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Trading commandments

  
  Education
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ten_commandments1.) Respect the price action but never defer to it.

Our eyes are valuable tools when trading, but if we deferred to the flickering ticks, stocks would be “better” up and “worse” down. That’s backward logic.

2.) Discipline trumps conviction.

No matter how strongly you feel on a given position, you must defer to the principles of discipline when trading. Always try to define your risk and never believe you’re smarter than the market.

3.) Opportunities are made up easier than losses.

It’s not necessary to play every day; it’s only necessary to have a high winning percentage on the trades you choose to make. Sometimes the ability not to trade is as important as trading ability.

4.) Emotion is the enemy when trading.

Emotional decisions have a way of coming back to haunt you. If you’re personally attached to a position, your decision-making process will be flawed. Take a deep breath before risking your hard-earned coin. See related link.

5.) Zig when others zag.

Sell hope, buy despair and take the other side of emotional disconnects. If you can’t find the sheep in the herd, chances are you’re it. (more…)

The 10 trading commandments

  
  Education
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1.) Respect the price action but never defer to it.

Our eyes are valuable tools when trading, but if we deferred to the flickering ticks, stocks would be “better” up and “worse” down. That’s backward logic.

2.) Discipline trumps conviction.

No matter how strongly you feel on a given position, you must defer to the principles of discipline when trading. Always try to define your risk and never believe you’re smarter than the market.

3.) Opportunities are made up easier than losses.

It’s not necessary to play every day; it’s only necessary to have a high winning percentage on the trades you choose to make. Sometimes the ability not to trade is as important as trading ability.

4.) Emotion is the enemy when trading.

Emotional decisions have a way of coming back to haunt you. If you’re personally attached to a position, your decision-making process will be flawed. Take a deep breath before risking your hard-earned coin. See related link.

5.) Zig when others zag.

Sell hope, buy despair and take the other side of emotional disconnects. If you can’t find the sheep in the herd, chances are you’re it.

6.) Adapt your style to the market.

Different investment approaches are warranted at different junctures, and applying the right methodology is half the battle. Map a plan before stepping on the field so your time horizon and risk profile are in sync.

7.) Maximize your reward relative to your risk.

If you’re patient and pick your spots, edges will emerge that provide an advantageous risk/reward. There is usually one easy trade per session if you let it show itself.

8.) Perception is reality in the marketplace.

Identifying the prevalent psychology is necessary when assimilating the trading dynamic. It’s not what is, it’s what’s perceived to be that dictates the price action.

9.) When unsure, trade “in between.”

When in doubt, sit it out. Your risk profile should always be an extension of your thought process and when unsure, trade smaller until you establish a rhythm.

10.) Don’t let your bad trades turn into investments.

Rationalization has no place in trading. If you put on a position for a catalyst and it passes, take the risk off — win, lose or draw. Good traders know how to make money but great traders know how to take a loss.

There are obviously more rules but I’ve found these to be common threads through the years. Where you stand is a function of where you sit. So please understand that some of these guidelines may not apply to your particular approach.

As always, I share my process with hopes it adds value to yours. Find a style that works for you, always allow for a margin of error and trade to win, never trade “not to lose.”

And remember — any trader worth his or her salt has endured periods of pain but if we learn from those mistakes, they’ll morph into lessons. For if there wasn’t risk in this profession, it would be called “winning,” not “trading.”

Trading Commandments

  
  Education
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Respect the price action but never defer to it. 
Our eyes are valuable tools when trading but if we deferred to the flickering ticks, stocks would be “better” up and “worse” down and that’s a losing proposition. 
Discipline trumps conviction. 
No matter how strongly you feel on a given position, you must defer to the principles of discipline when trading. Always attempt to define your risk and never believe that you’re smarter than the market. 
Opportunities are made up easier than losses. 
It’s not necessary to play every day; it’s only necessary to have a high winning percentage on the trades you choose to make. Sometimes the ability not to trade is as important as trading ability. 
Emotion is the enemy when trading. 
Emotional decisions have a way of coming back to haunt you. If you’re personally attached to a position, your decision making process will be flawed. Take a deep breath before risking your hard earned coin. 
Zig when others Zag. 
Sell hope, buy despair and take the other side of emotional disconnects (in the context of controlled risk). If you can’t find the sheep in the herd, chances are that you’re it. 
Adapt your style to the market. 
Different investment approaches are warranted at different junctures and applying the right methodology is half the battle. Identify your time horizon and employ a risk profile that allows the market to work for you. 
Maximize your reward relative to your risk. 
If you’re patient and pick your spots, edges will emerge that provide an advantageous risk/reward profile. Proactive patience is a virtue. 
Perception is reality in the marketplace. 
Identifying the prevalent psychology is a necessary process when trading. It’s not “what is,” it’s what’s perceived to be that dictates supply and demand. 
When unsure, trade “in between.” 
Your risk profile should always be an extension of your thought process. If you’re unsure, trade smaller until you identify your comfort zone. 
Don’t let your bad trades turn into investments. 
Rationalization has no place in trading. If you put a position on for a catalyst and it passes, take the risk off—win, lose or draw. 

