In general the biggest gainers often come from stocks that have gone IPO in last 1-3 years. That makes sense as often recent IPOs are doing some thing new or trying to capitalize on latest trends. (Note: In markets there are no absolutes and there are always exceptions like AAPL).
What happens typically is startup goes IPO, attracts lot of attention initially from the crowd, makes couple of volatile moves and then goes dormant. The public looses interest while the company forms a base to set stage later for real longer moves. Most often the big moves in these IPOs after the base formation correspond with the start of new bull leg in markets.
Losses are always painful, but the emotional repercussions are often more difficult to redress than the financial consequences. By focusing all & attention on an errant trade, we quite possibly overlook other emerging opportunities.
I believe we are more alike than different. When confronted with unexpected adversity, we likely to be gripped by a mix of emotions: panic, hopelessness, or a dogged determination to get even. The consequences of each of these reactions are discussed below.
I believe we are more alike than different. When confronted with unexpected adversity, we likely to be gripped by a mix of emotions: panic, hopelessness, or a dogged determination to get even. The consequences of each of these reactions are discussed below.
Every trader runs into this question at some point. So which is better? No stops does NOT mean no risk management. Thought will clarify as some times I jump to conclusions from headlines.
Wide Stops:
Does this sound familiar - "I've had on too many times the market pull back on my stops only to find that it went on to do what I thought it would. Nothing more frustrating on being stopped out again and watching trade move on to my target but without me. I do admit the financial risk is higher with wider stops. But expecting the market to move fast every time in my desired direction with out much breathing room is a lot to ask"
Wide Stops:
Does this sound familiar - "I've had on too many times the market pull back on my stops only to find that it went on to do what I thought it would. Nothing more frustrating on being stopped out again and watching trade move on to my target but without me. I do admit the financial risk is higher with wider stops. But expecting the market to move fast every time in my desired direction with out much breathing room is a lot to ask"
Chart analysis before the short was triggered is available in First Post. Market behavior since then so far is close to analysis i.e., trapped out eager shorts for a loss who entered near high risk zone (1st circle) and then turned down near low risk short zone (i.e., 2nd circle). Post-1 has locations of these circles and my reasons for waiting for price to come to 2nd circle.
What's next?
Three aspects bother me about this chart. One is the low volatility up move (i.e., up move since January) instead of good swings. Problem with low volatility moves is they look weak and tempting but don't pan out as often as one expect. 2nd aspect is, now market is in a location that is attractive to bulls also (i.e., longs who like to play 1st pullbacks). 3rd aspect is the resistance turned support lines present in front of price (blue dotted lines on chart).
Given above, I think there is good chance market likely have stall near exit-1 line on the chart. After that market might do one of two things - (a) resume down move to exit-2 line on chart or (b) reverse and start an up move (if bulls are strong).
So my preference is to take profits on part of the position at exit-1 line (as present on chart) and move the stop on the rest to break even (red line on chart). This way we get payed and also have a freebie position to participate should the down move materialize.
I like this exercise better than Square breathing. Following are the steps from my reading notes:
Countdown Breathing:
- Close your eyes. Note the level of tension you are feeling. Then take one Calming Breath.
- Then place one hand on abdomen right beneath the rib cage. Inhale slowly and deeply through nose into the bottom of the lungs - in other words, send air as low down as you can. If you are breathing from your diaphragm, your hand should actually rise. Your chest should move only slightly while your abdomen expands.
- Pause for a moment when you've taken a full breath.
- Then exhale slowly through your nose. Be sure to exhale fully. As you exhale, allow your whole body to just let go (like visualizing your arms, legs going loose and limp like a rag doll). Breathing should be smooth and regular, without gulping in a big breath or letting breath out all at once.
- Count from ten down to one counting backwards with one number after each exhalation. Some might prefer to count forward. Others instead of counting might prefer to see the number in mind's eye. Any way, the process should go like this
Slow inhale...........Pause.............Slow exhale ("Nine")
Slow inhale...........Pause.............Slow exhale ("Eight")
Extend the exercise by doing this 2-3 sets. Or take a short break and do this several times a day.
Additional Notes:
- (Optional) When you reach number one, keep your eyes closed and think to yourself, I am CALM on the inhale and RELAXED on the exhale. Let mind grow still as you think calm and relaxed over and over with each breath. With time and enough practice, just saying word RELAX itself will bring on a mild state of relaxation.
- Let go of thoughts by imagining putting them in a bubble or balloon and seeing them drift away.
Observing the breath:
Place one hand on the chest and other on the abdomen. Without changing your breath, notice whether you are breathing in your upper chest only or whether your breath is rapid and shallow (or) slow and regular.
