Monday, 30 November 2020
Stock Market Bubbles!
"Excess generally causes reaction, and produces a change in the opposite direction, whether it be in the seasons, or in individuals, or in governments." - Plato (427 - 347 BC)
A financial mania, like any aberrant and self-destructive group activity, grows as new entrants and the passing of time legitimize the activity.
Much research demonstrates this dynamic of human behaviour, and have concluded that in a crowd, individuals take the inaction or action of others as a cue that this is the right course.
It is no revelation to apply this concept to group dynamics and in financial manias. Charles MacKay (1814 - 1899) in his 1841 "Extraordinary Popular Delusions And The Madness Of Crowds" book observed that:
"Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one."
A bubble is used to describe a stock that is trading at a price above its fundamental value!
Typically, the fundamental value of a stock is equal to the present discounted value of the stream of dividends paid by the stock.
Basically, it's the amount of money that you can expect to get back from the stock if you hold it into the distant future - taking into account the fact that present money is worth more today than tomorrow.
Things like a healthy economy, growing profit margins, a growing consumer base, etc., lead to better fundamentals and a higher stock price.
Recently a growing number of stocks do not pay regular (or any) dividends. The best way to think about the fundamental value of a stock for these cases is to think of the value of the company as the price it would receive should it be sold at some point in time.
So, why does a bubble's price stay above its fundamental value once it's there?
This is because if there is a bubble that has some chance of "bursting" -- or have its price drop significantly -- investors will not be willing to hold the stock unless there is a high rate of return.
As the price rises, the loss of money due to a fall becomes even greater, causing the price to rise even faster! The price rise will continue to accelerate until the price falls back to its fundamental level.
Why the price is initially too high is a big and strange question! It could simply arise from valuation mistakes, irrational expectations, animal mentality, or other idiosyncratic habits.
A quickly rising price reflects either a legitimate increase in the future earnings of the company, or a stock bubble -- which case it is cannot be told from current information.
The fundamental price of a stock should depend only on the future performance of the company. We can only observe the price, but not the future -- at least not without a crystal ball!
People are wrong about their bubble predictions all the time!
Even after the fact, a large fall in the price could be either due to a bubble bursting, or due to bad news which reduced the estimates of future performance and lowered the fundamental price.
A bubble can be perfectly rational in the sense that everyone is making reasonable decisions. The investors simply demand a higher rate of return on stocks that face a risk of bursting. Bubbles are not necessarily irrational.
On the other side, a stock that follows an irrational behaviour may be priced exactly according to fundamentals -- e.g. perceived future dividends; but may be completely irrational in the sense that the perceptions are too high!
In this case the prices are too high -- not because of a bubble, but...
Because of mistaken expectations of the future!
Source:http://www.greekshares.com
Quote for the day
"Sometimes your joy is the source of your smile, but sometimes your smile can be the source of your joy." - Nhat Hanh
Sunday, 29 November 2020
Basic Volume Theory
Basic Volume theory includes the following maxims:
* Increasing Volume with an advance is Bullish
* Decreasing Volume with a decline is Bullish
* Increasing Volume with a decline is Bearish
* Decreasing Volume with an advance is Bearish
* A Market Top is imminent when heavy volumes occurs with little or No Gain in the averages.
* Heavy Volume confirms the direction of price breakouts from a Support or Resistance Zones.
* An increase on heavy volumes after a previous substantial rally signals a "Blow Off" with an impending to a Reversal approaching.
* Heavy Volumes accompanied by an accelerating drop in prices confirms a "Selling Climax" and impending price reversal after the panic selling subsides.
* Low volume periods after upward price reversals reflect a Consolidation Phase before resumption of the Upward Movement.
In the science of Technical Analysis, Volume plays a role which is as important as any other basic indicator. An increase in the volume in conjunction with Stock price moves adds strength and momentum in the direction of the move. It reflects the market's confidence that the uptrend will continue in force, or its pessimism that the downtrend will.
For the market, declining volumes as the market rises is supposed to warn the end of a BULL MARKET.
Likewise, sharp increase in volumes resulting in Selling Climax, signals the end of a BEAR MARKET.
An increase in abnormal volume can alert investors to coming price movements, Up or Down, before it becomes obvious to the overall market. Therefore, the market axiom "Volumes Precedes Price".
Historically, the majority of BULL MARKETS have originated with at least two days within two-month period where upside volume is at least nine times greater than the downside volume. Investors who track volume and spot the two-day Exceptional Upside Indicator can out-maneuver other investors and earn excess returns by positioning themselves for the coming Bull Market.
The Daily Volume Indicator measures extremes in the Supply/ Demand relationship. If a Stock closes at the mid point of its trading range for the day, the indicator reflects no change. Closing Price above or below the trading range midpoint show an increase or decrease in the Daily Volume Indicator, respectively.
In constructing the Daily Volume Indicators, Technical Analysts take into account the day's volume, closing price, Distance between closing Price and the mid point, and the Trading Range.
These are just the basic characteristics of the Volumes, these must be read in conjunction with other commonly used indicators before drawing up any conclusion.
Source: Importance of Value in Technical Analysis - http://www.stocklinedirect.com
* Increasing Volume with an advance is Bullish
* Decreasing Volume with a decline is Bullish
* Increasing Volume with a decline is Bearish
* Decreasing Volume with an advance is Bearish
* A Market Top is imminent when heavy volumes occurs with little or No Gain in the averages.
* Heavy Volume confirms the direction of price breakouts from a Support or Resistance Zones.
* An increase on heavy volumes after a previous substantial rally signals a "Blow Off" with an impending to a Reversal approaching.
* Heavy Volumes accompanied by an accelerating drop in prices confirms a "Selling Climax" and impending price reversal after the panic selling subsides.
* Low volume periods after upward price reversals reflect a Consolidation Phase before resumption of the Upward Movement.
In the science of Technical Analysis, Volume plays a role which is as important as any other basic indicator. An increase in the volume in conjunction with Stock price moves adds strength and momentum in the direction of the move. It reflects the market's confidence that the uptrend will continue in force, or its pessimism that the downtrend will.
For the market, declining volumes as the market rises is supposed to warn the end of a BULL MARKET.
Likewise, sharp increase in volumes resulting in Selling Climax, signals the end of a BEAR MARKET.
An increase in abnormal volume can alert investors to coming price movements, Up or Down, before it becomes obvious to the overall market. Therefore, the market axiom "Volumes Precedes Price".
Historically, the majority of BULL MARKETS have originated with at least two days within two-month period where upside volume is at least nine times greater than the downside volume. Investors who track volume and spot the two-day Exceptional Upside Indicator can out-maneuver other investors and earn excess returns by positioning themselves for the coming Bull Market.
The Daily Volume Indicator measures extremes in the Supply/ Demand relationship. If a Stock closes at the mid point of its trading range for the day, the indicator reflects no change. Closing Price above or below the trading range midpoint show an increase or decrease in the Daily Volume Indicator, respectively.
In constructing the Daily Volume Indicators, Technical Analysts take into account the day's volume, closing price, Distance between closing Price and the mid point, and the Trading Range.
These are just the basic characteristics of the Volumes, these must be read in conjunction with other commonly used indicators before drawing up any conclusion.
Source: Importance of Value in Technical Analysis - http://www.stocklinedirect.com
The Parable of the Mexican Fisherman and the Banker
An American investment banker was taking a much-needed vacation in a small coastal Mexican village when a small boat with just one fisherman docked. The boat had several large, fresh fish in it.
The investment banker was impressed by the quality of the fish and asked the Mexican how long it took to catch them.
The Mexican replied, “Only a little while.”
The banker then asked why he didn't stay out longer and catch more fish?
The Mexican fisherman replied he had enough to support his family's immediate needs.
The American then asked “But what do you do with the rest of your time?”
The Mexican fisherman replied, “I sleep late, fish a little, play with my children, take siesta with my wife, stroll into the village each evening where I sip wine and play guitar with my amigos: I have a full and busy life, señor.”
The investment banker scoffed, “I am an Ivy League MBA, and I could help you. You could spend more time fishing and with the proceeds buy a bigger boat, and with the proceeds from the bigger boat you could buy several boats until eventually you would have a whole fleet of fishing boats. Instead of selling your catch to the middleman you could sell directly to the processor, eventually opening your own cannery. You could control the product, processing and distribution.”
Then he added, “Of course, you would need to leave this small coastal fishing village and move to Mexico City where you would run your growing enterprise.”
The Mexican fisherman asked, “But señor, how long will this all take?”
To which the American replied, “15-20 years.”
“But what then?” asked the Mexican.
The American laughed and said, “That's the best part. When the time is right you would announce an IPO and sell your company stock to the public and become very rich. You could make millions.”
“Millions, señor? Then what?”
To which the investment banker replied, “Then you would retire. You could move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos.”
I love this simple parable.
It brings clarity to what the money game is all about… and definitely not about.
It brilliantly illustrates the illusions we so easily fall into when pursuing wealth and financial freedom. It's far too easy to build incessantly and forget the end game is happiness and a fulfilling life.
It's equally easy to forget all the goodness we're surrounded by today.
The truth is, it doesn't take a lot of money to have a truly wealthy life, but it does take freedom.
The investment banker was impressed by the quality of the fish and asked the Mexican how long it took to catch them.
The Mexican replied, “Only a little while.”
The banker then asked why he didn't stay out longer and catch more fish?
The Mexican fisherman replied he had enough to support his family's immediate needs.
The American then asked “But what do you do with the rest of your time?”
The Mexican fisherman replied, “I sleep late, fish a little, play with my children, take siesta with my wife, stroll into the village each evening where I sip wine and play guitar with my amigos: I have a full and busy life, señor.”
