"The men who have done big things are those who were not afraid to attempt big things, who were not afraid to risk failure in order to gain success." - B. C. Forbes
Tuesday, 19 May 2020
15 Fundamentals To Win Stock Market Battle
Gerald Loeb was a founding partner of E.F. Hutton, a renowned and successful Wall Street trader, and the author of the books 'The Battle For Investment Survival' and 'The Battle For Stock Market Profits'.
Mr. Loeb promoted a contrarian view of the market as too risky to hold stocks for the long term in direct contrast to many of his generation.
At the time, many considered Loeb’s comments heresy to the buy and hold doctrine so common among many in the industry. While Loeb never had the opportunity to trade in an environment now ruled by quants, algorithmic trading and massive government intervention, his wisdom and insight is still applicable in today’s environment. After all, the more things change, the more they always stay the same!
Based on his two books, here are 15 fundamentals Loeb argues that you need to understand to win the battle not only against yourself, but also against the market:
01. What everyone else knows is not worth knowing.
02. Stocks are always way overvalued in a bull market and way undervalued in a bear market.
03. The best stocks will always seem overpriced to the majority of investors.
04. Expectation, not the news itself, is what moves the market.
05. Three basis elements should be considered when evaluating a stock – 1) quality (fundamentals, liquidity, management), 2) price, and 3) trend (the most important).
06. Stocks act like human beings and go through the same stages and phases as people do, including infancy, growth, maturity, and decline. The key in trading is to be able to recognize which stage the stock is in and to take advantage of that opportunity.
07. Pyramid your buys – start with an initial position and then add to it only if the trade moves in your favor.
08. The more experienced and successful you become, the less you should diversify.
09. Traders must always resist the urge and temptation to change their strategies for each and every different market cycle.
10. To succeed in trading you must 1) aim high, 2) control the risks, 3) be unafraid to keep uninvested reserves and 4) be patient.
11. Successful traders are intelligent, they understand human psychology, they practice pure objectivity, and they have natural quickness.
12. You must always trade with the actions of the market and not simply by how you might think the market should trade.
13. Knowledge through experience is one trait that separates successful stock market speculators from everyone else.
14. The stock market is more an art than a science and far more complex than most people understand.
15. Always sell when you start patting yourself on the back for being smarter than the market.
In reflecting upon these 15 fundamentals, ask yourself the following question:
Mr. Loeb promoted a contrarian view of the market as too risky to hold stocks for the long term in direct contrast to many of his generation.
At the time, many considered Loeb’s comments heresy to the buy and hold doctrine so common among many in the industry. While Loeb never had the opportunity to trade in an environment now ruled by quants, algorithmic trading and massive government intervention, his wisdom and insight is still applicable in today’s environment. After all, the more things change, the more they always stay the same!
Based on his two books, here are 15 fundamentals Loeb argues that you need to understand to win the battle not only against yourself, but also against the market:
01. What everyone else knows is not worth knowing.
02. Stocks are always way overvalued in a bull market and way undervalued in a bear market.
03. The best stocks will always seem overpriced to the majority of investors.
04. Expectation, not the news itself, is what moves the market.
05. Three basis elements should be considered when evaluating a stock – 1) quality (fundamentals, liquidity, management), 2) price, and 3) trend (the most important).
06. Stocks act like human beings and go through the same stages and phases as people do, including infancy, growth, maturity, and decline. The key in trading is to be able to recognize which stage the stock is in and to take advantage of that opportunity.
07. Pyramid your buys – start with an initial position and then add to it only if the trade moves in your favor.
08. The more experienced and successful you become, the less you should diversify.
09. Traders must always resist the urge and temptation to change their strategies for each and every different market cycle.
10. To succeed in trading you must 1) aim high, 2) control the risks, 3) be unafraid to keep uninvested reserves and 4) be patient.
11. Successful traders are intelligent, they understand human psychology, they practice pure objectivity, and they have natural quickness.
12. You must always trade with the actions of the market and not simply by how you might think the market should trade.
13. Knowledge through experience is one trait that separates successful stock market speculators from everyone else.
14. The stock market is more an art than a science and far more complex than most people understand.
15. Always sell when you start patting yourself on the back for being smarter than the market.
In reflecting upon these 15 fundamentals, ask yourself the following question:
Among all of these fundamentals, which of these do you disagree with and/or do not reflect your personal experience so far?
In doing so, I want you to consider that not only could you be wrong in that view, but that knowledge of the difference may help you to explore a new path to improving your performance.
http://www.anirudhsethireport.com
http://www.anirudhsethireport.com
Monday, 18 May 2020
Quote for the day
"People should watch out for three things: avoid a major addiction, don't get so deeply into debt that it controls your life, and don't start a family before you're ready to settle down." - James Taylor
Bollinger Bands - 22 Rules
Bollinger Bands are available on most charting software.
