ourselves, and our confidence.SIMPLIFY
When we follow a standardized process for trade execution, we help negate the impact that emotions can have on that process. And when we create a set of rules within which is a subset of rules that allow for less mechanical, more intuitive management of our trades, we can potentially realize additional profits from those intangible insights into market direction without over-exposing our account to risk. Here is how it works:
S – Scan your charts . Create a “Watch List” to help manage your inventory of trading opportunities.
I – Identify a high probability set up.
M – Map out the trade’s entry point, stop-loss exit point, and profit exit point.
P – Pull the trigger. By systematizing the process as we are talking about here, the anxiety associated with executing a trade is greatly reduced. Instead of focusing on whatever issues keep you from pulling the trigger, your focus is on following a procedure, a set of instructions. Mapping out and understanding exactly what our risk is also reduces the anxiety of entering a trade.
L – Let the market do its thing. It’s not very often that you won’t have to take some heat on a trade. It’s a great feeling when a trade goes in your favor immediately and stays that way. But that’s the exception and not the rule. As a good friend of mine would say, “Let it breathe!” (more…)
Speculation and Trading vs. Gambling
When does trading become gambling? There is a very thin line. I maintain that most traders ARE gamblers. They use markets as a substitute for a casino.
1. IF you enter trades without a clear trading plan, you just might be a gambler.
2. IF you trade just to be trading, you just might be a gambler.
3. IF your bored and enter a trade, you just might be a gambler.
4. IF you look at potential profit before assessing potential loses, you just might be a gambler.
5. IF you have no impulse control, you just might be a gambler.
6. IF you have no methodology, you just might be a gambler.
7. IF you rely on others for your trading decisions, you just might be a gambler.
8. IF you do not take full responsibility for your trading outcomes, you just might be a gambler.
9. IF you increase your risk due to losses, you just might be a gambler.
10. IF you do not use stop losses or do not adhere to them, you just might be a gambler.
And my all time favorite
11. IF you get an adrenaline rush when your entering trades, you just might be a gambler.
In summation I would like to say that I do enjoy casino gambling as a form of entertainment. I strive to over come the house’s edge when I do gamble. Gambling is entertainment and trading is a business and should be approached as a business enterprise. IF your using the markets as a gambling outlet, be my guest. Traders that approach trading with a positive expectancy WILL take all your money. They will send you stumbling out into the night, cross-eyed and mumbling to yourself. Be smart. You can either feed the trading gods or feed your head. Do the work and get educated before risking one thin dime. Employ laser like focus in your trading and use iron discipline. The end result can be well beyond your wildest expectation.
15 Trading Rules
1. Don’t be a tradeaholic
- Someone who has to have a trade on at all times or they feel their missing out
2. You trade to make money – not for fun, games, or to escape boredom
3. Never add to a bad trade
- This may work occasionally, but will hurt you in the long run
4. Once you have a profit on a trade, never let it turn into a loss
5. No hoping, no wishing, no would’ve, no opinions, no should’ve
6. Don’t be a one way trader – be flexible, opportunities on both sides
7. Know your risk on each trade. Trade with stops to limit losses
- Sell down to the sleeping point (My favourite since 15 yrs )
8. Look for 3-1 profit objective trade
9. When initiating a trade, always get your price (use a limit order)
10. When liquidating a bad trade, always use a market order
11. Have a plan. Trade it. Monitor it.
12. Make 10 points on a million trades, not a million points on one trade
- Aim for consistency (it adds to your batting average)
- There are more opportunities to make many reasonable trades
13. Learn from your own mistakes
14. Pay attention to weekly lows and highs
15. Technicals and fundamentals are equally important.