Calming Breath:
- Take a long, slow inhalation through the nose - first filling your lower lungs (by pushing belly out) and then expand upper lungs.
- Tense muscles one by one (feet, calves, thighs, abdomen, hands, raise shoulders, neck, face).
- Then let go while slowly and completely exhaling through pursed lips (like a sigh) relaxing the muscles in the reverse order (i.e., face, neck, shoulders, hands, abdomen, thighs, calves and feet). If it helps let body go limp as you exhale.
- Do this occasionally during the day to release stress and muscle tension.
Quite interesting in just 1-2 breaths how noticeable difference this short and simple exercise makes. I think it is useful to have this as part of trading routine.
This is the fourth and final post on the EURUSD reversal trade. First post has analysis and case for taking long position few weeks back. Second post has analysis and trade management reason for taking partial profits from the position. Third post has trade management analysis along with new stop for remaining position.
Retrospect is structured along 3 questions:
Low risk reversal long position. Multiple R return (as in Risk:Reward) on first part of position. Stopped out on a throw back on 2nd part of the position. That is fine. 2nd part position also has higher multiple R return. Also bit higher return than 1st part of position. On the net, trade will fall in good trades bucket.
What could have been done better?
- What is the result?
- What was done well?
- What could have been done better?
Low risk reversal long position. Multiple R return (as in Risk:Reward) on first part of position. Stopped out on a throw back on 2nd part of the position. That is fine. 2nd part position also has higher multiple R return. Also bit higher return than 1st part of position. On the net, trade will fall in good trades bucket.
What was done well?
Analysis is pretty close (better than I expected) to the way market unfolded at each stage i.e., before entry, in the middle and finally on the possibility of another leg after correction. What could have been done better?
- Placed stop too tight on the 2nd part of the position? Especially given I was anticipating another up leg per analysis (3rd post).
- Took profits too early on the 1st part of the position? Even though pre-entry analysis indicated larger correction (1st post).
- 90% of my trades are with trend trades. Was that a factor i.e., did my low comfort with reversal trades clouded trade management judgement?
It is quite rare to find a trading book/site that talks about breathing and its importance in trading. I was no different. Took it for granted many years i.e., knew it is good intellectually but didn't believe enough to actually do it and see the benefits in trading.
This technique produces good positive results quickly when one is feeling anxious, nervous, excited or fearful and would like to calm. It involves 4 steps - (1) Breathe in to a count of four, (2) Hold to a count of four, (3) Breathe out to a count of four and (4) Again hold to a count of four. Take normal breaths in between if needed. Repeat above for 10 times. That's pretty much it.
Better not go over board with this i.e., doing forcefully or over breathing or doing too many repetitions. Also better to check with medical professional if there are any pre-existing conditions.
Inhale, and God approaches you. Hold the inhalation, and God remains with you. Exhale, and you approach God. Hold the exhalation, and surrender to God ~ Krishnamacharya
It is generally considered as standard that roughly it takes 10000 hours to develop expertise in any field. May be it is. I have some doubts/questions on the usefulness of this 10000 hour rule though like:
- Do we learn by number of hours spent or is it by number of decisions we make and reflect?
- Given large part of trading is making quality decisions, between these two cases who would have likely developed better trading expertise - A trader who spends 10000 hours (learning, analyzing etc..) but made only 1000 trades (decisions) or a trader who spent 8000 hours but made 5000 trades (decisions)?
- If it is latter, i.e., number of decisions (made and reflected) is better criteria for trader expertise then shouldn't the rule be in terms of number of decisions (and not in hours)?
- Would the same apply for other performance activities like music/sports etc?
I don't have expertise in Psychology/learning field to figure good answers to above questions. Hence the dilemma. Please let me know your thoughts on above questions.
Two candidates for potential shorts. Given both markets are mostly correlated it is actually only one potential short trade. Currently both markets had one sharp up leg followed by a weak up leg. Both running into a strong resistance. Given loss of momentum and a resistance band above (rectangles in chart), good chance the markets might provide a low risk short entry. More details on the chart. Ideal would be market enters into the zone and do a mini fake out. Will look how they behave next few days and whether markets behave as per analysis.
An interesting article on Facebook. If you are considering buying into Facebook's initial public offering of stock, take a moment to ponder the St. Petersburg Paradox, an old riddle still relevant to investing today.
