Archives of “Trade” tag

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36 Points For Traders

  
Analysis, Education
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  1. You absolutely have to find a vent to release pressure and adrenaline – sports, drinking, painting, anything that helps.
  2. If you can manage to find a mentor in which you believe, you will make it much faster.
  3. Your trading style has to fit your personality and your lifestyle, or cognitive dissonance will get the better of you.
  4. Meditation sucks, doesn’t work for me.
  5. Overtrading is your death.
  6. Once you are comfortable missing a move, you will be able to trade profitably.
  7. Not trading the news does not make sense at all – during news there is real liquidity and a real interest to push prices in one way or another. Let the market show its hand, then get in.
  8. Let it turn, let price create structure, THEN get in, with the structure as protection in your back.
  9. Don’t system hop, but adapt the system of your choosing to your needs.
  10. Don’t trade overleveraged.
  11. Yes, it is possible to turn a small account into a huge account, but don’t expect it to happen overnight, and don’t expect to be able to do it before your fifth (or so) year of trading.
  12. Some are faster, some are slower, some will never get it.
  13. Risk per trade is a function of the volatility of your strategy and your psychological ability to deal with swings in your equity.
  14. Know exactly why you are trading, and what you want to achieve – which career path will be yours?
  15. Daytrading is not easier than swingtrading or vice versa. They both simply require different skillsets, different abilities (yes, some people are just too slow for daytrading) and different preparation routines.
  16. Trust your gut. Absolutely love the trade? Get in. Don’t love it? Just stay out.
  17. No pain, no gain. Demo trading is ok, but don’t do it for too long. Risk micro amounts of money, get used to losing money. Because you will lose for the rest of your life if you want to be a trader. It’s part of the game. You “just” need to win more than you lose.
  18. Listening to music while trading can be a good thing – just know yourself. If I listen to aggressive music in the car, I will push the pedal to the metal. The same happens when trading.
  19. Have a trading journal and review, review, review.
  20. Work on your psychology, but don’t underestimate the power of knowledge. Fear stems from not knowing. Work hard, know more, be more confident. Most psychological issues will dissolve into thin air.
  21. Yes, I said: don’t system hop. But for the first year or two, try out everything you can. Every market, every strategy, every trading style. How can you know what fits your personality if you don’t know what’s out there? Finally, decide and take the leap of faith.
  22. Screen time alone won’t help you. Again: review. REVIEW! You need an effective feedback loop or you will repeat the same mistakes again, and again, and again. There is no learning by doing in trading.
  23. You don’t need to be hyper intelligent to be a trader. The best traders I know are “simple” minds. They do what works, they have no ego, and they disregard what does not make sense to them.
  24. Do not have monetary goals. Have process-oriented goals.
  25. Do not look at your P&L during your trading session or you WILL trade your P&L. Before and after a trading session, the money in your account is money, yes. During the session, however, the money in your account is ammunition that has to be spent in order to acquire more ammunition, if that makes sense.
  26. Trading with the trend is not easier than trading against the trend. Trading with the trend is the last thing I learned and every single trader I know seems to have the hardest time following a trend.
  27. If you want to pay for education, do your research. It is very possible to differentiate the scammers from the real traders. If something sounds too good to be true, run as fast as you can.
  28. Never forget to be grateful at the end of the day. You are given the chance to make money by clicking a mouse from the comfort of your home. How many people on earth can say the same?
  29. Trading fulltime is often romanticized but can quickly turn into a social nightmare. Keep up that work-life-balance.
  30. Find other mental challenges for your brain than trading. Feeding your body McDonalds everyday will, and nothing else, will kill you. Trading every day without reading a good novel once in a while will make you braindead.
  31. Likewise, there are lots of videos on Youtube with quite good content. You need to find a way to distinguish the goodies from the baddies.
  32. Don’t be mistaken, trading is gambling. You want to be a professional gambler? Make up your mind.
  33. A structured pre-trading routine is one of the best things you will ever do in your career as a trader. Take your time to create and establish it.
  34. Learn your basic and classic price patterns such as Head & Shoulders, Wedges, Triangles, etc. It takes a week to get them all into your head and you will profit from that knowledge for years to come.
  35. Never pick tops and bottoms. Take the middle of the moves and your results will improve.
  36. Believe in your abilities and trust your strategy or you will be destroyed.

That’s it for now. I have plenty more of these in my tattered and very, very old notebook. Which do you agree with, which not? Do you want more of my wartime wisdoms? Let me know in the comments below!

