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Papillon teaches trading

  
  Education
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I watched the film ‘Papillon’ a few days ago and enjoyed it very much. From memory, the film captures the sense of place, feeling of utter desperation, and cruelty of both the people and environment, found in the book on which it is based. It doesn’t follow the story to the letter – few films do – but this becomes a non-issue considering that many people question whether the author truly experienced all these adventures and hardships, or whether he ‘borrowed’ stories from other prisoners. Whatever the truth may be, I highly recommend reading the book and then watching the film.

In one scene, fellow inmate Louis Dega (played by Dustin Hoffman) is talking to Papillon (a role superbly executed by Steve McQueen) and makes a statement of the ‘somebody once said’ variety, that really struck home:

“A temptation resisted is a true measure of character.”

You are alone…

  
  Education
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aloneAt some point in time the realization strikes that you are alone in the market – there is only you. The illusion that the market can ‘do’ anything to you falls away and it becomes obvious that you are 100% responsible for everything that happens to your account. You either give yourself money, or else you give your money away – there is nothing else.

The market is one of the few arenas where there are no external constraints, except in the case of a margin call. It never forces you to take a position, long or short, or tells you to get out of your position. It does not say how long to stay in a position or what time to exit, how much profit or loss is enough. There are no external constraints at all, and as such people run riot. You are relying on yourself 100% and there is only ever you to blame.

The above is a core part of a winning trading psychology, yet its difficult to adopt. Shifting the blame is a basic way we defend our ego every single day of the week – yet in the market this practice is absolutely unsupported by price action. How can any other market participant be doing something to you if he is totally unaware of your existence or what position you hold?

Its necessary to really ponder this until the truth of it shines out:

You are alone…

Five market scenarios that place you at the most risk.

  
  Education
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FIVE-







  1. 1.Bad Markets – A good pattern won’t bail you out of a bad market, so move to the sidelines when conflict and indecision take hold of the tape. Your long-term survival depends on effective trade management. The bottom line: don’t trade when you can’t measure your risk, and stand aside when you can’t find your edge.
  2. Bad Timing – It’s easy to be right but still lose money. Financial instruments are forced to negotiate a minefield of conflicting trends, each dependent on different time frames. Your positions need to align with the majority of these cycles in order to capture the profits visualized in your trade analysis.
  3. Bad Trades – There are a lot of stinkers out there, vying for your attention, so look for perfect convergence before risking capital on a questionable play, and then get out at the first sign of danger. It’s easy to go brain dead and step into a weak-handed position that makes absolutely no sense, whether it moves in your favor or not. The bottom line: it’s never too late to get out of a stupid trade.
  4. Bad Stops – Poor stops will shake you out of good positions. Stops do their best work when placed outside the market noise, while keeping risk to a minimum. Many traders believe professionals hit their stops because they have inside knowledge, but the truth is less mysterious. Most of us stick them in the same old places.
  5. Bad Action – Modern markets try to burn everyone before they launch definable trends. These shakeouts occur because most traders play popular strategies that have been deconstructed by market professionals. In a sense, the buy and sell signals found in TA books are turned against the naïve folks using them.

Nuggets

  
  Education
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Price — The Truth, The Light, The Way

  • Work to understand price
  • Price does not move in a straight line
  • Big moves take time
  • Volatility is your friend and helps to compress time
  • Although volatility is your pal, it can cut both ways
  • If a stock moves 30% a day, then you can’t trade with a 5% stop
  • Don’t expect a volatile stock to stop behaving as it has been and only move in your favor just because you’re now in it. Unless you’re Bill Clinton, what is, IS.

Random Thoughts:

  • Observe but be slow to shift gears — we are trend followers, not predictors
  • It’s the market’s “job” to shake you out
    • The market will do what it has to do to create the most pain (for the most people)
    • The market will often do the obvious in the most un-obvious manner
  • Err on the side of the longer-term trend
    • DO wait for entries
    • DO use protective stops
    • DO trail and scale as offered

Trading Nuggets

  
  Education
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Price — The Truth, The Light, The Way

  • Work to understand price
  • Price does not move in a straight line
  • Big moves take time
  • Volatility is your friend and helps to compress time
  • Although volatility is your pal, it can cut both ways
  • If a stock moves 30% a day, then you can’t trade with a 5% stop
  • Don’t expect a volatile stock to stop behaving as it has been and only move in your favor just because you’re now in it. Unless you’re Bill Clinton, what is, IS.

Random Thoughts:

  • Observe but be slow to shift gears — we are trend followers, not predictors
  • It’s the market’s “job” to shake you outErr on the side of the longer-term trend
    • The market will do what it has to do to create the most pain (for the most people)
    • The market will often do the obvious in the most un-obvious manner
  • DO wait for entries
  • DO use protective stops
  • DO trail and scale as offered

Probability game

  
  Education
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ProbabilitygameThere is a random distribution between wins and losses for any given set of variables that defines an edge.In other words ,based on the past performance of your edge ,you may know that out of the next 20 trades ,12 will be winners and 8 will will be losers.What you don’t know is the sequence of wins and losses or how much money the market is going to make available on the winning trades.This truth makes trading a probability or numbers game.When you really believe that trading is simply a probability game ,concepts like “right “and “wrong ” or “win ” and “lose ” no longer have the same significance.As a result ,your expectations will be in harmony with the possibilities.

