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6 Key Ideas For Traders

  
  Education
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1). The typical trader who is struggling will look for outside information that completes the puzzle or “holy grail” of trading. Go and look at yourself in the mirror. This is the missing piece in the trading puzzle.

2). Mental rehearsal (of both positive and negative scenarios), positive imagery, inducing a relaxed state of mind, and developing daily rituals can help put you in the flow state of mind for trading.

3). The most important question a trader can ask: “Am I acting in my own best interest right now?”. Menaker explains why this question will help you define your risk and maximize your opportunities and trading results.

4). The very largest traders are focused primarily on risk management. Accepting and managing risk is a big part of trading. Some traders have difficulty following rules in this area. We should spend time learning about the mental biases humans have against suffering losses (see: Prospect Theory) and become aware of these showing up in our trading. Keep a trading journal to highlight awareness of these events.

5). “If I was forced to rank the importance of [various aspects] of trading, setups would be at the bottom of the list. Position sizing, risk management, and psychology are really what’s going to keep you out of trouble and ahead of the game. The best traders understand this and have internalized it.”.

6). You need to learn to do more of what works and less of what doesn’t. While it sounds obvious, many traders have difficulty with this as their unmanaged emotions are interfering with their perceptions and trading process.  

THE STOCK TRADER’S TWO DEEP SEATED INSTINCTS

  
Analysis, Education
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One of the stock market classics that should be on every speculator’s bookshelf is Edwin Lefevre’s Reminiscences of a Stock Operator.  Written in 1923, you may assume its contents have scant application to the more sophisticated traders of today.  That assumption could not be farther from the truth, for while technology may change and access to information may level the playing field in many respects, human nature hasn’t changed, especially when it comes to managing risk and the uncertainty associated with it.

While I could list many pertinent Lefevre quotes here, one that affects all of us in one way or another is the following.

TWO DEEP-SEATED INSTINCTS (more…)

Why Most Investors and Nearly All Traders Lose Money

  
  Education
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I strongly suggest that you do not confuse being an Investors with being a Trader. I’ve been pointing out for many years that the Stock Market is greatly influenced by day-traders, flash-traders, program-trading firms, in for quick trades of a few hours, a couple of days at most, and back out again. That’s not Investing and certainly not Investing Wisely.

The problem for Investors is that they have for decades, for the most part, considered themselves to be Buy and Hold Investors, (married to the stocks and mutual funds) through both good times and bad. When they finally get discouraged, (and they do!)they get out, usually due to large losses, and they tend to stay out for very long periods. An excellent current example is / are those who have been on the sidelines since the big bear market plunge of October 2007 through early last year, not enticed back in for even part of the new bull market of last year plus.

They (Mutual Fund Investors) tend to listen to Wall Street saying they need to have a long-term perspective when their stocks and mutual funds are plunging 25% – 50% and more, and so hold on. When they do decide to ‘reposition’ their portfolio they tend to listen to mutual fund managers, and brokerage firm sales persons and spokesmen on TV shows and in magazines, advising them to buy a stock that should be 30% higher 24 months from now, without considering that it might first be 30% lower three or more months from now.

Historically (way back when) Buy and Hold strategies and long-term outlooks work well in secular bull markets, when there is /was much less downside risk, when bear markets are more spaced out, less severe, and short-lived. In secular bull markets the long term trend is up, and when bear markets end the market ‘comes back’ to its previous high in the next cyclical bull market and continues on to still higher highs, continuing to be interrupted by only occasional mild bear markets.

Those days are gone and possible gone forever.