Beyond Pattern Identification

  
Analysis, Education
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What does it take to be successful long-term? Two observations:
“The most successful market participants find a limited number of patterns that have favorable odds of success and repeat the trading of these often, with moderate risk placed in any trade. They win by acting as the house, not as the gambler. They win by taking consistent bets and harvesting returns from favorable odds. They don’t win by making the big bets and big scores. There is remarkably little drama– surprisingly little wizardry–among those who sustain success in financial markets. In the words of Lopez de Prado, their trading desks are more like laboratories than the platforms of gurus. Diversification and disciplined execution explain much of their returns.” – Brett Steenbarger

“Investing is kind of a game of connecting the dots. The nice thing about it is the longer you are in the business, as long as you are intellectually curious, your collection of data points of dots gets bigger and bigger. That is where someone like Warren is just incredible. He has had a passion for investing for well over 70 years. He started by the age of 10 or 12. He keeps building that library of data, the ability to recognize patterns in data. Being a successful investor you need to be hungry, intellectually curious, interested, and read all the time. You need a certain level of randomness in order to connect things that might give you an insight into where a business is going in five years that somebody else might not see.” – Ted Weschler

Bull Markets vs Bear Markets

  
  Education
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Bull Markets: Fear of missing out.
Bear Markets: Fear of being in.

Bull Markets: Everything I buy is going up — I’m a genius.
Bear Markets: Everything I buy is going down — I’m an idiot.

Bull Markets: See, fundamentals always win out.
Bear Markets: See, technicals and sentiment rule the markets.

Bull Markets: I knew I should have had more of my portfolio in stocks.
Bear Markets: I knew I should have had more of my portfolio in bonds.

Bull Markets: That guy’s been calling for a crash for years — he’s an idiot.
Bear Markets: That guy just called the crash — he’s a genius.

Bull Markets: I want to be a long-term buy and hold investor.
Bear Markets: I want to be a short-term trader. (more…)

Why Trading is Difficult

  
  Education
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difficult-11. Need to internalize lots of trading simulation of specific set-ups in real-time to trade effortlessly
2. Need to trust money management system to weather +10 losses in a row
3. Tuff to internalize that its the 5-6 huge monthly runners that is the big pay-off days
4. Must master +3 trade set-ups to make money consistently month to month.
5. It takes considerable time to mathematically think and act like a trader
6. Trading is a performance skill which requires mastery of every element of trading
7. It requires time capital and considerable effort to achieve the experience to make it effortless and automatic
8. It takes several attempts at different trading methodology to sync with a trader’s personality and cognitive strengths
9. It takes time to set and internalize specific rules that embed a sense of mastery
10. To survive in trading requires weathering the lengthy learning curve

5 Market Insights from Paul Tudor Jones

  
Analysis, Education
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Paul Tudor Jones is one of the most emblematic figures in the hedge fund industry. His best percentage returns happened during severe market corrections: 126% after fees in 1987 when U.S. markets lost a quarter of their market cap in one day. 87% in 1990 when the Japanese stock market plunged. 48% during the tech crash of 2000-2001. He returned 5% in 2008. His funds have underperformed in the past 8 years. He charges 2.75% management fee and 27% performance fee, which significantly above the industry average of 2 and 20.

Outside of financial markets. PTJ founded the Robin Hood foundation, which attempts to alleviate problems caused by poverty in NYC.

The biggest conundrum when studying successful money managers is do you pay attention to what they are doing today or do you focus on what they were doing before they became widely popular, were managing a lot less money and had a lot higher returns?

Here PTJ talks about how new powerful trends often start – basically, a big price expansion from a long base.

The basic premise of the system is that markets move sharply when they move. If there is a sudden range expansion in a market that has been trading narrowly, human nature is to try to fade that price move. When you get a range expansion, the market is sending you a very loud, clear signal that the market is getting ready to move in the direction of that expansion.

PTJ on risk management

If I have positions going against me, I get right out; if they are going for me, I keep them… Risk control is the most important thing in trading. If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in.

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20+20 Trading Wisdom From Ed Seykota

  
  Education
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Ed Seykota wisdom:

  • “If I am bullish, I neither buy on a reaction, nor wait for strength; I am already in. I turn bullish at the instant my buy stop is hit, and stay bullish until my sell stop is hit. Being bullish and not being long is illogical.”
  • “Fundamentalists figure things out and anticipate change. Trend followers join the trend of the moment. Fundamentalists try to solve their feelings. Trend followers join their feelings and observe them evolve and dis-solve.”
  • “The feelings we accept and enjoy rarely interfere with trading.”
  • “Systems don’t need to be changed. The trick is for a trader to develop a system with which he is compatible”
  • “It can be very expensive to try to convince the markets you are right.”
  • “There are old traders and there are bold traders, but there are very few old, bold traders.”
  • “I would add that I consider myself and how I do things as a kind of system which, by definition, I always follow.”
  • “Systems trading is ultimately discretionary. The manager still has to decide how much risk to accept, which markets to play, and how aggressively to increase and decrease the trading base as a function of equity change.”

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What Does A Trader Do ?

