"You're neither right nor wrong because other people agree with you. You're right because your facts are right and your reasoning is right - that's the only thing that makes you right. And if your facts and reasoning are right, you don't have to worry about anybody else." - Warren Buffett
Tuesday, 30 June 2020
Monday, 29 June 2020
Quote for the day
"Money is not everything. Make sure you earn a lot before speaking such nonsense." - Warren Buffett
Richard Rhodes' Trading Rules
I must admit, I am not smart enough to have devised these ridiculously simple trading rules. A great trader gave them to me some 15 years ago. However, I will tell you, they work. If you follow these rules, breaking them as infrequently as possible, you will make money year in and year out, some years better than others, some years worse - but you will make money. The rules are simple. Adherence to the rules is difficult.
01. The first and most important rule is - in bull markets, one is supposed to be long. This may sound obvious, but how many of us have sold the first rally in every bull market, saying that the market has moved too far, too fast. I have before, and I suspect I'll do it again at some point in the future. Thus, we've not enjoyed the profits that should have accrued to us for our initial bullish outlook, but have actually lost money while being short. In a bull market, one can only be long or on the sidelines. Remember, not having a position is a position.
03. When putting on a trade, enter it as if it has the potential to be the biggest trade of the year. Don't enter a trade until it has been well thought out, a campaign has been devised for adding to the trade, and contingency plans set for exiting the trade.
04. On minor corrections against the major trend, add to trades. In bull markets, add to the trade on minor corrections back into support levels. In bear markets, add on corrections into resistance. Use the 33-50% corrections level of the previous movement or the proper moving average as a first point in which to add.
05. Be patient. If a trade is missed, wait for a correction to occur before putting the trade on.
06. Be patient. Once a trade is put on, allow it time to develop and give it time to create the profits you expected.
07. Be patient. The old adage that "you never go broke taking a profit" is maybe the most worthless piece of advice ever given. Taking small profits is the surest way to ultimate loss I can think of, for small profits are never allowed to develop into enormous profits. The real money in trading is made from the one, two or three large trades that develop each year. You must develop the ability to patiently stay with winning trades to allow them to develop into that sort of trade.
09. Be impatient. As always, small loses and quick losses are the best losses. It is not the loss of money that is important. Rather, it is the mental capital that is used up when you sit with a losing trade that is important.
10. Never, ever under any condition, add to a losing trade, or "average" into a position. If you are buying, then each new buy price must be higher than the previous buy price. If you are selling, then each new selling price must be lower. This rule is to be adhered to without question.
11. Do more of what is working for you, and less of what's not. Each day, look at the various positions you are holding, and try to add to the trade that has the most profit while subtracting from that trade that is either unprofitable or is showing the smallest profit. This is the basis of the old adage, "let your profits run."
12. Don't trade until the technicals and the fundamentals both agree. This rule makes pure technicians cringe. I don't care! I will not trade until I am sure that the simple technical rules I follow, and my fundamental analysis, are running in tandem. Then I can act with authority, and with certainty, and patiently sit tight.
13. When sharp losses in equity are experienced, take time off. Close all trades and stop trading for several days. The mind can play games with itself following sharp, quick losses. The urge "to get the money back" is extreme, and should not be given in to.
15. When adding to a trade, add only 1/4 to 1/2 as much as currently held. That is, if you are holding 400 shares of a stock, at the next point at which to add, add no more than 100 or 200 shares. That moves the average price of your holdings less than half of the distance moved, thus allowing you to sit through 50% corrections without touching your average price.
16. Think like a guerilla warrior. We wish to fight on the side of the market that is winning, not wasting our time and capital on futile efforts to gain fame by buying the lows or selling the highs of some market movement. Our duty is to earn profits by fighting
alongside the winning forces. If neither side is winning, then we don't need to fight at all.
17. Markets form their tops in violence; markets form their lows in quiet conditions.
18. The final 10% of the time of a bull run will usually encompass 50% or more of the price movement. Thus, the first 50% of the price movement will take 90% of the time and will require the most backing and filling and will be far more difficult to trade than the last 50%.
There is no "genius" in these rules. They are common sense and nothing else, but as Voltaire said, "Common sense is uncommon." Trading is a common-sense business. When we trade contrary to common sense, we will lose. Perhaps not always, but enormously and eventually. Trade simply. Avoid complex methodologies concerning obscure technical systems and trade according to the major trends only.
"Old Rules...but Very Good Rules"
If I've learned anything in my decades of trading, I've learned that the simple methods work best. Those who need to rely upon complex stochastics, linear weighted moving averages, smoothing techniques, Fibonacci numbers etc., usually find that they have so many things rolling around in their heads that they cannot make a rational decision. One technique says buy; another says sell. Another says sit tight while another says add to the trade. It sounds like a cliche, but simple methods work best.
If I've learned anything in my decades of trading, I've learned that the simple methods work best. Those who need to rely upon complex stochastics, linear weighted moving averages, smoothing techniques, Fibonacci numbers etc., usually find that they have so many things rolling around in their heads that they cannot make a rational decision. One technique says buy; another says sell. Another says sit tight while another says add to the trade. It sounds like a cliche, but simple methods work best.
01. The first and most important rule is - in bull markets, one is supposed to be long. This may sound obvious, but how many of us have sold the first rally in every bull market, saying that the market has moved too far, too fast. I have before, and I suspect I'll do it again at some point in the future. Thus, we've not enjoyed the profits that should have accrued to us for our initial bullish outlook, but have actually lost money while being short. In a bull market, one can only be long or on the sidelines. Remember, not having a position is a position.
02. Buy that which is showing strength - sell that which is showing weakness. The public continues to buy when prices have fallen. The professional buys because prices have rallied. This difference may not sound logical, but buying strength works. The rule of survival is not to "buy low, sell high", but to "buy higher and sell higher". Furthermore, when comparing various stocks within a group, buy only the strongest and sell the weakest.
03. When putting on a trade, enter it as if it has the potential to be the biggest trade of the year. Don't enter a trade until it has been well thought out, a campaign has been devised for adding to the trade, and contingency plans set for exiting the trade.
04. On minor corrections against the major trend, add to trades. In bull markets, add to the trade on minor corrections back into support levels. In bear markets, add on corrections into resistance. Use the 33-50% corrections level of the previous movement or the proper moving average as a first point in which to add.
05. Be patient. If a trade is missed, wait for a correction to occur before putting the trade on.
06. Be patient. Once a trade is put on, allow it time to develop and give it time to create the profits you expected.
07. Be patient. The old adage that "you never go broke taking a profit" is maybe the most worthless piece of advice ever given. Taking small profits is the surest way to ultimate loss I can think of, for small profits are never allowed to develop into enormous profits. The real money in trading is made from the one, two or three large trades that develop each year. You must develop the ability to patiently stay with winning trades to allow them to develop into that sort of trade.
08. Be patient. Once a trade is put on, give it time to work; give it time to insulate itself from random noise; give it time for others to see the merit of what you saw earlier than they.
09. Be impatient. As always, small loses and quick losses are the best losses. It is not the loss of money that is important. Rather, it is the mental capital that is used up when you sit with a losing trade that is important.
10. Never, ever under any condition, add to a losing trade, or "average" into a position. If you are buying, then each new buy price must be higher than the previous buy price. If you are selling, then each new selling price must be lower. This rule is to be adhered to without question.
11. Do more of what is working for you, and less of what's not. Each day, look at the various positions you are holding, and try to add to the trade that has the most profit while subtracting from that trade that is either unprofitable or is showing the smallest profit. This is the basis of the old adage, "let your profits run."
12. Don't trade until the technicals and the fundamentals both agree. This rule makes pure technicians cringe. I don't care! I will not trade until I am sure that the simple technical rules I follow, and my fundamental analysis, are running in tandem. Then I can act with authority, and with certainty, and patiently sit tight.
13. When sharp losses in equity are experienced, take time off. Close all trades and stop trading for several days. The mind can play games with itself following sharp, quick losses. The urge "to get the money back" is extreme, and should not be given in to.
14. When trading well, trade somewhat larger. We all experience those incredible periods of time when all of our trades are profitable. When that happens, trade aggressively and trade larger. We must make our proverbial "hay" when the sun does shine.