The investment banker scoffed, “I am an Ivy League MBA, and I could help you. You could spend more time fishing and with the proceeds buy a bigger boat, and with the proceeds from the bigger boat you could buy several boats until eventually you would have a whole fleet of fishing boats. Instead of selling your catch to the middleman you could sell directly to the processor, eventually opening your own cannery. You could control the product, processing and distribution.”
Then he added, “Of course, you would need to leave this small coastal fishing village and move to Mexico City where you would run your growing enterprise.”
The Mexican fisherman asked, “But señor, how long will this all take?”
To which the American replied, “15-20 years.”
“But what then?” asked the Mexican.
The American laughed and said, “That's the best part. When the time is right you would announce an IPO and sell your company stock to the public and become very rich. You could make millions.”
“Millions, señor? Then what?”
To which the investment banker replied, “Then you would retire. You could move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos.”
I love this simple parable.
It brings clarity to what the money game is all about… and definitely not about.
It brilliantly illustrates the illusions we so easily fall into when pursuing wealth and financial freedom. It's far too easy to build incessantly and forget the end game is happiness and a fulfilling life.
It's equally easy to forget all the goodness we're surrounded by today.
The truth is, it doesn't take a lot of money to have a truly wealthy life, but it does take freedom.
Source: https://financialmentor.com/
Quote for the day
“Never value the valueless. The trick is to know how to recognize it.”– Sidney Madwed
Saturday, 28 November 2020
Quote for the day
"Successful people aren't born that way. They become successful by establishing the habit of doing things unsuccessful people don't like to do. The successful people don't always like these things themselves; they just get on and do them." - William Makepeace Thackeray
Friday, 27 November 2020
Ten Different Types Of Traders. Which One Are You?
In the markets there are many different types of traders and many motivations that drive them. Everyone has heard of different types of traders based on their trading method: Swing Traders, Day Traders, Momentum Traders, etc.
1. Greedy Traders: They trade too big and risk too much because their only goal is the easy money.
2. New Traders: They have no idea how the markets work so their only goal is knowledge.
3. Arrogant Traders: Their only goal is to prove they are right and satisfy their fragile egos.
4. Trend Traders: Their only goal is to ride a trend and make money.
5. Scared Traders: Their only goal is to not lose their capital.
6. Perma-Bull Traders: Their only goal is to go long stocks.
7. Perma-Bear Traders: Their only goal is to short stocks.
8. Prophet Traders: Their only goal is to rightly predict market movement then let everyone know they did.
9. Paper Traders: They love the market and study more than anyone but never quite make the plunge into real trading.
10. Rich Traders: Their only goal is to consistently make money and grow their capital over the long term.
Which are you?
But what about different types of traders based on their psychology, their very purpose? Some trade for fun and excitement, others trade purely for ego. Other love the game and still others are in it only to make money. In the greatest game on earth it is surprising that many traders have different motivations, in reality the only correct motivation is to make money, that should be the real goal of any trader.
Here are a list of ten types of traders I have observed on social media. We have all likely been more than one of these types at some time or another while trading. But we need to focus like a laser on the only real reason we should be trading: to make money and once we have made it, to keep it.
1. Greedy Traders: They trade too big and risk too much because their only goal is the easy money.
2. New Traders: They have no idea how the markets work so their only goal is knowledge.
3. Arrogant Traders: Their only goal is to prove they are right and satisfy their fragile egos.
4. Trend Traders: Their only goal is to ride a trend and make money.
5. Scared Traders: Their only goal is to not lose their capital.
6. Perma-Bull Traders: Their only goal is to go long stocks.
7. Perma-Bear Traders: Their only goal is to short stocks.
8. Prophet Traders: Their only goal is to rightly predict market movement then let everyone know they did.
9. Paper Traders: They love the market and study more than anyone but never quite make the plunge into real trading.
10. Rich Traders: Their only goal is to consistently make money and grow their capital over the long term.
Which are you?
Source:http://newtraderu.com/
Quote for the day
"Truth is mighty and will prevail. There is nothing wrong with this, except that it ain't so." - Mark Twain
Thursday, 26 November 2020
How to Develop a Stock Investor Mindset
The stock market is intriguing for many investors with amazing new opportunities every day. But, to be a successful stock investor, one must expend some effort. The secret to success is a constant effort, not sheer luck. Similarly, in stock investing, you need to put the hard effort into developing the right investor mindset.
Doing proper groundwork, identifying the right stock that has potential for growth over the period of time and keeping the desire to succeed is mostly required to score high in the stock market, coupled with patience and discipline: such factors are important to develop an investor mindset. Here are a few more tips that can help you understand how to think like an investor:-
Doing proper groundwork, identifying the right stock that has potential for growth over the period of time and keeping the desire to succeed is mostly required to score high in the stock market, coupled with patience and discipline: such factors are important to develop an investor mindset. Here are a few more tips that can help you understand how to think like an investor:-
Enhance your knowledge
When you are investing in the stock market, it’s important to invest your valuable time enhancing your knowledge in the field and in the stock that you are investing in. Knowledge is what gives you confidence in what you are investing in and to think like an investor. Warren Buffet says, "The best investment you can make, is an investment in yourself. The more you learn, the more you earn". Learn the basics of stock investing, to begin with.
Do enough research, groundwork on the fundamentals of the company and factors affecting its growth while picking each stock. For deep knowledge, read some of the famous books written by stock market legends. ‘’The Intelligent Investor’’ by Benjamin Graham is one such book that is a must-have on your bookshelf. Some more to read are ‘’The Little Book of Common Sense Investing’’ by John C Bogle, the creator of first-ever index fund and ‘’Common Stocks and Uncommon Profits’’ by Philip A Fisher. You can also start reading financial statements, annual reports and newsletters to understand the functioning of the market better. These books will help you to develop an investor’s mind.
Be patient and disciplined
Keep a long-term outlook
Have a Proper plan in place
While you are investing in the stock market, it’s important to lay out a plan for future growth depending on your investment objective, return expectation and risk-taking ability. It’s important that before you aim to develop an investors’ mind, you analyse your current financial situation and have diversification strategies in place to reach your investment objectives.
Final Words…
Do enough research, groundwork on the fundamentals of the company and factors affecting its growth while picking each stock. For deep knowledge, read some of the famous books written by stock market legends. ‘’The Intelligent Investor’’ by Benjamin Graham is one such book that is a must-have on your bookshelf. Some more to read are ‘’The Little Book of Common Sense Investing’’ by John C Bogle, the creator of first-ever index fund and ‘’Common Stocks and Uncommon Profits’’ by Philip A Fisher. You can also start reading financial statements, annual reports and newsletters to understand the functioning of the market better. These books will help you to develop an investor’s mind.
If you go by quotes (mentioned below) of some of the most successful investors like Benjamin Graham and Warren Buffett, all they have highlighted is to follow a disciplined investment approach and to keep patience to understand how to think about investing.
"The best way to measure your investing success is not by whether you have put in place a financial plan and a behavioural discipline that are likely to get you where you want to go’" – Benjamin Graham
"The stock market is a device for transferring money from the impatient to the patient."- Warren Buffet
With patience, you can manage your money effectively with better control over emotions in every market situation to ultimately achieve your goals.
"The best way to measure your investing success is not by whether you have put in place a financial plan and a behavioural discipline that are likely to get you where you want to go’" – Benjamin Graham
"The stock market is a device for transferring money from the impatient to the patient."- Warren Buffet
With patience, you can manage your money effectively with better control over emotions in every market situation to ultimately achieve your goals.
Once you invest, sticking with the stocks for a longer-term is the right way to be successful. With numerous stocks in the market and ample new opportunities, staying invested for long in the same stock may get a little difficult. But, only the long-term outlook can give you a fruitful result. Warren Buffet says, "Our favorite holding period is forever". Hence, to be a successful stock investor with a proper investor mindset, give enough time for your stock portfolio to grow. All you need to do is pick up the well-run businesses and then let it sufficiently mature to reap results.
While you are investing in the stock market, it’s important to lay out a plan for future growth depending on your investment objective, return expectation and risk-taking ability. It’s important that before you aim to develop an investors’ mind, you analyse your current financial situation and have diversification strategies in place to reach your investment objectives.
Learn to accept the failure
Even the most successful investors have seen the failures at times. But, what makes them stand out and know how to think about investing is that they have accepted their failures and moved on with the learnings from it. Understanding and accepting that the losses are part of any investment process is the key to success.
Apart from this, it’s important to keep a tab of daily market news and also be a part of various investor forums or groups to constantly feed yourself with recent findings and other information. Having friends of similar interest in your circle and fruitful discussions with them about investing can also help you keep motivated towards your goal.
Apart from this, it’s important to keep a tab of daily market news and also be a part of various investor forums or groups to constantly feed yourself with recent findings and other information. Having friends of similar interest in your circle and fruitful discussions with them about investing can also help you keep motivated towards your goal.
Final Words…
Practising these methods to be able to think like an investor takes time. You need to keep putting your time and effort as learning to be a successful investor is an ongoing process. Be confident, keep patience, focus and be consistent to achieve success. The right investment mindset can get you stock investing success that you desire. Happy investing!
Source: https://groww.in/
Source: https://groww.in/
Wednesday, 25 November 2020
Herd Behavior in the Stock Market
By Ralph Orlowski
The need for rapid decision making as important news flashes on trading screens can put traders and investors in vulnerable situations, so they sometimes make themselves feel more secure by following the herd. While herding is not common when considered against the massive volume of trading that occurs on a daily basis, during event uncertainties in the financial markets it is more common for traders and investors to act as others have acted.
Herding Behaviors
Herding behavior in the stock market can take three forms. Information-based herding happens when everyone reacts the same way to announced information. Reputation-based herding is caused by a respected investor or major trading house taking a specific trading stance. Compensation-based herding occurs when certain conditions prompt large institutional money managers to take profits, generally to protect fund earnings before year-end reporting. These behaviors create large volume in certain stocks or sectors that are popular institutional portfolio investments, prompting those watching to react quickly.
