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Cut your losses short, no questions asked

  
  Education
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The majority of unskilled investors stubbornly hold onto their losses when the losses are small and reasonable. They could get out cheaply, but being emotionally involved and human, they keep waiting and hoping until their loss gets much bigger and costs them dearly.”

William O’Neil

The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliche, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short.”

Victor Sperandeo

Some people say, “I can’t sell that stock because I’d be taking a loss.” If the stock is below the price you paid for it, selling doesn’t give you a loss; you already have it.

William O’Neil

When I became a winner I went from ‘I figured it out, therefore it can’t be wrong’ to ‘I figured it out, but if I’m wrong, I’m getting the hell out, because I want to save my money and go on to the next trade.’”

Marty Schwartz

Be a boss like Schloss

  
  Education
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read100Consider an investor like Walter Schloss who never aspired to be the biggest and kept his fund small but constantly just bought all the cheap stocks he could find and held them until they worked. Schloss earned about 20 percent gross for his investors for almost 50 years simply by buying cheap stocks in bad markets and holding them for long periods of time. He took advantage of the size and time advantage and made an enormous amount of money for himself and his investors.

There is a reason private equity is consistently one of the highest performing asset classes. Investors buy businesses when condition in the economy, or a specify sector, are not very good and they can buy a business at a bargain price. Investors hold them for a full business cycle or two and sell them in five years or so at a huge gain when conditions have improved substantially.

Investors could care less about the ticker tape or the candlestick pattern of a portfolio company and focus only on the business value. This is exactly the approach individual investors need to use to make money in the stock market.

Price and patience is the key to stock market profits. Buy businesses at a cheap stock price and hold them until they are no longer cheap. Ignore the bells, patterns and noise coming from Wall Street.

Your broker may not like it, but your accountant will.

Ten Powerful Psychological Traits of the Rich Trader

  
  Education
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Ten Powerful Psychological Traits of the Rich Trader

  1. They have the ability to admit they were wrong and get out of a trade. They know the place where price proves them wrong.
  2. They have the ability to not only close a losing trade but reverse and go in the other direction when it is called for.
  3. The rich trader is not trying to prove anything about themselves they are focused on making money.
  4. They do not fall in love with an idea, currency, commodity, or stock they will make trades based on price action.
  5. Rich traders know that the market action is their ultimate boss regardless of their opinions.
  6. No matter how sure they are about a trade they still ALWAYS manage the risk.
  7. Rich traders get more aggressive when winning and trade smaller or take a break during a losing streak.
  8. A great trader is one that can admit to anyone that they were wrong.
  9. Rich traders do not believe their own hype, they know they can not really predict the future they can only react to current reality and the probabilities.
  10. Rich traders love what they do, win or lose.

When you are trading like that, it is hard to be beaten. Time is your friend.

Hesitation

  
  Education
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Hesitation-1You are watching a stock that has all the signals you look for in an opportunity. The proper point to enter comes, but you wait. You second guess the opportunity and don’t buy the stock. Or, you bid for the stock at a price that is not likely to get filled if the opportunity does pan out the way you anticipate it will. As a result, you get left behind while the market pushes the stock higher. A short while after the initial entry signal, when the stock has made a decent gain, you decide to finally enter the trade. After all, the market has proven your analysis correct, so you must be smart, and right! Not long after you enter, the stock turns south and you end up with a losing trade. If only you had bought when you first thought about it.

The Solution

This is really just a confidence issue. You are either not confident in your ability to analyze stocks, or you are not confident in the methodology that you are using to pick trades. (more…)

Who was having this NEWS ?

  
Analysis, Education
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http://www.business-standard.com/india/news/ril-loses-bid-for-canadian-firm/388837/

Above is the hrly chart of Reliance (Yesterday’s trading ).From 1030 to 1072…What a rally ?

On 3rd March ,LyondellBasell NEWS was out and stock zooomed from 992 to 1027 level in single session.

-Just think it over :Why this is happening with all companies listed in INDIA ?

-If u hunting to buy some company….is it Bad NEWS for company ?

If u lose …….and if u are not able to get Foreign Company…is it good for Domestic company ?

Technically ,I had written stock looking Hot only.

But who was having this NEWS …that it had has lost out on its $2-billion takeover bid for Calgary-based Value Creation.

-Media is reporting Today morning …so somebody was having this NEWS during trading hrs itself ??

Yes ,Chart indicated 2 days back only…Fiery move on card.

But reasons were known to some Insiders only…..Jai ho !!

Updated at 6:35/17th March/Baroda

Does Failure Motivate you ?

  
  Education
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MOTIVATEI’ve been reading a wondeful book by Jerry Stocking titled Laighing with God.In that book the following dilemma is broght up ,and I’m going to rewrite the conversation a little to make it pertinent to trading/investing.

God :Do you want to win without losing ?

Trader :Of course.

God :If you win ,you must lose as well.But you weren’t honest with me.Your saud that you’d like to just win.If that were the case ,you’d win much  more often.

