Archives of “uncertainty” tag

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How Mistakes Can Become Baggage

  
  Education
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Those of us who don’t learn from mistakes are destined to repeat them. Most traders are busy focusing on trying to understand what moves the market, but an equally beneficial endeavor is understanding what causes you to move.

This involves knowing the underlying, often subconscious to a degree,  reasons behind your entries and exit decisions. The inner market. Understanding the connection between your internal state and your behavior is a very effective way to get a handle on repeated mistakes.

In general, P&L is an expression of how well you control your actions, not how well you analyze charts, the market, economy etc. Or more accurately, how well you control your actions when facing the discomfort of uncertainty. 

Mistakes become emotional baggage when we choose not to learn from them. Not wanting those moments where we can see the truth about our own issues ensures they return again.

Ed Seykota On Trading

  
  Education
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“Pyramiding instructions appear on dollar bills. Add smaller and smaller amounts on the way up. Keep your eye open at the top.”

“It can be very expensive to try to convince the markets you are right. Markets are fundamentally volatile. No way around it. Your prolem is not in the math. There is no math to get you out of having to experience uncertainty.”

“Here’s the essence of risk management: Risk no more than you can afford to lose, and also risk enough so that a win is meaningful. If there is no such amount, don’t play.”

“To avoid whipsaw losses, stop trading.”

Trading Rules for Thirsty Traders

  
  Education
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“Don’t ever put your ego out there where you’re afraid to say that you’re wrong, because the market is right and you are wrong. Respect that.”

 “If you’re right at the wrong time, you’re wrong.”

 “The markets are like water. They will flow to the weakest point that they can push through, and they always do.”

“The market is smarter than you will ever be, with its combined knowledge of all participants. Pay attention to the signs. Be quick to admit that you’re wrong. Don’t be afraid to miss something.”

 “I believe money is fascist. It craves stability more than anything else. Nothing bothers money more than uncertainty.”

4 Valuable Trading Lessons

  
  Education
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A). No matter how good you think you’re in the knowledge of the financial markets, your perception would change when your hard-earned money is at stake. No matter how much you’ve read about trading, you’ll realize that theory is different from practice when the market shows you its true color.

B). If you lose in the markets, don’t despair. It means you’re only paying tuition fees to the markets. Eventually, you’ll stop losing more than you gain and become a great trader and harvest profits from the markets on annual basis. It may take some time and perseverance to achieve this. Just make sure you learn from your mistakes and never repeat them.

C). The best strategies are trend-following strategies. One of the best trading methods is to buy pullbacks in an uptrend or sell rallies in a downtrend. Some indicators can be used to attain this aim (like moving averages). It pays to go with the overall trend. When a trend changes, it must be confirmed before one starts going with it.

D). It is very dangerous to trade without stop loss or to refuse to go out of the market that’s going against you. There are no other ways protect your account as a private trader. This is a way to deal with the permanent uncertainty in the markets. You mayn’t make profits sometimes, but you can make your losses to be as small as possible. By taking risk management serious, you’ll never lose a huge percentage of your portfolio. When you specialize on not losing, you’ll eventually make money and go ahead in the markets.

Succeeding At Trading By Not Trading

  
  Education
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One important performance variable that isn’t tracked often is the variability in a trader’s risk-taking. Opportunities are not distributed perfectly evenly over time: some markets offer more opportunity, some less. As a result, the skilled trader will vary risk-taking as a function of the opportunity set: sometimes trading actively and in size, other times pulling back from trading. What traders refer to as “overtrading” is the result of an inability to regulate decision-making by opportunity set: taking risk when rewards are quite uncertain.

“When are you mostly out of markets?” is a question I like to ask. The ability to not trade is itself a performance edge when it helps traders hang onto their gains during times of market uncertainty. This is yet another area where having a full and rich personal life becomes important to trading success. If all you have to sustain you psychologically is your trading, it is going to be difficult to not trade. If you have a full and rich life outside of trading, then it is much easier to take risk when rewards justify the effort—and put trading aside otherwise.