Trade Imbalance
Herding behavior also can take place when traders notice a trade imbalance. When a stock has high volume, other traders make decisions to follow the herd or take a contrarian approach. A larger than usual number of sell or buy orders can be considered a sign that somebody knows something. Since the market moves fast on split-second decisions, and there isn't time to do research, unusual activity can prompt a trader to go with the herd just in case important news is behind the volume.
Fear
When an event or a trading imbalance occurs, fear can be part of the decision to go along with the herd. Traders fear losing money if they hold their stock position in spite of large sell volume. They also fear loss of opportunity to make money by ignoring large buy volume. This fear is not simply a trading choice, because if a trader misses too many buy or sell opportunities and loses too much money it can cause the loss of his job and possibly irreparable harm to his career. In many ways, it is better to act with the herd than to take the risk of being the only trader who didn't sell or buy in time.
Stock Promoters
The job of stock promoters is to work up enough buy interest in a stock to create herd psychology. Stock promotion is a greater factor in the penny stock market, where many of the companies are relatively unknown to the average investor. Because they tend to be more thinly traded than the well-known stocks, any buy volume can move the price of the stock significantly higher. Promoters play on investors' greed and fear of missing the stock that could be the big money-maker of their dreams.
Herding Behaviors
Herding behavior in the stock market can take three forms. Information-based herding happens when everyone reacts the same way to announced information. Reputation-based herding is caused by a respected investor or major trading house taking a specific trading stance. Compensation-based herding occurs when certain conditions prompt large institutional money managers to take profits, generally to protect fund earnings before year-end reporting. These behaviors create large volume in certain stocks or sectors that are popular institutional portfolio investments, prompting those watching to react quickly.
Trade Imbalance
Herding behavior also can take place when traders notice a trade imbalance. When a stock has high volume, other traders make decisions to follow the herd or take a contrarian approach. A larger than usual number of sell or buy orders can be considered a sign that somebody knows something. Since the market moves fast on split-second decisions, and there isn't time to do research, unusual activity can prompt a trader to go with the herd just in case important news is behind the volume.
Fear
When an event or a trading imbalance occurs, fear can be part of the decision to go along with the herd. Traders fear losing money if they hold their stock position in spite of large sell volume. They also fear loss of opportunity to make money by ignoring large buy volume. This fear is not simply a trading choice, because if a trader misses too many buy or sell opportunities and loses too much money it can cause the loss of his job and possibly irreparable harm to his career. In many ways, it is better to act with the herd than to take the risk of being the only trader who didn't sell or buy in time.
Stock Promoters
The job of stock promoters is to work up enough buy interest in a stock to create herd psychology. Stock promotion is a greater factor in the penny stock market, where many of the companies are relatively unknown to the average investor. Because they tend to be more thinly traded than the well-known stocks, any buy volume can move the price of the stock significantly higher. Promoters play on investors' greed and fear of missing the stock that could be the big money-maker of their dreams.
www.finance.zacks.com
Tuesday, 24 November 2020
38 Steps To Becoming A Better Trader
Here is an excellent article I read some time ago and recently rediscovered. It accurately describes the process most traders go through on their long and winding path to success.
In my own experience, not all traders go through every step, and not every step is met in the order presented here. In fact, this can be quite an iterative process with the trader getting stuck in a loop and repeating certain steps time and again until they either realize the problem for themselves, or are given a nudge from a more experienced hand.
01. We accumulate information – buying books, going to seminars and researching.
02. We begin to trade with our ‘new’ knowledge.
03. We consistently ‘donate’ and then realise we may need more knowledge or information.
04. We accumulate more information.
05. We switch the commodities we are currently following.
06. We go back into the market and trade with our ‘updated’ knowledge.
07. We get ‘beat up’ again and begin to lose some of our confidence.
Fear starts setting in.
08. We start to listen to ‘outside news’ and to other traders.
09. We go back into the market and continue to ‘donate’.
10. We switch commodities again.
11. We search for more information.
12. We go back into the market and start to see a little progress.
13. We get ‘over-confident’ and the market humbles us.
14. We start to understand that trading successfully is going to take more time and more knowledge than we anticipated.
MOST PEOPLE WILL GIVE UP AT THIS POINT, AS THEY REALISE WORK IS INVOLVED.
15. We get serious and start concentrating on learning a ‘real’ methodology.
16. We trade our methodology with some success, but realise that something is missing.
17. We begin to understand the need for having rules to apply our methodology.
18. We take a sabbatical from trading to develop and research our trading rules.
19. We start trading again, this time with rules and find some success, but over all we still hesitate when we execute.
20. We add, subtract and modify rules as we see a need to be more proficient with our rules.
21. We feel we are very close to crossing that threshold of successful trading.
22. We start to take responsibility for our trading results as we understand that our success is in us, not the methodology.
23. We continue to trade and become more proficient with our methodology and our rules.
24. As we trade we still have a tendency to violate our rules and our results are still erratic.
25. We know we are close.
26. We go back and research our rules.
27. We build the confidence in our rules and go back into the market and trade.
28. Our trading results are getting better, but we are still hesitating in executing our rules.
29. We now see the importance of following our rules as we see the results of our trades when we don’t follow the rules.
30. We begin to see that our lack of success is within us (a lack of discipline in following the rules because of some kind of fear) and we begin to work on knowing ourselves better.
31. We continue to trade and the market teaches us more and more about ourselves.
32. We master our methodology and our trading rules.
33. We begin to consistently make money.
34. We get a little over-confident and the market humbles us.
35. We continue to learn our lessons.
36. We stop thinking and allow our rules to trade for us (trading becomes boring, but successful) and our trading account continues to grow as we increase our contract size.
37. We are making more money than we ever dreamed possible.
38. We go on with our lives and accomplish many of the goals we had always dreamed of.
Source: http://www.tradingsimulation.com
The original article was published in 'CTCN' by "Anonymous Trader".
In my own experience, not all traders go through every step, and not every step is met in the order presented here. In fact, this can be quite an iterative process with the trader getting stuck in a loop and repeating certain steps time and again until they either realize the problem for themselves, or are given a nudge from a more experienced hand.
01. We accumulate information – buying books, going to seminars and researching.
02. We begin to trade with our ‘new’ knowledge.
03. We consistently ‘donate’ and then realise we may need more knowledge or information.
04. We accumulate more information.
05. We switch the commodities we are currently following.
06. We go back into the market and trade with our ‘updated’ knowledge.
07. We get ‘beat up’ again and begin to lose some of our confidence.
Fear starts setting in.
08. We start to listen to ‘outside news’ and to other traders.
09. We go back into the market and continue to ‘donate’.
10. We switch commodities again.
11. We search for more information.
12. We go back into the market and start to see a little progress.
13. We get ‘over-confident’ and the market humbles us.
14. We start to understand that trading successfully is going to take more time and more knowledge than we anticipated.
MOST PEOPLE WILL GIVE UP AT THIS POINT, AS THEY REALISE WORK IS INVOLVED.
15. We get serious and start concentrating on learning a ‘real’ methodology.
16. We trade our methodology with some success, but realise that something is missing.
17. We begin to understand the need for having rules to apply our methodology.
18. We take a sabbatical from trading to develop and research our trading rules.
19. We start trading again, this time with rules and find some success, but over all we still hesitate when we execute.
20. We add, subtract and modify rules as we see a need to be more proficient with our rules.
21. We feel we are very close to crossing that threshold of successful trading.
22. We start to take responsibility for our trading results as we understand that our success is in us, not the methodology.
23. We continue to trade and become more proficient with our methodology and our rules.
24. As we trade we still have a tendency to violate our rules and our results are still erratic.
25. We know we are close.
26. We go back and research our rules.
27. We build the confidence in our rules and go back into the market and trade.
28. Our trading results are getting better, but we are still hesitating in executing our rules.
29. We now see the importance of following our rules as we see the results of our trades when we don’t follow the rules.
30. We begin to see that our lack of success is within us (a lack of discipline in following the rules because of some kind of fear) and we begin to work on knowing ourselves better.
31. We continue to trade and the market teaches us more and more about ourselves.
32. We master our methodology and our trading rules.
33. We begin to consistently make money.
34. We get a little over-confident and the market humbles us.
35. We continue to learn our lessons.
36. We stop thinking and allow our rules to trade for us (trading becomes boring, but successful) and our trading account continues to grow as we increase our contract size.
37. We are making more money than we ever dreamed possible.
38. We go on with our lives and accomplish many of the goals we had always dreamed of.
Source: http://www.tradingsimulation.com
The original article was published in 'CTCN' by "Anonymous Trader".
Quote for the day
"The real voyage of discovery consists not in seeking new landscapes, but in having new eyes." - Marcel Proust
Monday, 23 November 2020
Casino vs. Stock Market
Casinos
When people go to the casino, they often have a very detailed game-plan about how disciplined they are going to play, what their risk limit is, how much they are willing to lose at most and plans about leaving with more than what they came with. However, the casino managers are aware of the ‘preparation’ of the average gambler and they found ways to trick them into abandoning their good intentions.
When people go to the casino, they often have a very detailed game-plan about how disciplined they are going to play, what their risk limit is, how much they are willing to lose at most and plans about leaving with more than what they came with. However, the casino managers are aware of the ‘preparation’ of the average gambler and they found ways to trick them into abandoning their good intentions.
- Free alcoholic drinks to seduce people to take more risk than what they had planned
- Women and other attractions to create arousal and to stop people from thinking too much about risk and potential losses
- Bright and flashy lights and sounds to create a casual atmosphere with lots of excitement
- Everything in a Casino is designed to make you want to spend your money, often created by professionals with a psychological background, including odors, sounds, patterns of the carpets, etc.