10 trading commandments

  
  Education
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1.) Respect the price action but never defer to it.

Our eyes are valuable tools when trading, but if we deferred to the flickering ticks, stocks would be “better” up and “worse” down. That’s backward logic.

2.) Discipline trumps conviction.

No matter how strongly you feel on a given position, you must defer to the principles of discipline when trading. Always try to define your risk and never believe you’re smarter than the market.

3.) Opportunities are made up easier than losses.

It’s not necessary to play every day; it’s only necessary to have a high winning percentage on the trades you choose to make. Sometimes the ability not to trade is as important as trading ability.

4.) Emotion is the enemy when trading.

Emotional decisions have a way of coming back to haunt you. If you’re personally attached to a position, your decision-making process will be flawed. Take a deep breath before risking your hard-earned coin. See related link.

5.) Zig when others zag.

Sell hope, buy despair and take the other side of emotional disconnects. If you can’t find the sheep in the herd, chances are you’re it. (more…)

Ten Trading Commandments

  
  Education
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Respect the price action but never defer to it.

The action (or “eyes”) is a valuable tool when trading but if you defer to the flickering ticks, stocks would be “better” up and “worse” down—and that’s a losing proposition. This is a particularly pertinent point as headlines of new highs serve as sexy sirens for those on the sidelines. 
Discipline trumps conviction.

No matter how strongly you feel on a given position, you must defer to the principles of discipline when trading. Always try to define your risk and, above all, never believe that you’re smarter than the market. 
Opportunities are made up easier than losses. 
It’s not necessary to play every move, it’s only necessary to have a high winning percentage on the trades you choose to make. Sometimes the ability not to trade is as important as trading ability.
Emotion is the enemy when trading. 
Emotional decisions always have a way of coming back to haunt you. If you’re personally attached to a position, your decision making process will be flawed. It’s that simple.  (more…)

European Bank Stress Test – Full List of Banks to be Examined

  
Analysis, Economy, Education
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Details of what the much talked about stress test of European banks will examine is out. A total of 91 European banks will be involved in the stress tests (full list of banks being tested are shown below). The test which is being overseen by the Committee of European Banking Supervisors (CEBS) states:

The objective of the extended stress test exercise is to assess the overall resilience of the EU banking sector and the banks’ ability to absorb further possible shocks on credit and market risks, including sovereign risks, and to assess the current dependence on public support measures.

The exercise is being conducted on a bank-by-bank basis using commonly agreed macro-economic scenarios (baseline and adverse) for 2010 and 2011, developed in close cooperation with the ECB and the European Commission.

The macro-economic scenarios include a set of key macro-economic variables (e.g. the evolution of GDP, of unemployment and of the consumer price index), differentiated for EU Member States, the rest of the EEA countries and the US. The exercise also envisages adverse conditions in financial markets and a shock on interest rates to capture an increase in risk premia linked to a deterioration in the EU government bond markets.

On aggregate, the adverse scenario assumes a 3 percentage point deviation of GDP for the EU compared to the European Commission’s forecasts over the two-year time horizon. The sovereign risk shock in the EU represents a deterioration of market conditions as compared to the situation observed in early May 2010.

The scope of the stress testing exercise has been extended to include not only the major EU cross-border banking groups but also key domestic credit institutions in Europe. {…}

The results of the stress test will be disclosed, both on an aggregated and on a bank-by-bank basis, on 23 July 2010.

It should be noted that a stress testing exercise does not provide forecasts of expected outcomes, but rather a what-if analysis aimed at supporting the supervisory assessment of the adequacy of capital of European banks. {…}

We all remember the stress test that was applied to American financial institutions in early 2009. It took months for the Federal Reserve to decide how to conduct the testing and then how to release the results so as not to upset anyone. Will the Europeans tell it like it is, or will they follow Tim Geithner’s past action of ‘just don’t say much’ ?

