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Weekend news – record number of US coronavirus cases and hospitalisations continue

  
  Analysis
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Fears of wave after wave (is the US even out of the first wave?) of COVID-19 in the US continue as cases, hospitalisation and deaths mount.

While case counts can be (and are) rationalised away citing increased testing, hospitalisation and the death toll cannot be swept under the carpet in the same way.
Via Reuters:
  • Arkansas, North Carolina, Texas and Utah all had a record number of patients enter the hospital on Saturday
From the same report at Reuters:
  • most states are not considering a second shutdown as they face budget shortfalls and double-digit unemployment. Many went ahead with reopenings before meeting government infection rate guidelines for doing so.
Health concerns are likely to keeping ‘risk’ in check.
Fears of wave after wave (is the US even out of the first wave?) of COVID-19 in the US continue as cases, hospitalisation and deaths mount.

The Ten Best Things Ed Seykota Ever Said.

  
  Education
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Arguably one of the greatest traders of all time with his trend following system.

Charles Faulkner tells a story about Seykota’s finely honed intuition when it comes to trading: I am reminded of an experience that Ed Seykota shared with a group. He said that when he looks at a market, that everyone else thinks has exhausted its up trend, that is often when he likes to get in. When I asked him how he made this determination, he said he just puts the chart on the other side of the room and if it looked like it was going up, then he would buy it… Of course this trade was seen through the eyes of someone with deep insight into the market behavior

The Ten Best Things Ed Seykota Ever Said:

Psychology

“To avoid whipsaw losses, stop trading.”

“It can be very expensive to try to convince the markets you are right.”

“A fish at one with the water sees nothing between himself and his prey. A trader at one with his feelings feels nothing between himself and executing his method.”

Risk Management

“The elements of good trading are cutting losses, cutting losses, and cutting losses.”

“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.”

“In your recipe for success, don’t forget commitment – and a deep belief in the inevitability of your success.”

Trading System

“The trend is your friend except at the end when it bends.”

“If you want to know everything about the market, go to the beach. Push and pull your hands with the waves. Some are bigger waves, some are smaller. But if you try to push the wave out when it’s coming in, it’ll never happen. The market is always right.”

“Systems don’t need to be changed. The trick is for a trader to develop a system with which he is compatible.”

“I don’t predict a nonexisting future.”

Ed Seykota is a legend in the trend following community and has returns that would make Bernie Madoff  jealous, because his are real. If you can fully grasp what Ed is saying in these quotes it will improve your trading dramatically.

Bull Markets Roll, Bear Markets Spike

  
  Education
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bullbear-ASRThere is an old trader’s saying that “bull markets roll, but bear markets spike.” This comes from the characteristic nature of the price action.

When a market is in bull mode, the majority of participants are happy and content (as the vast majority of investors are “long only”). The bull market thus “rolls” along, like undulating waves of grain, as more bullish investment capital flows into the market and positions are added to.

When a market is in bear mode, however, the majority of participants are annoyed or upset (because, again, those willing to go short are relatively few, while all the world is comfortable being long). The result is much more of a rough, jagged, against-the-grain type profile, in which extended declines are interspersed with surprisingly vicious rallies of short duration.

These mini-rallies are made even more vicious by the forced activity of “short covering,” in which bearish traders caught napping get “squeezed” out of their positions by the fighting spirit of the bulls.

Lying in wait at the top of a salmon-rich waterfall, then, is akin to waiting for that “spike” to occur before putting out a new bearish line. How do you identify such an occurrence? Simple:

  • Wait for your intended market to confirm a new downtrend (or break key support).
  • Wait for a countertrend rally – one that takes prices higher, but does not “clear” the bearish trend.
  • Enter upon reasonable evidence that the countertrend rally (or spike) has run its course.

Mastering Reward/Risk

  
  Education
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riskrewardMost traders ignore reward/risk ratios, hoping that luck will save them when things start to go bad. 

 This is probably the main reason so many of them are destined to fail. It’s really dumb when you think about it, because reward/risk is the easiest way to  get a definable edge on the market house. 

 The reward/risk equation builds a safety net around your open positions. It’s designed to tell you how much can be won, or lost, on each trade you  take. The secondary purpose is to remove emotion so you can focus squarely on the cold, hard numbers. 

 Let’s look at 15 ways that reward/risk will improve your trading performance. 

 1. Every setup carries a directional probability that reflects a specific pattern. Always execute positions in the highest-odds direction. Exit your trades  when a price fails to respond according to your expectations. 

