Monday, 4 January 2021
Quote for the day
"Contentment makes a poor person rich and discontent makes a rich person poor." - Benjamin Franklin
Sunday, 3 January 2021
W.D. Gann’s 28 Trading Rules
William Delbert Gann (June 6, 1878 – June 18, 1955) or WD Gann, was a trader who developed the technical analysis tools known as Gann angles, Square of 9, hexagon, Circle of 360 (these are Master charts). Gann Market forecasting methods are based on geometry, astronomy, and astrology, and ancient mathematics. Opinions are sharply divided on the value and relevance of his work.Gann wrote a number of books on trading.
W.D. Gann described the use of angles in the stock market in The Basis of My Forecasting Method (1935). Calculating a Gann angle is equivalent to finding the derivative of a particular line on a chart in a simple way. Each geometrical angle (which is really a line extended into space) divides time and price into proportionate parts. The most important angle Gann called the 1×1 or the 45° angle, which he said represented one unit of price for one unit of time. If you draw a perfect square and then draw a diagonal line from one corner of the square to the other, you have illustrated the concept of the 1×1 angle, which moves up one point per day.
W.D. Gann described the use of angles in the stock market in The Basis of My Forecasting Method (1935). Calculating a Gann angle is equivalent to finding the derivative of a particular line on a chart in a simple way. Each geometrical angle (which is really a line extended into space) divides time and price into proportionate parts. The most important angle Gann called the 1×1 or the 45° angle, which he said represented one unit of price for one unit of time. If you draw a perfect square and then draw a diagonal line from one corner of the square to the other, you have illustrated the concept of the 1×1 angle, which moves up one point per day.
There has been a general disagreement whether he made profits by speculation himself. However, his famous Ticker Interview shows that his claim to profits was as real as his documented forecasts.
-Via Wikipedia
1. Never risk more than 1/10th of your capital on one trade
2. Use stop losses
3. Never over trade
4. Never let a profit run into a loss
5. Don’t buck the trend
6. When in doubt get out
7. Trade only in active markets
8. Do equal distribution of risks
9. Never limit your orders. Trade at the market
10. Don’t close out without a good reason
11. Accumulate a surplus. After a series of successful trades put some money into an account for emergencies
12. Never buy or sell just to get a scalping profit
13. Never average a loss. This is one of the worst mistakes a trader can make
14. Never get out just because you have lost patience or get in because you’re anxious from waiting
15. Avoid small profits and big losses
16. Never cancel a stop loss order after you placed it at the time you made the trade
17. Avoid getting into or out of the market too often
18. Be as willing to short as to buy. Let your object be to keep to the trend
19. Never buy because the price is low or sell because the price is high
20. Be careful about pyramiding at the wrong time. Wait until the asset is active and has crossed resistance levels before buying more and until it’s broken out of zone of distribution before selling more
21. Select the commodities that show strong uptrend to pyramid on the buying side and the ones that show definite downtrend to sell short
22. Never hedge. If you’re long one and it starts to go down, don’t sell something else short to hedge it. Take your losses and get out and wait for another opportunity
23. Never change your position in the market without a good reason
24. Avoid increasing your trading after a long period of success
25. Don’t guess at tops or bottoms. Let the market prove it. By following definite rules you can do this
26. Don’t follow another’s advice unless he knows more than you do
27. Reduce trading after the first loss. Never increase
28. Avoid getting in wrong and out wrong
-Via Wikipedia
1. Never risk more than 1/10th of your capital on one trade
2. Use stop losses
3. Never over trade
4. Never let a profit run into a loss
5. Don’t buck the trend
6. When in doubt get out
7. Trade only in active markets
8. Do equal distribution of risks
9. Never limit your orders. Trade at the market
10. Don’t close out without a good reason
11. Accumulate a surplus. After a series of successful trades put some money into an account for emergencies
12. Never buy or sell just to get a scalping profit
13. Never average a loss. This is one of the worst mistakes a trader can make
14. Never get out just because you have lost patience or get in because you’re anxious from waiting
15. Avoid small profits and big losses
16. Never cancel a stop loss order after you placed it at the time you made the trade
17. Avoid getting into or out of the market too often