The possibility of failure motivates you much more than the possibility of success.your whole society thrices on failure  or at least the fear of lossing.If there were not the possibility of losing you could not take any credit for success.Making money in the markets would seen meaningless for you. (more…)

To become a profitable trader, you must

  
  Education
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  • 1. Manage Risk: Learn to trade a manageable portion of you portfolio .Always establish a risk/reward ratio before making a trade. Without the ratio, how do you know your risk?
  • 2. Understand Position Sizing: All traders must learn to know “how much” to trade on each position. Do not overtrade or you will runt he risk of ruin. Position sizing is rule number one of managing risk.
  • 3. Cut Losses: Do not allow losses to run wild. You must learn to cut losses and understand that losses are a part of the game, a large part of the game. Check you ego of winning at the door. We are here to make money, not go undefeated. Play sports if you want to keep score with a record rather than your bankroll.
  • 4. Learn when to Sell: You must learn when to sell. Selling is more important than buying as it ties directly to risk management. Use stops if you haven’t yet developed the discipline to get out at your predetermined stop or profit goal.
  • 5. Average up in Price: I will never hesitate to add shares in a stock that is moving higher  but I always avoid averaging down. Remember, cut losses and never throw good money after bad because we know that’s a quick way to the poorhouse.
  • 6. Have Patience: It takes years to master trading as an advanced skill; even then, you are never done learning or adapting.

My Checklist :During and After the Trade

  
  Education
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checklist-1. What’s your game plan if it goes against you and threatens your survival?

2. Will you be able to get out? Did you take that into account in your workout?

3. More typically, what will you do if it goes way against you and then meanders back to give you a breakeven? Or if it immediately goes for you or aginst you?

4. Would you be willing to take a ½% profit if you get it in the first 10 minutes?

5. Did you test whether taking small opportunistic profits turns a winning system into a bad one?

6. How will unexpected cardinal events affect you like the “regrettably,” or the pre-annnouncement of something you expected for the next open? And what happens if you’re trading an individual stock and the market goes up or down a few percent during the day, or what’s the impact of a related move in oil or interest rates?

7. Are you sure that you have to monitor the trade during the day? If you’re using stops, then you probably don’t have to but then your position size would have to be reduced so much that your chances of a reasonable profit taking account of vig are close to zero. If you’re using 10% of your capital on a trade, they you’ll have to monitor it for survival. But, but, but. Are you sure you won’t be called away by phone calls, or the others? (more…)

Four Trading Fears

  
  Education
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“Ninety-five percent of the trading errors you are likely to make—causing the money to just evaporate before your eyes—will stem from your attitudes about being wrong, losing money, missing out, and leaving money on the table. What I call the four primary trading fears.” -Mark Douglas (Trading int he Zone)

As Mark Douglas points out in his great book about trading psychology is that the majority of traders lose because of wrong thinking, misplaced emotions, and wanting to be right. We know fear and greed drive the market prices far more than fundamentals do. However fear makes traders do the wrong things at the wrong time. Here are four great examples of fear over ruling sound trading strategies.

Here are more thoughts about these four fears:

The fear of being wrong: Traders fear being wrong so much they will hold a small loss until it becomes a huge loss. Even adding to the loss in the hopes of it coming back and getting to even. Don’t do this, holding on to a loser after it hits your predetermined stop loss is like being a reverse trend trader. Do not be afraid of being wrong small be afraid of being wrong BIG.

The fear of losing money: New traders hate to lose money, they do not quite understand yet that they will lose 40%-60% of the time in the long term. We should come to expect the small losses and wait for the big wins patiently. Many times traders fear this so much that they have a hard time taking an entry out of fear of losing. If you can’t handle the losses as part of the business, you can’t trade.

The fear of missing out: The opposite of the fear of losing money is the fear of losing potential profits. This causes traders to watch a stock go up and up, miss the primary trend, then not being able to take it any more and get in late just in time for the trend to reverse and lose money. Trade at your systems proper entry point do not chase a stock because you are afraid to miss out on some profits.

The fear of leaving money on the table: When your trailing stop is hit get out of the trade. If your rules tell you to get out after a parabolic run up and stall then exit. You must be disciplined on taking money off the table while it is there. Being greedy for that last few dollars when your system says to sell could lead to major losses of paper profits. Let your winners run but when the runner gets to tired to continue: bank your profits.

Irrational and Odd Behaviors of Traders

  
  Education
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Anchoring: our habit of focusing on one salient point and ignoring all others, such as the price at which we buy a stock.

Bias Blind Spot: we agree that everyone else is biased, but not ourselves.

Confirmation Bias: we interpret evidence to support our prior beliefs and, if all else fails, we ignore evidence that contradicts it.

Disposition Effect: we prefer to sell shares whose value has increased and keep those whose value’s dropped.

Framing: the way a question or situation is framed can determine your response.

Fundamental Attribution Error: we attribute success to our own skill and failure to everyone else’s lack of it.

Herding: we tend to flock together, especially under conditions of uncertainty.

Illusion of Control: we do things that make us feel in control, even if we’re not.

Loss Aversion: we do stupid things to avoid realizing a loss.

Overconfidence: we’re way too confident in our abilities, which seems to be an in-built bias that we’re unable to overcome without excessive effort.

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