It’s the cyclical bull markets that are temporary, not exceeding previous highs before the next cyclical bear market takes the market back down again. In both secular and cyclical bear markets Buy and Hold is probably the worst imaginable investment strategy. Not only does it not produce gains, but even the most determined Buy and Hold investors are likely to give up with the worst of timing, after their losses have become larger than they can handle either financially or emotionally. (more…)

Paul Ciana, New Frontiers in Technical Analysis (Book Review )

  
  Education
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New FrontiersThe six chapters in this book are written by six different authors: “Evidence of the Most Popular Technical Indicators” (Paul Ciana), “Everything Is Relative Strength Is Everything” (Julius de Kempenaer), “Applying Seasonality and Erlanger Studies” (Philip B. Erlanger), “Kase StatWare and Studies” (Cynthia A. Kase), “Rules-Based Trading and Market Analysis Using Simplified Market Profile” (Andrew Kezeli), and “Advanced Trading Methods” (Rick Knox).

Ciana provides some fascinating data about the preferences of those who use the Bloomberg Professional Service. For instance, Europe opts for log charts 47% of the time and Asia only 9% of the time. Asia prefers candlestick charts, the Americas bar charts. Worldwide the most popular technical indicators (excluding moving averages) are RSI, MACD, Bollinger bands (BOLL), stochastics (STO), directional movement index (DMI), Ichimoku (GOC), and volume at time (VAT). RSI is the clear winner, with a 44.4% worldwide preference; MACD comes in second at 22%. Some indicators have geographical ties. GOC has a 10.8% popularity rating in Asia as opposed to 2.5% in the Americas and 2.8% in Europe. VAT has a 5.3% rating in the Americas and only 1.8% in Europe and 1.6% in Asia.

VAT, for those who are unfamiliar with it, is something of a seasonal indicator. For instance, “from a historical perspective, VAT considers the volume that has occurred on that day over the past X years to create the average for that day. … From an intraday perspective, VAT creates an average of volume from the actual volume that occurred during that time-slice for the past X days. In both applications VAT can be projected into the future to get an idea of expected volume.” (p. 37)

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Day Trading Lessons..

  
  Education
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analogyTo use a life insurance analogy, most people who become involved in the stock market don’t know the difference between a 20 year old and an 80 year old. Investing in the market without knowing what stage it is in is like selling life insurance to 20 year olds and 80 year olds at the same premium.

NEWS-You can’t listen to the news. You have to go with the facts. You need to use a logical approach and have the discipline to apply it. You must be able to control your emotions.

20 Insights from Peter Lynch

  
  Education
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1. Invest In What You Know

This is where it helps to have identified your personal investor’s edge.  What is it that you know a lot about?  Maybe your edge comes from your profession or a hobby.  Maybe it comes just from being a parent.  An entire generation of Americans grew up on Gerber’s baby food, and Gerber’s stock was a 100-bagger.  If you put your money where your baby’s mouth was, you turned $10,000 into $1 million.

2. Let Your Winners Run

It’s easy to make a mistake and do the opposite, pulling out the flowers and watering the weeds.  If you’re lucky enough to have one golden egg in your portfolio, it may not matter if you have a couple of rotten ones in there with it.  Let’s say you have a portfolio of six stocks.  Two of them are average, two of them are below average, and one is a real loser.  But you also have one stellar performer.  Your Coca-Cola, your Gillette.  A stock that reminds you why you invested in the first place.  In other words, you don’t have to be right all the time to do well in stocks.  If you find one great growth company and own it long enough to let the profits run, the gains should more than offset mediocre results from other stocks in your portfolio.

3. On Growth Stocks

There are two ways investors can fake themselves out of the big returns that come from great growth companies.  The first is waiting to buy the stock when it looks cheap.  Throughout its 27-year rise from a split-adjusted 1.6 cents to $23, Walmart never looked cheap compared with the overall market.  Its price-to-earnings ratio rarely dropped below 20, but Walmart’s earnings were growing at 25 to 30 percent a year.  A key point to remember is that a p/e of 20 is not too much to pay for a company that’s growing at 25 percent.  Any business that an manage to keep up a 20 to 25 percent growth rate for 20 years will reward shareholders with a massive return even if the stock market overall is lower after 20 years.
The second mistake is underestimating how long a great growth company can keep up the pace.  In the 1970s I got interested in McDonald’s.  A chorus of colleagues said golden arches were everywhere and McDonald’s had seen its best days.  I checked for myself and found that even in California, where McDonald’s originated, there were fewer McDonald’s outlets than there were branches of the Bank of America.  McDonald’s has been a 50-bagger since. (more…)