They have become popular primarily because they answer a question every investors needs to know: Are prices high or low?
What are Bollinger Bands?
Bollinger Bands were created by John Bollinger, CFA, CMT and published in 1983. They were developed in an effort to create fully-adaptive trading bands.
Bollinger Bands are curves drawn in and around the price structure on a chart that provide a relative definition of high and low. Prices near the upper band are high prices,while prices nrear the lower band are low.
The base of bands is a moving average that is descriptive of the intermediate-term trend. This average is known as the middle band,and its default length is 20 periods.The width of the bands is determined by a measure of volatility,called standard deviation. the data for the volatility calculation is the same data that was used for the moving average. The upper and lower bands are drawn at a default distance of two standard deviations from the average.
These are the standard Bollinger Band Formulas:
Upper Band = Middle Band + 2 Standard Deviations
Middle Band = 20 - Period Moving Average
Lower Band = Middle Band - 2 Standard Deviations
Learning how to use Bollinger bands effectively cannot be fully explained in this article. However the following rules serve as a good starting point.
1. Bollinger Bands provide a relative definition of high and low. By definition price is high at the upper band and low at the lower band.
2. That relative definition can be used to compare price action and indicator action to arrive at rigorous buy and sell decisions.
3. Appropriate indicators can be derived from momentum, volume, sentiment, open interest, inter-market data, etc.
4. If more than one indicator is used the indicators should not be directly related to one another. For example, a momentum indicator might complement a volume indicator successfully, but two momentum indicators aren't better than one.
5. Bollinger Bands can be used in pattern recognition to define/clarify pure price patterns such as "M" tops and "W" bottoms, momentum shifts, etc.
6. Tags of the bands are just that, tags not signals. A tag of the upper Bollinger Band is NOT in-and-of-itself a sell signal. A tag of the lower Bollinger Band is NOT in-and-of-itself a buy signal.
7. In trending markets price can, and does, walk up the upper Bollinger Band and down the lower Bollinger Band.
8. Closes outside the Bollinger Bands are initially continuation signals, not reversal signals. (This has been the basis for many successful volatility breakout systems.)
9. The default parameters of 20 periods for the moving average and standard deviation calculations, and two standard deviations for the width of the bands are just that, defaults. The actual parameters needed for any given market/task may be different.
10. The average deployed as the middle Bollinger Band should not be the best one for crossovers. Rather, it should be descriptive of the intermediate-term trend.
11. For consistent price containment: If the average is lengthened the number of standard deviations needs to be increased; from 2 at 20 periods, to 2.1 at 50 periods. Likewise, if the average is shortened the number of standard deviations should be reduced; from 2 at 20 periods, to 1.9 at 10 periods.
12. Traditional Bollinger Bands are based upon a simple moving average. This is because a simple average is used in the standard deviation calculation and we wish to be logically consistent.
13. Exponential Bollinger Bands eliminate sudden changes in the width of the bands caused by large price changes exiting the back of the calculation window. Exponential averages must be used for BOTH the middle band and in the calculation of standard deviation.
14. Make no statistical assumptions based on the use of the standard deviation calculation in the construction of the bands. The distribution of security prices is non-normal and the typical sample size in most deployments of Bollinger Bands is too small for statistical significance. (In practice we typically find 90%, not 95%, of the data inside Bollinger Bands with the default parameters)
15. %b tells us where we are in relation to the Bollinger Bands. The position within the bands is calculated using an adaptation of the formula for Stochastics
16. %b has many uses; among the more important are identification of divergences, pattern recognition and the coding of trading systems using Bollinger Bands.
17. Indicators can be normalized with %b, eliminating fixed thresholds in the process. To do this plot 50-period or longer Bollinger Bands on an indicator and then calculate %b of the indicator.
18. BandWidth tells us how wide the Bollinger Bands are. The raw width is normalized using the middle band. Using the default parameters BandWidth is four times the coefficient of variation.
19. BandWidth has many uses. Its most popular use is to identify "The Squeeze", but is also useful in identifying trend changes...
20. Bollinger Bands can be used on most financial time series, including equities, indices, foreign exchange, commodities, futures, options and bonds.
21. Bollinger Bands can be used on bars of any length, 5 minutes, one hour, daily, weekly, etc. The key is that the bars must contain enough activity to give a robust picture of the price-formation mechanism at work.
22. Bollinger Bands do not provide continuous advice; rather they help identify set ups where the odds may be in your favour.
A note from John Bollinger:
One of the great joys of having invented an analytical technique such as Bollinger Bands is seeing what other people do with it. These rules covering the use of Bollinger Bands were assembled in response to questions often asked by users and our experience over 25 years of using the bands. While there are many ways to use Bollinger Bands, these rules should serve as a good beginning point.