- Casino chips are used to make you forget you are actually playing with real money
Although trading and investing is a very hard thing to do successfully, the way the media presents investing in the stock market is comparable to a large scale casino where the only goal is to create attention, excitement and awaken the hopes of people who are looking for a fast buck. The following attributes of the mainstream media and trading websites often create a wrong impression of trading and can be the cause of a negative trading performance:
- TV channels and newspapers use attention grabbing headlines and slogans to attract people
- Pictures and photos of young , rich men are used to awaken hopes and dreams of a certain clientele
- The hosts of investing shows have often little to do with sophisticated investors, but are very emotional to draw a lot of attention
- If there are extreme rallies you can read and hear about it everywhere and you can witness that even ‘the average Joe’ now suddenly sees himself as an investor
Sunday, 22 November 2020
Calm Trader, Rich Trader
By Steve Burns
Traders that are emotionally calm and cool that approach trading as a business, have greater odds of profitability than the thrill seekers and gamblers that come to the market. One third of trading is based on logic, and two thirds is based on emotions.
Here are 10 things that a trader has to overcome to stay calm and be profitable.
1. Impulsiveness. The biggest thing that following a trading plan does is trade impulsiveness for proven rules.
2. Impatience. Quantified entries and exits make you wait for a signal and avoid the noise.
3. Anger. You have to depersonalize the outcome of your trades. Each trade is just an entry and an exit, with no emotions required.
4. Uncertainty. We must accept the randomness of our short term results and understand our long term edge.
5. Laziness. You have to do enough homework when the market is closed to be ready when the market is open.
6. Greed. Following the correct position sizing parameters replaces the need for big wins and helps you focus on risk management.
7. Fear. The confidence in your system will relieve the fear of failure.
8. Ego. The desire to make money has to override the need to be right about specific trades.
9. Hope. A stop loss has to replace the need to hope a losing trade comes back to even.
10. Stress. You have to manage your risk exposure to losses in order to reduce your stress level.
The profitable traders are rarely, if ever, emotionally stressed. The egomaniacs and the gamblers are usually the ones that lose it all. The calm traders are the ones that typically keep a level head and maximize opportunities when the market presents them.
Are you a calm trader?
Traders that are emotionally calm and cool that approach trading as a business, have greater odds of profitability than the thrill seekers and gamblers that come to the market. One third of trading is based on logic, and two thirds is based on emotions.
Here are 10 things that a trader has to overcome to stay calm and be profitable.
1. Impulsiveness. The biggest thing that following a trading plan does is trade impulsiveness for proven rules.
2. Impatience. Quantified entries and exits make you wait for a signal and avoid the noise.
3. Anger. You have to depersonalize the outcome of your trades. Each trade is just an entry and an exit, with no emotions required.
4. Uncertainty. We must accept the randomness of our short term results and understand our long term edge.
5. Laziness. You have to do enough homework when the market is closed to be ready when the market is open.
6. Greed. Following the correct position sizing parameters replaces the need for big wins and helps you focus on risk management.
7. Fear. The confidence in your system will relieve the fear of failure.
8. Ego. The desire to make money has to override the need to be right about specific trades.
9. Hope. A stop loss has to replace the need to hope a losing trade comes back to even.
10. Stress. You have to manage your risk exposure to losses in order to reduce your stress level.
The profitable traders are rarely, if ever, emotionally stressed. The egomaniacs and the gamblers are usually the ones that lose it all. The calm traders are the ones that typically keep a level head and maximize opportunities when the market presents them.
Are you a calm trader?
Source: www.newtraderu.com
Quote for the day
"Fear has a far greater grasp on human action than the impressive weight of historical evidence." - Jeremy Siegel
Saturday, 21 November 2020
Psychologists Say There Are Only 5 Kinds of People in the World. Which One Are You?
Once you understand your personality type, it's easy to identify other people's too.
1. Conscientiousness.
People who rank highest in conscientiousness are efficient, well-organized, dependable, and self-sufficient. They prefer to plan things in advance and aim for high achievement. People who rank lower in conscientiousness may view those with this personality trait as stubborn and obsessive.
Fun fact: Studies show marrying someone high in conscientiousness increases your chances of workplace success. A conscientious spouse can boost your productivity and help you achieve the most.
By Amy Morin
Your personality influences everything from the friends you choose to the candidates you vote for in a political election. Yet many people never really spend much time thinking about their personality traits.
Understanding your personality can give you insight into your strengths and weaknesses. It can also help you gain insight into how others see you.
Most modern-day psychologists agree there are five major personality types. Referred to as the "five factor model," everyone possesses some degree of each.
Your personality influences everything from the friends you choose to the candidates you vote for in a political election. Yet many people never really spend much time thinking about their personality traits.
Understanding your personality can give you insight into your strengths and weaknesses. It can also help you gain insight into how others see you.
Most modern-day psychologists agree there are five major personality types. Referred to as the "five factor model," everyone possesses some degree of each.
1. Conscientiousness.
People who rank highest in conscientiousness are efficient, well-organized, dependable, and self-sufficient. They prefer to plan things in advance and aim for high achievement. People who rank lower in conscientiousness may view those with this personality trait as stubborn and obsessive.
Fun fact: Studies show marrying someone high in conscientiousness increases your chances of workplace success. A conscientious spouse can boost your productivity and help you achieve the most.
Quote for the day
"Ambition is the path to success. Persistence is the vehicle you arrive in." - Bill Bradley
Friday, 20 November 2020
12 Basic Stock Investing Rules Every Successful Investor Should Follow
There are many important things you need to know to trade and invest successfully in the stock market or any other market. 12 of the most important things that I can share with you based on many years of trading experience are enumerated below.
1. Buy low-sell high. As simple as this concept appears to be, the vast majority of investors do the exact opposite. Your ability to consistently buy low and sell high, will determine the success, or failure, of your investments. Your rate of return is determined 100% by when you enter the stock market.
2. The stock market is always right and price is the only reality in trading. If you want to make money in any market, you need to mirror what the market is doing. If the market is going down and you are long, the market is right and you are wrong. If the stock market is going up and you are short, the market is right and you are wrong.
Other things being equal, the longer you stay right with the stock market, the more money you will make. The longer you stay wrong with the stock market, the more money you will lose.
3. Every market or stock that goes up will go down and most markets or stocks that have gone down, will go up. The more extreme the move up or down, the more extreme the movement in the opposite direction once the trend changes. This is also known as "the trend always changes rule."
4. If you are looking for "reasons" that stocks or markets make large directional moves, you will probably never know for certain. Since we are dealing with perception of markets-not necessarily reality, you are wasting your time looking for the many reasons markets move.
A huge mistake most investors make is assuming that stock markets are rational or that they are capable of ascertaining why markets do anything. To make a profit trading, it is only necessary to know that markets are moving - not why they are moving. Stock market winners only care about direction and duration, while market losers are obsessed with the whys.
5. Stock markets generally move in advance of news or supportive fundamentals - sometimes months in advance. If you wait to invest until it is totally clear to you why a stock or a market is moving, you have to assume that others have done the same thing and you may be too late.
You need to get positioned before the largest directional trend move takes place. The market reaction to good or bad news in a bull market will be positive more often than not. The market reaction to good or bad news in a bear market will be negative more often than not.
6. The trend is your friend. Since the trend is the basis of all profit, we need long term trends to make sizeable money. The key is to know when to get aboard a trend and stick with it for a long period o ftime to maximize profits. Big money can be made by catching large market moves. Day trading or short term stock investing can capture the shorter moves while waiting for the longer term trend to establish itself.
7. You must let your profits run and cut your losses quickly if you are to have any chance of being successful. Trading discipline is not a sufficient condition to make money in the markets, but it is a necessary condition. If you do not practice highly disciplined trading, you will not make money over the long term. This is a stock trading "system" in itself.
8. The Efficient Market Hypothesis is fallacious and is actually a derivative of the perfect competition model of capitalism. The Efficient Market Hypothesis at root shares many of the same false premises as the perfect competition paradigm as described by a well known economist.
The perfect competition model is not based on anything that exists on this earth. Consistently profitable professional traders simply have better information - and they act on it. Most non-professionals trade strictly on emotion, and lose much more money than they earn.
The combination of superior information for some investors and the usual panic as losses mount caused by buying high and selling low for others, creates inefficient markets.
9. Traditional technical and fundamental analysis alone may not enable you to consistently make money in the markets. Successful market timing is possible but not with the tools of analysis that most people employ.
If you eliminate optimization, data mining, subjectivism, and other such statistical tricks and data manipulation, most trading ideas are losers.
10. Never trust the advice and/or ideas of trading software vendors, stock trading system sellers, market commentators, financial analysts, brokers, newsletter publishers, trading authors, etc., unless they trade their own money and have traded successfully for years and/or provide third party verification of performance.
Note those that have traded successfully over very long periods of time are very few in number. Keep in mind that Wall Street and other financial firms make money by selling you something - not instilling wisdom in you. You should make your own trading decisions based on a rational analysis of all the facts.
11. The worst thing an investor can do is take a large loss on their position or portfolio. Market timing can help avert this much too common experience.
You can avoid making that huge mistake by avoiding buying things when they are high. It should be obvious that you should only buy when stocks are low and only sell when stocks are high.
Since your starting point is critical in determining your total return, if you buy low, your long term investment results are irrefutably better than someone that bought high.
12. The most successful investing methods should take most individuals no more than four or five hours per week and, for the majority of us, only one or two hours per week with little to no stress involved.
By C.C. Collins who is a respected financial strategist, market timing expert and CEO of BeMarketSmart.com.
Article Source: http://EzineArticles.com
1. Buy low-sell high. As simple as this concept appears to be, the vast majority of investors do the exact opposite. Your ability to consistently buy low and sell high, will determine the success, or failure, of your investments. Your rate of return is determined 100% by when you enter the stock market.
2. The stock market is always right and price is the only reality in trading. If you want to make money in any market, you need to mirror what the market is doing. If the market is going down and you are long, the market is right and you are wrong. If the stock market is going up and you are short, the market is right and you are wrong.