1+10 Rules for Critical Thinking

  
  Education
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  1. All beliefs in whatever realm are theories at some level. (Stephen Schneider)
  2. Do not condemn the judgment of another because it differs from your own. You may both be wrong. (Dandemis)
  3. Read not to contradict and confute; nor to believe and take for granted; nor to find talk and discourse; but to weigh and consider. (Francis Bacon)
  4. Never fall in love with your hypothesis. (Peter Medawar)
  5. It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories instead of theories to suit facts. (Arthur Conan Doyle)
  6. A theory should not attempt to explain all the facts, because some of the facts are wrong. (Francis Crick)
  7. The thing that doesn’t fit is the thing that is most interesting. (Richard Feynman)
  8. To kill an error is as good a service as, and sometimes even better than, the establishing of a new truth or fact. (Charles Darwin)
  9. It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so. (Mark Twain)
  10. Ignorance is preferable to error; and he is less remote from the truth who believes nothing, than he who believes what is wrong. (Thomas Jefferson)
  11. All truth passes through three stages. First, it is ridiculed, second, it is violently opposed, and third, it is accepted as self-evident. (Arthur Schopenhauer)

20 Trading Wisdom Lines

  
  Education
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(1)  Those who work their plan will prosper, but those who chase fantasies lack judgment.

(2)  Those who want to do right will get a rich reward. But those who want to “get rich quick” will quickly  fail“.

(3)  Trying to “get rich quick” is wrong & leads to poverty.

(4)  Wealth taken from gambling quickly disappears; wealth from diligent effort & hard work grows“.

(5)  Follow the rules & keep your financial life intact; ignoring them means financial ruin.

(6)  A person without self-control is as defenseless as a city with broken-down walls.

(7)  The wise control their temper.  They know that anger causes mistakes.

(8)  The intelligent are always open to new ideas, in fact they look for them.

(9)  Get all the advice that you can & be wise all the rest of your life.

(10)  Fools despise advice; ‘the wise’ consider each suggestion.

(11)  Fools think they need no advice, but ‘the wise’ listen to others.

(12)  To learn, you must want to be taught.  To refuse correction is stupid.

(13)  Anyone willing to be corrected is on the path to success. Those who refuse correction have lost their chance.

(14)  Hard work brings prosperity; playing around brings poverty.

(15) If you love sleep, you will end up in poverty.  Stay awake, work hard, & there will be plenty to eat.

(16)  The foolish will lose in the end, ‘the wise’ will end up with the winnings.

(17)  The wise save up for the future, but the foolish spend whatever they get”.

(18)  Truth stands the test of time; lies are soon exposed.

(19 Be faithful & honest with yourself in your trading, bediligent & consistent & it will bring you Prosperity.
(20) Steady plodding brings prosperity; hasty speculation brings poverty.

Think carefully about each one of these quotes.  I think you’ll find out a little something about yourself you didn’t already know.  For example, your “strengths” and “weaknesses” in your trading should be clearly pointed out be analyzing each one of these phrases.  These simple and short phrases should help you become a better trader — and hopefully a better person in general!

20 Wisdom Points for Traders

  
  Education
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(1)  Be faithful & honest with yourself in your trading, be diligent & consistent & it will bring you Prosperity.
(2)  Those who work their plan will prosper, but those who chase fantasies lack judgment.
(3)  Steady plodding brings prosperity; hasty speculation brings poverty.
(4)  Those who want to do right will get a rich reward. But those who want to “get rich quick” will quickly  fail“.
(5)  Trying to “get rich quick” is wrong & leads to poverty.
(6)  Wealth taken from gambling quickly disappears; wealth from diligent effort & hard work grows“.
(7)  Follow the rules & keep your financial life intact; ignoring them means financial ruin.
(8)  A person without self-control is as defenseless as a city with broken-down walls.
(9)  The wise control their temper.  They know that anger causes mistakes.
(10)  The intelligent are always open to new ideas, in fact they look for them. (more…)

Reid Hoffman: 16 Lessons Learned

  
Analysis, Education
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16 Lessons Learned (Among Many!)

-People are complicated and flawed. Root for their better angels.

-The best way to get a busy person’s attention: Help them.

-Keep it simple and move fast when conceiving strategies and making decisions.

-Every weakness has a corresponding strength.

-The values that actually shape a culture have both upside and downside.

-Understand someone’s “alpha” tendencies and how that drives them.

-Self-deception watch: even those who say they don’t need or want flattery, sometimes still need it.

-Be clear on your specific level of engagement on a project.

-Sketch three possible outcomes for a project: the likely upside, likely ‘regular’, and likely downside scenarios.

-A key to making good partnerships great: Identify and emphasize any misaligned incentives.

-Reason is the steering wheel. Emotion is the gas pedal.

-Trade up on trust even if it means you trade down on competency.

-Tell the truth. Don’t reflexively kiss ass to powerful people.

-Respect the shadow power.

-Make people genuine partners and they’ll work harder.

-Final: The people around you change you in myriad unconscious ways

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