Share market knowledge is more than just knowing a few indicators and having some awareness of how the markets work..more importantly it is about knowling about yourslef as a trader..working on this is the key to your sustained success
Friday, June 19, 2009
Tuesday, June 9, 2009
The 22 Rules of Trading - Gartman
Dennis Gartman writes a daily information newsletter on the world markets, oil, currencies, commodities political happenings and much more.
This is read by traders and trading managers internationally every day...
His list of the trading 'rules of the game' are as follows:
1. Never, under any circumstance add to a losing position.... ever! Nothing more need be said; to do otherwise will eventually and absolutely lead to ruin!
2. Trade like a mercenary guerrilla. We must fight on the winning side and be willing to change sides readily when one side has gained the upper hand.
3. Capital comes in two varieties: Mental and that which is in your pocket or account. Of the two types of capital, the mental is the more important and expensive of the two. Holding to losing positions costs measurable sums of actual capital, but it costs immeasurable sums of mental capital.
4. The objective is not to buy low and sell high, but to buy high and to sell higher. We can never know what price is "low." Nor can we know what price is "high." Always remember that sugar once fell from $1.25/lb to 2 cent/lb and seemed "cheap" many times along the way.
5. In bull markets we can only be long or neutral, and in bear markets we can only be short or neutral. That may seem self-evident; it is not, and it is a lesson learned too late by far too many.
6. "Markets can remain illogical longer than you or I can remain solvent," . Illogic often reigns and markets are enormously inefficient despite what the academics believe.
7. Sell markets that show the greatest weakness, and buy those that show the greatest strength. Metaphorically, when bearish, throw your rocks into the wettest paper sack, for they break most readily. In bull markets, we need to ride upon the strongest winds... they shall carry us higher than shall lesser ones.
8. Try to trade the first day of a gap, for gaps usually indicate violent new action. We have come to respect "gaps" in our nearly thirty years of watching markets; when they happen (especially in stocks) they are usually very important.
9. Trading runs in cycles: some good; most bad. Trade large and aggressively when trading well; trade small and modestly when trading poorly. In "good times," even errors are profitable; in "bad times" even the most well researched trades go awry. This is the nature of trading; accept it.
10. To trade successfully, think like a fundamentalist; trade like a technician. It is imperative that we understand the fundamentals driving a trade, but also that we understand the market's technicals. When we do, then, and only then, can we or should we, trade.
11. Respect "outside reversals" after extended bull or bear runs. Reversal days on the charts signal the final exhaustion of the bullish or bearish forces that drove the market previously. Respect them, and respect even more "weekly" and "monthly," reversals.
12. Keep your technical systems simple. Complicated systems breed confusion; simplicity breeds elegance.
13. Respect and embrace the very normal 50-62% retracements that take prices back to major trends. If a trade is missed, wait patiently for the market to retrace. Far more often than not, retracements happen... just as we are about to give up hope that they shall not.
14. An understanding of mass psychology is often more important than an understanding of
economics. Markets are driven by human beings making human errors and also making super-human insights.
15. Establish initial positions on strength in bull markets and on weakness in bear markets. The first "addition" should also be added on strength as the market shows the trend to be working. Henceforth, subsequent additions are to be added on retracements.
16. Bear markets are more violent than are bull markets and so also are their retracements.
17. Be patient with winning trades; be enormously impatient with losing trades. Remember it is quite possible to make large sums trading/investing if we are "right" only 30% of the time, as long as our losses are small and our profits are large.
18. The market is the sum total of the wisdom ... and the ignorance...of all of those who deal in it; and we dare not argue with the market's wisdom. If we learn nothing more than this we've learned much indeed.
19. Do more of that which is working and less of that which is not: If a market is strong, buy more; if a market is weak, sell more. New highs are to be bought; new lows sold.
20. The hard trade is the right trade: If it is easy to sell, don't; and if it is easy to buy, don't. Do the trade that is hard to do and that which the crowd finds objectionable.
21. There is never one cockroach! watch other stocks that may follow suit,,they often do!
22. All rules are meant to be broken: The trick is knowing when... and how infrequently this rule may be invoked! NOT for NEW TRADERS
Your mission..print this off, score yourself for each of these on a 0-2 score
0 - Never follow
1 - Sometimes follow
2 - Always follow
Highlight the zeros and rectify this month for every trade from now on!!
sourced from a few websites..freely available across the web
This is read by traders and trading managers internationally every day...
His list of the trading 'rules of the game' are as follows:
1. Never, under any circumstance add to a losing position.... ever! Nothing more need be said; to do otherwise will eventually and absolutely lead to ruin!
2. Trade like a mercenary guerrilla. We must fight on the winning side and be willing to change sides readily when one side has gained the upper hand.
