Archives of “tendency” tag

rss

Where Most Of Your Time Should Be Spent

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

Selecting the one or two super trades should consume most of your time. There’s a great deal of work and thinking to be done in comparing markets, finding the best Open Interest play and carefully reviewing the premiums. The average tendency is to rush over this section of trading simply because it seems more productive to look at all the technical wiggle-waggles.

In actuality, as I’ve said so many times, unless you are fundamentally right in your initial selection decisions, all the technical tools will do is get you in trouble. Please devote all your concentration and energies to the selection of your commodities before you give the technical data any consideration at all. Technical data is secondary to screening out the potential big winning trades.

The only technical tool to look at during this screening is the ten week moving average trend line. For a bullish situation it should be slanting up; for a bearish market, it should be slanting down.

by Larry Williams, excerpt from his book, How I Made $1,000,000 Trading Commodities Last Year.

Zero is Bottom

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

The markets have a clearly defined Zero-value. This has several important implications. First, traders often discount the possibility of something becoming absolutely worthless (i.e. going to zero), so the more the price goes down, the greater the traders’ tendency is to believe that it has a higher probability of going up again; therefore the temptation to catch the bottom and go long becomes compelling (despite its irrationality). Traders must realize that how they are hardwired to think as people is not necessarily the way they should think as a trader. There is a reason why 90% of people who attempt to make a living as a trader end up failing and it is not because of intelligence, information, technology or effort. In a nutshell, I believe failure in trading is because of a lack of self-awareness. The solution is to compartmentalize your thinking. When you are interacting in society or at home, let yourself think like a person; but when you sit down to trade, you need to think objectively by evaluating risk/reward as a trader should.

An important lesson

  
  Education
#  #  #  #  #

 

It is that I am, in one sense, ‘wired to lose’. Being of a contrarian mind, I have a tendency to ask ‘why’, to look at the other side of the coin, stay away from the herd, etc. In itself, this isn’t a problem, but trading is as much about getting in as getting out, and looking at my trading behaviour retrospectively I can see that I tend to establish trades that are usually against the consensus or trend with the result that I often have to endure some pain in the short-term; however, when and if the trade eventually goes my way, I am way too quick to close the position, because the contrarian in me is again telling me that the consensus is wrong. I simply don’t give enough room for the trade to carry on. It’s absurd. I know I can’t have it both ways and I realise that I need to have less of ‘me’ in the trade. I’ve only just realised this, so it’s a bit late. Nevertheless, a useful self-analysis if I ever return to trading in a meaningful way.

Benjamin Graham Quotes

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #
  • Individuals who cannot master their emotions are ill-suited to profit from the investment process. – View Quote Details on Individuals who cannot master their emotions are ill-suited to profit…
  • Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble…to give way to hope, fear and greed. – View Quote Details on Most of the time common stocks are subject to irrational…
  • You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right. – View Quote Details on You are neither right nor wrong because the crowd disagrees…
  • Warren Buffett, story from Benjamin Graham: A story that was passed down from Ben Graham illustrates the lemminglike behavior of the crowd: “Let me tell you the story of the oil prospector who met St. Peter at the Pearly Gates. When told his occupation, St. Peter said, “Oh, I’m really sorry. You seem to meet all the tests to get into heaven. But we’ve got a terrible problem. See that pen over there? That’s where we keep the oil prospectors waiting to get into heaven. And it’s filled—we haven’t got room for even one more.” The oil prospector thought for a minute and said, “Would you mind if I just said four words to those folks?” “I can’t see any harm in that,” said St. Pete. So the old-timer cupped his hands and yelled out, “Oil discovered in hell!” Immediately, the oil prospectors wrenched the lock off the door of the pen and out they flew, flapping their wings as hard as they could for the lower regions. “You know, that’s a pretty good trick,” St. Pete said. “Move in. The place is yours. You’ve got plenty of room.” The old fellow scratched his head and said, “No. If you don’t mind, I think I’ll go along with the rest of ’em. There may be some truth to that rumor after all.” – View Quote Details on Warren Buffett, story from Benjamin Graham: A story that was…

6 Personality Traits and impact upon trading

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

* Locus of control – The degree to which a trader believes that the ability to be successful is within his or her control;
* Maximizing tendency – The degree to which individuals seek optimum outcomes from their decisions, not just outcomes that meet or exceed expectations;
* Regret susceptibility – The tendency to look back on outcomes of decisions and focus on negative aspects, creating regret;
* Self-monitoring – People’s tendency to track and control their own thoughts, feelings, and behaviors;
* Sensation seeking – The degree to which people seek varied and stimulating experience;
* Type A behavior – The degree to which individuals are driven to achieve.  (more…)

What Greed and Fear do ?

