A10, Stock Trader Dude

Investment ad commentary & their flaws: (Finding the clues in fund advertising)

Investment ads: Long-term = wrong-turn #2

Investment ads: Long-term = wrong turn #1

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Selected posts from 2008 to 2005:

The missing intelligence in trading

Intelligent Futures Trading –
the back half of the book has charts and other things that won’t help
you trade better now. The first half is a discussion with some insight,
and rather than read the entire book, here are a few notes to convey
the interesting thoughts: Certain accomplishments are inherently beyond
our abilities. Average Joe can’t be a professional sports star just because he wants to and puts in the effort. Anybody can place a trade, but not everyone can make their living from it. In trading, emotions, instincts and conditioned behavior act against the best financial interest of the trader.

You will always be your worst enemy in stock and futures trading. For successful trading, as in any activity, there are many acceptable methods. Each trader must uncover the particular technique, style, and method best suited to his or her personality. There is no best way to trade but there is a best way to trade for you. Years
ago, I retired from daily salaried life and have survived (sometimes
exceptionally well, other times rather poorly) whether I placed trades
or not. The trading game has allowed me to experience periods of phenomenal success and periods of extended failure. It takes a certain amount of time to find a good approach, learn sound techniques and to discover a viable method. Since
I am not a proven and publicly regarded market genius, I have no direct
authority, but my course of action as been not to accept what is in any
book or course as “valuable” to the professional. You will never gain true understanding of anything solely from being told by another, no matter how experienced the tutor is. When you see and experience it for yourself it provides confidence in the truth of your understanding. Successful trading, at times, can be summed up by the result of you following the market’s orders.

The approach:

How you go about doing or acting. This is about choosing a likely path to solving a problem. When
faced with any problem, the first, most important step is the approach
because the correct approach exposes you to a workable and sometimes
superior method. The essential element seems to be some sort of passionate response to uncover the truth in any endeavor. Approach also includes attitude.

Motivation:

To observe, learn and act intelligently. Markets
are not random, they are flowing and changing according to the
understanding, self-knowing, learning and acting of the participants. Understand that you are betting on the direction of numbers. The professionals have a lot invested to develop and maintain their edge so you cannot compete on their terms.

What the price of a stock is doing is the key to observing the perception of
the overall market, the industry sector and the outlook of the company
itself. Not all market professionals are equal. If they are drawing a salary they probably don’t understand the market on an intimate, for-profit level. Analysts are paid for their words, not deeds. The
psychological you is made up of all your attachment to success and
failure, your memories of those experiences and the associated
intensity of wins and losses, the you full of hope for future success
and fearful of failure, the you filled with all this extraneous
psychological clutter, this you has no business in the business of
trading. That representation of “you” cannot effectively see or act in the marketplace. It will simply express itself according to the results of your trading. To
trade is to live in a state of constant uncertainty because the
participant must make decisions on a continuing basis with incomplete
information. Inexperienced participants believe there is
some secret formula… there is not… except to take the money from
inexperienced participants playing the game.

Objective:

To trade intelligently in order to “live” with the results. Intelligence should be defined as the best decision given the circumstances, not the result or outcome. In
poker, you can calculate the odds of drawing the card or cards you need
to win but if it means losing your stake for a low percentage win
factor you fold and stay in the game for long-term survival.

Self-knowing:

Explore to “see” yourself as you really trade, not in an effort to find some perfect solution. Before attempting any activity, learn your capabilities. If you do not know your own capabilities you will be at a perpetual disadvantage. And
that’s exactly what happens to “wannabe” traders, they seek to find
answers outside themselves, rather than deal with the one variable
which determines their life in and outside of trading.

The Winner’s Circle

This book of wealth management insight from America’s
best Financial Advisors will not make you money, but it may help guide
you on what to expect from a proper advisor relationship. The most
valuable advice was the mention of a financial planner that asked his
clients what their cash flow needs were and would be in retirement.
Cash flow first, this critical income question needs to be addressed
first, then the rest of the client’s money can be invested based on the
client’s tolerance for risk.

The Great Mutual Fund Trap

An investment recovery plan.
You didn’t know you needed one? Yes, here is a nice straight forward
book that reviews how almost the entire investment industry is a scam.
How Americans are losing billions to the mutual fund and brokerage
industries. The purpose is to earn more with less risk.

The mistake investor’s make is
they tend to focus on returns and ignore the costs of investments.
Investors do not understand how markets work and how very difficult it
is to beat them consistently, even by a little bit. You cannot improve
your returns by spending more time or money to pick funds or stocks.

 

 

Forex for small speculators

The book doesn’t actually review how to use your capital. It’s a small book, but not worth reading, here are some notes:

A speculator that uses money management must be able to do three things well: be patient, be disciplined, and be frugal.

Tips to trading exchange forex

1. Cash
and futures convergence – watch the cash market as futures continue to
expand. There may be an opportunity to trade the narrow spread between
the two for arbitrage-type profit.