  
  Education
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smile-cute

One thing that I couldn’t accept as an attorney (for the five minutes I seriously considered that as a profession) was that I’d be confronted with the temptation to make money from projects and clients with whom I did not want to work. The wealth that is created from doing a law-job is wealth that comes from the support of, allegiance to, and active promotion of a client’s business. (more…)

Fifteen truths about options trading

  
Analysis, Education
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  1. I believe that successful options trading requires a different mindset from the traditional “rules of success” for most directional traders in stocks and futures products.
  2. First and foremost, I believe you need to take profits early and often. We’ve all been hit over the head ad nausem about the old maxim “cut your losers short and let your winners run.” This is a truth I believe holds true for most directional traders, but I don’t believe it holds any currency with consistently successful options traders.
  3. Speaking of direction, I believe nobody knows the next direction the instrument you trade will move. Nobody. Plenty have ideas and hunches, and often they’ll be right. But the truth is, a coin flip has nearly identical odds. This is why I trade options positions that either don’t require me to guess a direction, or provide me with plenty of opportunity to make money even when I’m leaning in the wrong direction.
  4. Immediately contradicting the item above, I believe in fading moves (especially, violent down moves). The best traders and investors are willing to put on positions the majority of market participants find hard to put on due to fear. Since the majority of market participants are net losers, I’ve got to find more opportunities to join the minority.
  5. I believe in contradictions. I believe in breaking the rules. Rules are guidelines, nothing more. Nobody got ahead in this world by following the rulebook and not daring to make mistakes or look like an ass from time to time.
  6. I believe in getting paid to wait. Time is money. Wherever possible, I want to have positive theta on my side. The odds are with me whenever this is the case.
  7. Speaking of odds, I believe in frequent trading. Common wisdom wants you to believe that “over-trading” is the common cause of death for most retail trading accounts as commissions steadily drain your account. In many cases this is true (especially if your commission rate is obnoxious). But for me, I’m putting on trades with the probabilities in my favor. The more instances of opportunity I can get myself into, the more the law of large numbers and favorable probabilities will materialize to my bottom line.
  8. In order to trade frequently, I believe in trading incredibly small so that I can spread my opportunity across as many instruments as possible, diversifying my risk. Call me “One-lot Seany.” I’ll proudly wear that name tag.
  9. I believe that volatility retraces from spikes or reverts to the mean much quicker and predictably than most would have you believe. Thus, I believe in selling fear. Fear subsides.
  10. I don’t believe in stop losses. I believe in adjustments. Options trading gives you, um…. options. When positions go against me, all is not lost. Often times, there will be plenty of opportunity to roll strikes to collect additional credit which improves my odds of success, or roll positions out in time to in effect “buy myself more time” for the trade to play out.
  11. The reason adjustments work: I seek to enter credit spreads when volatility is elevated (see #9 above). Therefore, if my position is getting tested on the upside, volatility will likely be shrinking which further aids my short volatility position. If I’m getting tested on the downside, volatility is likely remaining high (or increasing!) which gives me more juicy premium to sell into, which then results in collecting more cash and effectively lowers my breakeven points on the downside, thus improving my odds of success.
  12. I believe in net market neutral exposure for my portfolio.
  13. To help achieve neutral exposure, I believe I should always have a short delta (but positive theta — paid to wait) position in the general indexes. Since the majority of my individual positions will be short volatility and benefit from a stable or slowly rising market, I need to have short index positions which will benefit when markets are receding and volatilities are rising.
  14. I believe in making stocks and markets work to beat me. They will win from time to time, but they will have to earn it with outsized moves. If the stock or market is too lazy to come get me, I’ll gladly collect its coin and move on to the next trade.
  15. I believe the only true edge in any marketplace is Buying Power.*

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Lack of Discipline & Patience

  
  Education
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When you have clearly outlined and identified your trading methodology, then you must have the discipline to follow your system. A Lack of Discipline in this regard is the second fatal flaw. If the way you view a price chart or evaluate a potential trade setup is different from how you did it a month ago, then you have either not identified your methodology or you lack the discipline to follow the methodology you have identified. The formula for success is to consistently apply a proven methodology. So the best advice I can give you to overcome a lack of discipline is to define a trading methodology that works best for you and follow it religiously.

The fourth finger of the invisible hand that robs your trading account is Lack of Patience. I forget where, but I once read that markets trend only 20% of the time, and, from my experience, I would say that this is an accurate statement. So think about it, the other 80% of the time the markets are not trending in one clear direction.

That may explain why I believe that for any given time frame, there are only two or three really good trading opportunities. For example, if you’re a long-term trader, there are typically only two or three compelling tradable moves in a market during any given year. Similarly, if you are a short-term trader, there are only two or three high-quality trade setups in a given week. (more…)

Activity and Inactivity

  
  Education
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active-inactive

I’ve noticed that my trading is more and more characterised by periods of doing a lot of trading, followed by periods of doing nothing except watching.
This seems to be a positive thing, as the old days consisted of trading every day no matter what the conditions, where as now I find that the markets will go into a mode that I just do not like the look of. In such cases if I try to force something, to “find a trade”, then I’ll get burned for sure.
To some degree I think this is because I have not yet spent much time on developing my strategies for trading insides large consolidation patterns. Of course it gets easier as they become more developed but by that time they are also getting old, and in the past I start making good trades in them just as they are about to end. The hard parts to trade are the start of trends / end of consolidation, and the end of trends / start of consolidation. These are times when the market is changing its basic mode, and are great places to lose money.

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