18. Be as willing to short as to buy. Let your object be to keep to the trend
19. Never buy because the price is low or sell because the price is high
20. Be careful about pyramiding at the wrong time. Wait until the asset is active and has crossed resistance levels before buying more and until it’s broken out of zone of distribution before selling more
21. Select the commodities that show strong uptrend to pyramid on the buying side and the ones that show definite downtrend to sell short
22. Never hedge. If you’re long one and it starts to go down, don’t sell something else short to hedge it. Take your losses and get out and wait for another opportunity
23. Never change your position in the market without a good reason
24. Avoid increasing your trading after a long period of success
25. Don’t guess at tops or bottoms. Let the market prove it. By following definite rules you can do this
26. Don’t follow another’s advice unless he knows more than you do
27. Reduce trading after the first loss. Never increase
28. Avoid getting in wrong and out wrong
Source: www.newtraderu.com
Quote for the day
"People who blame others for their failures never overcome them. They simply move from problem to problem. To reach your potential, you must continually improve yourself, and you can't do that if you don't take responsibility for your actions and learn from your mistakes." - John C. Maxwell
Saturday, 2 January 2021
Quote for the day
"Now is the accepted time to make your regular annual good resolutions. Next week you can begin paving hell with them as usual." - Mark Twain
Friday, 1 January 2021
6 New Year’s Investment Resolutions
Ways to become a better investor in the long term.
New Year’s resolutions are an age-old custom. Unfortunately, most resolutions are broken within a few weeks of the start of the year. It may be hard to stick to New Year’s resolutions, but advisors should consider resolutions that can help reduce stress and improve investment performance:
3. Spend less time in “echo chambers.”
Confirmation bias is the tendency to seek evidence that supports preexisting beliefs, and to interpret information in a way that supports an existing position. The echo chamber that comes from avoiding contrary viewpoints can lead to costly investment mistakes. Seeking contrary points of view is a necessary step in testing an investment point of view, and an important (albeit uncomfortable) resolution for 2020.
4. Take a critical look at your portfolio.
The new year is a good time to evaluate investment holdings. Advisors should evaluate whether recent winners will have staying power or merely benefited from a favorable market environment. If recent success isn’t sustainable, it may be desirable to look for opportunities to upgrade the holding to an investment with superior prospects.
The same analysis should be applied to less successful positions. Evaluating whether losing positions are likely to recover is a critical aspect of portfolio management. Oftentimes, recent laggards are tomorrow’s leaders.
But some investments that seem cheap today can get a lot cheaper! In an environment in which technology-enabled disruption is ubiquitous, it is important to be vigilant about winning and losing investment holdings.
5. Ask the right question.
Investment discussions in January are dominated by forecasts for the coming year. The most common question is: “What do you expect the market to do this year?” Although the natural impulse is to focus on the one-year outlook, for most investors the focus on a relatively short-term time horizon is counterproductive. For 2020, investors should have a budget for known cash needs and an emergency reserve for unexpected cash needs. The investment portfolio should be structured to provide for those near-term cash needs, while investing the remainder of the portfolio to achieve the investor’s long-term goals.
Consequently, the more relevant discussion about the investment outlook should be framed around long-term investment expectations and the alignment with financial and personal goals. Realistically, once cash needs are taken care of, most investors have time horizons measured in years if not decades. The incredibly unreliable directional “crystal ball” for one-year periods becomes a lot more reliable over longer periods, making planning a more predictable and less stressful exercise. Consequently, perhaps the most important resolution is to think with the long term in mind and worry less about day-to-day volatility.
6. Read a book.
The last suggested resolution to start the year is: Read a book! There are several books that provide sound advice about how to be a more self-aware and effective investor. Daniel Kahneman was awarded a Nobel Prize in 2002 for findings that challenged assumptions of human rationality prevailing in modern economic theory. Kahneman’s Thinking, Fast and Slow summarizes decades of research and explains modes of thinking that influence decision-making.