15. When adding to a trade, add only 1/4 to 1/2 as much as currently held. That is, if you are holding 400 shares of a stock, at the next point at which to add, add no more than 100 or 200 shares. That moves the average price of your holdings less than half of the distance moved, thus allowing you to sit through 50% corrections without touching your average price.
16. Think like a guerilla warrior. We wish to fight on the side of the market that is winning, not wasting our time and capital on futile efforts to gain fame by buying the lows or selling the highs of some market movement. Our duty is to earn profits by fighting
alongside the winning forces. If neither side is winning, then we don't need to fight at all.
17. Markets form their tops in violence; markets form their lows in quiet conditions.
18. The final 10% of the time of a bull run will usually encompass 50% or more of the price movement. Thus, the first 50% of the price movement will take 90% of the time and will require the most backing and filling and will be far more difficult to trade than the last 50%.
There is no "genius" in these rules. They are common sense and nothing else, but as Voltaire said, "Common sense is uncommon." Trading is a common-sense business. When we trade contrary to common sense, we will lose. Perhaps not always, but enormously and eventually. Trade simply. Avoid complex methodologies concerning obscure technical systems and trade according to the major trends only.
Source: http://stockcharts.com/
Sunday, 28 June 2020
Quote for the day
"People who look for easy money invariable pay for the privilege of proving conclusively that it cannot be found on this earth." - Jesse Lauriston Livermore
6 Rules For Disciplined Investing
By Rick Ferri
Investment discipline isn't easy. Despite best intentions and claims to the contrary, many investors chase performance, react emotionally to market moods, and generally incur far more trading costs than good discipline would suggest.
Even when there is a long-term plan in place, if it's not followed, the plan is useless. Over the years, I've seen good intentions go by the wayside time and again because discipline was not followed.
These observations aren't limited to individual investors.
‘Adapting' Advisers' Red Flag
I've seen similar conduct from investment advisers who claim to have a disciplined strategy, only to add that they'll “adapt to changing market conditions” when warranted. This loophole leaves an ample opening for ever-shifting adjustments based on what seems to be the right move at the time. It's particularly common in bear markets when clients become anxious and hint that they may be looking to take their business elsewhere.
Loopholes in discipline statements may allow an advisor to retain skittish clients, but lack of discipline is rarely in a client’s best long-term interest.
I've put together six rules to disciplined investing. They will help you (and perhaps your advisor) make better long-term decisions:
Form a prudent asset allocation based on this philosophy: Asset allocation is how a portfolio is diversified among asset classes. A prudent asset allocation should be based on each person’s own long-term financial goals. This gives you a personalized beacon to follow through turbulent market conditions. The allocation should be in fixed percentages that you plan to stick with over time, rather than floating or tactical reactions to the ongoing turbulence.
Select low-cost funds to represent asset classes in the allocation: Implement the asset allocation using an appropriate mix of index funds and exchange-traded funds. These products provide broad diversification within an asset class for a very low cost. Building a select portfolio of index funds and ETFs that tracks the markets will help you receive your fair share of the markets' returns.
Maintain this portfolio through all market conditions: Markets do not remain at their current levels for long, yet a portfolio should be maintained at roughly the same asset allocation through all market conditions. Rebalancing helps control the portfolio allocation. An annual rebalancing can serve as the method to maintain a portfolio. Cash contributions and withdrawals also provide an occasion to rebalance.
Don't change the asset allocation due to recent market activity: Since a portfolio is based on long-term needs, it should be maintained for the long term. If you're not willing to hold an asset class or fund for the next 10 years, then you shouldn't own it now. It doesn't matter what's going on in the markets today; build and hold your portfolio for the long haul, giving it the greatest chance to fulfil its intended purpose.
Don't hold back on new investments while waiting for market clarity: It's not easy to invest new money in a portfolio that has recently lost money, but that's what you have to do. If your plan is to invest every month, then invest every month regardless of recent market activity. Discipline in investing is about forming good habits and then practising them consistently.
Some critics of these methods say these rules are too rigid—they don't offer flexibly for what's happening in the markets today. Well, that's what discipline means! It's discipline that makes a plan work. Create a plan and stick to it.
Part of your plan may be to make an asset allocation change at the appropriate time in the future when your own life's circumstances have changed. These circumstances can be related to your health, career, retirement, a lump-sum windfall or a similar life-changing event.
Life Changes, Discipline Shouldn't
The shift may result in a different allocation, but it remains just as important to maintain discipline.
Investment discipline is easy to read about. It's the same as a doctor telling you to exercise regularly, eat right and get plenty of rest. It sounds so easy when someone else says it! Yet in real life, it's not so easy to do. That's why we have to be reminded to be disciplined.
My advice is to revisit this post whenever you may doubt your discipline.
Remember, a well-balanced portfolio works if you actually follow it—in good times and in bad.
Investment discipline isn't easy. Despite best intentions and claims to the contrary, many investors chase performance, react emotionally to market moods, and generally incur far more trading costs than good discipline would suggest.
Even when there is a long-term plan in place, if it's not followed, the plan is useless. Over the years, I've seen good intentions go by the wayside time and again because discipline was not followed.
These observations aren't limited to individual investors.
‘Adapting' Advisers' Red Flag
I've seen similar conduct from investment advisers who claim to have a disciplined strategy, only to add that they'll “adapt to changing market conditions” when warranted. This loophole leaves an ample opening for ever-shifting adjustments based on what seems to be the right move at the time. It's particularly common in bear markets when clients become anxious and hint that they may be looking to take their business elsewhere.
Loopholes in discipline statements may allow an advisor to retain skittish clients, but lack of discipline is rarely in a client’s best long-term interest.
I've put together six rules to disciplined investing. They will help you (and perhaps your advisor) make better long-term decisions:
- Have a long-term investment philosophy.
- Form a prudent asset allocation based on this philosophy.
- Select low-cost funds to represent asset classes in the allocation.
- Maintain this portfolio through all market conditions.
- Don't change the asset allocation due to recent market activity.
- Don't hold back on new investments while waiting for market clarity.
Form a prudent asset allocation based on this philosophy: Asset allocation is how a portfolio is diversified among asset classes. A prudent asset allocation should be based on each person’s own long-term financial goals. This gives you a personalized beacon to follow through turbulent market conditions. The allocation should be in fixed percentages that you plan to stick with over time, rather than floating or tactical reactions to the ongoing turbulence.
Select low-cost funds to represent asset classes in the allocation: Implement the asset allocation using an appropriate mix of index funds and exchange-traded funds. These products provide broad diversification within an asset class for a very low cost. Building a select portfolio of index funds and ETFs that tracks the markets will help you receive your fair share of the markets' returns.
Maintain this portfolio through all market conditions: Markets do not remain at their current levels for long, yet a portfolio should be maintained at roughly the same asset allocation through all market conditions. Rebalancing helps control the portfolio allocation. An annual rebalancing can serve as the method to maintain a portfolio. Cash contributions and withdrawals also provide an occasion to rebalance.
Don't change the asset allocation due to recent market activity: Since a portfolio is based on long-term needs, it should be maintained for the long term. If you're not willing to hold an asset class or fund for the next 10 years, then you shouldn't own it now. It doesn't matter what's going on in the markets today; build and hold your portfolio for the long haul, giving it the greatest chance to fulfil its intended purpose.
Don't hold back on new investments while waiting for market clarity: It's not easy to invest new money in a portfolio that has recently lost money, but that's what you have to do. If your plan is to invest every month, then invest every month regardless of recent market activity. Discipline in investing is about forming good habits and then practising them consistently.
Some critics of these methods say these rules are too rigid—they don't offer flexibly for what's happening in the markets today. Well, that's what discipline means! It's discipline that makes a plan work. Create a plan and stick to it.
Part of your plan may be to make an asset allocation change at the appropriate time in the future when your own life's circumstances have changed. These circumstances can be related to your health, career, retirement, a lump-sum windfall or a similar life-changing event.
Life Changes, Discipline Shouldn't
The shift may result in a different allocation, but it remains just as important to maintain discipline.
Investment discipline is easy to read about. It's the same as a doctor telling you to exercise regularly, eat right and get plenty of rest. It sounds so easy when someone else says it! Yet in real life, it's not so easy to do. That's why we have to be reminded to be disciplined.
My advice is to revisit this post whenever you may doubt your discipline.
