A dozen things said by Jesse Livermore that apply to investing even though he was a speculator

1. “An investor looks for safety… The speculator looks for a quick profit.” Livermore is saying that what differentiated him and other speculators from investors was: (1) a willingness to make bets with short duration and (2) not seeking safety. Anyone reading about Livermore must remember that he was not a person who often/always followed his own advice. He eventually shot himself leaving a suicide note which included the sentence: “I am a failure.”

2. “A professional gambler is not looking for long shots, but for sure money…Since suckers always lose money when they gamble in stocks – they never really speculate…” Livermore believed he was not a gambler since he only speculated when the odds were substantially in his favour (“sure money”). Livermore’s statement reminds me of a quotation from Peter Lynch: “An investment is simply a [bet] in which you've managed to tilt the odds in your favour.” Livermore’s statement also reminds me of the poker player Puggy Pearson who famously talked about need to know “the 60/40 end of a proposition.” When the odds are substantially in your favour you are not a gambler; when the odds are not substantially in your favour, you are a sucker.

3. “I trade in accordance to my means and always leave myself an ample margin of safety. …After I paid off my debts in full I put a pretty fair amount into annuities. I made up my mind I wasn't going to be strapped and uncomfortable and minus a stake ever again.” Livermore is not referring here to seeking a Benjamin Graham style “margin of safety” on each bet but rather to this: once you establish a big financial stake as a speculator, setting aside enough money so you don’t need to “return to go” financially is wise. Livermore wanted a margin of safety in terms of safe assets so that he would always have a grubstake to start over in his chosen profession of speculation. On this point and others, he failed to follow his own advice.

4. “Keep the number of stocks you own to a controllable number. It’s hard to herd cats, and it’s hard to track a lot of securities.” There is only so much information a single person can track in terms of stocks whether you are in investor or a speculator. By focusing on a smaller number of stocks you are more likely to (1) know what you are doing (which lowers risk) and (2) find an informational advantage you can arbitrage.

5. “Only make a big move, a real big plunge, when a majority of factors are in your favor.” Only bet when the odds are substantially in your favour. And when that happens, bet in a big way. The rest of the time, don’t do anything.

6. ” It never was my thinking that made big money for me. It was always my sitting. Got that? My sitting tight! There is the plain fool who does the wrong thing at all times anywhere, but there is the Wall Street fool who thinks he must trade all the time.” Neither investors nor speculators get any benefits from activity and instead generate fees and mistakes.

7. “The professional concerns himself with doing the right thing rather than with making money, knowing that the profit takes care of itself if the other things are attended to.” Michael Mauboussin: “the best long-term performers in any probabilistic field — such as investing, sports-team management, and pari-mutuel betting — all emphasize process over outcome.”

8. “When you know what not to do in order not to lose money, you begin to learn what to do in order to win.” The finest art is not to lose money. Making money in the stock market can be done by anybody.” This is another way of saying what Warren Buffett has said many times: “The first rule of investing is: don’t lose money; the second rule is don’t forget Rule No. 1.” It is amazing how much benefit once can get from consistently not being stupid.

9. “If I buy stocks on Smith’s tip I must sell those same stocks on Smith’s tip. I am depending on him. Suppose Smith is away on a holiday when the selling time comes around? No sir, nobody can make big money on what someone else tells him.” Livermore claimed that he was never someone to rely on others. He did his own work and made his own decisions as a speculator (with a few well known exceptions that hurt him badly).

10. “The speculator’s deadly enemies are: ignorance, greed, fear and hope. All the statute books in the world and all the rule books on all the Exchanges of the earth cannot eliminate these from the human animal….” Jesse Livermore was a student of behavioural economics when the idea had not yet been given a name. Being greedy when other are fearful and vice versa is a simple rule that is hard to execute in practice. For example, buying assets at the lows of 2009 required courage few people had at the time. Livermore was clearly a brave fellow. But being brave when the odds are not substantially in your favour is unwise.

11. “Whenever I have lost money in the stock market I have always considered that I have learned something; that if I have lost money I have gained experience, so that the money really went for a tuition fee.” The source of good judgement is often bad judgement. Unfortunately for him, Livermore did not always make new mistakes and repeated some old ones too.

12. “Whatever happens in the stock market today has happened before and will happen again.” When people are saying: “this time it is different” grab your wallet and walk carefully toward the door. History never precisely repeats, but it does rhyme. Markets move is cycles because Mr. Market is bi=polar (fluctuating between free and greed). That markets will fluctuate in cycles is inevitable; predicting the timing and extent of the cycles is impossible. Value investing is about putting yourself in position to benefit when the inevitable happens. Price, don’t predict!

http://25iq.com/

40 Gems for Traders and Investors

01. There are only three kinds of investors – those who think they are geniuses, those who think they are idiots, and those who aren't sure.

02. One of the clearest signals that you are wrong about an investment is having the hunch that you are right about it.

03. Investors who focus on price levels earn between five and ten times higher profits than those who pay attention to price changes.

04. The only way to be more certain it’s true is to search harder for proof that it is false.

05. Business value changes over time, not all the time. Stocks are like weather, altering almost continually and without warning; businesses are like the climate, changing much more gradually and predictably.

06. When rewards are near, the brain hates to wait.

07. The market isn't always right, but it’s right more often than it is wrong.

08. Often, when we are asked to judge how likely things are, we instead judge how alike they are.

09. Most of what seem to be patterns in stock prices are just random variations.

10. In a rising market, enough of your bad ideas will pay off so that you’ll never learn that you should have fewer ideas.

11. The more often people watch an investment heave up and down, the more likely they are to trade in and out over the short term – and the less likely they are to earn a high return over the long term.

12. Investing is not you versus “Them”. It’s you versus you.

13. The single greatest challenge you face as an investor is handling the truth about yourself.

14. Hindsight bias keeps you from feeling like an idiot as you look back – but it can make you act like an idiot as you look forward.