Investor and Columbia Business School adjunct professor Michael Mauboussin has done considerable work on behavioral finance and on assessment of success and failure in investing. Mauboussin’s The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing provides insight into the role the role that both skill and luck may play in investment success and how to better distinguish between the two.
University of Pennsylvania professor Philip Tetlock writes about the intersection of psychology, political science and organizational behavior, and is the co-creator of the Good Judgment Project, a multi-year study of the feasibility of improving the accuracy of probability judgments of high-stakes, real-world events. Tetlock’s Superforecasting: The Art and Science of Prediction (co-written with Dan Gardner), provides invaluable insight into ways to improve forecasting results.
Crashed, written by economic historian Adam Tooze, provides a reinterpretation of the global financial crisis that is an important read for advisors seeking greater understanding of the past and perspective on future risks.
Staying on track with resolutions is easier said than done. The likelihood of staying on track is higher for people who make themselves accountable for their resolutions. Sharing resolutions with colleagues or friends is one way to keep on track. The risk of embarrassment can be a powerful motivator! It helps to put resolutions in writing and keep them in a visible place as a constant reminder. Establishing some sort of reward system can also be helpful — meaningful accountability for success or failure can provide the incentive to stick with difficult behavioral changes. Making and sticking to New Year’s resolutions may not guarantee investment success in 2020, but is likely to increase the likelihood of long-term success.
Source: www.thinkadvisor.com
1. Go on a “media diet.”
“News junkies” often obsess over the latest headlines. The activity bias is a common behavioral pattern among advisors who find themselves glued to business news during the trading day. Excessive trading can be one of the more damaging investment behaviors, so consuming less business and political news may be a healthy resolution for those who find themselves binging on the latest tweets, broadcasts and articles.
2. Be realistic about political promises.
Government policy is a major factor influencing investment performance. Political rhetoric, particularly in an election year, can create significant market volatility. Political platforms are aspirational in nature, reflecting the preferences of the candidate and the candidate’s supporters. After being elected to public office, however, constraints tend to be the more relevant area of focus for investors.
The trade war between the U.S. and China is a good example of constraints ultimately prevailing over preferences. Although President Donald Trump may have “preferred” to escalate trade disputes with China for the remainder of his first term as president, the risk of higher unemployment and lower economic growth created a constraint that forced him to deviate from his personal preference and declare a truce with China.
The same trade-off between preferences and constraints will be relevant if a Democratic candidate is elected president in 2020. The Green New Deal, Medicare for All or free college education may make for good campaign talking points but will face obstacles that constrain future actions. Advisors should resolve to understand the trade-offs between preferences and constraints, incorporating that understanding into investment decision-making.
“News junkies” often obsess over the latest headlines. The activity bias is a common behavioral pattern among advisors who find themselves glued to business news during the trading day. Excessive trading can be one of the more damaging investment behaviors, so consuming less business and political news may be a healthy resolution for those who find themselves binging on the latest tweets, broadcasts and articles.
2. Be realistic about political promises.
Government policy is a major factor influencing investment performance. Political rhetoric, particularly in an election year, can create significant market volatility. Political platforms are aspirational in nature, reflecting the preferences of the candidate and the candidate’s supporters. After being elected to public office, however, constraints tend to be the more relevant area of focus for investors.
The trade war between the U.S. and China is a good example of constraints ultimately prevailing over preferences. Although President Donald Trump may have “preferred” to escalate trade disputes with China for the remainder of his first term as president, the risk of higher unemployment and lower economic growth created a constraint that forced him to deviate from his personal preference and declare a truce with China.
The same trade-off between preferences and constraints will be relevant if a Democratic candidate is elected president in 2020. The Green New Deal, Medicare for All or free college education may make for good campaign talking points but will face obstacles that constrain future actions. Advisors should resolve to understand the trade-offs between preferences and constraints, incorporating that understanding into investment decision-making.