Details: Facebook and the Petersburg paradox
Details: Facebook and the Petersburg paradox
I think understanding why we do things that are not in our best interest and then intiating a change is more effective than trying to change by will power alone. Following are some reasons that cause us to outguess our system -
Most people like to think of themselves as risk takers, but what they really want is a guaranteed outcome with some momentary suspense to make it feel like the outcome was in doubt. The momentary suspense adds the thrill factor necessary to keep our lives from getting too boring. However, when it comes right down to it, no one trades to lose or puts on a trade believing it is going to be a loser, and all systems will definitely have some percentage of losing trades. So it's difficult not to be tempted into trying to guess which ones are going to be the losers and not participate.
Another reason - We often form expectations about the future with information that method don't take into consideration. Consequently this sets up a conflict betwen what our intellect says should be happening and the prediction of human behavior offered by our well tested method.
Another reason - If we risk our money on a gambling event that we know has a random outcome, then there's no rational way we could have predicted what actually happened. Therefore, we don't have to take responsibility for the outcome if it isn't positive. Whereas, with trading, we believe future is not random i.e., price movement, opportunity and outcomes are created by traders acting on beliefs and expectations of the future. So we form a concept of future and how that will affect the markets. This adds an element of responsibility, desire to over analyze and outguess our method.
My experience is trying to out-guess a well tested method is often an exercise in frustration. Sometimes the signals we get from a trading method will have us trading in ways that are contrary to our reasoning and turn out to be right. Other times, you will agree with the method and it will be wrong.
In short, trading methods are not designed to be out-guessed i.e., they aren't designed to give us isolated signals of an opportunity to be taken when it seems right. Their job is to define and categorize past relationships in collective human behavior and give us a statistically probably outcome of the future. (Credits: Source - Mark Douglas material).
Hope you enjoyed this post. Feel free to share and leave a comment.
Most people like to think of themselves as risk takers, but what they really want is a guaranteed outcome with some momentary suspense to make it feel like the outcome was in doubt. The momentary suspense adds the thrill factor necessary to keep our lives from getting too boring. However, when it comes right down to it, no one trades to lose or puts on a trade believing it is going to be a loser, and all systems will definitely have some percentage of losing trades. So it's difficult not to be tempted into trying to guess which ones are going to be the losers and not participate.
Another reason - We often form expectations about the future with information that method don't take into consideration. Consequently this sets up a conflict betwen what our intellect says should be happening and the prediction of human behavior offered by our well tested method.
Another reason - If we risk our money on a gambling event that we know has a random outcome, then there's no rational way we could have predicted what actually happened. Therefore, we don't have to take responsibility for the outcome if it isn't positive. Whereas, with trading, we believe future is not random i.e., price movement, opportunity and outcomes are created by traders acting on beliefs and expectations of the future. So we form a concept of future and how that will affect the markets. This adds an element of responsibility, desire to over analyze and outguess our method.
My experience is trying to out-guess a well tested method is often an exercise in frustration. Sometimes the signals we get from a trading method will have us trading in ways that are contrary to our reasoning and turn out to be right. Other times, you will agree with the method and it will be wrong.
In short, trading methods are not designed to be out-guessed i.e., they aren't designed to give us isolated signals of an opportunity to be taken when it seems right. Their job is to define and categorize past relationships in collective human behavior and give us a statistically probably outcome of the future. (Credits: Source - Mark Douglas material).
Hope you enjoyed this post. Feel free to share and leave a comment.
Knowing others is intelligence; knowing yourself is true wisdom.
Mastering others is strength; mastering yourself is true power.
-Lao Tzu
This post probably will be skipped by most in search of something more intellectually stimulating on understanding market behavior/our own minds. On other hand, a big part of trading involves developing new habits that enable us act in our own best interest.
So how do we develop a new habit? Following is a simple and powerful methodology for new habit development that I came across:
So how do we develop a new habit? Following is a simple and powerful methodology for new habit development that I came across:
- First, make a decision clearly that you are going to begin acting in a specific way and spell it out clearly.
- Second, till it becomes a habit (like first 3 weeks) don't make excuses or rationalizations. Don’t let yourself off the hook.
- Third, visualize yourself performing/acting this behavior. The more often you imagine yourself as if you already had the new habit, the more rapidly this new habit will be accepted by your subconscious mind and become automatic.
- Fourth, create an affirmation that you repeat over and over to yourself. This repetition dramatically increases the speed at which you develop the new habit.
- Fifth, resolve to persist in the new behavior until it is so automatic and easy that you actually feel uncomfortable when you do not do what you have decided to do.
- Sixth, give yourself a reward of some kind for practicing in the new behavior. Each time you reward yourself, you reaffirm and reinforce the behavior.
Motivation is what gets you started. Habit is what keeps you going. ~Jim Ryun
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