15. Ignorance of our own ignorance haunts our financial judgments.

16. Investing requires taking a stand on at least some of the uncertainties that the future holds. So your goal is to be as sure as possible that you don’t think you know more than you really do. How much you know is less important than how clearly you understand where the borders of your ignorance begin. It’s not even a problem to know next to nothing, as long as you know you know next to nothing.

17. Being part of the herd is fun while it lasts, but it’s seldom lucrative for very long, and it’s impossible to predict when the herd will change its “mind.” If you want to make more money than other people, you can't invest like other people.

18. Knowing, or even imagining, that someone else is relying on your advice can make you feel more accountable, forcing you to go beyond your gut feelings and fortify your opinions with factual evidence.

19. Find out who has a negative view and give this devil’s advocate a full hearing.

20. Whether you should take a risk depends not just on the probability that you are right but also on the consequences if you are wrong. You must always weigh how right you think you are against how sorry you will be if you turn out to be mistaken.

21. We are often most afraid of the least likely of dangers, and frequently not worried enough about the risks that have the greatest chances of coming home to roost.

22. When an intangible feeling of risk fills the air, you can catch other people’s emotions as easily as you can catch a cold.

23. Overreacting to raw feelings “blinking” in the face of risk is often one of the riskiest things an investor can do.

24. There’s safety in numbers only when there’s nothing to be afraid of.

25. Many of the world’s best investors have mastered the art of treating their own feelings as reverse indicators. Excitement becomes a cue that it’s time to consider selling, while fear tells them that it may be time to buy.

26. A mistake that stems from an action hurts worse than a mistake that results from inaction.

27. Once you have a handful of options, adding even more choices will lower you odds of making a good decision and increase your chances of regretting whatever decision you do make.

28. The harder the choice feels, the less people want to choose. Yet, the threat of having less choice almost always disturbs us.

29. The closer you come to hitting your target, the more regret you are apt to feel if you miss it.

30. The human brain is a brilliant machine for comparing the reality of what is against the imagination of what might have been.

31. There’s no end to the roads not taken.

32. Investors probably hurt themselves more by avoiding risks they imagine they might regret than by taking risks they really do end up regretting.

33. Instead of making judgments one at a time, you should follow policies and procedures that put your investing decisions on autopilot.

34. The more you can automate your investing, the easier it should be to control your emotions.

35. The pleasure you expect tends to be more intense than the pleasure you experience.

36. We often find out that what we thought we wanted before we got it is no longer what we really want once we have it.

37. There are two tragedies in life. One is to lose your heart’s desire. The other is to gain it.

38. Your memory of what was is shaped largely by what is.

39. If you focus too narrowly on the task at hand, you may never use your peripheral vision.

40. Chance favors the prepared mind.
Source:http://www.anirudhsethireport.com

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Investment Vs Speculation Vs Gambling

By Sunil Sahdev

Many people do not differentiate between the following terms when they invest their hard-earned money in different asset classes, particularly in stock market and often get confused between;

1. Saving

2. Investment

3. Speculations

4. Gambling


We often use the word savings and investment interchangeably, while both are different and both are necessary to secure our future. Saving is done for purchases and emergencies while investment is being done for creation of wealth. I have heard from most of the people that they are savings for their retired life, we need to understand that if we are saving for our retired life we need to invest that money to create wealth. We need to allocate the money wisely between saving and investment, it depends upon behavior of each individual and allocation can be made accordingly. In general, we shall allocate equivalent of three to six months expenses for savings and any excess over it should be allocated for investment.

There is a razor thin differentiation between investment and speculations, in reality it depends upon our own behavior as an investor to differentiate between investment and speculation. Investment and speculative deals are generally done for real assets.

Investment can be defined as “The employment of funds to acquire certain assets after due diligence for mid to long period of time, with the objective of wealth creation and additional income in future”.

Speculative investment can be defined as “The employment of funds to acquire assets for shorter duration of time to take advantage of fluctuations in prices of underlying assets”.

However, Gambling can be defined as “The employment of funds for entertainment/fun with the chances of return depends upon probability of certain situation or events”. For example, deploying funds on horse racing can be defined as gambling.

Key differential of investment vs speculation vs Gambling is:

1. Risk Analysis and Risk appetite: Investor will generally rely on the fundamental analysis of financials and other factors which can affect the price of the asset class and their decision to invest in particular asset is based upon certain fundamental values associated with the asset. Investors do have long term risk and return perspective. While speculators generally rely on the flow of the wind without analysing any fundamentals. Speculators do take higher risk for expects higher returns in short period. Gambler risk entire capital on bet and relay mainly on luck. They are the highest risk takers and ready to lose original investment also.

2. Price of the asset: Investor does not look at the price of the asset rather it looks at the asset itself to determine the decision to allocate some money now to get some money back later on. Investor does not get influenced by daily fluctuations of the asset price, because his/her allocation of money decision is based on the intrinsic value of the assets rather then price. Speculators look at the price of the asset to allocate the money and they do get influenced by the daily fluctuations of the price of the assets, aim of the speculator is to get some quick reward. Gambling is based upon odds and bets are placed only on assumptions.

3. Time Horizon: Investors allocate money for a particular asset for longer period while speculators allocate money for shorter period, on the other hand gambler place bet for immediate gain.

4. Leverages: An investor allocates money from its own resources for investment while and speculators may also rely on borrowed money to allocate. This is applicable mainly to assets belongs to equity market. Gambler generally allocate their own money and place bet for entertainment or fun.

An individual’s approach towards investment identifies the individual either investor or speculators. If an individual is investing without fundamental analysis, only on the basis of market sentiments and certain news, for a shorter duration can be defined as speculative investor. An Individual who invests with proper fundamental analysis for longer period of duration can be defined as investor.