3. Spend less time in “echo chambers.”
Confirmation bias is the tendency to seek evidence that supports preexisting beliefs, and to interpret information in a way that supports an existing position. The echo chamber that comes from avoiding contrary viewpoints can lead to costly investment mistakes. Seeking contrary points of view is a necessary step in testing an investment point of view, and an important (albeit uncomfortable) resolution for 2020.
4. Take a critical look at your portfolio.
The new year is a good time to evaluate investment holdings. Advisors should evaluate whether recent winners will have staying power or merely benefited from a favorable market environment. If recent success isn’t sustainable, it may be desirable to look for opportunities to upgrade the holding to an investment with superior prospects.
The same analysis should be applied to less successful positions. Evaluating whether losing positions are likely to recover is a critical aspect of portfolio management. Oftentimes, recent laggards are tomorrow’s leaders.
But some investments that seem cheap today can get a lot cheaper! In an environment in which technology-enabled disruption is ubiquitous, it is important to be vigilant about winning and losing investment holdings.
5. Ask the right question.
Investment discussions in January are dominated by forecasts for the coming year. The most common question is: “What do you expect the market to do this year?” Although the natural impulse is to focus on the one-year outlook, for most investors the focus on a relatively short-term time horizon is counterproductive. For 2020, investors should have a budget for known cash needs and an emergency reserve for unexpected cash needs. The investment portfolio should be structured to provide for those near-term cash needs, while investing the remainder of the portfolio to achieve the investor’s long-term goals.
Consequently, the more relevant discussion about the investment outlook should be framed around long-term investment expectations and the alignment with financial and personal goals. Realistically, once cash needs are taken care of, most investors have time horizons measured in years if not decades. The incredibly unreliable directional “crystal ball” for one-year periods becomes a lot more reliable over longer periods, making planning a more predictable and less stressful exercise. Consequently, perhaps the most important resolution is to think with the long term in mind and worry less about day-to-day volatility.
6. Read a book.
The last suggested resolution to start the year is: Read a book! There are several books that provide sound advice about how to be a more self-aware and effective investor. Daniel Kahneman was awarded a Nobel Prize in 2002 for findings that challenged assumptions of human rationality prevailing in modern economic theory. Kahneman’s Thinking, Fast and Slow summarizes decades of research and explains modes of thinking that influence decision-making.
Investor and Columbia Business School adjunct professor Michael Mauboussin has done considerable work on behavioral finance and on assessment of success and failure in investing. Mauboussin’s The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing provides insight into the role the role that both skill and luck may play in investment success and how to better distinguish between the two.
University of Pennsylvania professor Philip Tetlock writes about the intersection of psychology, political science and organizational behavior, and is the co-creator of the Good Judgment Project, a multi-year study of the feasibility of improving the accuracy of probability judgments of high-stakes, real-world events. Tetlock’s Superforecasting: The Art and Science of Prediction (co-written with Dan Gardner), provides invaluable insight into ways to improve forecasting results.
Crashed, written by economic historian Adam Tooze, provides a reinterpretation of the global financial crisis that is an important read for advisors seeking greater understanding of the past and perspective on future risks.
Staying on track with resolutions is easier said than done. The likelihood of staying on track is higher for people who make themselves accountable for their resolutions. Sharing resolutions with colleagues or friends is one way to keep on track. The risk of embarrassment can be a powerful motivator! It helps to put resolutions in writing and keep them in a visible place as a constant reminder. Establishing some sort of reward system can also be helpful — meaningful accountability for success or failure can provide the incentive to stick with difficult behavioral changes. Making and sticking to New Year’s resolutions may not guarantee investment success in 2020, but is likely to increase the likelihood of long-term success.
Source: www.thinkadvisor.com
Quote for the day
"The new year stands before us, like a chapter in a book, waiting to be written. We can help write that story by setting goals." - Melody Beattie
Subscribe to:
Posts (Atom)