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Trading Should Be Effortless

  
  Education
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  • Money comes in bunches.

That one says it all. You can’t force trades. You can’t simply work harder in order to be ‘in sync’. Sometimes you are, sometimes you are not. You simply have to accept that as being part of the trading business. What you can do, is to closely monitor if your performance is in sync with the market’s performance. If the markets make new highs and your overall portfolio is going down something is wrong. You need to address that issue. Fast. The best way is to step aside and drastically reduce exposure and risk. That’s what I did.

  • Trading should be effortless.

A true piece of wisdom. In my experience when I trade well it is like shooting fish in a barrel. Almost everything works. I don’t need to be overly patient with positions. The money comes in very fast. That’s exactly how trading should be. The exact opposite was the case during the first 2 months of this year. So I did what I had to do. I recognized the situation for what it was and admitted my efforts were not leading my portfolio anywhere. It was like folding when you are dealt a bad hand in poker. So I folded. Now I am waiting for the next hand. If it is a bad one I fold again. If a series of trades start to really go my way I push it hard and increase exposure and trade aggressively.

  • When in doubt stay out.

This one is key. That’s how I interpret the adage: It doesn’t mean you don’t trust your instincts or your methodology. As a trader you should adapt to new situations. You constantly analyze the markets and your performance. Then you adjust your trading. Then you compare your expectations with the actual outcome. Then you adjust your trading. Then you repeat the process. At times things simply do not work. That’s when doubt creeps in. You know something is not ‘feeling right’. Your job is to protect your capital. Your job is not ‘to be right’. Put another way: You should be able to exit or reduce exposure without the need for explanations. The markets usually give you those explanations at some later point in time.

How good is your WHY?

  
  Education
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I’ve been taking a minor natural break in trading over recent weeks, and in the meantime I’ve been pondering the power of the “WHY” I have when entering trades. You need a good why, no matter what you are doing in life, but especially when you walk into one of the toughest and most volatile markets in the world and put your money on the line.

What’s your WHY?

I can see looking back that the vast majority of my trading had a feeble why behind them; no wonder I lost cash hand over fist. Really my reason for entering was that I just wanted to enter, thats all. The second problem most likely is that even when I THOUGHT I had a good reason, the idea behind it was faulty.

So you can have no reason to enter, or you can have a wrong reason to enter.

Also I notice on the forums that the VAST MAJORITY of newbie / semi newbie traders there are trying to formulate their own personal why. Their own UNIQUE system, inventing unique indicators.

They think that the idea of the game is to outsmart everyone else in the market; to be unique. The obsession with system creation or inventing new indicators has being unique and outsmarting everyone else behind it as a hidden motivation. The thing with markets though is that its not about you, its about consensus. If you invent your own amazing oscillator and you are the only person in the world looking at it, then how good a reason is this to enter the market? How much consensus do you have behind you? Who supports your decision? Who agrees with you?

Probably nobody, except a handful by pure chance. (more…)

Links for you

  
Analysis, Education, LINKS
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chain_links

This is what Crude Oil looks like.

Mexico is paying the price for not being open in its development of crude reserves.

What is the real consumer impact on our economy?

Not only should we not get rid of nuclear weapons, but giving one to an unstable country often makes it safer to deal with them.

Just another step along China’s path to economic and political liberalization, it’s happening right before our eyes people.

My father, who is a real estate attorney in NYC, told me this week that all of the sudden he is slammed with deals after nothing for the past year, interesting.

Good luck finding a job right now.

What happens when California reaches 15% unemployment and crude trades at 100$.

The is ZERO value in cable news, Thomas Barnett is one of my favorite writers by the way.

I will volunteer to colonize the moon, but I don’t ever want to pay taxes up there.

Who gets how much oil from Iran.

There is no such thing as a safe haven for terrorist organizations anymore.

If you have the time and desire, please read this report on China, it’s long, but well worth it.

For all the ruckus in 08′, investing in hedge funds will always be better than leaving it to the market.

Smart kids will always want to go into investment banking, dumb rich kids as well.

Let profits ride until price action dictates otherwise.

  
  Education
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jessePerhaps the most famous quote attributed to Livermore is, “It never was my thinking that made the big money for me. It always was my sitting.” Traders are wired to be “doing something,” and this can cause churning, over-trading, getting out of positions too soon, and making your broker the wealthy one. The famous Turtle Traders were trend traders who made few trades and had learned the importance of staying in a winning trade.

For today’s traders, there are multiple variations to keep you in a trade. It’s not so important which method you implement, but that you do recognize when to hold a winner for maximum potential, and when a trend has changed character and it’s time to ring the register.

One method that satisfies the desire for profit and subdues the fear of a losing trade is to take one half of your profit off at a predetermined level, put a stop at breakeven on the rest, and let it play out without micromanaging the position. Even day and swing traders will benefit from letting a partial position play out when all indicators hint that more upside might be in the cards. Always remember this rule is letting a profitable position run, but it’s not a license to bury one’s head on a losing position

Ten Reasons – Trading Long Option Strangles

  
  Education
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A long strangle is long one call at a higher strike and long one put at a lower strike in the same expiration and on the same stock. Such a position makes money if the stock price moves up or down well past the strike prices of the strangle. There are higher costs and risks with these strategies, as I discuss below. 

