Archives of “short position” tag

rss

FEAR

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

Fear has a way of making us focus on unfavorable headlines and price action. Fear impacts our ability to evaluate alternatives as it clouds objectivity. Fear is why profits are taken too quickly. Fear is a four letter word that comes in many flavors.

Fear of losing: Nobody wants to lose—doesn’t matter if it’s a spelling bee in the 5th grade or a newly entered long position in a stock that just broke through resistance. Losing sucks. Losing reminds us that perhaps we aren’t as good as we thought (hoped).

Fear of being wrong: Remember that time you blurted out the wrong answer and everyone laughed? Still sticks with you after all these years and screws with your mind. That new short position you just took is about to get squeezed—or at least that’s the thought running through your mind, right?

Fear of missing out: This is where we can really let our imperfections shine as we buy at the top and sell at the bottom. But hey, we didn’t miss out on the action!  Succumbing to the fear of missing a potential move and jumping in mid-stream trumps any good trading plan or preparation. This is a lack of self-discipline and causes much of the psychological damage seen in the markets.

Fear impedes our ability to be creative. Fear suffocates, debilitates, and causes many to wonder “what if…” rather than “why not…” Hope is used as a remedy by the fearful, but often gets smashed and is soon replaced with self-help books, talk therapy and medication.

Courage is what’s needed—the courage to fail.  With proper planning, risk can be managed and success can be found. Having the courage to step off the curb lends itself nicely to creating who you are as a market participant. Define your risk, adhere to your trading plan and fear becomes a fleeting thought rather than a debilitating one.

It’s OK to lose.  Just make sure that it’s within your defined risk/reward and move on.

It’s OK to be wrong. What’s not OK is to be stubborn and stick with a losing
position.

It’s OK to miss out. There are thousands of other names out there, find your trade.

If you want to become a better trader you need to realize that fear cannot be eliminated. It can, however, be used as an edge in your market participation. For me, one of my favorite times to sell premium is after a large, quick move—puts for fear and calls for greed.

“To conquer fear is the beginning of wisdom.” ~ Bertrand Russell

4 Trading Mistakes

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #
  • Don’t over-leverage yourself or have all of your money tied into one position. Keeping cash on hand is okay as a trader. These days brokers are offering extremely competitive margin requirements for day trading futures, but low margins can be a wolf in sheep’s clothing.
    .
  • Don’t trade to trade. Understand that there are 3 positions you can take as a trader: a long position, a short position and a position to NOT be in a position. There will be plenty of trading opportunities that will come along. Don’t give money to the markets simply because you are bored!
    .
  • Avoid trading a strategy without having a good understanding of how the strategy works. What is the typical winning percentage? What is the largest drawdown? In general, high winning percentage strategies have smaller average profits per trade. Lower winning percentage strategies might not have as many winners, but when you are a winner, you typically win big. If you expect your strategy to bring big profits without losses, you can also expect a check made out to “REALITY” to come your way any day.

  • The market will always go higher and it will always go lower. Don’t try to pick tops and bottoms on a hunch. This is where most new traders get burned.

    • 4 Trading Mistakes

      
      Education
    #  #  #  #  #  #  #  #  #  #  #  #  #  #
    • Don’t over-leverage yourself or have all of your money tied into one position. Keeping cash on hand is okay as a trader. These days brokers are offering extremely competitive margin requirements for day trading futures, but low margins can be a wolf in sheep’s clothing.
      .
    • Don’t trade to trade. Understand that there are 3 positions you can take as a trader: a long position, a short position and a position to NOT be in a position. There will be plenty of trading opportunities that will come along. Don’t give money to the markets simply because you are bored!
      .
    • Avoid trading a strategy without having a good understanding of how the strategy works. What is the typical winning percentage? What is the largest drawdown? In general, high winning percentage strategies have smaller average profits per trade. Lower winning percentage strategies might not have as many winners, but when you are a winner, you typically win big. If you expect your strategy to bring big profits without losses, you can also expect a check made out to “REALITY” to come your way any day. 
      .
    • Don’t get cocky after a few wins. The market WILL humble you and make fools out of those with egos.

    Jim Chanos on Investment Sytle ,Short Selling ,Contrarian Trading & China

      
    Analysis, Education
    #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

    Graham & Doddsville, a Columbia Business School investment newsletter, has recently scored an interview with Jim Chanos, the founder and Managing Partner of Kynikos Associates and one of the world’s most successful short-sellers. His most celebrated short-sale of Enron shares was dubbed by Barron’s as “the market call of the decade, if not the past fifty years. Obviously, he’s still bearish on China’s property market and banking sector and his positions are starting to move his way. In this long (though very insightful) interview with G&D, Chanos talks about his background, investment style, short-selling, contrarian trading and, of course, China.

    Here is an excerpt of the original interview (full interview below that… it’s long but it’s worth the read).

    On Wall Street ethics:

    “… I handed out a two page memo to the senior banker discussing the impact of buying back stock. The senior banker looked at me with an icy stare and stated that we were not in the business of recommending share buybacks to our clients; we were in the business of selling debt. This was my first douse of cold water regarding Wall Street and I became pretty disillusioned after that episode. I had learned that Wall Street wasn’t necessarily doing things in their clients’ best interest…” 

    On timing a short-sale:

    “I recommended a short position in Baldwin- United at $24 based on language in the 10-K and 10-Qs, uneconomic annuities, leverage issues and a host of other concerns. The stock promptly doubled on me. This was a good introduction to the fact that in investing, you can be really right but temporarily quite wrong… I went home to visit my parents for Christmas and received a phone call from Bob Holmes telling me that I was getting a great Christmas present – the state insurance regulator had seized Baldwin-United’s insurance subsidiaries.” 