3. Capital comes in two varieties: Mental and that which is in your pocket or account. Of the two types of capital, the mental is the more important and expensive of the two. Holding to losing positions costs measurable sums of actual capital, but it costs immeasurable sums of mental capital.
4. The objective is not to buy low and sell high, but to buy high and to sell higher. We can never know what price is "low." Nor can we know what price is "high." Always remember that sugar once fell from $1.25/lb to 2 cent/lb and seemed "cheap" many times along the way.
5. In bull markets we can only be long or neutral, and in bear markets we can only be short or neutral. That may seem self-evident; it is not, and it is a lesson learned too late by far too many.
6. "Markets can remain illogical longer than you or I can remain solvent," . Illogic often reigns and markets are enormously inefficient despite what the academics believe.
7. Sell markets that show the greatest weakness, and buy those that show the greatest strength. Metaphorically, when bearish, throw your rocks into the wettest paper sack, for they break most readily. In bull markets, we need to ride upon the strongest winds... they shall carry us higher than shall lesser ones.
8. Try to trade the first day of a gap, for gaps usually indicate violent new action. We have come to respect "gaps" in our nearly thirty years of watching markets; when they happen (especially in stocks) they are usually very important.
9. Trading runs in cycles: some good; most bad. Trade large and aggressively when trading well; trade small and modestly when trading poorly. In "good times," even errors are profitable; in "bad times" even the most well researched trades go awry. This is the nature of trading; accept it.
10. To trade successfully, think like a fundamentalist; trade like a technician. It is imperative that we understand the fundamentals driving a trade, but also that we understand the market's technicals. When we do, then, and only then, can we or should we, trade.
11. Respect "outside reversals" after extended bull or bear runs. Reversal days on the charts signal the final exhaustion of the bullish or bearish forces that drove the market previously. Respect them, and respect even more "weekly" and "monthly," reversals.
12. Keep your technical systems simple. Complicated systems breed confusion; simplicity breeds elegance.
13. Respect and embrace the very normal 50-62% retracements that take prices back to major trends. If a trade is missed, wait patiently for the market to retrace. Far more often than not, retracements happen... just as we are about to give up hope that they shall not.
14. An understanding of mass psychology is often more important than an understanding of
economics. Markets are driven by human beings making human errors and also making super-human insights.
15. Establish initial positions on strength in bull markets and on weakness in bear markets. The first "addition" should also be added on strength as the market shows the trend to be working. Henceforth, subsequent additions are to be added on retracements.
16. Bear markets are more violent than are bull markets and so also are their retracements.
17. Be patient with winning trades; be enormously impatient with losing trades. Remember it is quite possible to make large sums trading/investing if we are "right" only 30% of the time, as long as our losses are small and our profits are large.
18. The market is the sum total of the wisdom ... and the ignorance...of all of those who deal in it; and we dare not argue with the market's wisdom. If we learn nothing more than this we've learned much indeed.
19. Do more of that which is working and less of that which is not: If a market is strong, buy more; if a market is weak, sell more. New highs are to be bought; new lows sold.
20. The hard trade is the right trade: If it is easy to sell, don't; and if it is easy to buy, don't. Do the trade that is hard to do and that which the crowd finds objectionable.
21. There is never one cockroach! watch other stocks that may follow suit,,they often do!
22. All rules are meant to be broken: The trick is knowing when... and how infrequently this rule may be invoked! NOT for NEW TRADERS
Your mission..print this off, score yourself for each of these on a 0-2 score
0 - Never follow
1 - Sometimes follow
2 - Always follow
Highlight the zeros and rectify this month for every trade from now on!!
sourced from a few websites..freely available across the web
Friday, May 29, 2009
Preventable trading errors
As traders we must recognise that there is a degree of unpredictability about the market.
Evidence shows that changes in sentiment although often linked to specific events have a degree of speculation attached to them that may be altered with any one piece of information at any time.
Trading systems providing clear entry and exit criteria based on what is considered to be sound trading practice should in theory for the most part protect the capital when an investor idea moves in an unexpected direction.
It seems logical to have some contingency planning in place as part of this trading system to offer guidance when an unpredictable and so unpreventable sudden severe movement in price occurs to have an objective method of managing such a situation as failure in good decision-making in these circumstances will often compound the associated loss. This may have on-going psychological implications for future investor behaviour.
However, this is not the major cause of poor trading outcomes. More commonly the majority of investors fail to meet expectations or potential due to preventable trading errors in the implementation of systems.
The major damage to trading capital is often caused through failure in appropriate exit, although this is rarely the major focus of many investors where entry is the focus. Having said this it is prudent in the aim of growth as a trader to address all components including exit, entry and sizing decisions if one wishes to tackle preventable trading errors.