 2. Every setup has a price level that violates the pattern. Only take trades where price needs to move a short distance to hit this “risk target.” Look the  other way and find the “reward target” at the next support or resistance level. Trade positions with the highest reward target to risk target ratios.  (more…)

Ed Seykota Quotes

  
  Education
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Markets
The markets are the same now as they were five or ten years ago because they keep changing-just like they did then.
Short-Term Trading
The elements of good trading are cutting losses, cutting losses, and cutting losses.
Outcomes
Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.
I think that if people look deeply enough into their trading patterns, they find that, on balance, including all their goals, they are really getting what they want, even though they may not understand it or want to admit it.
Market Trends
The trend is your friend except at the end where it bends.
Charles Faulkner tells a story about Seykota’s finely honed intuition when it comes to trading: I am reminded of an experience that Ed Seykota shared with a group. He said that when he looks at a market, that everyone else thinks has exhausted its up trend, that is often when he likes to get in. When I asked him how he made this determination, he said he just puts the chart on the other side of the room and if it looked like it was going up, then he would buy it… Of course this trade was seen through the eyes of someone with deep insight into the market behavior.
Predicting the Future
If you want to know everything about the market, go to the beach. Push and pull your hands with the waves. Some are bigger waves, some are smaller. But if you try to push the wave out when it’s coming in, it’ll never happen. The market is always right.
Trading
To avoid whipsaw losses, stop trading.
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.
Pyramiding instructions appear on dollar bills. Add smaller and smaller amounts on the way up. Keep your eye open at the top.
Markets are fundamentally volatile. No way around it. Your prolem is not in the math. There is no math to ge you out of having to experience uncertainty.
It can be very expensive to try to convince the markets you are right.
System Trading
Systems don’t need to be changed. The trick is for a trader to develop a system with which he is compatible. (more…)

10 Things A Trader Needs to START DOING …To Mint Money

  
  Education
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There are many trading principles that are common among  successful rich traders. It is important to learn the things that allow them to win so we can follow in their footsteps and make money. There are 10 things that new traders can start doing tomorrow to improve their results immediately. If you have been trading for awhile but have not been profitable these  may be things that you need to start doing to stop losing money.

 1. Start trading the price action by using charts. The market doesn’t care about your opinions but the chart expresses the collective actions of all market participants. Learn to understand what the chart is saying.

Start to understand that the market determines whether any single trade wins or loses not you and not an imaginary “they”.

2. We can only surf the price waves not control them. 

Start to take 100% responsibility for your losses.

3. You enter the trade, you exit the trade, the wins and losses are yours alone. The blame game is a losing game in the markets.

Start to bounce back from losing trades quickly, move on don’t ruminate.

4. If your position size and risk management are correct no one losing trade should emotionally devastate you it should be only one of the next hundred trades with little significance by itself.

Start caring more about what the market is doing and less about what you think it should be doing.

5. ALL that really matters is current price action not your opinion of what might be price action later.  (more…)

Inexorable Change

  
  Education
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Since change is ubiquitous and permanent, we might as well become experts at adapting. We can get comfortable with change and look forward to its permutations and surprises. We can train ourselves to become adept at learning, unlearning, and relearning.

On the other hand, we don’t want to be whipsawed back and forth through too rapid repositioning. Nor do we want to keep switching methods and systems.  We need to find the balance between being steady and too speedy a responder. We need to comprehend that markets, like the ocean, have waves, tides, and tsunamis. Each needs to be handled differently.

We want to make change an acceptable reality rather than a soap opera. We need to be flexible and versatile. In being flexible we observe reality clearly and adjust our actions. In being versatile we utilize our trained ability to perceive and react effectively.

Volatility in markets can be embraced as opportunity or feared as danger. That shot of adrenaline you feel as you trade can be exciting or terrifying depending on how you view the situation. Interpretation is at the essential core of our trading.

A good way to start each trading day is by asking some questions: Where are the opportunities today? Are there any impending risks to my positions? Where might the opportunities or risks develop?

In the midst of unfolding turmoil or stagnant stalling, we need to distinguish between the fundamental and technical changes that are structural and therefore important and possibly extensive, and those that are merely headlines passing through and therefore only interesting and probably short lived.

In any event, accept whatever is happening, utilize your methods and guidelines, take a deep breath, and do your best. Remember, as it has been said, “All you can do is all you can do, and all you can do is enough.”

Surfing and Trading

  
  Education
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– After a lull (chop, quiet market) a new set of waves (setups, breakouts) will appear. Often, the first wave is not the best wave. Don’t get too excited because you see an OK wave (false breakout) after you haven’t seen any good ones at all. Often there is a better one behind it (look for confirmation).

– If you catch a wave ride it as long as you can, until you see yourself heading into shore, rocks, or other people (end of trend).

– Get into position and be ready to go for a wave so you’re ready to take a good setup once it appears. (focus, attention)

– Once you see a wave you want, commit to it to getting on it. Paddle as fast as you can to get enough speed to go with the wave. (have a plan, preparation, confidence with entry, execute with precision)

– Don’t try to catch the wave too early, make sure it has built up enough energy to carry you along (overly eager entries, wait for confirmation)

– Don’t catch the wave too late or else you’ll catch it on the top of the wave and it will throw you down into the seabed (buying tops or selling bottoms)

– Don’t try to surf every wave (over trading), just the ones that look easy to catch and worth the energy required to catch and ride it (capital preservation, high probability trades)

Any other surfers out there have some surfing/trading parallels? – If there’s no waves (setups) be patient and enjoy the water and sun. A setup will come. If not, then it wasn’t meant to be (sit on hands day) or not a good spot (market). Come back tomorrow or find another spot. Don’t try to make something of nothing.

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