2. Trade cash and futures currencies in a spread position and benefit from the less expensive margins.

3. Potentially use futures as a way to protect your long-term OTC positions.

4. Write options on futures against your OTC positions.

5. Understand normal markets and backwardation markets.

6. Take advantage of longer-term trending.

7. Focus your trading mainly in the Chicago Mercantile Exchange.

There has yet to be a preferred
system, but there are successful disciplined traders. To be successful
you must realize that you have no control over the markets. Nothing you
do matters to the market. Once you accept that you can turn your focus
inward. Fear and greed cannot be removed entirely but they can be
managed. “Bringing security to speculative investing” is the author’s
motto. You now know what you are going to do, how you are going to do,
and when you are going to do it. Actually the book doesn’t leave you
with any clarity, but getting to that point of knowing is understanding
that all investments are exercises is misguided notions to some degree
because we fail to ask ourselves, is this the absolute best place I can
put my money on a risk to reward basis? You need only consider the
investment when it offers outstanding rewards, if not, what’s there to
consider? Wealthy people aren’t engaged in Forex trading, generally
they aren’t engaged in any kind of trading – they make their money in
more reliable ways and the advantage they have is that they don’t need
to make money in the markets.

 

 

 

Financial freedom through electronic day trading

The crucial element lacking here is a filter: where does wealth come from
in the markets and what role can I play in its attainment? What the
book offers, is an exercise in preparing to trade for a living instead
of working. I think the kind of people looking to achieve this are
fools to some degree (me included) because these seekers look toward
the point of trading as a means to become wealthy, but it should also
be clear to them, and I think the book does clarify that trading for a
living is work, it’s just a different kind of work. But the wealthy
don’t sit around and spend their time trading. Why, given the option,
would trading be attractive, as opposed to your money working for you
all the time so you didn’t have to work? Is it worth risking capital
here and there in the market in order to make a living? The point is
this, your risk is defined as a small percentage of your portfolio,
perhaps one percent or less, and your reward is some multiple of your
predefined risk amount. A multiple of a small amount isn’t going to
produce wealth. You are risking money to make money and you must have
the greatest discipline over yourself to install a system by which you
operate. It’s a way to earn a living, perhaps, but without the proper
structure you are going to give away a significant part of your return
in taxes. If you pay taxes, there is less of an edge. Trading works
great in a Roth IRA because there are no tax consequences. What the
book misses is that for most people it makes more sense to focus on one
good investment, choose one superior investment, and accept the risk,
limiting it as best as you can, instead of struggling each day, week or
month to try to take profits out of the market to support yourself. Why
spend time trying to make a hundred trades with an average of five
hundred dollars net profit on each trade each month when you could
focus on making one good trade worth fifty thousand dollars? Now, by
focusing on buying many shares of one stock, you are forcing yourself
to think about the quality of the investment rather than jumping in and
out for five hundred or a thousand shares. And the money you save on
transaction costs goes right into your pocket.

So here’s what the book will tell you:

You
cannot trade the market; you can only trade your beliefs about the
market. I have to be ready and willing to lose small amounts of money
in order to make larger amounts.

Create an “I believe” statement. Here’s an example: I believe that I possess all
of the qualities, knowledge, and skills to be a top trader. I believe
that trading is an honorable and worthy profession. I believe that my
trading adds to the well-being of myself, my family, my community, and
the whole of humanity.

Create a mission statement.

Create a statement of what you want to be, do and have.

Most critical goal setting secret:

Your motivation for achieving the goal (what excites you about getting it done?).

What you need to learn or find out to achieve this goal.

The obstacles to achieve this goal. What persistent issues or beliefs might
impede your progress? What external issues, such as people, events, or
other factors might impede your progress?

The resources you will need – time, other people, equipment, capital, etc.

The book then outlines setting up a business plan because the most important part of the plan is the execution of the idea.

Figure out how to consistently get out of a trade with a profit.

Methods for creating a trading plan

1. Inventory your market and trading beliefs.

2. Gather market information.

3. Determine your objectives.

4. Determine your time frame and trading style.

5. Find the best historical pattern in your time frame and determine what they have in common..

6. Understand the concepts behind the historical pattern and determine how you can identify them in real time.

7. Determine your stops and transaction costs.

8. Develop a profit taking exit scheme and determine your expectancy.

9. Look for large R-multiple trades.

10. Increase your profits with proper position sizing.

11. Constantly look for ways to improve your results.

12. Plan for worst-case events and then mentally rehearse.

Define what your edge is. What is it that’s going to make you successful in the market?

An edge is a skill or belief that you have that enhances your probability of making money.

The best
way to rocket your profits: position sizing and pyramiding. You must
determine your initial stop-loss point when you get into the market.

A good entry is any entry that allows you to minimize your risk in a trade.
Amateurs traders pick entries based on price, as in “how much they can
make”. Professionals base entries on minimizing their risk.

Time exits are important to protect from:

1. Stock doesn’t move

2. Moves, then stalls

3. Moves against, then stalls near the stop loss point

Also mentioned in the book is the April 1998 Forbes article on Serge Millman
who generated about $800,000 from narrowing spreads in the Nasdaq by
offering 1/16 on those stocks. I view that approach as a sound business
approach because it offered a service and overall was low risk. He
wasn’t taking a position; he was making a 1/16 in profit on the spread
between the bid and ask. As I recall in that article he had at one
point bought 15,000 shares of Dell as it opened down and sold it that
same day as it went up two points for a thirty thousand dollar profit.
He couldn’t take the risk of holding Dell stock, but the big money is
made on holding onto shares of companies that continue to outperform.

Volume precedes price.

Good trades = follow your trading plan, exits and position sizing rules –
then you made a good trade regardless of whether the investment made
money or not. Mentally and emotionally reinforce the longer-term
aspects of good trading as opposed to the shorter-term aspects of
making money.

If you are disciplined with stops, you could buy or sell short almost anywhere. Stop out quickly when you are wrong.

Do I want to learn from the markets or not?