Remember, a well-balanced portfolio works if you actually follow it—in good times and in bad.
http://www.etf.com/
Saturday, 27 June 2020
Quote for the day
"Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well." - Warren Buffett
Cicero’s 146 (43 B.C) of the Roman empire wrote a philosophy that is still valid?
Friday, 26 June 2020
Quote for the day
"If we become increasingly humble about how little we know, we may be more eager to search." - John Templeton
Investing vs. Trading: What’s the Difference?
Why Trading and Investing are so Fundamentally Different
There is a popular misconception that trading and investing could be used interchangeably with one another. But as professional traders and investors can attest to, they are both radically different. It’s easy to mix the terms when both activities share the same objective: make money in the stock market.
But their opposite approaches to achieve that objective is what makes them so distinct. To put it in its simplest form, traders trade tickers and investors invest in companies. Let’s break this phrase down in more detail by focusing on three main concepts associated with each activity.
1. Primary Philosophy: Although investors could sometimes bleed into what a trader does and traders could bleed into what an investor does, the main philosophy to take away is that one is purely based off fundamentals and the other is based on technicals.
Investors primarily look at the stock market from a fundamental standpoint. When choosing a stock, investors are entirely invested in what a company does and will continue to do. They care more about the bottom line. They look at a company’s financial reports which consist of balance sheets, income statements, cash flow statements, and various other required documents that the company has to disclose to their shareholders.
These reports give shareholders a look at a company’s debt relative to their overall cash flow, their market share compared to their competitors, their growth and projections, and most importantly, how much profit they’re bringing in. These are all things investors care about. They’re thoroughly listening to a company’s conference call during earnings season, the amount of dividend they’ll pay out for the quarter, and any other relevant information an investor would need to decide if they’re willing to buy the company’s stock.
Traders primarily look at the stock market from a technical standpoint. They use various tools that most likely an investor would not. One of those tools is a stock scanner. This is a vital tool that helps traders find their stocks at any given moment by filtering specific settings to their liking. It’ll allow them to choose any stock whether it’s gapping up or down, is a small or large cap, has high or low volume, or has a high or low float. This is all technical jargon you probably wouldn’t find an investor searching for. The point is that traders are looking for these big swings in price fluctuations to make a potential profit and these filters within the stock scanner can help them find that.
While investors are viewing a company’s financial reports, traders are vigorously viewing a company’s stock chart. And within that chart, traders have many study indicators they use at their disposal to figure out entries and exits. They study indicators that could be tools like moving averages to assess whether a stock’s trend is bullish or bearish or a relative strength index (RSI) to determine whether that stock is oversold or overbought.
But before traders even trade a stock, they are watching for certain patterns within that chart. Every trader has a strategy and they’re looking to see if they can find a pattern that falls within their strategy. Traders then look for validated levels of support and resistance. They evaluate a myriad of other factors like the spread between the bid and the ask on the level 2, the kind of transaction going through on the time & sales, and the type of candlestick they’re about to buy into. All of these tools are specifically important for a day trader. More on that later.
2. Duration: As any sound investor can tell you, never try to time the market. Investors are not interested in paying attention to daily price movements or even weekly price movements for that matter like traders are. They’re not paying attention to market volatility as much as a trader. Their outlook is substantially longer-term than a trader’s. And that outlook could be at least 5 years and certainly greater than a year. Timing the market is a fool’s errand for an investor.
For a trader, however, timing the market is everything. Swing traders are looking to buy low and sell high or buy high and sell low if they’re shorting multiple times by taking advantage of these price fluctuations where as an investor would typically not care and just sit back. A trend trader tries to buy high and sell higher or short sell low and buy back lower. In other words, a trader will buy a stock short to mid-term where as an investor will buy a stock for the long-term.
It’s also important to distinguish the kind of trader a person is. A day trader will buy and sell a stock on that same day within hours, minutes, or even seconds. And a swing trader will hold a stock for at least a day.
3. Skill Level: Spending more time in the market naturally will expose you to more level of risk. A trader’s time in the market can be significantly longer than an investor’s in terms of buying and selling and therefore require a bit more skill level to be successful in making money.
A trader has to cut losses more quickly where as an investor can wait for the company to bounce back if they hit a roadblock as long as their fundamentals remain intact.
Each of these activities require a different kind of mindset as well. Investors need to have some level of belief or intuition in a company that they’re buying. A trader’s approach is a little less emotional. In fact, their decisions should all be based on logic when analyzing the technical setup of a stock.
Final Thoughts
Regardless of how you approach the stock market, extensive research is undoubtedly required. A trader must check off a multitude of technical conditions to see if a stock is worth trading. And an investor has to study the ins and outs of a company to see if their financial philosophy and overall product or service is sustainable for long-term growth.
There is a popular misconception that trading and investing could be used interchangeably with one another. But as professional traders and investors can attest to, they are both radically different. It’s easy to mix the terms when both activities share the same objective: make money in the stock market.
But their opposite approaches to achieve that objective is what makes them so distinct. To put it in its simplest form, traders trade tickers and investors invest in companies. Let’s break this phrase down in more detail by focusing on three main concepts associated with each activity.
1. Primary Philosophy: Although investors could sometimes bleed into what a trader does and traders could bleed into what an investor does, the main philosophy to take away is that one is purely based off fundamentals and the other is based on technicals.
Investors primarily look at the stock market from a fundamental standpoint. When choosing a stock, investors are entirely invested in what a company does and will continue to do. They care more about the bottom line. They look at a company’s financial reports which consist of balance sheets, income statements, cash flow statements, and various other required documents that the company has to disclose to their shareholders.
These reports give shareholders a look at a company’s debt relative to their overall cash flow, their market share compared to their competitors, their growth and projections, and most importantly, how much profit they’re bringing in. These are all things investors care about. They’re thoroughly listening to a company’s conference call during earnings season, the amount of dividend they’ll pay out for the quarter, and any other relevant information an investor would need to decide if they’re willing to buy the company’s stock.
Traders primarily look at the stock market from a technical standpoint. They use various tools that most likely an investor would not. One of those tools is a stock scanner. This is a vital tool that helps traders find their stocks at any given moment by filtering specific settings to their liking. It’ll allow them to choose any stock whether it’s gapping up or down, is a small or large cap, has high or low volume, or has a high or low float. This is all technical jargon you probably wouldn’t find an investor searching for. The point is that traders are looking for these big swings in price fluctuations to make a potential profit and these filters within the stock scanner can help them find that.
While investors are viewing a company’s financial reports, traders are vigorously viewing a company’s stock chart. And within that chart, traders have many study indicators they use at their disposal to figure out entries and exits. They study indicators that could be tools like moving averages to assess whether a stock’s trend is bullish or bearish or a relative strength index (RSI) to determine whether that stock is oversold or overbought.
But before traders even trade a stock, they are watching for certain patterns within that chart. Every trader has a strategy and they’re looking to see if they can find a pattern that falls within their strategy. Traders then look for validated levels of support and resistance. They evaluate a myriad of other factors like the spread between the bid and the ask on the level 2, the kind of transaction going through on the time & sales, and the type of candlestick they’re about to buy into. All of these tools are specifically important for a day trader. More on that later.
2. Duration: As any sound investor can tell you, never try to time the market. Investors are not interested in paying attention to daily price movements or even weekly price movements for that matter like traders are. They’re not paying attention to market volatility as much as a trader. Their outlook is substantially longer-term than a trader’s. And that outlook could be at least 5 years and certainly greater than a year. Timing the market is a fool’s errand for an investor.
For a trader, however, timing the market is everything. Swing traders are looking to buy low and sell high or buy high and sell low if they’re shorting multiple times by taking advantage of these price fluctuations where as an investor would typically not care and just sit back. A trend trader tries to buy high and sell higher or short sell low and buy back lower. In other words, a trader will buy a stock short to mid-term where as an investor will buy a stock for the long-term.
It’s also important to distinguish the kind of trader a person is. A day trader will buy and sell a stock on that same day within hours, minutes, or even seconds. And a swing trader will hold a stock for at least a day.
3. Skill Level: Spending more time in the market naturally will expose you to more level of risk. A trader’s time in the market can be significantly longer than an investor’s in terms of buying and selling and therefore require a bit more skill level to be successful in making money.
A trader has to cut losses more quickly where as an investor can wait for the company to bounce back if they hit a roadblock as long as their fundamentals remain intact.