In conclusion, Investor will get stable return over a long run and I advise all my readers to invest wisely after proper analysis of the company to secure their hard money for fairly good chances for creation of wealth. If you are a speculator, make sure your entry and exit to the market is at right time and always be ready to higher risk of loss of original investment in worst circumstances. Gambling should be avoided always and in most of the cases gambling is not legal also.
Source: via twitter

Things People Say During a Bull Market

Here are some things you've probably been hearing during the current bull market from a wide range of investors including some tongue-in-cheek translations about what they really mean.

On Fair Value:

Bears: We think the market’s fair value is much lower than current levels. (Translation: We have to say it’s way lower than the level where we called for a crash four years ago.)

Bulls: We think the market is fairly valued at current levels. (Translation: I have no idea what the fair value of the market is and neither does anyone else.)

Investment Strategists: If earnings grow at a consistent rate forever into the future and you slap a P/E ratio of 16x on the market we think stocks will rise 8-10% this year. (Translation: Stocks are up 3 out of every 4 years so if I keep predicting this I’m bound to be right eventually.)

Value Investors: The market is overvalued but our stocks are trading at a 30-40% discount to fair value.

Growth Investors: The monthly active user numbers are off the charts for this 3 person company that’s worth $50 billion.

On Market Gains:

Bears: It’s all artificial. (Translation: I didn’t participate.)

Bulls: We’re constructive from here and see a period of consolidation. (Translation: Please don’t fall, we’re all in).

On Sentiment:

Bears: Everyone is all in on the market. These people are delusional. No one sees the risks building up under the surface.

Bulls: Everyone is still bearish. Stocks climb the wall of worry.

On Interest Rates:

Everyone: Rates are going higher.

On Reading Material:

Bears: Did you read Hussman’s latest piece?

Bulls: Did you see what Siegel wrote today?

How it All Ends:

Bears: This will end badly (Translation: I will be gloating during the next bear market but will be too scared to buy).

Bulls: We predict a soft landing with a healthy correction that will make for a nice buying opportunity. (Translation: I will be too scared to buy during the next bear market.)

Private Equity: We have plenty of dry powder for the distressed opportunities that will arise from the next crisis. (Translation: All of that money will be used to shore up current investments that run into trouble.)

On Corrections:

Bulls: A 3% loss is the new 10% correction.

On Bubbles:

Bears: Biotech? Bubble. U.S. stocks? Bubble. Bonds? Bubble. Gold? Not a bubble. It’s going to $5,000 an ounce.

Bulls: This is not a bubble. The technology boom and bust of the 1990s, now that was a bubble.

Venture Capitalists: It’s a new era, not a bubble. We’re changing the world one app at a time.

On Strategies:

Index Investors: I’m a long-term investor through thick and thin (Translation: I become a long-term investor during bull markets.)

Active Investors: Yes, we’ve underperformed, but we will protect you during the next bear market (Translation: A few of us will and we really hope it’s us.)

Source:http://awealthofcommonsense.com/

Types Of Investors In The Stock Market: Tier List

By Steve Burns


The Stock Market Zoo: Animal Metaphors In Trading And Investing

Tier list for the ten types of investors:

1. Whales: Large investors who move the market through size.
2. Sharks: Opportunists who make money quickly and efficiently.
3. Turtles: Slow and steady trend followers.
4. Wolves: Contrarian traders who go against the majority.
5. Rabbits: Day traders and scalpers whose edge is speed.
6. Bulls: Too optimistic but make money in uptrends.
7. Bears: Too negative but makes money in downtrends.
8. Pigs: Trade too big and hold on to positions too long.
9. Sheep: They focus on others’ opinions and predictions.
10. Chickens: Too scared to trade real money.

The world of trading and investing has always been filled with interesting terminology. One of the fascinating aspects is the use of animal metaphors to describe different types of traders and investors. These metaphors are fun and help paint a picture of the various approaches and strategies people employ in the market. In this blog post, we will explore the most common animal metaphors traders and investors use and provide insights into the characteristics and behaviors that define each one.

The Bear

Regarding stock market animals, the bear is synonymous with pessimism. Bears are traders who believe the market is headed for a downturn and are eager to take advantage of it. They “short” stocks sell shares they don’t own, hoping to repurchase them later at a lower price to profit from the decline. As a result, a bearish trader is often seen as cautious or even skeptical, always looking for signs of weakness in the market.

The Bull

On the opposite side of the spectrum, we have the bull. Bulls are optimistic traders who believe the market will rise and are eager to buy in anticipation of profits. They are known for their confidence and bullish outlook, often taking long positions in stocks they believe will experience growth. A bull’s screen is typically green when profitable, reflecting their positive expectations for the market.

The Pig

Pigs are traders who love the thrill of the trade, often taking on significant positions and trading frequently. However, their appetite for big gains can also be their downfall, as they may struggle with knowing when to exit a winning trade. Pigs often have unrealistic targets, overly large position sizes, and excessively long timeframes, leading to losses when the market inevitably turns against them.

This famous quote captures these three stock market types: “Bulls make money, bears make money, pigs get slaughtered.” This quote warns against trading too big and staying too late in a big trend.

The Whale

Whales are the big players in the market, with the financial firepower to move prices significantly when they buy or sell. They often have to be cautious when entering or exiting positions to avoid making waves that attract piggybackers – traders who try to profit by following the moves of these market giants. Trading alongside the right whale can be highly profitable, as their actions often set the stage for significant market moves.

The Shark

Sharks are the ultimate opportunists in the market, with a keen focus on making money quickly and efficiently. These traders are not interested in complex theories or esoteric methods; they prefer to keep things simple. Sharks are known for their ability to spot and seize opportunities, making money from trades before moving on to the next one.