Other things being equal, the longer you stay right with the stock market, the more money you will make. The longer you stay wrong with the stock market, the more money you will lose.
3. Every market or stock that goes up will go down and most markets or stocks that have gone down, will go up. The more extreme the move up or down, the more extreme the movement in the opposite direction once the trend changes. This is also known as "the trend always changes rule."
4. If you are looking for "reasons" that stocks or markets make large directional moves, you will probably never know for certain. Since we are dealing with perception of markets-not necessarily reality, you are wasting your time looking for the many reasons markets move.
A huge mistake most investors make is assuming that stock markets are rational or that they are capable of ascertaining why markets do anything. To make a profit trading, it is only necessary to know that markets are moving - not why they are moving. Stock market winners only care about direction and duration, while market losers are obsessed with the whys.
5. Stock markets generally move in advance of news or supportive fundamentals - sometimes months in advance. If you wait to invest until it is totally clear to you why a stock or a market is moving, you have to assume that others have done the same thing and you may be too late.
You need to get positioned before the largest directional trend move takes place. The market reaction to good or bad news in a bull market will be positive more often than not. The market reaction to good or bad news in a bear market will be negative more often than not.
6. The trend is your friend. Since the trend is the basis of all profit, we need long term trends to make sizeable money. The key is to know when to get aboard a trend and stick with it for a long period o ftime to maximize profits. Big money can be made by catching large market moves. Day trading or short term stock investing can capture the shorter moves while waiting for the longer term trend to establish itself.
7. You must let your profits run and cut your losses quickly if you are to have any chance of being successful. Trading discipline is not a sufficient condition to make money in the markets, but it is a necessary condition. If you do not practice highly disciplined trading, you will not make money over the long term. This is a stock trading "system" in itself.
8. The Efficient Market Hypothesis is fallacious and is actually a derivative of the perfect competition model of capitalism. The Efficient Market Hypothesis at root shares many of the same false premises as the perfect competition paradigm as described by a well known economist.
The perfect competition model is not based on anything that exists on this earth. Consistently profitable professional traders simply have better information - and they act on it. Most non-professionals trade strictly on emotion, and lose much more money than they earn.
The combination of superior information for some investors and the usual panic as losses mount caused by buying high and selling low for others, creates inefficient markets.
9. Traditional technical and fundamental analysis alone may not enable you to consistently make money in the markets. Successful market timing is possible but not with the tools of analysis that most people employ.
If you eliminate optimization, data mining, subjectivism, and other such statistical tricks and data manipulation, most trading ideas are losers.
10. Never trust the advice and/or ideas of trading software vendors, stock trading system sellers, market commentators, financial analysts, brokers, newsletter publishers, trading authors, etc., unless they trade their own money and have traded successfully for years and/or provide third party verification of performance.
Note those that have traded successfully over very long periods of time are very few in number. Keep in mind that Wall Street and other financial firms make money by selling you something - not instilling wisdom in you. You should make your own trading decisions based on a rational analysis of all the facts.
11. The worst thing an investor can do is take a large loss on their position or portfolio. Market timing can help avert this much too common experience.
You can avoid making that huge mistake by avoiding buying things when they are high. It should be obvious that you should only buy when stocks are low and only sell when stocks are high.
Since your starting point is critical in determining your total return, if you buy low, your long term investment results are irrefutably better than someone that bought high.
12. The most successful investing methods should take most individuals no more than four or five hours per week and, for the majority of us, only one or two hours per week with little to no stress involved.
By C.C. Collins who is a respected financial strategist, market timing expert and CEO of BeMarketSmart.com.
Article Source: http://EzineArticles.com
Thursday, 19 November 2020
Trade Like a Casino by Richard L. Weissman
- The Casino Paradigm
- Developing Positive Expectancy Models
- Price has memory – traders experienced pain, pleasure, and regret associated with a linear price level
- Kahneman & Tversky found the reflection effect proved that people were risk-averse regarding choices involving prospects of gains and risk-seeking over prospects involving losses
- We can NEVER know all the reasons why the market rose or why it fell, but we can develop various rules for entry, exit, and risk management based upon objective, mathematically derived technical formulas
- Price Risk Management Methodologies
- In higher volatility environments we need to place our stops further from our entry price so we can avoid being needlessly stopped out of trades; in lower volatility place stops closer to entry
- Any idiot can take a profit. Professionals know how to take losses
- Maintaining Unwavering Discipline
- All humans have a psychological bias against taking losses -Kahneman & Tversky
- We abandon discipline in risk management because we do not want to admit that we are wrong
- Developing Positive Expectancy Models
- Trader Tools and Techniques
- Capitalizing on the Cyclical Nature of Volatility
- Trading the Markets and Not the Money
- That which is psychologically natural and comfortable leads to failure
- We need to think about profits in terms of probabilities instead of personal monetary needs
- Minimizing Trader Regret
- Unrealized gains are your money and need to be treated in the same casino paradigm manner as all monies in your trading account
- Regret minimization helps a trader be even-minded, take partial profits and move stops to break-even on the remainder
- Never let a statistically significant unrealized gain turn into a statistically significant realized loss
- Timeframe Analysis
- How to Use Trading Models
- Anticipating the Signal
- Don’t anticipate, just participate
- Trader Psychology
- Transcending Common Trading Pitfalls
- All market behaviour is multifaceted, uncertain, and ever changing.
- “I am employing a robust, positive expectancy trading model and am appropriately managing risk on each and every trade. Losses are an inevitable and unavoidable aspect of executing all models. Consequently, I will confidently continue trading.”
- Denial of loss and uncertainty is extremely destructive because it prevents us from thinking in terms of probabilities, planning for the possibility of loss, and consequently from the necessity of consistently managing risk.
- If we view markets as adversarial we cut ourselves off from emotionally tempered, objective solutions to speculation (opportunities to profit)
- Blind faith is no substitute for research, methodical planning, stringent risk management, playing the probabilities, and unwavering discipline
- Depression is a suboptimal emotional state because it allows past losses or missed opportunities to limit our ability to perceive information about the markets in the present
- We are not our trades; they are merely an activity in which we are engaged
- Greed is linked to fear of regret, which is the greatest force impeding a trader’s performance outside of fear of loss
- Market offers limitless opportunities for abundance
- Trading biases prevent us from objectively perceiving reality, thereby limiting our ability to capitalize on various opportunities in the markets.
- Analyzing Performance
- Do you have other professional time commitments?
- What prevents you from giving up during draw downs or from becoming reckless during a winning streak?
- Have you deviated from your methodologies and if so, why?
- After deviating from your methodologies, what specific steps do you take to prevent deviation in the future?
- What threshold of AUM will impede your ability to trade specific instruments?
- How many strategies are you currently trading?
- Did you develop these models?
- Is your performance real or hypothetical?
- What assets are currently traded?
- Does typical number of trades executed change during winning or losing periods?
- Describe your various methodologies?
- Are the models always in or do they allow for neutrality?
- Same methodologies in all markets?
- Are trade entry and exit criteria different?
- Do the methods work better on a specific time horizon?
- Are the methods more robust in specific types of market environments?
- What are the strengths and weaknesses of the methods used?
- Do the methods use diversification?
- How do you determine assets traded?
- How do you determine entry, exits, and stops?
- How do you determine position size and leverage?
- Do you add to or reduce exposures on winning positions?
- Is fundamental information used?
- How do you deal with price shock events?
- Describe indicators used and how they form your methodologies?
- Long or short biases?
- What is the rate of return and worst peak-to-valley equity drawdown objectives?
- How do you account for correlations between assets traded?
- Type of stops used?
- Do you adjust position size following significant profits or losses?
- What percentage draw down would result in closure of your account?
- Do you use a trading journal?
- Becoming an Even-Tempered Trader
- Temper emotionalism
Source: http://www.thetraderlyscholar.com/
Quote for the day
"History has demonstrated that the most notable winners usually encountered heartbreaking obstacles before they triumphed. They won because they refused to become discouraged by their defeats." - B. C. Forbes
Wednesday, 18 November 2020
Quote for the day
"Anxiety and fear are cousins but not twins. Fear sees a threat. Anxiety imagines one." - Max Lucado
Tuesday, 17 November 2020
Quote for the day
"Order and simplification are the first steps toward the mastery of a subject." - Thomas Mann
Monday, 16 November 2020
There Are 3 Stages In a Typical Bull Market
“Every
truth passes through three stages before it is recognized: In the first
it is ridiculed; in the second it is opposed; in the third it is
regarded as self-evident.” – Schopenhauer
Typical market uptrends go through three main sentiment stages:
1) “What bull market? The fall is right around the corner”
Most of the signs of an uptrend are already here – money is leaving defensive names in order to chase higher yield, breadth is improving, correlation and volatility decline substantially. Despite of that, many people don’t believe the rally and prefer to short “overbought” names, only to get squeezed by the tidal wave of monstrous accumulation.
The fastest price appreciation happens in stage 1 and stage 3.
2) Acceptance stage
More and more people gradually warm up to the idea that we are in an uptrend and the market should be considered “innocent until proven guilty. Stocks have been going up for awhile and the minor dips were short lived.
Between stage 2 and stage 3, there is usually a deeper market pullback, which tests the resilience of the rally, shakes weak hands out and allows for new bases to be formed. The deeper pullback is used as a buying opportunity by institutions, which missed the the initial stages of the rally and their purchases push the market to new highs.
3) Everything will go up forever
During stage one, most people are skeptical, because the market has just come from a high-correlation, mean-reversion environment and most are unwilling to see the ensuing change in market character. In stage two, investors gradually turn bullish for the simple reason that prices have been going up for a while. Analysts and Strategists are also turning bullish in an attempt to manage their career risk. In the third stage, most market participants are ecstatic, not only because prices have been going up for a while, but because they personally have managed to make a lot of money. Everything seems easy, the future looks rosy and complacency takes over proper due diligence.