    On being a contrarian:

    “… numerous studies have shown that most rational people’s decision-making breaks down in an environment of negative reinforcement… You’re basically told that you’re wrong in every way imaginable every day. It takes a certain type of individual to drown that noise and negative reinforcement out and to remind oneself that their work is accurate and what they’re hearing is not.” 

    On shorting:

    “We try not to short on valuation, though at some price even reasonably good businesses will be good shorts due to limitations of growth. We try to focus on businesses where something is going wrong. Better yet, we look for companies that are trying — often legally but aggressively — to hide the fact that things are going wrong through their accounting, acquisition policy or other means. Those are our bread-and-butter ideas…. Valuation itself is probably the last thing we factor into our decision. Some of our very best shorts have been cheap or value stocks. We look more at the business to see if there is something structurally wrong or about to go wrong, and enter the valuation last.

    …You need to be able to weather being told you’re wrong all the time. Short sellers are constantly being told they’re wrong. A lot of people don’t function well in an environment of negative reinforcement and short selling is the ultimate negative reinforcement profession, as you are going against the grain of a lot of well-financed people who want to prove you wrong. It takes a certain temperament to disregard this.” 

    On China:

    “This is a bubble that has a long way to go on the downside. Residential real estate prices, in aggregate in China, at construction cost, are equal to 350% of GDP. The only two economies that ever saw higher numbers at roughly 375% were Japan in 1989 and Ireland in 2007, and both had epic property collapses. So the data does not look good for China.”

    …In China, everyone is incented by GDP. They are fixated on growth. In the West, we go about our economic lives, and at the end of the year the statisticians say, this year your growth was 3%. But in China, it’s still centrally planned. All state policy goes through the banking system. They decide what they want growth to be and then they try and figure out how to get there.” 

    Full interview below. (more…)

    Donchian: Forbes Circa 1982

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

    An excerpt from Forbes circa 1982:

    The fundamentalists — a decided majority among successful investors — look on chartism somewhat the way physicists look on parapsychology. They are probably correct to regard them so, but there is no rule that does not have an exception. Dick Donchian seems to be that exception. Donchian differs from many a chart watcher: He doesn’t predict price movements, he just follows them. His explanation for his success is simple and as old as the Dow Theory itself: “Trends persist.” He will buy a hog or Treasury bond future after an upswing is under way, and sell it only after the price has begun to tumble. He misses some of the profit, but that’s part of the discipline of his style of investing. “A lot of people say things like: ‘Gold has got to come down. It went up too fast.’ That’s why 85% of commodities investors lose money,” he says. Donchian gained that wisdom the hard way. His Futures Inc., the first publicly offered commodities fund, came out in 1948 at $10 a share. It was before its time — or Donchian’s. “When I started trading I was bearish,” he recalls. “Cocoa seemed too high. So we took a short position at 30 cents, and it went down to 19. We made a lot of money at first; that was the worst thing that could happen. I looked around for another commodity that was overvalued. Coffee was making a new high of 20 cents, so we took a short position, and it went up to $1. I made a rule never to be a price trader. There’s no such thing as too high a price or too low a price.” Futures Inc. went as low as 4 cents a share before finally being dissolved…The essence of trend-following, however, is always this: Buy on a rising price and sell on a falling price. That sounds like buying dear and selling cheap, but it works, if prices move not in random walks but in long strides.

    Day Trading Terms

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

    Advisor – the one who charges money for a piece of stock advice to cover his/her losses on the market.

    Advisory Service – an advisor who lost a considerable amount of money and started new business.

    Afternoon – a daily chance to give back the money you made that morning (see Friday).

    Apprentice – anyone who peers at your screen shortly after you closed a profitable deal.

    Average Down – what you have to do if you opened a long position and had to go to the bathroom.

    Average Up – what you have to do if you opened a short position and had to go to the bathroom.

    Bad Trade/Stupid Trade – an unprofitable deal that someone else carries out which does not fit your trading strategy.

    Bottom – (when you have an open long position) the spot where you give up averaging down and sell; (when you have an open short position) the spot where the book recommends you to open a short position.

    Break – a pause you take when you have either 2 profitable or 5 unprofitable deals in a row. (more…)

    Avoid these Mistakes

      
      Education
    #  #  #  #  #  #

    Common-Mistakes-Don’t trade to trade. Understand that there are 3 positions you can take as a trader: a long position, a short position and a position to NOT be in a position. There will be plenty of trading opportunities that will come along. Don’t give money to the markets simply because you are bored! .

     Avoid trading a strategy without having a good understanding of how the strategy works. What is the typical winning percentage? What is the largest drawdown? In general, high winning percentage strategies have smaller average profits per trade. Lower winning percentage strategies might not have as many winners, but when you are a winner, you typically win big. If you expect your strategy to bring big profits without losses, you can also expect a check made out to “REALITY” to come your way any day.

    Go to top