The full list of European banks that will undergo stress testing:

 

Austria

  • ERSTE GROUP BANK AG
  • RAIFFEISEN ZENTRALBANK OESTERRREICH AG (RZB)

Belgium

  • KBC GROUP
  • DEXIA

Cyprus

  • MARFIN POPULAR BANK PUBLIC CO LTD
  • BANK OF CYPRUS PUBLIC CO LTD

Denmark

  • DANSKE BANK
  • JYSKE BANK A/S
  • SYDBANK A/S

Finland

  • OP-POHJOLA GROUP

France

  • BNP PARIBAS
  • CREDIT AGRICOLE
  • BPCE
  • SOCIETE GENERALE

Germany

  • DEUTSCHE BANK AG
  • COMMERZBANK AG
  • HYPO REAL ESTATE HOLDING AG
  • LANDESBANK BADEN-WÜRTTEMBERG
  • BAYERISCHE LANDESBANK
  • DZ BANK AG DT. ZENTRAL-GENOSSENSCHAFTSBANK
  • NORDDEUTSCHE LANDESBANK -GZ-
  • DEUTSCHE POSTBANK AG
  • WESTLB AG
  • HSH NORDBANK AG
  • LANDESBANK HESSEN-THÜRINGEN GZ
  • LANDESBANK BERLIN AG
  • DEKABANK DEUTSCHE GIROZENTRALE
  • WGZ BANK AG WESTDT. GENO. ZENTRALBK

Greece

  • NATIONAL BANK OF GREECE
  • EFG EUROBANK ERGASIAS S.A.
  • ALPHA BANK
  • PIRAEUS BANK GROUP
  • AGRICULTURAL BANK OF GREECE S.A. (ATEbank)
  • TT HELLENIC POSTBANK S.A.

Hungary

  • OTP BANK NYRT.
  • JELZÁLOGBANK NYILVÁNOSAN M?KÖD? RT.

Ireland

  • BANK OF IRELAND
  • ALLIED IRISH BANKS PLC

Italy

  • UNICREDIT
  • INTESA SANPAOLO
  • MONTE DEI PASCHI DI SIENA
  • BANCO POPOLARE – S.C.
  • UNIONE DI BANCHE ITALIANE SCPA (UBI BANCA)

Luxembourg

  • BANQUE ET CAISSE D’EPARGNE DE L’ETAT
  • BANQUE RAIFFEISEN

Malta

  • BANK OF VALLETTA (BOV)

?Netherlands

  • ING Bank
  • RABOBANK GROUP
  • ABN/ FORTIS BANK NEDERLAND (HOLDING) N.V
  • SNS BANK

Poland

  • POWSZECHNA KASA OSZCZ?DNO?CI BANK POLSKI S.A. (PKO BANK POLSKI)

Portugal

  • CAIXA GERAL DE DEPÓSITOS
  • BANCO COMERCIAL PORTUGUÊS BANCO COMERCIAL PORTUGUÊSS.A. (BCP OR MILLENNIUM BCP)
  • ESPÍRITO SANTO FINANCIAL GROUP S.A. (ESFG)
  • BANCO BPI

Slovenia

  • NOVA LJUBLJANSKA BANKA (NLB)