 Strangles are low risk plays, one side of the options will go up in value when the other side goes down in value the majority of the time.

  1. If one side becomes worthless it generally means the other side is worth a lot.
  2. You can make money on strangles even when you do not know which way the market will move.
  3. It is much less stressful to hold a position with a hedge in place.
  4. The big risks are transferred from the option buyer to the option seller in this play.
  5. Strangles lose small  with small movements but win big when there is a big move. The are asymmetrical in their construction.
  6. When one side of the option sellers blow up their account due to an outsized move you will be on the other side of them and be the trader their capital flows to.
  7. Strangles can be played on any time frame.
  8. With the strangles the winning side has a growing delta and the losing side has a shrinking delta.
  9. Strangles can be used to capture trends, volatility, and reversals.

Where is the risk? (more…)

Trading Wisdom – Paul Tudor Jones

  
  Education
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Paul Tudor Jones
Turned $1.5 million into $300 million in five years
“That cotton trade was almost the deal breaker for me. It was at that point that I said, “Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?”
I had to learn discipline and money management. I decided that I was going to become very disciplined and businesslike about my trading. I spend my day trying to make myself as happy and relaxed as I can be.
If I have positions going against me, I get right out; if they are going for me, I keep them. I am always thinking about losing money as opposed to making money. Risk control is the most important thing in trading. I keep cutting my position size down as I have losing trades. (more…)

Set Goals

  
  Education
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goal1

Each of us needs to set goals within our personal trading programs to become successful.

We all need to know exactly what those goals mean and how to best achieve them.

It will not happen overnight, however many people seem to start strong when they decide to be a trader but then quit when things do not happen fast enough for them. Or maybe they do not start very strong, but get serious when they get into their routine of executing trades and soon become discouraged and stop doing what was working. Or maybe they finish each session strong, but that was just to recover what was lost during the rest of the time when they were not focusing on their trading strategy.

To reach a level of continuing growth as a trader, each of us must have a plan in place and then ensure that we do everything possible to begin each day very strong in our preparation steps. We must then continue to make strong confident decisions while we trader even when the results are not what we expect.

Finally, we all need to have a target each day that determines when to finish our session and be strong enough to adhere to that plan. If we keep going, it generally leads to massive losses and frustration which then stays with you until you begin to trade again. This will cause a very sour perspective of trading when you attempt to start a new session. Start Strong. Trade Strong. Finish Strong!

Courage and Trading

  
  Education
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According to Plutarch, “Courage stands halfway between cowardice and rashness…” Clearly, we don’t want to be reckless; and clearly, we don’t want to be hesitant and timid. What we need is a balance. As we go about our trading moderating our greed and our fear to a combination of healthy desire and clear minded caution, we use courage to go forward.

Courage doesn’t mean closing your eyes, holding your nose, and jumping into the deep end. It does mean moving forward with clean and clear perception as well as steadfastness of purpose.

You don’t need courage if you’re totally confident and unafraid. Courage, according to John Wayne, is being scared to death and saddling up anyway. Because people tend to fear the unknown, and the unknown is all that is certain about any given trade, we need to employ courage. Since trading is always new, since anything can happen and it often does, since the wildness lies in wait, we need to overcome uncertainty and fear so that we can appropriately enter, exit, and remain in trades.

When asked what he meant by “guts”, Ernest Hemingway told Dorothy Parker in an interview “grace under pressure”. Trading is all about grace and gracefulness under pressure.

The good news is that courage is like any muscle. It grows and becomes stronger the more you use it. Often as I trade I’m unaware of utilizing courage. I know I’m extremely alert. I may even be excited. I’m not aware of any fear until something starts to go wrong. However, that alertness and excitement is a product of adrenalin running. Excitement or fear comes from the interpretation you give to the adrenalin high. The more you act as if you’re unafraid, the less afraid you become. It all gets easier. Act the part and become the part. Make it your goal to trade with increasing grace under pressure.

The difference between excitement and fear depends of what you are imagining.

Are you imagining loss or are you imagining profit? Of course, you always have to keep the alternative in mind as trading is all about balancing the alternatives, profit with loss. But you don’t have to put loss into the foreground of your mind, because you never would put on a trade unless profit was the probable outcome. Direct your imagination towards profit, and suspend all thoughts of loss–once you’ve put your stops in.

“Don’t cry before you’re hurt.” says a proverb. I would add, don’t mourn a loss before you experience it. Don’t even mourn it after you take it, get on with the next trade, and the next, and the next. Anticipate profit. That’s what you’re there to experience. Ah yes, and as another proverb states: “Fortune favors the brave.”

Two types of confidence.

  
  Education
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Having confidence in a trade is easy. You do not know what is going to happen, blinded by opportunity. Every trade is new. Easy to convince yourself that this time it will be a winner. This takes no effort other than convincing yourself. This is what is described in  first circle. You can look at a chart and imagine you can do it. Hindsight. As a new trader I was very confident, but I was confident in myself.

Having confidence in trading is much harder. It requires you to have confidence in every trade. You have to look at a series of trades and results not just one. True confidence comes from a trading plan and process. This is what  describes in his second circle. Hindsight cannot be used. This is about execution. Execution does not lie and you cannot hide from it. As I matured I had confidence in myself as a trader after doing the work.

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