The Chicken

Chickens are traders who are held back by their fear. They struggle to take on significant positions or make confident entries because they constantly worry about losing money. This excessive caution can prevent chickens from capitalizing on good opportunities, as they hesitate and miss out on potential gains.

The Rabbit

Rabbits are the quintessential day traders, operating on extremely short timeframes and looking to make quick profits. They avoid holding positions overnight, focusing instead on scalping small profits throughout the day. Rabbits are fast and agile, constantly hopping from one opportunity to another.

The Sheep

Sheep traders prefer to follow the crowd or a particular guru rather than develop their trading strategies. They often join the market late in a trend and exit, leading to diminished returns or losses. Sheep are more comfortable in the company of others, preferring to let someone else make decisions on their behalf.

The Wolf

Wolves are contrarian traders, always looking for opportunities to trade against the majority. They thrive on market turning points, shorting overextended stocks or buying when there’s “blood in the streets.” Wolves love to sell out-of-the-money options with terrible odds to gamblers, capitalizing on the misguided bets of the sheep and other less informed market participants. The wolf’s primary goal is to profit from the mistakes of the suckers, gamblers, and sheep.

The Turtle

Turtles are the embodiment of patience in the world of trading. They take a slow and steady approach, trading on long-term timeframes and focusing on the more significant trends. Turtles are not concerned with the minute-by-minute action of the market; they are more interested in the end-of-day results and weekly charts. By taking their time to enter and exit positions, turtles aim to minimize the number of trades they make while maximizing their profits.

Conclusion

Using animal metaphors in the stock market provides a fascinating glimpse into the various types of traders and investors that participate in the market. Understanding these different “animals” and their distinct characteristics can be entertaining and educational, as it sheds light on the diverse strategies and mindsets people employ when navigating the world of finance.

Whether you identify as a bear, bull, or any other animal on this list, recognizing your trading style and the styles of others can be an invaluable tool for navigating the stock market. It can help you adapt your approach, capitalize on the behavior of others, and ultimately, become a more prosperous and informed trader or investor. So, the next time you find yourself in the market jungle, remember these animal metaphors and use them to help guide your decisions and strategies.

Source: www.newtraderu.com

Hagakure: Trade Like A Samurai

By Steve Burns 

The Hagakure: The Book of The Samurai records Yamamoto Tsunetomo’s views on bushido and the warrior code of the samurai. It was written in the early 18th century and explains many principles of the Samurai warrior. Many of these same principles can be used in business, sports, trading, and investing to achieve a warrior mindset and overcome your ego and emotions along with your adversaries.

Bushido Code

The Bushido was a code of conduct for the Samurai consisting of 8 core principles.

1. Righteousness
2. Heroic Courage
3. Benevolence & Compassion
4. Respect
5. Integrity
6. Honor
7. Duty & Loyalty
8. Self-Control

Let’s apply these same principles to success in trading and investing.

Trading Like A Samurai

Doing the right thing: If you have your own system, method, and process with an edge over the competition then if you follow it you should be free of guilt and regret. Knowing you are doing the right thing is a powerful psychological tactic that frees your energy and creates single-mindedness and focus of action.

Confidence in yourself and your strategy: You can take immediate action to follow your strategy when you have faith in yourself and your process. Faith in action leads to less stress when facing unknown future events.

Positive self talk: We must be a friend to ourself with internal self talk. Our own inner dialogue and thoughts should be positive and like that of a friend and coach not an enemy.

Self respect: We must appreciate our past successes and have confidence in our path and future goals. We should never talk negatively about ourself to others. Right action and effort creates self respect, laziness and wrong action hurts it.

Know yourself: Be whole and undivided in who you are and what you believe. Ensure your actions match your words and beliefs.

Honor: Samurai were warriors with a sense of self worth and lived by the highest code of behavior and conduct. To abide by the principle of honor, we must acknowledge your moral responsibilities for taking actions consistent with or systems and beliefs.

Doing the work consistently: We choose the method we will focus our work and effort on at the beginning of our journey. Then our path consists of executing loyally to our goals.

Managing emotions, desires, and ego: The ability to use your mind and your principles to override feelings, wants, and arrogance is true power. A true samurai first defeats their self before facing any external enemy.

Source:www.newtraderu.com

Five Bear Market Mistakes

By  Neil Faulkner

It's easy to forget the mistakes we make. That's a mistake in itself. Here are five traps to avoid during a bear market.

1. Focusing on our short-term performance
One Fool reader once commented that a long-term, buy-and-hold strategy is a short-term strategy gone wrong. Sometimes that's true, but I think it's fair to say that most investors buy into the market with the aim of making money over years rather than months or weeks.

Indeed, over the next few decades, we're all going to be buying a lot of shares, aren't we? That's why we should be content with prices being low. Remember, it's at the end of the investment life that you get the greatest profits from compounding.

For the same reason, we shouldn't get overly concerned during bear markets. Prices do fall from time to time. Perhaps we'll have some extra cash in that period to invest further in quality shares. Regular investors should like bear markets and shouldn't be too bothered about solid shares under-performing for a while.

2. Becoming enduringly bearish
Who knows when 'the right time' to invest is? Economic indicators are wrong at least as often as they are right, and as mysterious as the Delphic Oracle's mutterings.

Let's say you disagree and want to time the market a little. If it's a rising market then things can quickly look over-priced. Only a madman would get in, wouldn't he? In a falling market, prices could just keep sinking, so you'd be crazy to buy something that's decreasing in value. But now we've reached the bottom and it's climbing again. Or is it? Is this a fake bottom, or a 'dead-cat bounce'? Or a dead-cat's fake bottom? Negativity is insidious, and a bit rude.

If you find yourself constantly negative, you'll worry so much about the right time to invest that you'll miss it by a great margin. The stock market, on average, rises more often than it falls and outperforms other investments (or at least it has historically). On that basis, the best time to invest is always now (or more precisely, as and when you have spare money to invest).