Each of these activities require a different kind of mindset as well. Investors need to have some level of belief or intuition in a company that they’re buying. A trader’s approach is a little less emotional. In fact, their decisions should all be based on logic when analyzing the technical setup of a stock.
Final Thoughts
Regardless of how you approach the stock market, extensive research is undoubtedly required. A trader must check off a multitude of technical conditions to see if a stock is worth trading. And an investor has to study the ins and outs of a company to see if their financial philosophy and overall product or service is sustainable for long-term growth.
Source: www.newtraderu.com/
Thursday, 25 June 2020
Quote for the day
"The best kept secret in the investing world: Almost nothing turns out as expected." - Harry Browne
The Life Cycle of the Typical Trader
The exciting start
Do you remember how you got started in trading? Everything seemed possible, and you were ecstatic about the possibilities that trading offered, but what happened afterwards? This article will help you understand the different phases almost all traders will go through, why they are stuck in the same routine, and where they go wrong. It will help you avoid making the same mistakes, and save you some time along the way.
The indicator phase
When traders start out, most will start by using a variety of different indicators. After all, indicators look very sophisticated, they provide a very clear signal, and they transform what you see on your charts into easy to digest information.
New traders don’t really know what they are doing, and don’t understand what the indicators tell them; they just look for trade signals without having ‘to do too much work’.
The price action phase – less is more
When traders move on, they adopt the ‘get rid of the mess’ approach, and use phrases like ‘keep it simple’ or ‘only trade what you see’. Price action trading, and looking at blank price charts is where they will go, because price is ‘the purest form of information’, or at least this is what people tell you.
After leaving indicators behind, traders report that they feel free, and can finally see beyond the indicators. They understand what is really moving the markets. Needless to say, it does not really matter whether you are using price action or indicators – but this insight will come much later, if ever, in a trader’s life cycle.
Higher timeframes – less noise and more time to enjoy your freedom
Lower time frames are so noisy, and even though your trading strategy might be profitable, it is disproportionately harder on the lower time frames, isn’t it? A typical thought in this phase goes something like this:
‘When I finally trade profitably on the higher time frames, which is easier, I have more time to enjoy life; the reason I came to trading in the first place.’
Every time frame is unique, and the characteristics and skill-set you need to have for each time frame differ significantly. Traders who switch to higher time frames have to deal with completely different emotions. If you tend to make impulsive trading decisions and have difficulty executing trades with patience, trading time frames where you have to wait weeks for a signal to be validated, or stay in trades for days and weeks, and withstand drawdowns calmly, will often result in a whole new set of problems.
Fundamentals – understanding the context
Next, traders start reading news articles and learning about macroeconomic figures. They try to understand the overall market sentiment, since this is the actual factor which is moving the markets.
The fundamental phase is usually short, since traders notice relatively quickly how difficult it is to understand fundamental data. It isn’t as easy as trading absolute numbers of news releases.
Automation – removing the personal mistakes
EAs, trading robots and automated trading strategies seem like the perfect way out. They remove the personal factors that are responsible for trader failure. You get rid of emotions, avoid impulsive trading mistakes, and stop unnecessarily messing up your trades, by fully automating your trading approach.
Traders usually underestimate the factor that markets are never the same. The fact that financial markets are constantly changing, going from trending to ranging mode, having different phases of volatility and even the way markets respond to price behavior and other trading tools changes, is causing major problems for automated trading strategies. They require constant monitoring and adjusting the algorithms.
Back-testing – Finding what has worked before
After some frustrations, and without really seeing any improvements, traders usually start backtesting different trading ideas excessively. Before they are ready to invest more money, they want to make sure that their approach has worked before and, therefore, has a higher chance of working going forward; at least theoretically.
Back-testing, similar to automated trading, underestimates the changing nature of financial markets. Furthermore, backtesting avoids a variety of common issues that traders have to deal with during live trading which include: executing patience, feeling the pressure of having real money on the line and seeing the whole context of financial markets. Needless to say, backtesting results (almost) never translates into actual trading success.
Completing the cycle
Giving up
Most traders will go through this cycle once and then have enough and give up. Studies of retail trading data confirm that 40% of all traders quit after one month and a staggering 80% of all traders quit after 2 years.
The reason is that their dreams and hopes about fast and easy money have been destroyed, and they come to the conclusion (without losing lots of money, hopefully), that trading is not the easy task they were looking for.
Repeating the cycle
The ones who do not quit and keep on chasing their dream will repeat the cycle over and over again. However, traders will alternate between different phases of the cycle, leaving out some completely, and stick to others longer.
Adopting a professional and serious approach
At one point, some of the traders that are still left will come to the conclusion that they need to escape this cycle and try a different approach. Trading without the belief in the Holy Grail, and trading detached from the get rich quick mindset, often enables traders to tackle the whole situation in a completely different way.
Once traders stop system hopping, start implementing a trading plan and a trading journal and pay attention to detail, they have a chance of making it in this business. By understanding that the markets are not your greatest enemy, but that you yourself and your wrong beliefs are the factors that are causing you to make the wrong decisions, you can finally start focusing on the important aspects.
Our tips for a professional trading approach:
* Stick to one system only and stop system-hopping
Do you remember how you got started in trading? Everything seemed possible, and you were ecstatic about the possibilities that trading offered, but what happened afterwards? This article will help you understand the different phases almost all traders will go through, why they are stuck in the same routine, and where they go wrong. It will help you avoid making the same mistakes, and save you some time along the way.
The indicator phase
When traders start out, most will start by using a variety of different indicators. After all, indicators look very sophisticated, they provide a very clear signal, and they transform what you see on your charts into easy to digest information.
New traders don’t really know what they are doing, and don’t understand what the indicators tell them; they just look for trade signals without having ‘to do too much work’.
The price action phase – less is more
When traders move on, they adopt the ‘get rid of the mess’ approach, and use phrases like ‘keep it simple’ or ‘only trade what you see’. Price action trading, and looking at blank price charts is where they will go, because price is ‘the purest form of information’, or at least this is what people tell you.
After leaving indicators behind, traders report that they feel free, and can finally see beyond the indicators. They understand what is really moving the markets. Needless to say, it does not really matter whether you are using price action or indicators – but this insight will come much later, if ever, in a trader’s life cycle.
Higher timeframes – less noise and more time to enjoy your freedom
Lower time frames are so noisy, and even though your trading strategy might be profitable, it is disproportionately harder on the lower time frames, isn’t it? A typical thought in this phase goes something like this:
‘When I finally trade profitably on the higher time frames, which is easier, I have more time to enjoy life; the reason I came to trading in the first place.’
Every time frame is unique, and the characteristics and skill-set you need to have for each time frame differ significantly. Traders who switch to higher time frames have to deal with completely different emotions. If you tend to make impulsive trading decisions and have difficulty executing trades with patience, trading time frames where you have to wait weeks for a signal to be validated, or stay in trades for days and weeks, and withstand drawdowns calmly, will often result in a whole new set of problems.
Fundamentals – understanding the context
Next, traders start reading news articles and learning about macroeconomic figures. They try to understand the overall market sentiment, since this is the actual factor which is moving the markets.
The fundamental phase is usually short, since traders notice relatively quickly how difficult it is to understand fundamental data. It isn’t as easy as trading absolute numbers of news releases.
Automation – removing the personal mistakes
EAs, trading robots and automated trading strategies seem like the perfect way out. They remove the personal factors that are responsible for trader failure. You get rid of emotions, avoid impulsive trading mistakes, and stop unnecessarily messing up your trades, by fully automating your trading approach.
Traders usually underestimate the factor that markets are never the same. The fact that financial markets are constantly changing, going from trending to ranging mode, having different phases of volatility and even the way markets respond to price behavior and other trading tools changes, is causing major problems for automated trading strategies. They require constant monitoring and adjusting the algorithms.
Back-testing – Finding what has worked before
After some frustrations, and without really seeing any improvements, traders usually start backtesting different trading ideas excessively. Before they are ready to invest more money, they want to make sure that their approach has worked before and, therefore, has a higher chance of working going forward; at least theoretically.
Back-testing, similar to automated trading, underestimates the changing nature of financial markets. Furthermore, backtesting avoids a variety of common issues that traders have to deal with during live trading which include: executing patience, feeling the pressure of having real money on the line and seeing the whole context of financial markets. Needless to say, backtesting results (almost) never translates into actual trading success.