Edited article from http://ivanhoff.com
Typical market uptrends go through three main sentiment stages:
1) “What bull market? The fall is right around the corner”
Most of the signs of an uptrend are already here – money is leaving defensive names in order to chase higher yield, breadth is improving, correlation and volatility decline substantially. Despite of that, many people don’t believe the rally and prefer to short “overbought” names, only to get squeezed by the tidal wave of monstrous accumulation.
The fastest price appreciation happens in stage 1 and stage 3.
2) Acceptance stage
More and more people gradually warm up to the idea that we are in an uptrend and the market should be considered “innocent until proven guilty. Stocks have been going up for awhile and the minor dips were short lived.
Between stage 2 and stage 3, there is usually a deeper market pullback, which tests the resilience of the rally, shakes weak hands out and allows for new bases to be formed. The deeper pullback is used as a buying opportunity by institutions, which missed the the initial stages of the rally and their purchases push the market to new highs.
3) Everything will go up forever
During stage one, most people are skeptical, because the market has just come from a high-correlation, mean-reversion environment and most are unwilling to see the ensuing change in market character. In stage two, investors gradually turn bullish for the simple reason that prices have been going up for a while. Analysts and Strategists are also turning bullish in an attempt to manage their career risk. In the third stage, most market participants are ecstatic, not only because prices have been going up for a while, but because they personally have managed to make a lot of money. Everything seems easy, the future looks rosy and complacency takes over proper due diligence.
Edited article from http://ivanhoff.com
Quote for the day
"Creativity is thinking up new things. Innovation is doing new things." - Theodore Levitt
Sunday, 15 November 2020
Differences Between Stock Investing and Trading
By Devyani Mishra
A couple of days ago I happened to cross paths with an old acquaintance. The usual pleasantries and small talk eventually landed us on the topic of stock markets. The gentleman couldn’t stop boasting about the insane amount of money he was making and how his returns tripled in a small span.
Starry-eyed, I nodded in appreciation but deep down couldn’t help but feel a bit jealous, desperately fighting back the urge to try my luck… and why not? I mean who knows goddess Lakshmi may bestow upon me her grace and I might just be able to rake in profits too; in fact, I even started fantasizing about the various creature comforts I would be able to afford once I become the next stock market mogul!
Knowing nothing about the stock market I googled “ top stocks to invest in”, and jumped headlong with Rs 10,000. I was in for a rude awakening when my trade halved within a week. Disappointed you ask? I was devastated!
Turns out, there are many in the same boat as me. Millions of retail investors have tried “ trading” in the stock market and lost their money and mojo both. So what is it that I and many others should’ve done differently?
It all boils down to the inherent difference between trading and investment and the various aspects of these approaches. I will cover in detail four differences between investing and stock trading and which approach is better suited to retail investors.
This is called trading. However, if you purchase a property because you know that it has immense long term appreciation potential since a national highway will be built near it a few years down the line, and hence hold on to it then you are basically investing.
Trading basically means holding stocks for a short period and making a profit by selling stocks as soon as the price touches a high. The period of consideration for traders can range anywhere from a day to weeks to months.
Many traders may buy stocks in the morning and sell by the end of the day even! Market fluctuation has very high importance and influence on the decisions a trader takes. Investing, on the other hand, is done with a long term perspective.
A stock investor selects stocks based on strong fundamentals and once convinced holds on to them for a longer period of time, ranging from a few years to decades, to even more.
The simple reason why trading is riskier is that trading involves taking super quick short-sighted decisions, which may go well and go horribly wrong as well.
A trader does not base his decisions on how promising the growth prospects of a business are. He may buy a scrip based on external influence and lose money when the prices hit a low which can also make it riskier.
Needless to say, trading can oscillate between highs and lows quite rapidly. On the other hand, Investing as a habit takes time to develop and reaps results in long term.
The risks are lower and comparatively the returns are lower when the period of holding is less, however, if stocks are held for a long time, your investment can fetch higher returns due to compounding effect of interest and dividends.
If the stock you have invested in is fundamentally strong, the daily market fluctuations will have negligible to no impact on your investment.
The advantages that accompany a stock investing mindset are numerous. All you have to do is base your bets on a business that is strong in its core offerings, is constantly innovating and adapting to customer requirements and has a solid management team backing it.
Once you are sure of this, you just need to “ buy right and sit tight”. When it comes to investing vs trading none of them have a guaranteed formula for making money in the stock market.
An investment approach will ensure success in a longer period of time. It will also allow you the much-needed peace of mind that traders never get in there attempts to time the market.
So analyze a company fundamentally, invest in the business, remain unperturbed by the market noise and stay invested to reap long term benefits.
Happy Investing!
Starry-eyed, I nodded in appreciation but deep down couldn’t help but feel a bit jealous, desperately fighting back the urge to try my luck… and why not? I mean who knows goddess Lakshmi may bestow upon me her grace and I might just be able to rake in profits too; in fact, I even started fantasizing about the various creature comforts I would be able to afford once I become the next stock market mogul!
Knowing nothing about the stock market I googled “ top stocks to invest in”, and jumped headlong with Rs 10,000. I was in for a rude awakening when my trade halved within a week. Disappointed you ask? I was devastated!
Turns out, there are many in the same boat as me. Millions of retail investors have tried “ trading” in the stock market and lost their money and mojo both. So what is it that I and many others should’ve done differently?
It all boils down to the inherent difference between trading and investment and the various aspects of these approaches. I will cover in detail four differences between investing and stock trading and which approach is better suited to retail investors.
Read On!
Fundamental analysis focuses on the company’s finalysis, analysis of the industry in which the company fits in and the general macroeconomic situation in the country.
The analysis consists of studying the financial health of the industry and the company and the future growth prospects whereas technical analysis uses charts instead of annual reports and charts and patterns.
Technical analysis does use the market price of the stock to predict future patterns and analyse historical ones but does not concern itself with analysing factors affecting market price. It studies trends in price, volumes and moving averages over a period of time.
A trader doesn’t concern himself with what the company does, or what the company’s future growth prospects are.
This is a key difference between trading and investing. Trading involves more technical analysis whereas fundamental analysis is more essential in investing.
Trading involves identifying market trends and then quickly buying or selling stocks to book profits. Investing, on the other hand, is based on buying stocks of a company after carefully analyzing the business of a company.
Stock investors select fundamentally strong companies and invest in them for the long haul; as the business grows so does the value of their stock. For a stock market investor, short term market volatility is of no significance.
Trading Vs Investing: Difference Based on Approach
Methods: The first difference between trading and investing is in the approach both these methods employ to make money from the stock market. Traders use technical analysis to base their buy and sell decisions where as investors use fundamental analysis.Fundamental analysis focuses on the company’s finalysis, analysis of the industry in which the company fits in and the general macroeconomic situation in the country.
The analysis consists of studying the financial health of the industry and the company and the future growth prospects whereas technical analysis uses charts instead of annual reports and charts and patterns.
Technical analysis does use the market price of the stock to predict future patterns and analyse historical ones but does not concern itself with analysing factors affecting market price. It studies trends in price, volumes and moving averages over a period of time.
A trader doesn’t concern himself with what the company does, or what the company’s future growth prospects are.
This is a key difference between trading and investing. Trading involves more technical analysis whereas fundamental analysis is more essential in investing.
Trading involves identifying market trends and then quickly buying or selling stocks to book profits. Investing, on the other hand, is based on buying stocks of a company after carefully analyzing the business of a company.
Stock investors select fundamentally strong companies and invest in them for the long haul; as the business grows so does the value of their stock. For a stock market investor, short term market volatility is of no significance.
Difference Based on Time Horizon
The difference between investment and trading can also be based on time horizon. Let’s understand this with an example. Suppose you have money and you buy a house in a good locality. Within two weeks the price of your property increases and you sell it for a profit.This is called trading. However, if you purchase a property because you know that it has immense long term appreciation potential since a national highway will be built near it a few years down the line, and hence hold on to it then you are basically investing.
Trading basically means holding stocks for a short period and making a profit by selling stocks as soon as the price touches a high. The period of consideration for traders can range anywhere from a day to weeks to months.
Many traders may buy stocks in the morning and sell by the end of the day even! Market fluctuation has very high importance and influence on the decisions a trader takes. Investing, on the other hand, is done with a long term perspective.
A stock investor selects stocks based on strong fundamentals and once convinced holds on to them for a longer period of time, ranging from a few years to decades, to even more.
Difference Based on Risks Involved
Whether you trade or invest, your capital is at the mercy of markets and hence there is a risk-return tradeoff you should be aware of. However when it comes to investing vs trading on the basis of risk, trading ranks higher.The simple reason why trading is riskier is that trading involves taking super quick short-sighted decisions, which may go well and go horribly wrong as well.
A trader does not base his decisions on how promising the growth prospects of a business are. He may buy a scrip based on external influence and lose money when the prices hit a low which can also make it riskier.
Needless to say, trading can oscillate between highs and lows quite rapidly. On the other hand, Investing as a habit takes time to develop and reaps results in long term.
The risks are lower and comparatively the returns are lower when the period of holding is less, however, if stocks are held for a long time, your investment can fetch higher returns due to compounding effect of interest and dividends.
If the stock you have invested in is fundamentally strong, the daily market fluctuations will have negligible to no impact on your investment.
Difference Based on Attitudes
The final difference lies between the personality or wealth creation attitude of an investor and a trader. Let’s see the main differences below:-
Which is Better Suited for a Retail Investor?
If you look at the difference between trading and investment you will be able to see that investing approach is more suited to retail investors who want extra exposure to equities.The advantages that accompany a stock investing mindset are numerous. All you have to do is base your bets on a business that is strong in its core offerings, is constantly innovating and adapting to customer requirements and has a solid management team backing it.