There are extremely rare times when all indicators are overwhelmingly in agreement (including the Delphic Oracle), but in general I don't think we shouldn't worry too much about exactly when we get into the market. It's far more important to ensure you spend most of your time invested and you put in as much money as you can reasonably afford.

3. Believing financial journalists are experts
I'm shooting myself and my colleagues in the feet for you. Hope you appreciate it. Thing is, what sells newspapers is what's happening now, not what's likely to happen to the stock market in 30 years. Papers love to be negative, so in a bear market they're extremely happy.

Journalists are not hired for their moderate views or long-term commitment to improving your wealth. They're hired to sell papers. Anyone who just buys shares and holds them forever isn't going to be all that interested in reading the financial pages on a regular basis, and so journalists don't write for this audience. If they do, the editor deletes the clause 'but...' from the phrase: 'A top economist predicts market crash, but...'

The most successful investors do their own research; they don't rely on papers to make buying or selling decisions.

4. Not spending enough time on your investments
Before you get addicted to buying and selling shares, it's tempting for beginners to just get buying, especially if their friend, mother or local pub landlord says that he's buying this or that share because he can't lose. No one should leap into stock-picking like that.

If you want to invest in a hurry, read up about index trackers and ETFs. Read everything you can on them. Take a look at what people are saying about them on our discussion boards and ask your questions there. It should take you just a few hours a day for a week or two to get comfortable with the idea of them. That's not much effort to lay the foundations of your future financial security.

Once your money is invested relatively safely, you can then take the time to truly learn what on Earth it is you're getting into when you're looking at individual shares. May I suggest you be as cynical about them as you like? Keep digging to find out what's wrong with the company and only then, if you find nothing serious, can you buy. In other words, concentrate on what might go wrong with a share before you consider what might go right. Your wallet will thank you for it.

5. Spending too long on your investments
On the other side, once you've got used to investing it can begin to get you a little too excited. Lots of people check their shares every morning or several times a day.

You know your friend who goes to the gym, and working out is all he talks about? Or how much your other friend talks about just clothes and fashion? You know how boring that is? You know how much you wish they'd just get a life? Well then.

Keep a balance. By not over-doing it, it'll also help you resist the costly temptation to over-trade. But that's going into a sixth mistake, and I just promised you five.
Source: www.fool.co.uk

Why Your Trading Isn't Working Out

A good physician knows that, before cure comes a diagnosis. You cannot treat a problem before you identify what that problem is.

All too often, traders assume that their performance problems are due to a single cause: trading the wrong chart pattern or indicator, having the wrong mindset, etc. As a result, they seek out one trading guru or coach after another, only to see their P/L head steadily south.

The reality is that there are quite a few reasons why trading might be unprofitable. Figuring out which might apply to you is the first step is getting the right help.

Here's a fourfold scheme that I have found helpful in conceptualizing trading problems:

1) Problems of training and experience - Many traders put their money at risk well before they have developed their own trading styles based on the identification of an objective edge in the marketplace. They are not emotionally prepared to handle risk and reward, and they are not sufficiently steeped in markets to separate randomness from meaningful market patterns. They are like beginning golfers who decide to enter a competitive tournament. Their frustrations are the result of lack of preparation and experience. The answer to these problems is to develop a training program that helps you develop confidence and competence in identifying meaningful market patterns and acting upon those. Online trading rooms, where you can observe experienced traders apply their skills, are helpful for this purpose.

2) Problems of changing markets - When traders have had consistent success, but suddenly lose money with consistency, a reasonable hypothesis is that markets have changed and what once was an edge no longer is profitable. This happened to many momentum traders after the late 1990s bull market, and it also has been the case for many scalpers after volatility came out of the stock indices. Here the challenge is to remake one's trading, either by retaining the core strategy and seeking other markets with opportunity or by finding new strategies for one's market. The answer to these problems is to reduce your trading size and re-enter a learning curve to become acquainted with new markets and methods. Figuring out how you learned the markets initially will help you identify steps you need to take to relearn new patterns. 

3) Situational emotional problems - These are emotional stresses that are recent in origin and that interfere with decision making and performance. Some of these stresses might pertain to trading, such as frustration after a slump or loss. Some might stem from one's personal life, as in a relationship breakup or increased financial pressures due to a new home or child. Very often these problems create performance anxieties by putting the making of money ahead of the placing of good trades. The answer to these problems is to seek out short-term counseling to help you gain perspective on the problems and cope with them effectively. 

4) Ongoing emotional problems - These are emotional patterns that predate trading and that show up in areas of life apart from trading. They include depression, anxiety, anger, attention deficits, and substance abuse. Such problems skew how people experience themselves and the world and lead to biases in processing information. As a result, it is difficult to trade (and manage risk) with consistency. The answer to these problems is to seek out competent professional help from a licensed psychologist or psychiatrist, including (possibly) counseling and medication assistance.

The important point is that not all trading problems are psychological in nature. Sometimes we need to work on the markets, sometimes we need to work on ourselves, and sometimes we need to do both. But first of all, we need to identify what our problems are. If you seek help for your trading concerns, make sure you do so from an individual who is experienced in both trading and psychology. If people only possess hammers, they'll treat you like a nail. You want mentors who possess multiple tools and who can design the kind of help that will be right for you.

For the trader, as the physician, diagnosing problems is the first step toward cure.

http://traderfeed.blogspot.co.uk

C.R.E.A.T.E. your trading goals

Do you currently set goals for successful day trading or in fact for any type of trading?

How is that working out for you?

It is all very well setting goals but you need to make sure that you have some parameters around how you set your goals, in order for them to work for you.

As a trader you will want to have a trading plan and also goals that will come from working that plan. These will include financial and education goals around your trading and it is also a good idea to put in your personal, fitness and relationship goals as these have a huge bearing on your success as a trader. The better you are holistically, the better trader you become.