Completing the cycle
Giving up
Most traders will go through this cycle once and then have enough and give up. Studies of retail trading data confirm that 40% of all traders quit after one month and a staggering 80% of all traders quit after 2 years.
The reason is that their dreams and hopes about fast and easy money have been destroyed, and they come to the conclusion (without losing lots of money, hopefully), that trading is not the easy task they were looking for.
Repeating the cycle
The ones who do not quit and keep on chasing their dream will repeat the cycle over and over again. However, traders will alternate between different phases of the cycle, leaving out some completely, and stick to others longer.
Adopting a professional and serious approach
At one point, some of the traders that are still left will come to the conclusion that they need to escape this cycle and try a different approach. Trading without the belief in the Holy Grail, and trading detached from the get rich quick mindset, often enables traders to tackle the whole situation in a completely different way.
Once traders stop system hopping, start implementing a trading plan and a trading journal and pay attention to detail, they have a chance of making it in this business. By understanding that the markets are not your greatest enemy, but that you yourself and your wrong beliefs are the factors that are causing you to make the wrong decisions, you can finally start focusing on the important aspects.
Our tips for a professional trading approach:
* Stick to one system only and stop system-hopping
* Stop focusing on entries only as the Holy Grail
* Adhere to risk and money management principles
* Do not personalize losses
* Start tracking your trades in a trading journal to find negative patterns and find out what is causing you to lose money
* Start using a trading plan to avoid impulsive trading decisions
Source:www.newtraderu.com
Source:www.newtraderu.com
Wednesday, 24 June 2020
Quote for the day
"A person with a flexible schedule and average resources will be happier than a rich person who has everything except a flexible schedule. Step one in your search for happiness is to continually work toward having control of your schedule." - Scott Adams
What Motivates Investors?
We are not as rational as we think we are. When it comes to money and investing, people do some pretty strange things.
Ever wonder why we do the things we do with our portfolios?
Well, there's a whole field of study that explains our sometimes-strange behavior.
Where Do You Fit in?
Much of the economic theory available today is based on the belief that individuals behave in a rational manner and that all existing information is embedded in the investment process.
This goes hand in hand with the efficient market hypothesis. In fact, researchers have uncovered evidence that rational behavior is not often the case.
Behavioral finance attempts to understand and explain how human emotions influence investors in their decision making process.
The Prospect Theory
It doesn't take a brain surgeon to know that people are risk averse and prefer a sure investment return rather than an uncertain one.
We want to get paid for taking the extra risk. That's pretty reasonable.
On the other hand, here's the strange part:
Prospect theory suggests that people react differently to equivalent situations depending on whether it's presented as a gain or a loss.
Individuals get more stressed out by prospective losses than they are happy by equal gains.
Sounds silly, but it is definitely true!
You?ll never hear an investment advisor tell you that he/she got flooded with calls because he/she reported, say, a 100,000 gain in a client?s portfolio.
But, you can bet that phone will ring when a similar report posts a 1,000 loss! A small loss always appears larger than a gain of a larger size.
It?s funny how when it goes deep into our pockets, the whole perspective changes.
How many times have you held onto a losing stock because you couldn't bring yourself to sell it at a loss? People end up taking more risks to avoid losses than to realize gains.
Gamblers on a losing streak behave in a similar fashion, doubling up bets to try and recoup what they?ve already lost.
By having the following misconception, "I know the stock price will bounce back, then I?ll sell it," investors pile on more risk to avoid realizing a loss.
If these seem like inconsistent attitudes toward risk, well, they are! What we find are people set a higher price on something they own than they would normally be prepared to pay.
An alternative to the loss aversion theory is that investors might choose to hold their losers and sell their winners because they believe that today?s losers may soon outperform today?s winners.
Investors often make the mistake of chasing the action by investing in stocks or funds that receive the most attention.
In support of this notion, research shows that money flows in more rapidly to investments that have performed extremely well than flows out of from investments that have performed poorly.
The Regret Theory
"Fear of Regret" or "Regret Theory" deals with the emotional reaction people experience after making what they think is an error of judgment.
Investors become emotionally affected by their original purchase price of a stock when they are going to sell it.
So, they avoid selling the stock in order to avoid the regret of having made a bad investment and the embarrassment of reporting a loss.
We ALL Hate to Be Wrong ...Don't We?
What investors should really ask themselves when faced with a similar situation is:
"What are the consequences of repeating the same mistake and if this security was already liquid, would I invest in it again?"
Chances are that you would not!
Regret theory also holds true for investors who did not buy a stock they had previously considered and which subsequently went up in value. By following the conventional wisdom, some investors avoid the possibility of feeling regret by rationalizing their decision with:
Everyone Else Is Doing IT!
Although it does not make much sense, some feel it's much less embarrassing when you lose money on a popular stock that half the world owns it.
On the flip side, losing on an unknown or unpopular stock is a little harder to swallow!
Source: http://www.greekshares.com
Ever wonder why we do the things we do with our portfolios?
Well, there's a whole field of study that explains our sometimes-strange behavior.
Where Do You Fit in?
Much of the economic theory available today is based on the belief that individuals behave in a rational manner and that all existing information is embedded in the investment process.
This goes hand in hand with the efficient market hypothesis. In fact, researchers have uncovered evidence that rational behavior is not often the case.
Behavioral finance attempts to understand and explain how human emotions influence investors in their decision making process.
The Prospect Theory
It doesn't take a brain surgeon to know that people are risk averse and prefer a sure investment return rather than an uncertain one.
We want to get paid for taking the extra risk. That's pretty reasonable.
On the other hand, here's the strange part:
Prospect theory suggests that people react differently to equivalent situations depending on whether it's presented as a gain or a loss.
Individuals get more stressed out by prospective losses than they are happy by equal gains.
Sounds silly, but it is definitely true!
You?ll never hear an investment advisor tell you that he/she got flooded with calls because he/she reported, say, a 100,000 gain in a client?s portfolio.
But, you can bet that phone will ring when a similar report posts a 1,000 loss! A small loss always appears larger than a gain of a larger size.
It?s funny how when it goes deep into our pockets, the whole perspective changes.
How many times have you held onto a losing stock because you couldn't bring yourself to sell it at a loss? People end up taking more risks to avoid losses than to realize gains.
Gamblers on a losing streak behave in a similar fashion, doubling up bets to try and recoup what they?ve already lost.
By having the following misconception, "I know the stock price will bounce back, then I?ll sell it," investors pile on more risk to avoid realizing a loss.
If these seem like inconsistent attitudes toward risk, well, they are! What we find are people set a higher price on something they own than they would normally be prepared to pay.
An alternative to the loss aversion theory is that investors might choose to hold their losers and sell their winners because they believe that today?s losers may soon outperform today?s winners.
Investors often make the mistake of chasing the action by investing in stocks or funds that receive the most attention.
In support of this notion, research shows that money flows in more rapidly to investments that have performed extremely well than flows out of from investments that have performed poorly.
The Regret Theory
"Fear of Regret" or "Regret Theory" deals with the emotional reaction people experience after making what they think is an error of judgment.
Investors become emotionally affected by their original purchase price of a stock when they are going to sell it.
So, they avoid selling the stock in order to avoid the regret of having made a bad investment and the embarrassment of reporting a loss.
We ALL Hate to Be Wrong ...Don't We?
What investors should really ask themselves when faced with a similar situation is:
"What are the consequences of repeating the same mistake and if this security was already liquid, would I invest in it again?"
Chances are that you would not!
Regret theory also holds true for investors who did not buy a stock they had previously considered and which subsequently went up in value. By following the conventional wisdom, some investors avoid the possibility of feeling regret by rationalizing their decision with:
Everyone Else Is Doing IT!
Although it does not make much sense, some feel it's much less embarrassing when you lose money on a popular stock that half the world owns it.
On the flip side, losing on an unknown or unpopular stock is a little harder to swallow!
Source: http://www.greekshares.com
Tuesday, 23 June 2020
Quote for the day
"Mr. Market does not always price stocks the way an appraiser or a private buyer would value a business. Instead, when stocks are going up, he happily pays more than their objective value; and, when they are going down, he is desperate to dump them for less than their true worth." - Benjamin Graham
Origin of the Stock Market Terms “Bull” and “Bear”
By Daven Hiskey
For those who don’t know, a “bear” market, or when someone is being “bearish” in this context, is marked by investors being very conservative and pessimistic, resulting in a declining market generally marked by the mass selling off of stock. A “bull” market is simply the opposite of that, with investors being aggressive and positive, with stock prices rising as a result of this optimism. This “bull” and “bear” terminology first popped up in the 18th century in England.