Source: Edited Articles from
http://www.bollingerbands.com - Where you can learn more about Bollinger Bands.
(If time permit watch the webinar)
They have become popular primarily because they answer a question every investors needs to know: Are prices high or low?
What are Bollinger Bands?
Bollinger Bands were created by John Bollinger, CFA, CMT and published in 1983. They were developed in an effort to create fully-adaptive trading bands.
Bollinger Bands are curves drawn in and around the price structure on a chart that provide a relative definition of high and low. Prices near the upper band are high prices,while prices nrear the lower band are low.
The base of bands is a moving average that is descriptive of the intermediate-term trend. This average is known as the middle band,and its default length is 20 periods.The width of the bands is determined by a measure of volatility,called standard deviation. the data for the volatility calculation is the same data that was used for the moving average. The upper and lower bands are drawn at a default distance of two standard deviations from the average.
These are the standard Bollinger Band Formulas:
Upper Band = Middle Band + 2 Standard Deviations
Middle Band = 20 - Period Moving Average
Lower Band = Middle Band - 2 Standard Deviations
Learning how to use Bollinger bands effectively cannot be fully explained in this article. However the following rules serve as a good starting point.
1. Bollinger Bands provide a relative definition of high and low. By definition price is high at the upper band and low at the lower band.
2. That relative definition can be used to compare price action and indicator action to arrive at rigorous buy and sell decisions.
3. Appropriate indicators can be derived from momentum, volume, sentiment, open interest, inter-market data, etc.
4. If more than one indicator is used the indicators should not be directly related to one another. For example, a momentum indicator might complement a volume indicator successfully, but two momentum indicators aren't better than one.
5. Bollinger Bands can be used in pattern recognition to define/clarify pure price patterns such as "M" tops and "W" bottoms, momentum shifts, etc.
6. Tags of the bands are just that, tags not signals. A tag of the upper Bollinger Band is NOT in-and-of-itself a sell signal. A tag of the lower Bollinger Band is NOT in-and-of-itself a buy signal.
7. In trending markets price can, and does, walk up the upper Bollinger Band and down the lower Bollinger Band.
8. Closes outside the Bollinger Bands are initially continuation signals, not reversal signals. (This has been the basis for many successful volatility breakout systems.)
9. The default parameters of 20 periods for the moving average and standard deviation calculations, and two standard deviations for the width of the bands are just that, defaults. The actual parameters needed for any given market/task may be different.
10. The average deployed as the middle Bollinger Band should not be the best one for crossovers. Rather, it should be descriptive of the intermediate-term trend.
11. For consistent price containment: If the average is lengthened the number of standard deviations needs to be increased; from 2 at 20 periods, to 2.1 at 50 periods. Likewise, if the average is shortened the number of standard deviations should be reduced; from 2 at 20 periods, to 1.9 at 10 periods.
12. Traditional Bollinger Bands are based upon a simple moving average. This is because a simple average is used in the standard deviation calculation and we wish to be logically consistent.
13. Exponential Bollinger Bands eliminate sudden changes in the width of the bands caused by large price changes exiting the back of the calculation window. Exponential averages must be used for BOTH the middle band and in the calculation of standard deviation.
14. Make no statistical assumptions based on the use of the standard deviation calculation in the construction of the bands. The distribution of security prices is non-normal and the typical sample size in most deployments of Bollinger Bands is too small for statistical significance. (In practice we typically find 90%, not 95%, of the data inside Bollinger Bands with the default parameters)
15. %b tells us where we are in relation to the Bollinger Bands. The position within the bands is calculated using an adaptation of the formula for Stochastics
16. %b has many uses; among the more important are identification of divergences, pattern recognition and the coding of trading systems using Bollinger Bands.
17. Indicators can be normalized with %b, eliminating fixed thresholds in the process. To do this plot 50-period or longer Bollinger Bands on an indicator and then calculate %b of the indicator.
18. BandWidth tells us how wide the Bollinger Bands are. The raw width is normalized using the middle band. Using the default parameters BandWidth is four times the coefficient of variation.
19. BandWidth has many uses. Its most popular use is to identify "The Squeeze", but is also useful in identifying trend changes...
20. Bollinger Bands can be used on most financial time series, including equities, indices, foreign exchange, commodities, futures, options and bonds.
21. Bollinger Bands can be used on bars of any length, 5 minutes, one hour, daily, weekly, etc. The key is that the bars must contain enough activity to give a robust picture of the price-formation mechanism at work.
22. Bollinger Bands do not provide continuous advice; rather they help identify set ups where the odds may be in your favour.