Following is a proven model for successful goal setting:

1. Concise - ensure that your goal statement is simple and easy for both your conscious and unconscious mind to understand and then act upon.

2. Realistic - when a goal is relatively easy for you to accept and is not too much of a leap from where you are currently, the unconscious mind can work with that and start having you put things in order for this to become a reality. E.g. If you are currently losing money in the market, it could be too big a jump for your unconscious mind if your first financial target goal was to make $1 million in the next 6 weeks. It could be far more effective to set this at $10,000.

3. Ecological - the execution of all goals needs to be safe to yourself and safe for others. This is just a step to ensure that what needs to happen does not include any possible harm coming to yourself, any other person, animal or the planet. I think you get the picture.

4. As now - always have your goal stated as if you have already achieved it. Nothing is more powerful for your unconscious mind than to have every part of you feel that the achieving of this goal has already happened.

5. Timed and toward what you want - attach a time frame to your goal statement. Think about a realistic time frame that you can expect to work with this goal and always make the statement towards what you want not away from what you don't want. You will see in the following goal statement example how to best do this.

6. End Step/Evidence - you will need to ask yourself ' What will I be doing when I have achieved this goal that will mean I KNOW that it has happened?' What do you have to see, hear or feel in order to know?

So, get busy and C.R.E.A.T.E. your trading goals from the process above

Edited Article Source: http://EzineArticles.com

7 dirty words of trading.

Be careful how you use the following words and phrases as they become road blocks or worse take you down the wrong path.

Should - Phrases include: “The market should have” and “I should have”. Those phrases are often used to socialize losses. They are a strong signal something is off. They should be used to aid you in correcting your vision not make you feel better.

Must - Phrases include: “The market must…”, “I must make money”, or “I must trade”. The market does not have to do anything and either do you. When you use the word “must” it is hardly ever from a position of strength. The market knows when you are desperate and will take full advantage of you. Keeping your expenses as low as possible will make it easier to not make those statements.

Will - Phrases include: “The market will..” and “I will make money”. Once again the market does not like to be told what to do. It is the bratty kid screaming at the tops of his lungs. The word “will” relaxes your mind, similar to “should”, people use it to be lazy instead of a black background in an otherwise light picture. You can do everything right and still lose money. That is why trading is so effective at diminishing confidence. In most every activity, if you do everything right you are going to get the desired result. Doing the “right” things is bare minimum. Of course, over time you will get paid for doing the right things but it is never when you think it should be and hardly how much you anticipated.

Won't - Phrases include: “The market won't…” or “I won't make money”. Notice a theme here? You are part of the market, you are not the market. Not getting what you expect, even if it is positive, confuses the brain. If you expect to lose and don’t it is still a bad outcome. The market is a one way walkie talkie, you listen, it talks.

Can't - Phrases include: “The market can't..” or “I can't…” or “I can't lose anymore”. Yes the market can, go look at a chart. Go look at a Fed day or about any chart from 2008. Not only can it happen, it does happen. There are no more once in a lifetime moves in the market. There are and always have been life changing moves. No one ever said trading was easy but at least in the case of futures someone is taking your money. If you think you can't, you probably wont. The market will take every penny you have. If can take every penny you put at risk. Fix the problem, when you run out of money it is too late.

Impossible - Phrase includes: “It is impossible to make money”. Once again someone, somewhere is making money. It may not end up being an efficient use of your time or capital but it is possible. You are substituting an excuse for execution.

Sense - Phrase includes: “The market does not make sense”. Many fortunes are made in an illogical market. Logic is a bigger driver than risk controls for most people. It is easier to ignore your P/L when you can see or touch the catalysis. For example, it is cold buy natural gas. By the time you change your view or are forced to change, the market flips. Logic will eventually prevail, with or without you.
Source: http://traderhabits.com/

A Trader's Journey to Profitability

Doug Casey’s 9 Secrets for Successful Speculation

As you read the list below, think about how you can learn more about each secret and adapt it to your own most effective use.

Secret #1: Contrarianism takes courage.

Everyone knows the essential investment formula: “Buy low, sell high,” but it is so much easier said than done, it might as well be a secret formula.

The way to really make it work is to invest in an asset or commodity that people want and need but that for reasons of market cyclicality or other temporary factors, no one else is buying. When the vast majority thinks something necessary is a bad investment, you want to be a buyer—that’s what it means to be a contrarian.

Obviously, if this were easy, everyone would do it, and there would be no such thing as a contrarian opportunity. But it is very hard for most people to think independently enough to risk hard-won cash in ways others think is mistaken or too dangerous. Hence, fortune favors the bold.

Secret #2: Success takes discipline.

It’s not just a matter of courage, of course; you can bravely follow a path right off a cliff if you’re not careful. So you have to have a game plan for risk mitigation. You have to expect market volatility and turn it to your advantage. And you’ll need an exit strategy.

The ways a successful speculator needs discipline are endless, but the most critical of all is to employ smart buying and selling tactics, so you don’t get goaded into paying too much or spooked into selling for too little.

Secret #3: Analysis over emotion.

This may seem like an obvious corollary to the above, but it’s a point well worth stressing on its own. To be a successful speculator does not require being an emotionless robot, but it does require abiding by reason at times when either fear or euphoria tempt us to veer from our game plans.

When a substantial investment in a speculative pick tanks—for no company-specific reason—the sense of gut-wrenching fear is very real. Panic often causes investors to sell at the very time they should be backing up the truck for more.

Similarly, when a stock is on a tear and friends are congratulating you on what a genius you are, the temptation to remain fully exposed—or even take on more risk in a play that is no longer undervalued—can be irresistible. But to ignore the numbers because of how you feel is extremely risky and leads to realizing unnecessary losses and letting terrific gains slip through your fingers.

Secret #4: Trust your gut.

