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Nassim Taleb's Six Rules For Succeeding In Life

TalebSuccess in all endeavors is requires absence of specific qualities.
1) To succeed in crime requires absence of empathy,
2) To succeed in banking you need absense of shame at hiding risks,
3) To succeed in school requires absence of common sense,
4) To succeed in economics requires absence of understanding of probability, risk, or 2nd order effects and about anything,
5) To succeed in journalism requires inability to think about matters that have an infinitesimal small chance of being relevant next January, 
…6) But to succeed in life requires a total inability to do anything that makes you uncomfortable when you look at yourself in the mirror.

How To Fail As A Trader In 10 Easy Steps

royal-fail

There is so much ink and pixels spilled on how to succeed in trading. So I thought, I would zag instead of zig and outline how to fail as a trader. Without further ado, the 10 vital steps you must take in order to fail in trading:

  1. Start out undercapitalized
  2. Ignore risk management
  3. Compare yourself to other traders, not yourself
  4. Look for the right system
  5. Don’t keep a journal
  6. Be secretive
  7. Be casual
  8. Fill your charts with as many indicators as possible
  9. Trade with your emotions
  10. Be inconsistent

Embracing Risk

While we tend to focus solely on building our skill sets or expanding our knowledge, the greatest advancement and learning most often comes from action, experience, and taking risk. And our regrets in life reflect this. According to Gilbert, studies show that “in the long run, people of every age and in every walk of life seem to regret not having done things much more than they regret things they did.”

To improve at anything, we must at some point push ourselves outside our comfort zone.

Brooks, Trading Price Action Reversals

The third and final volume of Al Brooks’s series is Trading Price Action Reversals: Technical Analysis of Price Charts Bar by Bar for the Serious Trader (Wiley, 2012). A trader does indeed have to be serious to read all three volumes because, according to the author himself, the task is daunting: some 570,000 words.
Only half of the final volume is about trend reversals. The rest deals with day trading, the first hour (the opening range), and putting it all together, including 78 trading guidelines, some of which you may not have encountered elsewhere.
This volume is the most accessible of the three, but then my very tired eyes did a lot of work before getting here. It would be difficult to skip the first two volumes and expect to understand the third.
Brooks himself is not primarily a reversal trader. As he writes, “I prefer high-percentage trades, and my most common trades are pullback entries and trading range fades. I especially like breakouts because when they are strong the probability of follow-through is often more than 70 percent. I look less often for reversal trades, because most reversal attempts fail, but I will take a strong reversal setup.” (p. 463) (more…)

STOP TRADING until you can answer YES to all QUESTIONS

Managing Risk as a trader is the most important consideration and if you answer NO to any of the following questions, then STOP TRADING until you can answer YES to all of them:

  • Do you have a written trading plan that deals with risk management?
  • Have you calculated the risk that you are comfortable with in every trade?
  • Will you not place a trade, even though you have a healthy balance in your trading account, when you know that your risk exposure goes beyond the risk outlined in your trading plan?
  • Have you identified what your maximum position size will be?
  • Do you have a stop in place every time you trade?
  • Are you aware that risk management is not just about where you place your stop?
  • Will you be able to stick to your risk management rules under ALL trading conditions?

There are many ways to manage your risk but until you have a risk management process written into your trading plan and you stick to these risk management rules on EVERY occasion, then you have more work to do until you are on your way to being a successful trader. (more…)

James Montier's 7 Immutable Laws Of Investing

1. Always insist on a margin of safety
2. This time is never different
3. Be patient and wait for the fat pitch
4. Be contrarian
5. Risk is the permanent loss of capital, never a number
6. Be leery of leverage
7. Never invest in something you don’t understand

Have a Goal

There is no reward without risk, and there should be no risk without reward.  Knowing this, there’s absolutely no reason why each trade shouldn’t have some favorable objective associated with it, so set a goal for each trade.  A realistic one that could quite feasibly be reached during the course of the trade.

Perhaps you’ll set a hard target and book profits once that level is reached regardless of how strong the momentum seems at the time.  Or perhaps you’ll plan to book partial profits at intervals along the way.

At the very least, having some idea of a level where your stock could move to is still going to help you formulate a game plan, even if you don’t choose to leave a resting order in that zone to book profits.

If you know your stop and you have some kind of upside expectation, then you’ll have a far better grasp of just what your risk is on a given trade and whether or not it should be taken.

Intuition Discipline Confidence Risk

Going back to the roots of what ‘risk’ is all about. As I suggested rereading Justin Mamis’ passage of ‘When to Sell’ yesterday, I did reread passages of ‘The Nature of Risk’ probably my all time favourite book which was also written by Justin Mamis. Here is a small excerpt. Enjoy!

Justin Mamis: ‘The Nature of Risk’ page 80:

Intuition although seemingly spontaneous, apparently emotional, stems from a form of “information” that has become built-in from past experience. Discipline means choosing what to do unencumbered by the fear of making a mistake. Confidence means trusting our intuition that what we “see” is what we “know.” There’s no escaping to the external, to the objective, and no standing on the shaky ground of emotions. So the question becomes, How do we create within ourselves the heroic condition of confidence wherein risk is not danger but life?

Winning Streaks vs. Losing Streaks

All traders who last long enough will go through periods of winning and losing streaks.Mathematicians refer to the process as the theory or run known to gamblers as a “streak.”Games of chance  such as roulette ,craps and blackjack are predicated that the house has an edge over the player.Trading  has  a distinct advantage because the trader has the ability to be the house.A mathematical edge is all that is all that is needed by the trader to increase his probability of success.Sound money management advantage begins to work.What happiness in real time trading is that after a series of losing trades the trader will begin to question the system or his ability to execute the system properly.

Tow things are necessary to get though the bad losing times !Belief in your system is very important but it ranks second to the sound money management system.Mediocre trading systems can have positive results with the use of a good money management system.The rule of thumb is to reduce your risk on any trade to 2% of working capital.This should prevent a meltdown but remember trading is about probability not certainty !