There are a couple different possible sources for the “bear” part of this tandem, but the leading theory is that it derived from an old 16th century proverb: “selling the bear's skin before one has caught the bear” or alternatively, “Don't sell the bear's skin before you've killed him,” equivalent to, “Don't count your eggs before they’re hatched.”
By the early 18th century, when people in the stock world would sell something they didn’t yet own (in hopes of turning a profit by eventually being able to buy the thing at a cheaper rate than they sold it, before delivery was due), this gave rise to the saying that they “sold the bearskin” and the people themselves were called “bearskin jobbers”.
One of the earliest references of this comes from an issue of The Tatler, April 26, 1709:
"Forasmuch as it is very hard to keep land in repair without ready cash, I do, out of my personal estate, bestow the bear-skin, which I have frequently lent to several societies about this town, to supply their necessities; I say, I give also the said bear-skin as an immediate fund to the said citizens forever…"
In a later edition, June 23, 1709, it goes on to state:
"I fear the word Bear is hardly to be understood among the polite people; but I take the meaning to be, that one who insures a real value upon an imaginary thing, is said to sell a Bear, and is the same thing as a promise among courtiers, or a vow between lovers…"
Yet another early instance of the term is in Daniel Defoe’s The Anatomy of Change Alley, published in 1719, around the time the term was popularized to something of the same type of definition we use today:
"Those who buy Exchange Alley Bargains are styled buyers of Bear-skins."
The use of the word “bear” in this way was popularized thanks to one of the early market bubbles known as the South Sea Bubble. While it was a long and incredibly complex market scheme that led to the bubble, the gist of it was that the South Sea Company, formed in 1711, was granted by Britain a monopoly on all trade to South America and would be given an annual sum (6% interest plus expenses) from the government. In exchange, the new company agreed to take over large portions of the government’s debt. (In fact, this was primarily how the company actually made money throughout its century and a half it was in business, simply by dealing in government debt.)
Thanks to this deal and an amazing amount of government corruption, insider trading, and other unscrupulous practices by certain shareholders who knew well that the company’s trade business had little hope of ever being profitable, the burgeoning company’s stock soared. At its peak, based on the stock price, the company was worth about £200 million (by purchasing power, today this would be about £24 billion or $37 billion; by average earnings, it would be £350 billion or $537 billion).
Besides the fact that they didn’t even have their first trading shipment until 1717, 6 years after the trading company first formed, one of the problems was that having an exclusive monopoly on trading to South America from the British government at the time wasn’t saying much as most of the region was almost entirely held by Spain, who Britain was at war with. Nevertheless, amid rampant and widely published rumors (deftly planted by certain stock holders to jack up the price) of the vast wealth from gold and other resources in those regions and the potential promise of soon securing trade rights from Spain, the stock prices soared, even though the company itself wasn’t really doing any actual trading and their main asset, the monopoly on trade to Middle and South America, was essentially worthless, as the core stock holders knew well.
Spain did eventually grant the South Sea Company rights to trade in the regions held by Spain, but only one ship load per year total was allowed in exchange for a percentage of the profits. Needless to say, the inability to do any actual real volume of trading and the fact that war once again broke out in 1718 between Spain and Britain causing much of the company’s scant physical assets to be seized by Spain, the market crash that followed wasn't pretty.
As to the “bull” name for rising markets, in this case we have to do a little more speculation as the documented evidence just isn’t there. The leading theory is that it came about as a direct result of the term “bear”. Specifically, the first known instance of the market term “bull” popped up in 1714, shortly after the “bear” term popped up. At the time, it was something of a common practice to bear and bull-bait. Essentially, with bear baiting, they’d chain a bear (or bears) up in an arena, and then set some other animals to attack the bear(s) (usually dogs) as a form of entertainment for spectators seated in the arena.
While bears were one of the more popular animals to use in these games, bulls were also commonly used. More rarely, other animals were used such as in one instance where an ape was tied to a pony’s back and dogs were set on them. According to one spectator, the spectacle of the dogs tearing the pony to shreds while the ape screamed and desperately tried to stay on the pony’s back, out of reach of the snapping jaws of the dogs, was “very laughable”…
In any event, the popularity of bear and bull baiting, along with perhaps the association with bulls charging, is thought to have probably been why “bull” was chosen as something of the antithesis of a “bear”, shortly after “bear” first popped up in the stock sense. But, of course, we can’t be at all sure on this one as there wasn’t the more lengthy documented progression of definition as with the “bear” term.
Source: http://www.todayifoundout.com/index.php/2013/04/origin-of-the-stock-market-terms-bull-and-bear/
Kevin asks: Why do we call the stock market trends “bullish” and “bearish”?
For those who don’t know, a “bear” market, or when someone is being “bearish” in this context, is marked by investors being very conservative and pessimistic, resulting in a declining market generally marked by the mass selling off of stock. A “bull” market is simply the opposite of that, with investors being aggressive and positive, with stock prices rising as a result of this optimism. This “bull” and “bear” terminology first popped up in the 18th century in England.
There are a couple different possible sources for the “bear” part of this tandem, but the leading theory is that it derived from an old 16th century proverb: “selling the bear's skin before one has caught the bear” or alternatively, “Don't sell the bear's skin before you've killed him,” equivalent to, “Don't count your eggs before they’re hatched.”
By the early 18th century, when people in the stock world would sell something they didn’t yet own (in hopes of turning a profit by eventually being able to buy the thing at a cheaper rate than they sold it, before delivery was due), this gave rise to the saying that they “sold the bearskin” and the people themselves were called “bearskin jobbers”.
One of the earliest references of this comes from an issue of The Tatler, April 26, 1709:
"Forasmuch as it is very hard to keep land in repair without ready cash, I do, out of my personal estate, bestow the bear-skin, which I have frequently lent to several societies about this town, to supply their necessities; I say, I give also the said bear-skin as an immediate fund to the said citizens forever…"
In a later edition, June 23, 1709, it goes on to state:
"I fear the word Bear is hardly to be understood among the polite people; but I take the meaning to be, that one who insures a real value upon an imaginary thing, is said to sell a Bear, and is the same thing as a promise among courtiers, or a vow between lovers…"
Yet another early instance of the term is in Daniel Defoe’s The Anatomy of Change Alley, published in 1719, around the time the term was popularized to something of the same type of definition we use today:
"Those who buy Exchange Alley Bargains are styled buyers of Bear-skins."
The use of the word “bear” in this way was popularized thanks to one of the early market bubbles known as the South Sea Bubble. While it was a long and incredibly complex market scheme that led to the bubble, the gist of it was that the South Sea Company, formed in 1711, was granted by Britain a monopoly on all trade to South America and would be given an annual sum (6% interest plus expenses) from the government. In exchange, the new company agreed to take over large portions of the government’s debt. (In fact, this was primarily how the company actually made money throughout its century and a half it was in business, simply by dealing in government debt.)
Thanks to this deal and an amazing amount of government corruption, insider trading, and other unscrupulous practices by certain shareholders who knew well that the company’s trade business had little hope of ever being profitable, the burgeoning company’s stock soared. At its peak, based on the stock price, the company was worth about £200 million (by purchasing power, today this would be about £24 billion or $37 billion; by average earnings, it would be £350 billion or $537 billion).
Besides the fact that they didn’t even have their first trading shipment until 1717, 6 years after the trading company first formed, one of the problems was that having an exclusive monopoly on trading to South America from the British government at the time wasn’t saying much as most of the region was almost entirely held by Spain, who Britain was at war with. Nevertheless, amid rampant and widely published rumors (deftly planted by certain stock holders to jack up the price) of the vast wealth from gold and other resources in those regions and the potential promise of soon securing trade rights from Spain, the stock prices soared, even though the company itself wasn’t really doing any actual trading and their main asset, the monopoly on trade to Middle and South America, was essentially worthless, as the core stock holders knew well.