A note from John Bollinger:
One of the great joys of having invented an analytical technique such as Bollinger Bands is seeing what other people do with it. These rules covering the use of Bollinger Bands were assembled in response to questions often asked by users and our experience over 25 years of using the bands. While there are many ways to use Bollinger Bands, these rules should serve as a good beginning point.
Source: Edited Articles from
http://www.bollingerbands.com - Where you can learn more about Bollinger Bands.
(If time permit watch the webinar)
Sunday, 17 May 2020
Quote for the day
"Character cannot be developed in ease and quiet. Only through experience of trial and suffering can the soul be strengthened, ambition inspired, and success achieved." - Helen Keller
Ten Types of Trading Animals:Which Are You?
The Bear - This trading animal believes the market will be going down and plays the short side. Bears think that a market is going to be very red.
The Bull - This trading animal is very optimistic that the market will be green. Bulls love to buy and believe their screen will be full of green.
The Whale - This trading animal can move prices when it buys and sells. The whale has to faze into positions and out of them so it does not make big enough waves to attract piggy backers. A lot of money can be made trading along side the right whale.
The Pig - This trading animal likes to trade big and often. The problem is that the pig does not know how to exit a winning trade he usually has too big of a target, too big of a position size, and too big of a time frame.
The Shark - This trading animal is just about making money, it gets into trades, makes money and gets out. It has little interest in big complicated theories or esoteric methods. The shark keeps it simple it makes money then moves on to the next opportunity.
The Chicken - This trading animal has trouble trading with much size, or even taking good entries, the chicken is too worried about losing money. Fear keeps the chicken from trading.
The Rabbit - This trading animal trades on a time frame of minutes. The rabbit is just trying to scalp profits during the day. The rabbit wants no overnight risk just the opportunity to make some quick profits during the day.
The Sheep - This trading animal usually is part of a flock. The sheep likes to be on the side of the majority and follow a guru. The sheep hates to think but loves to follow. The sheep is usually the last one into an uptrend and the last one out of a downtrend. They do not want to develop a trading method of their own they want to piggyback someone elses.
The Wolf - The wolf loves to trade on the opposite side of the sheep. This animal loves to trade at the market turning points. Selling short an overextended market or buying when there is “blood on the streets.” The wolf loves to sell out-of-the-money options with terrible odds to gamblers. The wolf is always trying to get on the opposite side of the suckers, the gamblers, and the sheep.
The Turtle - The turtle is slow to buy, slow to sell, and trades on the long term time frame. This trading animal looks to be on the right side of the big trend and try to trade the least amount possible to make as much as possible. Turtles don't really care about the live action and are more concerned about the end of day result and the weekly chart primarily.
http://newtraderu.com/
The Bull - This trading animal is very optimistic that the market will be green. Bulls love to buy and believe their screen will be full of green.
The Whale - This trading animal can move prices when it buys and sells. The whale has to faze into positions and out of them so it does not make big enough waves to attract piggy backers. A lot of money can be made trading along side the right whale.
The Pig - This trading animal likes to trade big and often. The problem is that the pig does not know how to exit a winning trade he usually has too big of a target, too big of a position size, and too big of a time frame.
The Shark - This trading animal is just about making money, it gets into trades, makes money and gets out. It has little interest in big complicated theories or esoteric methods. The shark keeps it simple it makes money then moves on to the next opportunity.
The Chicken - This trading animal has trouble trading with much size, or even taking good entries, the chicken is too worried about losing money. Fear keeps the chicken from trading.
The Rabbit - This trading animal trades on a time frame of minutes. The rabbit is just trying to scalp profits during the day. The rabbit wants no overnight risk just the opportunity to make some quick profits during the day.
The Sheep - This trading animal usually is part of a flock. The sheep likes to be on the side of the majority and follow a guru. The sheep hates to think but loves to follow. The sheep is usually the last one into an uptrend and the last one out of a downtrend. They do not want to develop a trading method of their own they want to piggyback someone elses.
The Wolf - The wolf loves to trade on the opposite side of the sheep. This animal loves to trade at the market turning points. Selling short an overextended market or buying when there is “blood on the streets.” The wolf loves to sell out-of-the-money options with terrible odds to gamblers. The wolf is always trying to get on the opposite side of the suckers, the gamblers, and the sheep.
The Turtle - The turtle is slow to buy, slow to sell, and trades on the long term time frame. This trading animal looks to be on the right side of the big trend and try to trade the least amount possible to make as much as possible. Turtles don't really care about the live action and are more concerned about the end of day result and the weekly chart primarily.
http://newtraderu.com/
Saturday, 16 May 2020
Quote for the day
"Every single thing that has ever happened in your life is preparing you for a moment that is yet to come." - John Spence
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