The Technical Aspects of Trading Emotions- Anirudh Sethi

  
Analysis, Education
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Image result for Trading EmotionsEach seminar and book will disclose to you that controlling your feelings and have taught in your trading are fundamental to your prosperity. In any case, nobody reveals to you how to accomplish passionate control and individual teachers while trading the market. Each trader sees the market distinctively in light of the fact that our past, our present lives, and our discernments are special. Understanding those things about yourself and tackling their impact on your trading will enable you to continue trading substances free of enthusiastic flotsam and jetsam. Here are a few stages that will have any kind of effect. You should adopt a specialized strategy to your feelings and teach preparing similarly as you adopt a specialized strategy to dissecting a stock outline. However, before we get into the coordination of how to control feelings, you should see a few rudiments of why some market members have strong control of their feelings while others don’t. Experience considerable difficulties recently? Is it true that you are getting a handle on worried about it? Assuming this is the case, you may find that a lot of the proposals you ordinarily get to enable you to the center are not doing a mess of good. You have been adhering to your trading technique as well as can be expected and endeavoring to trade with train, yet things still are not working out. You continue losing trades in any case, and you have a feeling that your entire basic leadership handle is a wreck.

Trading Emotion is Required to Understand Market Vibrations

All value activity in stocks is fundamentally reliant on enthusiastic responses from differing market members. Without feelings, cost sits level. There are numerous degrees of passionate surges, influxes of happiness and covetousness, and floods of frenzy and sadness that drive costs up or down. What’s more, dependable inside those waves are the executioner tear tides that originate from the individuals who have figured out how to control feelings and wipe out the individuals who don’t have control. At last, achievement in the market is a mix of foreseeing the following move and the moves of the various market members who may enter that stock, and decide when you ought to take an interest. Shockingly, most traders trade the market not as though they were playing chess with the many-sided quality of the game of poker. However, they were in Las Vegas, betting on a roulette wheel. On occasion this way, you now and then need to handle the intense subject matters which are throwing you off track before you begin managing specialized parts of the circumstance. Possibly you are making blunders with your trading framework and how you utilize your pointers, yet you might not be able to settle those mistakes in your present mental state. You just can’t see obviously when your brain is a jumble of enthusiastic debris. In the event that that is your circumstance, I prescribe that you went through an enthusiastic agenda before you proceed. You should recognize any enthusiastic injuries which might be meddling in your trading, and afterward, make sense of regardless of whether those injuries are no less than one reason for your present issues. In the realm of stock trading, there are Master Traders who have control over their feelings and after that, there are the Gambler traders who purchase and offer construct absolutely with respect to feeling whether they understand it or not. A Master Trader joins the expertise of a chess player who envisions a rival’s moves and plans his own particular well ahead of time and furthermore utilizes the poker player’s reign in never uncovering his hand he uncovers it. A card shark is basically responding to his feelings without rationale or thinking ahead in what he does. Market members who trade the market with the ability of a Master Chess Player–anticipating value activity days, weeks, and months ahead of time; fusing the ‘never uncover your hand’ part of poker–have the extraordinary favorable position over speculator traders. They have control over their feelings and thus control over how they trade. The card shark trader is simply tossing money at the market and trusting something will go their direction. (more…)