Spain did eventually grant the South Sea Company rights to trade in the regions held by Spain, but only one ship load per year total was allowed in exchange for a percentage of the profits. Needless to say, the inability to do any actual real volume of trading and the fact that war once again broke out in 1718 between Spain and Britain causing much of the company’s scant physical assets to be seized by Spain, the market crash that followed wasn't pretty.
As to the “bull” name for rising markets, in this case we have to do a little more speculation as the documented evidence just isn’t there. The leading theory is that it came about as a direct result of the term “bear”. Specifically, the first known instance of the market term “bull” popped up in 1714, shortly after the “bear” term popped up. At the time, it was something of a common practice to bear and bull-bait. Essentially, with bear baiting, they’d chain a bear (or bears) up in an arena, and then set some other animals to attack the bear(s) (usually dogs) as a form of entertainment for spectators seated in the arena.
While bears were one of the more popular animals to use in these games, bulls were also commonly used. More rarely, other animals were used such as in one instance where an ape was tied to a pony’s back and dogs were set on them. According to one spectator, the spectacle of the dogs tearing the pony to shreds while the ape screamed and desperately tried to stay on the pony’s back, out of reach of the snapping jaws of the dogs, was “very laughable”…
In any event, the popularity of bear and bull baiting, along with perhaps the association with bulls charging, is thought to have probably been why “bull” was chosen as something of the antithesis of a “bear”, shortly after “bear” first popped up in the stock sense. But, of course, we can’t be at all sure on this one as there wasn’t the more lengthy documented progression of definition as with the “bear” term.
Source: http://www.todayifoundout.com/index.php/2013/04/origin-of-the-stock-market-terms-bull-and-bear/
Monday, 22 June 2020
Quote for the day
"In an ideal world, the intelligent investor would hold stocks only when they are cheap and sell them when they become overpriced, then duck into the bunker of bonds and cash until stocks again become cheap enough to buy." - Benjamin Graham
Investing Is A Science
When it comes to investing, most people think that making money is about luck, inside tips, or intuition. Some feel that only the rich can access strategies and investment products that make money.
The truth is that while luck, inside tips and intuition can be helpful, successful investing actually happens with other elements like logic, research, process and discipline.
1. Logic versus Emotions
Many successful experts in the investment business will tell you that success comes in your ability to remove emotions from the decision making process. While I believe this to be true, I also believe it is impossible to completely remove emotions from financial and investment decisions. However, success in investing does come from your ability to think with more logic and less emotion.
One of the best examples of this is when investors sell out their investments at the bottom of the market. Logically, when prices fall, it is the time to buy. You get more units for the same dollar. Yet over and over again, investors sell because of emotion over logic.
2. Research
I’ve always believed that good research leads to good decisions. The trouble is, good research is sometimes hard to come by. Whatever the case may be, research never guarantees success because the investment industry is an imperfect one. However, good research does increase the likelihood that you will make better decisions about investing.
The principles of good research apply in everyday life. One of my good friends recently bought a new car. He read consumer magazines, went to different dealerships, and test-drove numerous cars. In the end, he had the peace of mind that the car he bought was the right choice. He could spout all the options, benefits and statistics of his new car and no one could dare to convince him that he made a bad choice.
3. Discipline
Investing requires discipline. It is so easy to try to take shortcuts or get lured into get rich quick schemes. The fact is, the odds that fast moneymaking schemes work are really against you. Yet, every day investors are disappointed with lottery tickets, lousy investments and lack of discipline. The unfortunate truth is investment success is more likely to come slow and steady.
In the health and nutrition industry any expert will tell you that losing weight simply requires discipline. There are many variations to dieting and exercise but the bottom line is that success only results from staying disciplined to nutrition and exercise. The reason so many people gain back weight that they lose is that they lose the discipline to keep the plan going. Investing is no different!
4. Process
Everything works better with a plan. You don’t have to have a plan to succeed but you certainly have better chances with a plan. The old saying goes, “if you don’t have a plan, any road will do.” Developing a plan is the first step to success. It will help you to think logically and rationally. Once you have the plan, it helps you to stay disciplined and keep on track.
Imagine driving from Edmonton to Vancouver for the first time. If you don’t have a map or a plan, you can still make it there. However, with a map, you are less likely to take the wrong turn or get off track. An investment plan will give you that same security and peace of mind, knowing when turns come ahead of time and what to do in case unexpected events occur.
Putting it all together
Put these four elements together and you will find the words of Warren Buffett:
“To invest successfully over a lifetime does not require a stratospheric I.Q., unusual business insight, or inside information. What is needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”
So in the end, if investing is about logic, research, discipline and process, then investing is more of a science than an art. There is no such thing as perfection in this industry. If that were the case, we would all own that one perfect investment. Simply try to remember these elements to investing and that success does not mean you will not make mistakes. Rather, success comes when you make more good decisions than bad ones, you make money more often than you lose money, and you are right more often than wrong.
Written by Jim Yih in Investing
http://retirehappyblog.ca
The truth is that while luck, inside tips and intuition can be helpful, successful investing actually happens with other elements like logic, research, process and discipline.
1. Logic versus Emotions
Many successful experts in the investment business will tell you that success comes in your ability to remove emotions from the decision making process. While I believe this to be true, I also believe it is impossible to completely remove emotions from financial and investment decisions. However, success in investing does come from your ability to think with more logic and less emotion.
One of the best examples of this is when investors sell out their investments at the bottom of the market. Logically, when prices fall, it is the time to buy. You get more units for the same dollar. Yet over and over again, investors sell because of emotion over logic.
2. Research
I’ve always believed that good research leads to good decisions. The trouble is, good research is sometimes hard to come by. Whatever the case may be, research never guarantees success because the investment industry is an imperfect one. However, good research does increase the likelihood that you will make better decisions about investing.
The principles of good research apply in everyday life. One of my good friends recently bought a new car. He read consumer magazines, went to different dealerships, and test-drove numerous cars. In the end, he had the peace of mind that the car he bought was the right choice. He could spout all the options, benefits and statistics of his new car and no one could dare to convince him that he made a bad choice.
3. Discipline
Investing requires discipline. It is so easy to try to take shortcuts or get lured into get rich quick schemes. The fact is, the odds that fast moneymaking schemes work are really against you. Yet, every day investors are disappointed with lottery tickets, lousy investments and lack of discipline. The unfortunate truth is investment success is more likely to come slow and steady.
In the health and nutrition industry any expert will tell you that losing weight simply requires discipline. There are many variations to dieting and exercise but the bottom line is that success only results from staying disciplined to nutrition and exercise. The reason so many people gain back weight that they lose is that they lose the discipline to keep the plan going. Investing is no different!
4. Process
Everything works better with a plan. You don’t have to have a plan to succeed but you certainly have better chances with a plan. The old saying goes, “if you don’t have a plan, any road will do.” Developing a plan is the first step to success. It will help you to think logically and rationally. Once you have the plan, it helps you to stay disciplined and keep on track.
Imagine driving from Edmonton to Vancouver for the first time. If you don’t have a map or a plan, you can still make it there. However, with a map, you are less likely to take the wrong turn or get off track. An investment plan will give you that same security and peace of mind, knowing when turns come ahead of time and what to do in case unexpected events occur.
Putting it all together
Put these four elements together and you will find the words of Warren Buffett:
“To invest successfully over a lifetime does not require a stratospheric I.Q., unusual business insight, or inside information. What is needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”
So in the end, if investing is about logic, research, discipline and process, then investing is more of a science than an art. There is no such thing as perfection in this industry. If that were the case, we would all own that one perfect investment. Simply try to remember these elements to investing and that success does not mean you will not make mistakes. Rather, success comes when you make more good decisions than bad ones, you make money more often than you lose money, and you are right more often than wrong.
Written by Jim Yih in Investing
http://retirehappyblog.ca
Sunday, 21 June 2020
Quote for the day
"Investing is important, but get debt-free first. That's what frees up your income so you can win." - Dave Ramsey
Saturday, 20 June 2020
Quote for the day
"The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor." - Jesse Lauriston Livermore
42 Ways To Trade Like A Market Wizard
What if you could read the principles for success for some of the world’s greatest traders? Well you can, here is how author Jack Schwager summed up the the similarities of the ‘Market Wizards’ he spent years interviewing in his second book.
The following is a summarized excerpt from Jack D Schwager’s book, The New Market Wizards. I highly recommend this book for all active traders.