Once you are sure of this, you just need to “ buy right and sit tight”. When it comes to investing vs trading none of them have a guaranteed formula for making money in the stock market.
An investment approach will ensure success in a longer period of time. It will also allow you the much-needed peace of mind that traders never get in there attempts to time the market.
So analyze a company fundamentally, invest in the business, remain unperturbed by the market noise and stay invested to reap long term benefits.
Happy Investing!
Source: https://groww.in/
Quote for the day
"All truths are easy to understand once they are discovered; the point is to discover them." - Galileo Galilei
Saturday, 14 November 2020
6 Types of Financial Fraud and Manipulation
History has taught us one thing: as long as companies are managed by human beings, fraud and manipulation will occur. However, as corporations become larger, so does the financial and social impact of such avarice.
The boom years of the 1990s raised the need to exceed analysts' expectations and boost shareholder value to unprecedented levels.
As a result, corporate managers went to great lengths to deceive Wall Street, investors, and the government. Through elaborate schemes involving sales skimming, misappropriation of funds, improper revenue recognition, overstatement of assets, and understatement of liabilities, corporation managers created paper wealth of untold proportions.
And as the web of deception unraveled, a costly price was paid by the stock market and the overall economy. If any good came of this, it was the painful reminder that each and every one of us should understand the basics of financial analysis and, more important, know the ways to detect corporate fraud.
Types of Fraud
Most types of fraud can be assigned to one of the six areas detailed below.
Money Laundering
Money laundering is essentially taking money from illegal sources and passing it through another business to make the money appear legitimate. For example, an organized crime syndicate involved in the drug trade might create a chain of dry cleaners to pass through money from drug sales in an effort to “wash” those funds. Generally speaking, money laundering tends to be a relatively low priority for the IRS. Could it be that they are more likely to collect taxes when the funds are washed and declared? For the FBI, in contrast, it is a different story.
Sales Skimming
Sales skimming involves the deliberate omission of revenue to lower taxable income. This could very well be the case with small businesses that only accept cash, as it would be difficult to track their sales receipts. It becomes a much larger issue when we are talking about Fortune 500 companies that use creative methods to defer revenue or simply hide revenue, as was the case in many of the recent corporate fraud scandals.
Shifting Sales and Expenses between Businesses and Operating Subsidiaries
Often large corporations will shift expenses from a less profitable unit to a more profitable unit. This allows for a smoother distribution of profits, and in some cases it can reduce the overall tax burden. For example, the more profitable unit may be facing an excessive tax bill. When expenses are added to its income statement, that burden may ease.
Phony Off-Balance-Sheet Financing Schemes
Overall, off-balance-sheet entities are not considered to be inherently deceptive. However, a combination of creative accounting and lax observance of ownership rules has created an opportunity to hide liabilities in them. A special-purpose entity is created to take on the debt of a parent company, and in the process, the liability essentially is hidden. The perception is that the holding company has a much stronger balance sheet, something that analysts and investors prefer.
Source: www.makemoneyprofit.com
Types of Fraud
Most types of fraud can be assigned to one of the six areas detailed below.
Money Laundering
Money laundering is essentially taking money from illegal sources and passing it through another business to make the money appear legitimate. For example, an organized crime syndicate involved in the drug trade might create a chain of dry cleaners to pass through money from drug sales in an effort to “wash” those funds. Generally speaking, money laundering tends to be a relatively low priority for the IRS. Could it be that they are more likely to collect taxes when the funds are washed and declared? For the FBI, in contrast, it is a different story.
Sales Skimming
Sales skimming involves the deliberate omission of revenue to lower taxable income. This could very well be the case with small businesses that only accept cash, as it would be difficult to track their sales receipts. It becomes a much larger issue when we are talking about Fortune 500 companies that use creative methods to defer revenue or simply hide revenue, as was the case in many of the recent corporate fraud scandals.
Overstating Expenses
This type of fraud often takes the form of running personal expenses through a business to lower taxable income. This is something that might occur in small private companies, and generally it goes unnoticed when done on a small scale. It becomes a larger concern in publicly traded companies, in which a CEO might decide to expense his private art collection to the company.
This type of fraud often takes the form of running personal expenses through a business to lower taxable income. This is something that might occur in small private companies, and generally it goes unnoticed when done on a small scale. It becomes a larger concern in publicly traded companies, in which a CEO might decide to expense his private art collection to the company.
Bribes and Payoffs
Often committed by large businesses seeking to fix prices or land contracts, this is the type of thing that occurs when a large company is seeking to capture a portion of an international market to secure a large account. Usually some type of bribe or payoff is offered to local government officials or business leaders to gain their approval. In my naive younger days, while I was working as a financial advisor in Latin America, I found it a strange coincidence that when a lucrative privatization contract was awarded to a foreign bank, it seemed to coincide with the minister of commerce’s purchase of a brand-new Hummer.
Often committed by large businesses seeking to fix prices or land contracts, this is the type of thing that occurs when a large company is seeking to capture a portion of an international market to secure a large account. Usually some type of bribe or payoff is offered to local government officials or business leaders to gain their approval. In my naive younger days, while I was working as a financial advisor in Latin America, I found it a strange coincidence that when a lucrative privatization contract was awarded to a foreign bank, it seemed to coincide with the minister of commerce’s purchase of a brand-new Hummer.
Shifting Sales and Expenses between Businesses and Operating Subsidiaries
Often large corporations will shift expenses from a less profitable unit to a more profitable unit. This allows for a smoother distribution of profits, and in some cases it can reduce the overall tax burden. For example, the more profitable unit may be facing an excessive tax bill. When expenses are added to its income statement, that burden may ease.
Phony Off-Balance-Sheet Financing Schemes
Overall, off-balance-sheet entities are not considered to be inherently deceptive. However, a combination of creative accounting and lax observance of ownership rules has created an opportunity to hide liabilities in them. A special-purpose entity is created to take on the debt of a parent company, and in the process, the liability essentially is hidden. The perception is that the holding company has a much stronger balance sheet, something that analysts and investors prefer.
Source: www.makemoneyprofit.com
Quote for the day
"Once you realize that you have identified a passion, invest in yourself. Figure out what you need to know, what kind of experience and expertise you need to develop to do the things that you feel in your heart you will enjoy and that will sustain you both mentally and economically." - Martha Stewart
Friday, 13 November 2020
Five habits of the very best investors
Most investors spend most of their time and energy thinking about what they can get from their investments. That makes perfect sense.
But there's more than that to investment success.
A few investors are lucky enough to be successful primarily because they were born into wealth and abundance. But the vast majority of us have to rely on hard work and … what else?
If you can put your finger on that elusive "what else" factor that leads to success, you can change your life — and your family's life — for the better. So what is it?
As I researched my 2011 book "Financial Fitness Forever," I posed exactly that question in a series of extended interviews with nine seasoned investment advisers I respect and admire.
One thing that emerged was deceptively simple. Aristotle said it this way: "We are what we repeatedly do. Excellence comes not from our actions but from our habits."
Again and again these nine advisers identified some key habits that seemed to be ingrained in the most successful people among the thousands of clients they have worked with. Pretty soon we realized that successful investors' most effective "secrets of success" were neither secret nor mysterious.
If I had to boil down what we found to just one sentence, I would say that the "perfect investor," if such a person really exists, is somebody who plans for the future and is patient and deliberate in carrying out those plans.
I could boil it down to three words: Planning, perspective and patience.
Or just two words: Good habits.
Habits govern our behavior in the background and let us move through life without requiring us to think about the same issue again and again.
Here are five habits that can help you be a better investor:
1: Setting goals
Successful investors know where they are going and set goals for getting there. Investors who lack clearly articulated and measurable goals tend to dabble in various investment options, hoping they'll find something that works.
But once you set some fixed goals, your investment choices and actions acquire an entirely new meaning. Like a casual traveler who has been handed a road map and a destination, you can suddenly know what you should do.
2: Create a plan — and stick to it
Successful investors make concrete plans to achieve their goals, and then follow the plans. They periodically re-examine those goals, too. In real life, our needs change, circumstances change, knowledge evolves. Rethinking your goals and working to achieve them can become a regular part of your life. I recommend you make this a once-a-year habit.
3: Save regularly
Successful investors save regularly and routinely. In my roundtable discussions among advisers, this was the very first trait that emerged. Every adviser I talked to agreed that this is an absolutely essential ingredient for successful investing. After all, you can't invest money unless you have it; and unless you save it, you probably won't have it.
The best investors find ways to add to their savings automatically. These days, that is pretty easy through payroll deductions and regularly scheduled online transfers. If you want to be among the best, set this habit on automatic.
4: Live on less
Successful investors habitually delay gratification and live below their means. This, of course, is essential to save money. If you know from experience that you can live on less when you need to, then you've laid an important piece of groundwork for a successful retirement.
Some very successful investors take pleasure in demonstrating that they can live on less and still be happy. They're among the people who are most likely to enjoy retirement, since they have deliberately cut the emotional cord between how much money they spend and how happy they are.
5: Stay in the game
Successful investors expect setbacks and stay in the game anyway. I remember opening a retirement account some years back for a woman who had inherited some money. I did my best to let this woman know that she would experience some temporary losses along the way, and she assured me that she was fine with that idea.
A month later, she closed her account after losing about 1% of her portfolio.
I called her, and she told me she remembered my promise that she would experience temporary losses along the way. And she remembered her promise to stick with it when that happened.
"Then why are you closing your account after only a month?" I asked. I've never forgotten her reply: "I thought that we would make some money first before I lost it."
Had this woman remained invested, her portfolio would have gone up nearly 10% in the following eight months. But by quitting prematurely, she locked in her loss and gave up a perfectly sensible game plan.
Is this a habit? I think it is. The best investors are those who can habitually stay the course despite the setbacks they inevitably encounter. This is resilience — another very valuable trait — in action.
