rss

The 15 Truths about Great Trading

 1) 45-55% (Average winning % of any given trader)

 2) Traders do not mind losing money, they mind losing money doing stupid things

 3) You can lose money on a Great trade  

4) Focus on the Trade, Not the Money  

5) Trading is a game of Probabilities, not Perfection  

6) Trade to make money, not to be right  

7) Nicht Spielen Zum Spass (if it doesn’t make sense, don’t do it)  

The market does not know how much you are up or down, so don’t trade that way (Think: “If I had no trade on right now, what would I do”)  

9) Learn to endure the pain of your gains  

10) There is no ideal trader personality type  

11) Fear and Fear drive the markets, not fear and greed  

12) Keep it simple: Up-Down-Sideways  

13) Make sure the size of your bet matches the level conviction you have in it (No Edge, No Trade; Small Edge, Small Trade; Big Edge, Big Trade)  

14) Making money is easy, keeping it is hard  

15) H + W + P = E

 a. (Hoping + Wishing + Praying = Exit the Trade!) 

15 Truths about Trading

1) 45-55% (Average winning % of any given trader)

 2) Traders do not mind losing money, they mind losing money doing stupid things

 3) You can lose money on a Great trade

 4) Focus on the Trade, Not the Money

 5) Trading is a game of Probabilities, not Perfection

 6) Trade to make money, not to be right

 7) Nicht Spielen Zum Spass (if it doesn’t make sense, don’t do it)

 The market does not know how much you are up or down, so don’t trade that way (Think: “If I had no trade on right now, what would I do”)

 9) Learn to endure the pain of your gains

 10) There is no ideal trader personality type

 11) Fear and Fear drive the markets, not fear and greed

 12) Keep it simple: Up-Down-Sideways

 13) Make sure the size of your bet matches the level conviction you have in it (No Edge, No Trade; Small Edge, Small Trade; Big Edge, Big Trade)

 14) Making money is easy, keeping it is hard

 15) H + W + P = E

a. (Hoping + Wishing + Praying = Exit the Trade!)

Herd Mentality

“Making money is easy, it is keeping it that is hard.” 

Keeping the profits is what successful trading is all about. It’s not about making money. It is about risk management. Good risk management translates into good profits. Great risk management translates to great profits and a long-term career.

So what about the herd mentality?

You have all heard about it over the years. Psychologists talk about it all the time, but how does it play out in the applied trading world?

The cliché is that following the herd is dangerous – bad for trading and leads to huge losses.

But my perspective is different and one that states that following the herd is  bad only if it was not YOUR game plan. You see, traders don’t mind losing money. That’s right. They don’t. What they mind is losing money doing stupid things. And one of the stupidest things a trader can do is to follow someone else’s game plan instead of their own.

If you are going to lose money (and you are going to about half the time) then you might as well lose it doing the right thing, which is listening to YOUR ideas. Your instincts. Your research and YOUR game plan.

Trading is not complicated. We make it complicated.

Simplify the process. Break your trading down to its basics and follow your plans. And if your plans happen to be in line with the herd, then so be it. And if they don’t, that is fine too. The point is to be consistent in your approach and let the market come to you.

Irrational and Odd Behaviors of Traders

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.

Twenty Six Market Wisdoms from Warren Buffett

1. It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.26WB

2. Chains of habit are too light to be felt until they are too heavy to be broken.

3. Risk comes from not knowing what you’re doing.

4. Only when the tide goes out do you discover who’s been swimming naked.

5. If past history was all there was to the game, the richest people would be librarians.

6. I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.

7. It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price

8. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful

9. Time is the friend of the wonderful business, the enemy of the mediocre. (more…)