It’s great to have a passion for trading; better to have a passion for successful trading. And sometimes that means engaging in other passions and refraining from marginal trades.

Is Your Self-Esteem Tied To Your Account Equity?

  
  Education
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Does your self-esteem rise and fall with your account equity? If so, your probably in for some difficult times ahead with you’re trading. For some traders, a trade is more than a trade, it can represent how successful they are as a person, how much status they feel, etc.  When your self-concept is closely tied to your trading outcomes the result is a yo-yo effect in terms of your self-esteem and your internal state.  And our internal state has a lot to do with how well we trade.

Trading already involves a lot of uncertainty, and tying one’s sense of self-worth to the ups and downs of trading is unnecessarily adding emotional volatility to the picture and is usually not a good idea.

Most traders need to work on being more resilient in the face of disappointment. Trading will always involve disappointments, its part of the territory.  A delicate balance between being fully engaged in the trade with a ‘watchful curiosity’ and without being overly attached to the outcome, is how many successful traders describe their internal state.

FEAR

  
  Education
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Fear is not always a bad thing, though. In fact, for traders, feeling fear is not a problem, as long as they don’t panic and allow it to drive them out of or in to trades.

Among the fears traders face:

  • Not making enough money in these huge market moves
  • Missing out on big trades
  • Getting caught on the wrong side

At times like this, top traders see opportunity when others crawl into a hole because they are frozen by their fears.

Traders who keep their cool make money from the fear (i.e. shorting oil). Others keep their head and cut positions so they don’t get blown up (Greece and the ripple effect). Still others are waiting patiently for the moment to strike, like a sniper.

So how can all traders think like the top traders when it comes to fear?

  • Lay out the data and look at it from an objective point of view.
  • Pay attention to where the disconnects are because others are trading based on fear.
  • Keep positions smaller with wider stops; be ready to get bigger quickly the moment the uncertainty starts clears up, which it always does.

5 Keys to Dealing with Trading Fear

  
  Education
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How comfortable are you dealing with uncertainty?

As volatility and uncertainty increases, so does fear. When our emotions run high, then our decision making process suffers.

It seems like the harder we try, the worse things get.

We start reacting to things instead of being proactive. Then we feel overwhelmed.

Does this sound familiar?

One of the hardest things to deal with is uncertainly.

We have strategies for managing our risk in most aspects of our trading. However, we seldom talk about or have strategies for the most crucial element, our Personal Risk.

 

Have you noticed the panic that is going on in the markets? Do you know people who have been a contributor to it? Do you know them intimately?

How do you manage your Personal Risk? 

1. Trade With a Clear Mind

Do not make emotional decisions. Realize that emotions are emotions. What differentiates the successful traders from others is how we recalibrate our reactions to our emotions.

 

I was watching an interview with a surfer. The interviewer asked him what he does when a big surf comes and he goes underwater. The surfer said it was simple. “If I panic, I only have 3-5 seconds of air to breathe. If I stay calm, I have 45-60 seconds of air.“

What does surfing have to do with trading? If you panic and operate from a place of fear, you could lose all of your capital. However, if you take a moment and think about your strategies, you can have much better results.

2. Look at Your Portfolio Objectively

Think about your portfolio as if you are looking at the portfolio of your best friend. How would you advise him/her?

3. Limit Your Input

There are a lot of conflicting points of view. If we want to listen to all of them, it becomes very confusing, and the confused mind does not make a decision.

Instead of listening to everybody, pick the top 3 people that you respect and listen to them. This way, you can remain focused and have much better trading results.

4. Be In Tune With the Markets

Trade the markets as they are and not as you want them to be.

If we are not in tune with the markets and don’t listen to them, we are going to be in a losing game.

After all, hope is a lousy hedge.

5. Be In a Supportive Environment

It is important to listen to the people that we respect and are successful.

 

There are traders whose spouse and/or friends have little or no risk tolerance. As a result, these traders allow the fear of their spouse and/or friends to become the boundaries of their success.

Who are you choosing to surround yourself with?

Remember, not the most talented or skilled person wins the game. The game is won by the ones who can manage their Personal Risk and have a Mental Edge.

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