- First Things First You sure you really want to trade ? It is common for people who think they want to trade to discover that they really don’t.
- Examine Your Motives Why do you really want to trade ? Did you say excitement ? Then don’t waste your money in market, you might be better off riding a roller coaster or taking up hand gliding.The market is a stern master. You need to do almost everything right to win. If parts of you are pulling in opposite directions, the game is lost before you start.
- Match The Trading Method To Your Personality It is critical to choose a method that is consistent with your your own personality and conflict level.
- It Is Absolutely Necessary To Have An Edge You cant win without an edge, even with the world’s greatest discipline and money management skills. If you don’t have an edge, all that money management and discipline will do for you is to guarantee that you will gradually bleed to death. Incidentally, if you don’t know what your edge is, you don’t have one.
- Derive A Method To have an edge, you must have a method. The type of method is not important, but having one is critical-and, of course, the method must have an edge.
- Developing A Method Is Hard Work Short cuts rarely lead to trading success. Developing your own approach requires research, observation, and thought. Expect the process to take lots of time and hard work. Expect many dead ends and multiple failures before you find a successful trading approach that is right for you. Remember that you are playing against tens of thousands of professionals. Why should you be any better ? If it were that easy, there would be a lot more millionaire traders.
- Skill Versus Hard Work The general rule is that exceptional performance requires both natural talent and hard work to realize its potential. If the innate skill is lacking, hard work may provide proficiency, but not excellence.Virtually anyone can become a net profitable trader, but only a few have the inborn talent to become super traders ! For this reason, it may be possible to teach trading success, but only up to a point. Be realistic in your goals.
- Good Trading Should Be Effortless Hard work refers to the preparatory process – the research and observation necessary to become a good trader – not to the trading itself.“In trading, just as in archery, whenever there is effort, force, straining, struggling, or trying, it's wrong. You’re out of sync; you're out of harmony with the market. The perfect trade is one that requires no effort.”
- Money Management and Risk Control
Money management is even more important than the trading method. The Trading Plan- Never risk more than 5% of your capital on any trade.
- Predetermine your exit point before you get in a trade.
- If you lose a certain predetermined amount of your starting capital (say 10 to 20%), take a breather, analyze what went wrong, and wait till you feel confident and have a high-probability idea before you begin trading again.
- Trying to win in the markets without a trading plan is like trying to build a house without blue prints – costly (and avoidable) mistakes are virtually inevitable. A trading plan simply requires a personal trading method with specific money management and trade entry rules.
- Discipline
Discipline was probably most frequent word used by the exceptional trades that I interviewed.
There are two reasons why discipline is critical. Understand That You Are Responsible- Its a prerequisite for maintaining effective risk control.
- You need discipline to apply your methods without second guessing and choosing which trade to take.
A final word, remember that you are never immune to bad trading habits – the best you can do is to keep them latent. As soon as you get lazy or sloppy, they will return ! - Whether you win or lose, YOU ARE RESPONSIBLE for your own results. I've never met a successful trader who blamed others for his losses.
- The Need For Independence You need to do your own thinking. It also means making your own trading decisions. Never listen to other opinions.
- Confidence An unwavering confidence in their ability to continue to win in the markets was a nearly universal characteristic among the traders I interviewed.
- Losing is Part of the Game The great traders realize that losing is an intrinsic element in the game of trading. This attitude is linked to confidence. Because exceptional traders are confident that they will win over the long run, individual trades no longer seem horrible; they simply appear inevitable.There is no more certain recipe for losing than having a fear of losing. If you cant stand taking losses, you will either end up taking large losses or missing great trading opportunities – either flaw is sufficient to sink any chance for success.
- Lack of Confidence and Time-Outs Trade only when you feel confident and optimistic.
- The Urge to Seek Advice The urge to seek advice betrays a lack of confidence.
- The Virtue of Patience Waiting for the right opportunity increases the probability of success. You don’t always have to be in the market.Guard particularly against being overeager to trade in order to win back prior losses. Vengeance trading is a sure recipe for failure.
- The Importance of Sitting Patience is important not only in waiting for right trades, but also in staying with trades that are working. The failure to adequately profit from correct trades is a key profit-limiting factor.“One common adage .. that is completely wrong headed is : You cant go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits.”
- Developing a Low-Risk Idea The merit of a low risk idea is that it combines two essential elements: patience (because only a small portion of ideas will qualify) and risk control (inherent in the definition). “Open a doughnut shop next door to a police station”.
- The Importance of Varying Bet Size It can be mathematically demonstrated that in any wager game with varying probabilities, winnings are maximized by adjusting the bet size in accordance with the perceived chance of a successful outcome.
- Scaling In and Out of Trades You don’t have to get in or out of a position all at once. Scaling in and out of positions provides the flexibility of fine tuning trades and broadens the set of alternative choices.
- Being Right is More Important than being a Genius Think about winning rather than being a hero. Go for consistency on a trade-to-trade basis, not perfect trades.
- Don’t Worry About Looking Stupid Don’t talk about your position.
- Sometimes Action is More Important than Prudence When your analysis, methodology, or gut tells you to get into a trade at the market instead of waiting for a correction – do so.
- Catching Part of the Move is Just Fine Just because you missed the first major portion of a new trend, don’t let that keep you from trading with that trend (as long as you can define a reasonable stop-loss point).
- Maximize Gains, Not the Number of Wins The success rate of trades is the least important performance statistic and may even be inversely related to performance.
- Learn to be Disloyal Never have loyalty to a position.
- Pull Out Partial Profits Reward Yourself !
- Hope is a Four-Letter Word Hope is a dirty word for a trader, not only in regards to procrastinating in a losing position, hoping the market will come back, but also in terms of hoping for a reaction that will allow for a better entry in a missed trade.
- Don’t Do the Comfortable Thing Do what is right, not what feels comfortable.
- You Cant Win If You Have To Win “Scared money never wins”. If you are risking money you cant afford to lose, all the emotional pitfalls of trading will be magnified. The market seldom tolerates the carelessness associated with traders born of desperation.
- Think Twice When The Market Lets You Off The Hook Easily There must be some very powerful underlying forces in favor of the direction of the original position !
- A Mind is a Terrible Thing to Close Open-mindedness seems to be a common trait among those who excel at trading.
- The Markets are an Expensive Place to Look for Excitement Excitement has a lot to do with the image of trading but nothing to do with success in trading.
- The Calm State of a Trader If there is an emotional state associated with successful trading, it is the antithesis of excitement. Exceptional traders are able to remain calm and detached regardless of what the markets are doing.
- Identify and Eliminate Stress Stress in trading is a sign that something is wrong. If you feel stress, think about the cause, and then act to eliminate the problem.
- Pay Attention to Intuition Intuition is simply experience that resides in the subconscious mind. The objectivity of market analysis done by the conscious mind can be compromised by all sorts of extraneous considerations (e.g., one’s current market position, a resistance to change a previous forecast). The subconscious, however, is not inhibited by such constraints. Unfortunately, we cant readily tap into our subconscious thoughts. However, when they come through as intuition, the trader needs to pay attention. “The trick is to differentiate between what you want to happen and what you know will happen.
- Life’s Mission and Love of the Endeavor Many traders felt that trading was what they were meant to do – in essence, their mission in life.
- The Elements of Achievements
Faulkner’s list of the six key steps to achievement Prices are Non random = The Markets can be Beat- using both “Toward” and “Away From” motivation;
- having a goal of full capability plus, with anything less being unacceptable;
- breaking down potentially overwhelming goals into chunks, with satisfaction garnered from completion of each individual steps;
- keeping full concentration on the present moment – that is, the single task at hand rather than the long-term goals;
- being personally involved in achieving goals (as opposed to depending on others); and
- making self-to-self comparisons to measure progress.
Robert Krausz’s basic tasks necessary to become a winning trader.- Develop a competent analytical methodology.
- Extract a reasonable trading plan from this methodology.
- Formulate rules for this plan that incorporate money management techniques.
- Back-test the plan over a sufficiently long period.
- Exercise self-management so that you adhere to the plan. The best plan in the world cannot work if you don’t act on it.
- In reference to academicians who believe market prices are random, Trout says, “That’s probably why they're professors and why I'm making money doing what I'm doing.” These exceptional traders have proved that it can be done !
- Keep Trading in Perspective There is more to life than trading !
Subscribe to:
Posts (Atom)