Trusting a gut feeling sounds contradictory to the above, but it’s really not. The point is not to put feelings over logic, but to listen to what your feelings tell you—particularly about company people you meet and their words in press releases.

“People” is the first of Doug Casey’s famous Eight Ps of Resource Stock Evaluation, and if a CEO comes across like a used-car salesman, that is telling you something. If a press release omits critical numbers or seems to be gilding the lily, that, too, tells you something.

The more experience you accumulate in whatever sector you focus on, the more acute your intuitive “radar” becomes: listen to it. There’s nothing more frustrating than to take a chance on a story that looked good on paper but that your gut was warning you about, and then the investment disappoints. Kicking yourself is bad for your knees.

Secret #5: Assume Bulshytt.

As a speculator, investor, or really anyone who buys anything, you have to assume that everyone in business has an angle. Their interests may coincide with your own, but you can’t assume that.

It’s vital to keep in mind whom you are speaking with and what their interest might be. This applies to even the most honest people in mining, which is such a difficult business, no mine would ever get built if company CEOs put out a press release every time they ran into a problem.

A mine, from exploration to production to reclamation, is a non stop flow of problems that need solving. But your brokers want to make commissions, your conference organizers want excitement, your bullion dealers want volume, etc. And, yes, your newsletter writers want to eat as well; ask yourself who pays them and whether their interests are aligned with yours or the companies they cover.

(Bulshytt is not a typo, but a reference to Neal Stephenson's brilliant novel, Anathem, which defines the term, briefly, as words, phrases, or even entire books or speeches that are misleading or empty of meaning.)

Secret #6: The trend is your friend.

No one can predict the future, but anyone who applies him- or herself diligently enough can identify trends in the world that will have predictable consequences and outcomes.

If you identify a trend that is real—or that at least has an overwhelming amount of evidence in its favor—it can serve as both compass and chart, keeping you on course regardless of market chaos, irrational investors, and the ever-present flood of bulshytt.

Knowing that you are betting on a trend that makes great sense and is backed by hard data also helps maintain your courage. Remember; prices may fluctuate, but price and value are not the same thing. If you are right about the trend, it will be your friend. Also, remember that it’s easier to be right about the direction of a trend than its timing.

Secret #7: Only speculate with money you can afford to lose.

This is a logical corollary to the above. If you bet the farm or gamble away your children’s college tuition on risky speculations—and only relatively risky investments have the potential to generate the extraordinary returns that justify speculating in the first place—it will be almost impossible to maintain your cool and discipline when you need it.

As Doug likes to say; it’s better to risk 10% of your capital shooting for 100% gains than to risk 100% of your capital shooting for 10% gains.

Secret #8: Stack the odds in your favour.

Given the risks inherent in speculating for extraordinary gains, you have to stack the odds in your favor. If you can’t, don’t play.

There are several ways to do this, including betting on People with proven track records, buying when market corrections put companies on sale way below any objective valuation, and participating in private placements. The most critical may be to either conduct the due diligence most investors are too busy to be bothered with, or find someone you can trust to do it for you.

Secret #9: You can’t kiss all the girls.

This is one of Doug’s favourite sayings, and though seemingly obvious, it’s one of the main pitfalls for unwary speculators.

When you encounter a fantastic story or a stock going vertical and it feels like it’s getting away from you, it can be very, very difficult to do all the things I mention above. I can tell you from firsthand experience, it’s agonizing to identify a good bet, arrive too late, and see the ship sail off to great fortune—without you.

But if you let that push you into paying too much for your speculative picks, you can wipe out your own gains, even if you’re betting on the right trends.

You can’t kiss all the girls, and it only leads to trouble if you try. Fortunately, the universe of possible speculations is so vast, it simply doesn't matter if someone else beats you to any particular one; there will always be another to ask for the next dance. Bide your time, and make your move only when all of the above is on your side.

Extracted article from http://www.caseyresearch.com/articles/doug-caseys-9-secrets-for-successful-speculation-1

Trader Development Stage Model

Source: http://vixandmore.blogspot.com/

Trading Lessons from The Art of War

Revered the world over for centuries as the essential text for warfare and battle by the ancient philosopher and general Sun Tzu (544 BC–496 BC) explains the principles for dealing with war, personal conflicts, and achieving success in the battles of life.

Here are ten principles I believe we can translate to trading the markets.

“Appear weak when you are strong, and strong when you are weak.” – Sun Tzu, The Art of War

The markets can defeat us when it appears strong when it is extremely overbought and due for a reversal or it appears weak but is extremely oversold and due for a bounce. When a daily chart is at the 70 RSI, 3rd upper Bollinger Band, or 3rd upper ATR Keltner Channel it may appear strong but the odds are it is weak and ready to reverse lower. When a daily chart is at the 30 RSI, 3rd lower Bollinger Band, or 3rd lower ATR Keltner Channel it may appear weak but the odds are it is strong and ready to bounce.

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.” – Sun Tzu, The Art of War

A trader must know both their own weaknesses and strength and their trading system’s positive expectancy thoroughly. If you are self aware and know how your system works you don’t need to stress over the results of your next 100 trades.

“The supreme art of war is to subdue the enemy without fighting.” – Sun Tzu, The Art of War

A trader should not be trying to beat the market they should be going with the flow of price action.

“Let your plans be dark and impenetrable as night, and when you move, fall like a thunderbolt.” – Sun Tzu, The Art of War

Don’t talk about your positions and don’t try to make predictions and have strong opinions, just trade your strategy with focus and discipline and make money quietly.

“Supreme excellence consists of breaking the enemy’s resistance without fighting.” – Sun Tzu, The Art of War

Don’t fight trends that are taking place only enter at the moment of a new break out of a range.

“In the midst of chaos, there is also opportunity” – Sun Tzu, The Art of War

Extreme market moves and volatility can create some of the best trading opportunities.

“Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win” – Sun Tzu, The Art of War

Profitable traders first win by backtesing, doing historical chart studies, and creating a trading system with a positive expectancy model, then they start trading real money. Unprofitable traders just start buying and selling based on random opinions and hope to make money.

“Engage people with what they expect; it is what they are able to discern and confirms their projections. It settles them into predictable patterns of response, occupying their minds while you wait for the extraordinary moment — that which they cannot anticipate.” – Sun Tzu, The Art of War

Find repeatable patterns in the price action of the markets that you can use to create profitable trading signals for.

“Opportunities multiply as they are seized.” – Sun Tzu

A larger watchlist of stocks and markets provides more opportunities for profitable trades across additional charts if they backtest well.

“Thus we may know that there are five essentials for victory:
1. He will win who knows when to fight and when not to fight.
2. He will win who knows how to handle both superior and inferior forces.
3. He will win whose army is animated by the same spirit throughout all its ranks.
4. He will win who, prepared himself, waits to take the enemy unprepared.
5. He will win who has military capacity and is not interfered with by the sovereign.”
– Sun Tzu, The Art of War

There are five essentials for profitable trading:

1. There is a time to trade and time not to trade, you must know the difference to make money.

2. A trader must know how to trade in different types of markets, uptrends, downtrends, sideways, and volatile.

3. A trader must not let their emotions be moved to lose discipline by euphoria after wins or depression after losses.

4. A trader’s primary job is to have the patience to wait for their signals and not chase price action.

5. That trader who can follow their profitable system without being led astray by their ego or emotions will find success.

Source: www.newtraderu.com

20 Golden Rules for (Day) Traders

Want to trade successfully? 

Just choose the good positions and avoid the bad ones. Poor trade selection takes a heavy toll as it bleeds your confidence and wallet. You face many crossroads during each market day. Without a system of discipline for your decision-making, impulse and emotion will undermine skills as you chase the wrong stocks at the worst times.

Many short-term players view trading as a form of gambling. 

Without planning or discipline, they throw money at the market. The occasional big score reinforces this easy money attitude but sets them up for ultimate failure. Without defensive rules, insiders easily feed off these losers and send them off to other hobbies.

Technical Analysis teaches traders to execute positions based on numbers, time and volume.
This discipline forces traders to distance themselves from reckless gambling behavior. Through detached execution and solid risk management, short-term trading finally "works".

Markets echo similar patterns over and over again. 

The science of trend allows you to build systematic rules to play these repeating formations and avoid the chase:

1. Forget the news, remember the chart. You're not smart enough to know how news will affect price. The chart already knows the news is coming.

2. Buy the first pullback from a new high. Sell the first pullback from a new low. There's always a crowd that missed the first boat.

3. Buy at support, sell at resistance. Everyone sees the same thing and they're all just waiting to jump in the pool.

4. Short rallies not sell offs. When markets drop, shorts finally turn a profit and get ready to cover.

5. Don't buy up into a major moving average or sell down into one. See #3.

6. Don't chase momentum if you can't find the exit. Assume the market will reverse the minute you get in. If it's a long way to the door, you're in big trouble.

7. Exhaustion gaps get filled. Breakaway and continuation gaps don't. The old traders' wisdom is a lie. Trade in the direction of gap support whenever you can.

8. Trends test the point of last support/resistance. Enter here even if it hurts.

9. Trade with the TICK not against it. Don't be a hero. Go with the money flow.

10. If you have to look, it isn't there. Forget your college degree and trust your instincts.

11. Sell the second high, buy the second low. After sharp pullsbacks, the first test of any high or low always runs into resistance. Look for the break on the third or fourth try.

12. The trend is your friend in the last hour. As volume cranks up at 3:00pm don't expect anyone to change the channel.

13. Avoid the open. They see YOU coming sucker

14. 1-2-3-Drop-Up. Look for downtrends to reverse after a top, two lower highs and a double bottom.

15. Bulls live above the 200 day, bears live below. Sellers eat up rallies below this key moving average line and buyers to come to the rescue above it.

16. Price has memory. What did price do the last time it hit a certain level? Chances are it will do it again.

17. Big volume kills moves. Climax blow-offs take both buyers and sellers out of the market and lead to sideways action.

18. Trends never turn on a dime. Reversals build slowly. The first sharp dip always finds buyers and the first sharp rise always finds sellers.

19. Bottoms take longer to form than tops. Greed acts more quickly than fear and causes stocks to drop from their own weight.

20. Beat the crowd in and out the door. You have to take their money before they take yours, period.

Source:http://www.tradingday.com

The Seven Key Emotions of the Winning Trader

One thing that trips up new traders is that they are surprised at the emotions that flood into them when they begin the process of trading with real money. Their ego engages and they do not want to be wrong and they sure don’t want to lose money. The negative downward emotional spiral takes down more traders than the math, risk management, or markets ever will. Once the negativity begins it is hard to stop, so travel down the right emotional road if you truly want to be a winning trader, here is what that looks like:

Choose the emotions that you participate in carefully.

1. Contentment: The trader must be satisfied that they are trading the right system for their risk tolerance and beliefs about the market.

2. Hopefulness: A trader must have the belief that he will win in the long term and it is worth the effort to capture the future profits.

3. Optimism: Winning traders believe that they are always getting closer to that next big winner.

4. Positive Expectations: To be successful the trader must expect that in the long run his robust system will produce profits and not lose faith during drawdowns.

5. Enthusiasm: The winning trader enjoys the trading process and loves playing the game that is the markets.

6. Passion: The traders that end up as the big winners are the ones that have the drive to keep learning, keep growing, and put in the work needed because of the energy that comes from their passion.

7. Empowerment: The best traders in the market can not even imagine doing anything else but trading. They truly get joy from the freedom of being a trader and love what they do.

Source:http://newtraderu.com