The majority of trading errors occur with one of 3 fundamental errors.
1. No such system is in place – Type 1 error
Cause
Cause
Evidence shows that changes in sentiment although often linked to specific events have a degree of speculation attached to them that may be altered with any one piece of information at any time.
Trading systems providing clear entry and exit criteria based on what is considered to be sound trading practice should in theory for the most part protect the capital when an investor idea moves in an unexpected direction.
It seems logical to have some contingency planning in place as part of this trading system to offer guidance when an unpredictable and so unpreventable sudden severe movement in price occurs to have an objective method of managing such a situation as failure in good decision-making in these circumstances will often compound the associated loss. This may have on-going psychological implications for future investor behaviour.
However, this is not the major cause of poor trading outcomes. More commonly the majority of investors fail to meet expectations or potential due to preventable trading errors in the implementation of systems.
The major damage to trading capital is often caused through failure in appropriate exit, although this is rarely the major focus of many investors where entry is the focus. Having said this it is prudent in the aim of growth as a trader to address all components including exit, entry and sizing decisions if one wishes to tackle preventable trading errors.
The majority of trading errors occur with one of 3 fundamental errors.
1. No such system is in place – Type 1 error
Cause
- Attempt to Short cut success
- Lack of belief that they NEED a trading system
- No education on why a trading system is important
- No education on how to develop a trading system
- Accept gap
- Invest time in learning, creating and testing a simple trading system for every strategy traded
2. A system is in place but is not adhered to or complied with – Type 2 error
Cause
- Don’t believe they NEED to have a trading system
- Don’t accept the reality of what is happening in the market
- Procrastinate when decision-making (don’t believe in their trading system)
- System too complex to follow
- System incomplete
- System not in place for every strategy traded
- Don’t remember to use their trading system in the heat of the moment
- Don’t change system as a result of testing and/or formal review
- Accept gap
- Realign with system as part of overall getting into optimum trading state prior to trading
- Have a trading system near within trading area
- Formally test trading system to create sufficient weight of evidence in the system
- Use results from testing and review systems to amend plan
Cause
- Attempt to Short cut success
- Lack of belief that they NEED a test or review trading system
- Fail to have a testing or review system in place
- Do not know how to create a testing or review system
- Failure to invest time in test and/or review process
- Accept gap
- Invest time in learning and creating a testing and/or review of trading system for every strategy traded
- Invest time to implement testing and review systems
Friday, April 3, 2009
10 Key mistakes of the options trader
1. You dont have a plan that specifies chosen markets you are trade, entry into each specific option strategy, trade set up including strike price placement appropriate to your trading purpose and risk profile, and clearly defined and pre-planned exit strategy, a position sizing formula to ensure you spread your risk sufficiently.
2. Hold short options positions to expiry. If you are 80% up on a sold single leg trade then take it particularly in volatile markets, the risk is a retracement of the stock price and lose all your profit
3. Widen spreads for more dollar profit when increasing contracts traded at further OTM strikes would achieve the same dollar result with less risk of your trades becoming part of the action.
4. Overtrade...more than 4-5 positions in a fast moving market may be difficut to manage well
5. Partly exit from multiple contract options trades e.g. 30% of contracts when 25% profit, 30% when 50% profit etc etc..this destroys position sizing formulae and is not congruent with "let your profits run" and puts potential profit at risk should stock turn around..AN EXIT IS AN EXIT
6. Trade outside your circle of competence..if you dont understand a strategy..FULLY...then you should not trade it irrespective of what recommendations you receive..learn it first..then test it then of course trade it.
7. No formal review system with some form of trading journal or diary. This is fundamental in determining whether you have a system problem or a YOU problem if you are getting less than happy results
8. Add extra indicators to your entry component of your plan if you are not getting the results you expect..their is little evidence that there is anything better than a simple plan..the results you are achieving are much more likely to be due to YOU..become an honest trader, your bank balance will love ya!!
9. Short cut your education..short cuts in learning will result in big cuts in profits..if you are interested in obtaining an excellent options education to serve you well for a lifetime feel free to email me personally at mike@horizonprofessional.com and we can discuss how you may get this. Irrespective of who you work with..work with someone.
10. Use all of you capital ALL of the time...sometimes your money is working better for you waiting for the right opportunity rather than 'forcing it' seeing entries that arent entries at all
AND here is a bonus one I was reminded of today by one of our clients....
11. Be unrealistic about your expectations..there are many 'providers' of services out there promising massive returns every time..returns are there for the taking but if you overstretch your expectations you are not likely to make good decisions NOR achieve your trading aims. Find the return that is 'right' for how you trade then and work hard to make is sustainable.
Take care and be profitable
Mike
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