Doing all these things may seem like a pretty tough assignment, and in a way it is. If you want to be outstandingly successful, you've got to do what most other people don't do.
The good news is that your habits are within your control.
Here's one piece of parting advice: Don't expect perfection, either from yourself or from the world. We are only humans living in an imperfect world. I haven't lived my life perfectly, and you won't live yours perfectly. What you know, what you expect and what you do will sometimes let you down.
But if you do your best and keep putting yourself back in the game, you'll be the best investor that you can be. That's a good habit to nurture.
Source:www.marketwatch.com
But there's more than that to investment success.
A few investors are lucky enough to be successful primarily because they were born into wealth and abundance. But the vast majority of us have to rely on hard work and … what else?
If you can put your finger on that elusive "what else" factor that leads to success, you can change your life — and your family's life — for the better. So what is it?
As I researched my 2011 book "Financial Fitness Forever," I posed exactly that question in a series of extended interviews with nine seasoned investment advisers I respect and admire.
One thing that emerged was deceptively simple. Aristotle said it this way: "We are what we repeatedly do. Excellence comes not from our actions but from our habits."
Again and again these nine advisers identified some key habits that seemed to be ingrained in the most successful people among the thousands of clients they have worked with. Pretty soon we realized that successful investors' most effective "secrets of success" were neither secret nor mysterious.
If I had to boil down what we found to just one sentence, I would say that the "perfect investor," if such a person really exists, is somebody who plans for the future and is patient and deliberate in carrying out those plans.
I could boil it down to three words: Planning, perspective and patience.
Or just two words: Good habits.
Habits govern our behavior in the background and let us move through life without requiring us to think about the same issue again and again.
Here are five habits that can help you be a better investor:
1: Setting goals
Successful investors know where they are going and set goals for getting there. Investors who lack clearly articulated and measurable goals tend to dabble in various investment options, hoping they'll find something that works.
But once you set some fixed goals, your investment choices and actions acquire an entirely new meaning. Like a casual traveler who has been handed a road map and a destination, you can suddenly know what you should do.
2: Create a plan — and stick to it
Successful investors make concrete plans to achieve their goals, and then follow the plans. They periodically re-examine those goals, too. In real life, our needs change, circumstances change, knowledge evolves. Rethinking your goals and working to achieve them can become a regular part of your life. I recommend you make this a once-a-year habit.
3: Save regularly
Successful investors save regularly and routinely. In my roundtable discussions among advisers, this was the very first trait that emerged. Every adviser I talked to agreed that this is an absolutely essential ingredient for successful investing. After all, you can't invest money unless you have it; and unless you save it, you probably won't have it.
The best investors find ways to add to their savings automatically. These days, that is pretty easy through payroll deductions and regularly scheduled online transfers. If you want to be among the best, set this habit on automatic.
4: Live on less
Successful investors habitually delay gratification and live below their means. This, of course, is essential to save money. If you know from experience that you can live on less when you need to, then you've laid an important piece of groundwork for a successful retirement.
Some very successful investors take pleasure in demonstrating that they can live on less and still be happy. They're among the people who are most likely to enjoy retirement, since they have deliberately cut the emotional cord between how much money they spend and how happy they are.
5: Stay in the game
Successful investors expect setbacks and stay in the game anyway. I remember opening a retirement account some years back for a woman who had inherited some money. I did my best to let this woman know that she would experience some temporary losses along the way, and she assured me that she was fine with that idea.
A month later, she closed her account after losing about 1% of her portfolio.
I called her, and she told me she remembered my promise that she would experience temporary losses along the way. And she remembered her promise to stick with it when that happened.
"Then why are you closing your account after only a month?" I asked. I've never forgotten her reply: "I thought that we would make some money first before I lost it."
Had this woman remained invested, her portfolio would have gone up nearly 10% in the following eight months. But by quitting prematurely, she locked in her loss and gave up a perfectly sensible game plan.
Is this a habit? I think it is. The best investors are those who can habitually stay the course despite the setbacks they inevitably encounter. This is resilience — another very valuable trait — in action.
Doing all these things may seem like a pretty tough assignment, and in a way it is. If you want to be outstandingly successful, you've got to do what most other people don't do.
The good news is that your habits are within your control.
Here's one piece of parting advice: Don't expect perfection, either from yourself or from the world. We are only humans living in an imperfect world. I haven't lived my life perfectly, and you won't live yours perfectly. What you know, what you expect and what you do will sometimes let you down.
But if you do your best and keep putting yourself back in the game, you'll be the best investor that you can be. That's a good habit to nurture.
Source:www.marketwatch.com
Quote for the day
"Half our mistakes in life arise from feeling where we ought to think, and thinking where we ought to feel." - John Churton Collins
Thursday, 12 November 2020
7 Habits Of Highly Destructive Traders
As traders, we try to do constructive things that build faith in ourselves, and confidence in our trading systems. We want to stay on the right path and not wander into the wilderness of destruction. Here are the seven things that we must be cautious of for the sake of profitability.
3. Trade first and learn how to trade later. Traders who don’t spend time educating themselves before trading will learn the hard way, and give their trading capital to other traders as tuition.
4. Focusing on ego and the desire to be right, instead of profitability and big losses, will quickly destroy a trader’s account.
5. Traders that fight the trend and disagree with the actual price action will give their trading capital to those that follow the trend.
6. Trade without discipline and risk management and a trader will be destroyed regardless of their trading system or method.
7. If a trader doesn't diversify their life with strong relationships, fun, peace, and health, their trading results become too entangled with their self worth. This can lead to mental and emotional ruin.
The path to profitability leads away from these seven habits. In the end, traders are consistently rewarded for their good habits, and punished financially for their destructive habits. This is our stop list.
1. Blaming outside forces for poor trading results is an incredibly destructive behavior. High frequency traders, market makers, and irrational markets, give an undisciplined trader license to make reckless trades. The less responsibility taken for results, the more destructive they can be with an account.
2. Trading with no plan and making decisions based on feelings, is a really bad idea. Letting opinions and predictions be a guide to entries, and emotions be a guide to exits, guarantees maximum destruction of trading capital.
3. Trade first and learn how to trade later. Traders who don’t spend time educating themselves before trading will learn the hard way, and give their trading capital to other traders as tuition.
4. Focusing on ego and the desire to be right, instead of profitability and big losses, will quickly destroy a trader’s account.
5. Traders that fight the trend and disagree with the actual price action will give their trading capital to those that follow the trend.
6. Trade without discipline and risk management and a trader will be destroyed regardless of their trading system or method.
7. If a trader doesn't diversify their life with strong relationships, fun, peace, and health, their trading results become too entangled with their self worth. This can lead to mental and emotional ruin.
The path to profitability leads away from these seven habits. In the end, traders are consistently rewarded for their good habits, and punished financially for their destructive habits. This is our stop list.
Source: http://newtraderu.com/
Quote for the day
"Three grand essentials to happiness in this life are something to do, something to love, and something to hope for." - Joseph Addison
Wednesday, 11 November 2020
The 5 Holy Grails of Trading
By Steve Burns
“The Holy Grail is not what you would expect it to be. It is something that is different for each person. It’s a hidden secret you have to discover for yourself but it is obvious once it is realized.” - David Mobley, Sr.
Most new traders go on a quest for “The Holy Grail” of trading. They want the can’t lose system that prints money. Many believe that rich traders know the secret and keep it to themselves. The secret is that there is no “secret” system or methodology that always wins. There are many robust systems, but no 100% winning system, not even close. The big secret is that many of the best traders in the world have about a 50% win rate, and many of the best systems have around a 50% win rate (or less) with each entry.
Winning traders do have helpful secrets, but many new traders argue about these principles are difficult or don’t work, despite the fact that they come from seasoned and experienced professionals.
Most new traders go on a quest for “The Holy Grail” of trading. They want the can’t lose system that prints money. Many believe that rich traders know the secret and keep it to themselves. The secret is that there is no “secret” system or methodology that always wins. There are many robust systems, but no 100% winning system, not even close. The big secret is that many of the best traders in the world have about a 50% win rate, and many of the best systems have around a 50% win rate (or less) with each entry.
Winning traders do have helpful secrets, but many new traders argue about these principles are difficult or don’t work, despite the fact that they come from seasoned and experienced professionals.
Here are five real Holy Grails; they aren’t the answer alone, but put all five together and they can make a significant difference in a trader’s career.
- Big wins and small losses. With a 3:1 risk/reward ratio you can be a winning trader with a 33% win rate.
- Never lose more than 1% of your total trading capital in a single trade. This brings your risk of ruin down to almost zero, and turns the volume of your emotions down to a manageable level. This risk management rule causes a trader to be disciplined in their position sizing and stop loss placement.
- A trader must follow a robust mechanical system or trade with a rule based methodology that gives them an edge. You have to trade with a long term winning strategy and understand why it wins.
- Disciplined traders are the ones that eventually make the money and keep it, because they are able to take their entries and exits without being blocked by their egos or emotions.
- Traders don’t survive without perseverance. If one thing is the “The Holy Grail” of trading it’s perseverance. All the legendary traders decided they were going to be traders. They did what they had to do to be successful in the business. They put in the time and paid the price to win.
Quote for the day
"The stock market really isn't a gamble, as long as you pick good companies that you think will do well, and not just because of the stock price." - Peter Lynch
Tuesday, 10 November 2020
Monday, 9 November 2020
How We Create Our Trading Karma
Mistakes are not a problem in trading.
The problem is repeated mistakes.
We repeat mistakes when we don't learn.
We don't learn if we don't review and reflect.
We look for the next trade, but fail to thoroughly evaluate the last one.
We don't want to miss the next move, so we miss learning about the last one.
And we repeat mistakes.
For better or worse, we create our trading karma.
Sourc: www.traderfeed.blogspot.com/
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