25 Rules of Trading Discipline

  
  Education
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  1. The market pays you to be disciplined.
  2. Be disciplined every day, in every trade, and the market will reward you. But don’t claim to be disciplined if you are not 100 percent of the time.
  3. Always lower your trade size when you’re trading poorly.
  4. Never turn a winner into a loser.
  5. Your biggest loser can?t exceed your biggest winner.
  6. Develop a methodology and stick with it. don?t change methodologies from day to day.
  7. Be yourself. Don?t try to be someone else.
  8. You always want to be able to come back and play the next day.Once you reach the daily downside limit, you must turn your PC off and call it a day. You can always come back tomorrow.
  9. Earn the right to trade bigger. Remember: if you are trading poorly with two lots you must lower your trade size down to a one lot.
  10. Get out of your losers.
  11. The first loss is the best loss.
  12. Don?t hope and pray. If you do, you will lose.
  13. don?t worry about news. it?s history. (more…)

Advice To Traders From The Year 1923

  
  Education
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Your biggest enemy, when trading, is within yourself. Success will only come when you learn to control your emotions. Edwin Lefevre’s Reminiscences of a Stock Operator (1923) offers advice that still applies today.

  1. CautionExcitement (and fear of missing an opportunity) often persuade us to enter the market before it is safe to do so. After a down-trend a number of rallies may fail before one eventually carries through. Likewise, the emotional high of a profitable trade may blind us to signs that the trend is reversing.
  2. PatienceWait for the right market conditions before trading. There are times when it is wise to stay out of the market and observe from the sidelines.
  3. ConvictionHave the courage of your convictions: Take steps to protect your profits when you see that a trend is weakening, but sit tight and don’t let fear of losing part of your profit cloud your judgment. There is a good chance that the trend will resume its upward climb.
  4. DetachmentConcentrate on the technical aspects rather than on the money. If your trades are technically correct, the profits will follow. 
    Stay emotionally detached from the market. Avoid getting caught up in the short-term excitement. Screen-watching is a tell-tale sign: if you continually check prices or stare at charts for hours it is a sign that you are unsure of your strategy and are likely to suffer losses.
  5. FocusFocus on the longer time frames and do not try to catch every short-term fluctuation. The most profitable trades are in catching the large trends. (more…)

The Art of the COMEBACK in Trading

  
  Education
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Just about every new trader who launches into trading before doing the proper homework ends up ‘blowing up their account’ which is generally considered suffering a 50% or greater draw down from their original equity starting point. Some of the signs of being in danger is just trading your opinion with no regard to finding  a proven methodology to trade. New traders in danger have no trading plan, no understanding of risk/reward ratios or even more importantly the odds of their own risk of ruin based on their position sizing and capital at risk in every trade. They also have no idea of what their advantage is over all other participants, they have no edge. The main angle of their trading is simply their own unwarranted belief in their own cleverness. Danger! Danger! This random trading is pure gambling and we know how few gamblers leave the casino with their winnings.

Many new traders, even many of the greatest legends of trading initially blow up their accounts, learn many lessons and do come back and win. Here are the 10 lessons that enable many losing traders to come back in the game and end up with six figure accounts or even millions from some simple changes in strategy.

  1. Risk no more than 1% of your total trading capital per trade. Use stop losses from your initial entry.
  2. Only enter a trade when you believe that the profit potential is much greater than the down side based on historical performance.
  3. Learn to read what a chart is saying, trade the actual chart action not your own beliefs.
  4. Create a defined trading plan listing what you will do before the trading day begins, position sizing, entry points, risk per trade, your watch list, etc.
  5. Discipline yourself to follow the plan you create.
  6. Trade a size you are comfortable with, one that does not bring in strong emotions that distort your trading.
  7. Treat all your capital as your money, do not get reckless with ‘the houses money’ after some nice wins.
  8. Be a smart trader not a random gambler. Treat trading like a business.
  9. Quit believing stocks are too high or too low, stocks are at all time highs or lows for a reason and tend to continual on that path.
  10. Trade with the trend because you do not have a crystal ball.
  11. Have a strong faith in your ability as a trader AFTER you have done your homework.
  12. Develop complete confidence in your trading methodology AFTER you have researched  historical performance. (more…)
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