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

                                                   

 

 What greed and fear do:

  • Not setting a stop when the method requires placing a stop (fear of taking a loss).
  • Moving a stop when it shouldn’t have been moved (fear of taking a loss).
  • Removing a stop when it was already in place (fear of taking a loss).
  • Taking profits too early when the signal to exit has not been given (fear of profits being taken).
  • Taking profits too late when the signal is already given (greed).
  • Chasing the market when the entry is already past or no signal was given (greed of missing profits).
  • Not making the entry when the signal is given (fear of losing again).
  • Buying the pullback that is no longer a pullback but a decline (greed based on judgment that it’s now cheaper) or short selling when the rally is now a continued primary direction (fear of losing).
  • Adding on a losing position, i.e. averaging down (fear of losing).

How does a trader go about trading without fear or greed? Although no one can really trade without them, the emotion will still be there, especially when the position is still on. However he can keep them under control by not acting on them.

                                            There are few solutions to this problem:

  1. Write a trading plan for each and every trade and referring to it when he feels the emotion is overtaking him.
  2. Keep a trading journal with each trade taken along with thoughts and emotions during the open position. Recording these moments will reveal how much or how little control he has over emotions that influence or interfering with his trading method.
  3. Use an automated trading system to avoid interacting and interfering with trading. When no trading decisions have to be taken, there is less of a tendency to interfere.
  4. Once the trade is taken and stops and targets are set, walk away from the trading station or go about with other tasks. Stay close and follow every up and down ticks will increase emotions and will eventually affect trading.
  5. Keep the Profits and Loss (P/L) columns out of the desktop. This is the most important factor of all emotions: counting money. By having it readily available emotion will be exaggerated swinging up and down according the profits or losses going up or down. Removing this information is especially recommended for day traders.
  6. Trade small size until emotions are under control. By doing this, it’s obvious that it’s not about making money but about trading the method properly. The further away the thought of money is, the better the emotions are kept at bay.
  7. If trading is technically-based, focus on the charts, not on the quotes windows. Scalpers spend so little time in a position that using quotes and ticks are a necessity. For other traders, these can only increase emotional states.

10 Pitfalls of Trading & Answers

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

What are the 10 major mistakes that these traders make that cost them dearly?

  1. Having no trading plan

When you don’t have a plan, you don’t have a template to follow. It becomes very costly when your emotions are high and you have to make decisions on the fly.

  1. Using strategies that do not match your personality

You hear of a trading strategy that has worked very well and you are anxious to follow it. One important factor to consider is: does it match who you are and your lifestyle?

  1. Having unrealistic expectations

Most traders assume that it is very easy to make money in trading. They have unrealistic expectations with regard to their initial capital, their risk profile and how much money they can expect to make.

  1. Taking too much risk

Usually when traders are down, they want to make their money back very quickly. Therefore, they increase their position size without thinking about the risk/rewards.

  1. Not having rules to follow

Most traders think if they have rules to follow, they are restricting themselves. It is on the contrary. Having rules allows you to be more flexible since you have thought about lots of issues beforehand.

  1. Not being flexible to market conditions (more…)

Greed, Fear and Irrational Behaviour

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

Where trading and investing in stocks, options, futures, forex, etc are concerned, there is no doubt that people have a tendency to behave strangely. Exhibiting irrational behaviour is common. People come up with all sorts of reasons and excuses for the way they are behaving, even while subconsciously admitting that they are deviating from their plan without valid reason.

The field of Behavioural Finance attempts to interpret and understand why people behave the way they do with financial activities. It is an investigation of how people’s decisions are affected by cognitive errors and emotions. 

Some key points in Behavioural Finance are:

  • The ‘Fear of Regret’ – where people beat themselves up about incorrect decisions or errors of judgement. They avoid this pain by holding onto positions that are moving against them, despite the intelligence that they should exit the trade while the loss is small.
  • People are more upset by potential losses than pleased by wins.
  • People perceive chance wins as trading success.
  • The more people win, whether by method or luck, the more confident they become. This is very dangerous for those who win by luck.
  • People are more exuberant and optimistic on bullish days and depressed and pessimistic on bearish days.
  • People tend to make irrational decisions reflecting biased or wrong beliefs. People have a tendency to cling to beliefs, even when presented with evidence to the contrary. (more…)

Trading Rules :

  
  Education
#  #  #  #  #  #  #  #  #

tradingrules1

  1. We accumulate trading information – buying books, going to seminars and researching.
  2. We begin to trade with our ‘new’ knowledge.
  3. We consistently ‘donate’ and then realize we may need more knowledge or information.
  4. We accumulate more information.
  5. We switch the commodities we are currently following.
    [private] (more…)
Go to top