Spain

  • BANCO SANTANDER S.A.
  • BANCO BILBAO VIZCAYA ARGENTARIA S.A. (BBVA)
  • JUPITER –  CAJA DE AHORROS Y MONTE DE PIEDAD DE MADRID (CAJA MADRID); CAJA DE AHORROS DE VALENCIA, CASTELLÓN Y ALICANTE (BANCAJA); CAIXA DÉSTALVIS LAIETANA; CAJA INSULAR DE AHORROS DE CANARIAS; CAJA DE AHORROS Y MONTE DE PIEDAD DE AVILA; CAJA DE AHORROS Y MONTE DE PIEDAD DE SEGOVIA; CAJA DE AHORROS DE LA RIOJA.
  • CAIXA-  CAJA DE AHORROS Y PENSIONES DE BARCELONA (LA CAIXA); CAIXA DÉSTALVIS DE GIRONA.
  • CAM –  CAJA DE AHORROS DEL MEDITERRÁNEO (CAM); CAJA DE AHORROS DE ASTURIAS; CAJA DE AHORROS DE SANTANDER Y CANTABRIA; CAJA DE AHORROSY MONTE DE PIEDAD DE EXTREMADURA.
  • BANCO POPULAR ESPAÑOL, S.A.
  • BANCO DE SABADELL, S.A.
  • DIADA –  CAIXA DÉSTALVIS DE CATALUNYA; CAIXA DÉSTALVIS DE TARRAGONA: CAIXA DÉSTALVIS DE MANRESA.
  • BREOGAN – CAJA DE AHORROS DE GALICIA; CAIXA DE AFORROS DE VIGO, OURENSE E PONTEVEDRA (CAIXANOVA).
  • MARE NOSTRUM –  CAJA DE AHORROS DE MURCIA; CAIXA DÉSTALVIS DEL PENEDES; CAJA DE AHORROS Y MONTE DE PIEDAD DE LAS BALEARES (SA NOSTRA); CAJA GENERAL DE AHORROS DE GRANADA.
  • BANKINTER, S.A.
  • ESPIGA – CAJA DE AHORROS DE SALAMANCA Y SORIA (CAJA DUERO); CAJA DE ESPAÑA DEINVERSIONES CAJA DE AHORROS Y MONTE DE PIEDAD (CAJA ESPAÑA).
  • BANCA CIVICA, S.A.
  • CAJA DE AHORROS Y M.P. DE ZARAGOZA, ARAGON Y RIOJA
  • ANTEQUERA Y JAEN (UNICAJA)
  • BANCO PASTOR, S.A.
  • CAJA SOL –  MONTE DE PIEDAD Y CAJA DE AHORROS SAN FERNANDO DE HUELVA, JEREZ Y SEVILLA (CAJA SOL); CAJA DE AHORRO PROVINCIAL DE GUADALAJARA.
  • BILBAO BIZKAIA KUTXA,AURREZKI KUTXA ETA BAHITETXEA
  • UNNIM – CAIXA DÉSTALVIS DE SABADELL; CAIXA DÉSTALVIS DE TERRASSA; CAIXA DÉSTALVIS COMARCAL DE MANLLEU.
  • CAJA DE AHORROS Y M.P. DE GIPUZKOA Y SAN SEBASTIAN
  • CAI –  CAJA DE AHORROS Y MONTE DE PIEDAD DEL CÍRCULO CATÓLICO DE OBREOS DEBURGOS (CAJA CÍRCULO); MONTE DE PIEDAD Y CAJA GENERAL DE AHORROS DE BADAJOZ; CAJA DE AHORROS DE LA INMACULADA DE ARAGÓN.
  • CAJA DE AHORROS Y M.P. DE CORDOBA
  • BANCA MARCH, S.A.
  • BANCO GUIPUZCOANO, S.A.
  • CAJA DE AHORROS DE VITORIA Y ALAVA
  • CAJA DE AHORROS Y M.P. DE ONTINYENT
  • COLONYA – CAIXA D’ESTALVIS DE POLLENSA

Sweden

  • NORDEA BANK
  • SKANDINAVISKA ENSKILDA BANKEN AB (SEB)
  • SVENSKA HANDELSBANKEN
  • SWEDBANK

?United Kingdom

  • ROYAL BANK OF SCOTLAND (RBS)
  • HSBC HOLDINGS PLC
  • BARCLAYS
  • LLOYDS BANKING GROUP

Dealing with entry timing

  
  Education
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How do you personally get around from being “too early” or “too late” on an entry?

There are a few things that have helped me get over missing a trade or “being right” and not making money.

  • Opportunity vs profit. I thought the market owed me profits.  Now, I see the bars on the chart not as profit but an opportunity to profit.  The market does not owe me anything.  I owe it to myself to execute my plan to the best of my ability.  Good things happen.
  • Important feedback. If a trade develops in a way that I had not anticipated, it means I did not notice a change.  It is now up to me to understand why or determine it was an aberration.  Either way the market is giving me valuable feedback.
  • Unlimited time horizon. One of the side effects of trading is missing trades.  It is something that you have to get over.  It is a fact of life.  The next trade is always more important than the last one.  You should have more experience and knowledge, right?  Knowledge of yourself, the market, and the interaction between the two.

Said in one sentence.  I get over missing trades because I do not have a sense of entitlement, willing to use the feedback, and know that it is just one trade in 1000′s or hopefully 10,000′s.

Have a plan for every trade and ask yourself

  
  Education
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  • What is my criteria for entering this position? – Ideally this has been tested or proven over time.
  • How much I’m I willing to risk in order to be right? – This will help you determine the appropriate position size, and let you be comfortable if you need to take a loss. 
  • When will I take profits? – Yes you can let your profits run, but there’s nothing worse that letting a nice winning position turn around into a loser. Fixed exits can be very effective and depending on the strategy, and it might be more effective to take profits at times.
  • How will I determine when the conditions for entering a trade have changed? – Regardless of whether you use technical or fundamental analysis, it’s important to know when your reasons for entering a trade are no longer valid.
  • What is my time horizon? – How long do you expect a trade to last? This can give you a basis for closing a position if the move that you expected doesn’t occur. This will also help ensure that trading capital isn’t tied up when it can be used on better opportunities.
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