Reblog: 12 Dumb Things New Traders Do


There are some common mistakes that the majority of traders make as they dive into trading before they have really studied what does and does not work. All new traders will find many of these things familiar. Some of us had to fight our natural impulses hard to overcome these bad habits.

A Dozen Dumb Things that New Traders Do

  1. Being a stubborn bear in a bull market. Continuing to sell short inside a strong uptrend not only causes the loss of money as a market makes higher highs but you miss out on the easy profits made buy simply holding positions or buying the dips.
  2. Being a stubborn bull in a bear market. Some markets are under distribution and keep making lower lows. If a market is not in an established uptrend or trading range then it can go lower if support does not hold. A stop loss gets you out of a downtrend.
  3. Risking your entire trading account on one trade. You should never risk your whole trading account and trading career on one trade. Safety comes in trading a small size so every trade is just one of the next one hundred trades not your whole future on the line. This is a poor choice financially and emotionally. It is also a sign of arrogance believing you can predict a non-existent future.
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Reblog: 10 Things You Need To Know About Risk, Risk Management And Trading


I will start this piece by saying that I am not bullish or bearish, I don’t make market calls, or predictions and I don’t have opinions about the markets that I trade. I just follow my process, which is based on risk management, money management, price and moving averages. I lead off with this statement so that readers do not think that I am making some type of a market call by talking about risk management and downside protection while we are at all-time highs. I follow core concepts:

Respect price, respect risk and always be prepared for any outcome. 

With Global markets at or near all-time highs, and the money flowing in for many, now seemed to be an opportune time to remind ourselves that every day is a good day to focus on risk management. All of the greatest traders, Soros, Druckenmiller, Tudor Jones and Kovner, to name just a few, have a laser-like focus on capital preservation and risk management. They have all publicly stated that risk management and their ability to cut losses short is the cornerstone of their success. Paul Tudor Jones, a Billionaire Trader, is frequently the most quoted and has said:

“…at the end of the day, the most important thing is how good are you at risk control. Ninety-percent of any great trader is going to be the risk control.”

“Don’t focus on making money; focus on protecting what you have.”

“I am always thinking about losing money as opposed to making money.”

Bruce Kovner, another Billionaire Trader, said in Market Wizards: “First, I would say that risk management is the most important thing to be well understood”.

With that being said, here are 10 key concepts regarding risk management that I focus on:

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Reblog: The Illusion Of Risk


When we find an attractive stock to invest in, we outlay money, aka invest, to earn an attractive return and the investment will involve a degree of risk.

One of the most dangerous, commonly accepted and ill thought out concepts in investing is the risk / return trade off.

That is: high returns equals high risk.

Unfortunately, Investopedia continues to spread this type dogma, as you can see by the graph below.

Illusion Of Risk

Volatility (standard deviation) is not risk!

The appropriate definition of risk is from the Oxford dictionary (or any other branded non-financial dictionary) as: Exposure (someone or something valued) to danger, harm, or loss.

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Reblog – Getting to Zero: Value and Risk Management


Why it’s valuable to calculate how your investment price can go to zero

Any time you manage other people’s money, risk management should be defined as preventing the permanent impairment of capital. Nothing can be riskier to an equity investor than losing all your money. Anybody who loses sight of this is – quite frankly – both a terrible fiduciary steward and value investor.” – Duncan Farquhar

In a recent article, Science of Hitting discussed the difficulty in adding to your position after Mr. Market plays havoc on the stock’s price and valuation. Making the decision to double down is tough for several reasons.

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Reblog: Market Strategy and the Biggest Risk in Stocks in times of high valuations


The original post is written by Mastermind, Sanasecurities and is available here.

Over the last few weeks, markets have beaten all resistance barriers and have defied the very notion of value. Those waiting for a correction sometime back have now jumped in hoping for newer all time highs.

Anybody who believes in value may not find much for the taking. Certain I am however that many old school value buyers are neck deep in stocks right now. Perhaps for the right reason given the enormous liquidity coupled with strong news flow both domestically and from international markets.

Markets are risky – more so at the kind of valuations they are trading at right now. Nevertheless, from positive earnings, passage of GST, U.S. Jobs data and FEDs almost certain stance of maintaining interest rates, everything looks positive.

If you are already invested, in all likelihood you would have made money over the past 2-3 months. The key question: If you are not invested, should you jump in now?

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