Reblog: Sun Tzu, The Art of War and your portfolio


Investing is full of sports metaphors, most of which are drawn from blood sports such as boxing, strategic team sports including football, and individual sports where brains are as important as brawn, such as golf. Those sports are all full of common metaphors drawn from warfare. In fact, all sports are, in essence, proxies for warfare, which makes a 2,000-year-old text particularly relevant to sports, but also to investing as well.

Translated into many languages and still referred to as one of the great works on military strategy and tactics, the lessons of Sun Tzu’s The Art of War are particularly relevant to investors as they navigate increasingly complex asset classes and investment strategies.

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Reblog: Top Stock Trading Techniques of All Time


Every successful trader on the planet has one thing in common – he has an edge. By that, we do not mean he has information about a company much before others and takes a position based on the information. On the contrary, the successful trader is on the same footing as anyone else, the big difference is he knows how he will act when he sees his signal on the screen and that gives him the edge over everyone else who will be swinging their bat blindly. Unlike a novice, he will trade only and only if the signal shows itself at other times he is waiting patiently.

That is all that it takes to be a successful trader, to know what to do and when to do it. But this is a huge wall to climb for a novice trader as he does not has the patience to wait or the ability of self-control.

Successful trading can be broken down into five techniques which have been followed by professional traders for whom it is now second nature.

Approach: For a successful trader, trading is his life and passion. It is as much a business as it is a game. How you approach trading decides how you will succeed. A casual approach to trading will result in mediocre results. But if trading is approached as a business with all aspects of it thought through the trader can be assured of success. The common trait among the successful traders is the businesslike approach to trading with a lot of attention to even the smallest details, writing their own logs, taking complete responsibility for their trades irrespective of the outcome.

Retail traders generally tend to search for a person or an event to blame for their losses, but a successful trader owns the losses and considers it as part of the game. It is this winning attitude that is the differentiator. Just like a successful businessman takes responsibility for the mistake of his managers and workers and moves on in the search for a solution, a good trader also moves on to the next trade. He knows that this is just one of the thousands trade that he will take in his lifetime.

Keeping it simple: A successful trader trades simple strategies. A retail trader, on the other hand, will jump from one strategy to the other if he does not see profits accumulating. He prepares complex entry and exit signals and most times mixes up his strategies. This results in loss of faith in his strategy and he jumps to test some other strategy. A professional trader will have very few and simple sets of rules which he follows and trades. His chart patterns are simple, like a breakout or a retracement entry. Such a trader has very clearly defined rules for entry and exits. A series of losses does not deter him as he knows that his strategy has been built to overtake such days in the long run. He has strong money management rules that will reduce his position in case of series of losses. On the other hand, a retail trader will increase his trading bet in order to retrieve his losses in the next trade, he seeks revenge from the market for taking money from him.

It’s OK to be wrong: Not reacting to losses takes more energy and time for a trader than to search for the right strategy. It is only after years and hundreds of trades that a trader learns how to be emotionally neutral in any situation. Many professional traders follow the trend following strategies which normally has a win-loss ratio of 0.4. In other words, six out of every ten trades that a trend follower takes will result in a loss. A retail trader will be crestfallen with such a ratio and would abandon the strategy at a time when the next trade would have resulted in a huge profit. The professional takes these losses in his strides and knows that they are in line with the long-term averages. Taking losses are important of trading, the trick is to keep them small so that one or two profitable trades will take care of the accumulated losses. Since trading is a game of uncertainties it is obvious that there will be occasions when the price moves in a different direction than the one suggested by the pattern or the signal. How one reacts to these uncertainties determines the winner in the long run. Trading consistently with discipline and tweaking the strategy after learning from the losses will in the long run help overcome uncertainties.

Plan your trade and trade your plan: Trading, like any competitive sports, requires more work out of the playground rather than in it. For a day trader, there is little time to plan as the prices move rapidly. He has to have a plan in place and trade according to the plan, the strategy has to be so engraved in him that it becomes muscle memory. Last minute thinking will only lead to losses as well as confidence. Most traders, irrespective of the time-frame they trade also do not change their trading plan and second guess when the time for action comes.

Continuous improvement: One of the key aspects of all successful traders is that they seek to improve their performance continuously. They are not competing with anyone but with themselves and the way they do this is by keeping their own logs. This way they know their mistakes that need to be rectified, their previous track record as well as how the strategy has performed at the various points of time. They are learning aspects of trading and psychology and try to incorporate these in their trading. A successful trader is always a student of the market learning with each uncertainty and ticking the checklist of having encountered another surprise so that next time he knows how to react to it.

Making money consistently in trading requires discipline and consistently more than selecting a trading strategy. The techniques used by successful traders suggest that after the initial work of selecting a strategy is done they pay more attention to the psychological aspect of trading. Ultimately it is how one reacts to unpleasant surprises is what decides the winner from the losers. This is true for life as much it is for trading.

This article appeared on tradesmartonline.in and is available here.


Reblog: Do NOT Look For a Trading Strategy That Suits Your Personality


What Feels Comfortable and Natural Usually Doesn’t Work

Why do almost all speculator lose money? They lose because successful speculation requires that we consistently do that which is psychologically uncomfortable and unnatural” – Richard Weissman

There is a persistent overall tendency for equity to flow from the many to the few. In the long run, the majority loses. The implication for the trader is that to win, you have to act like the minority. If you bring normal habits and tendencies to trading, you’ll gravitate toward the majority and inevitably lose” – William Eckhardt

Most of what we naturally do and think do not work in trading. Here are a couple of examples:

  • We are naturally inclined to cut our winners short and let our winners run

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Reblog: Why You Should Take the Profits and Run!


This article is for those traders (new or experienced) who have trouble booking profits. Do you often see large profits evaporate as the market reverses against you, leaving you feeling powerless and confused? If so, you know how frustrating it can be and you know exactly what I’m talking about.

Poor target placement, lack of experience, greed, arrogance and stubbornness are all issues that can cause traders to not take profits off the table.

I appreciate this article may conflict with some of my core beliefs and teachings on taking profits since typically I encourage people to aim for a 2 to 1 risk reward or greater and to set and forget stops and targets. In theory, this makes sense, but in the real world, as you likely already know, there are still a great number of trades that almost hit your profit target or where a trade has moved quickly in the right direction and you’re staring at a giant profit… and then the next day or week, the market goes the other way and your once giant profit has become a much smaller profit or even a loss.

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Reblog – How Anne Scheiber built a fortune?


Anne Scheiber was born in 1893.  Her father died when she was very young.

Due to poverty, she began to work in her teen years, saved money and graduated from law school. She joined IRS. IRS is ‘Internal Revenue Service’. It is the income tax department of US government.

Being a Jew and a woman in the early part of last century, she faced a lot of discrimination. She excelled in her work. But during her 23-year career, she never got a promotion due to discrimination. She retired in 1944 with a retirement corpus of $5000.

Though she retired at the age of 50, she lived until the age of 101; passing away in 1995.

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Reblog: How to Cut Losses and Let Winners Run


Loss Aversion – Cut Losses Short & Let Winners Run

If you’ve been trading for a while, you’ve probably heard the following ubiquitous mantra of trading: “Cut Your Losses Short & Let Your Winners Run”.

Why Should You?

Stocks can literally go to zero. It happened many times before and will happen in the future, regardless of how big the company is.

MANY oil and coal companies recently filed for chapter 11 bankruptcy and their stocks got delisted. You may also remember Lehman Brother and General Motors. What happens when your stock falls off a cliff and gets delisted? You simply lose all the money you invested in that stock.

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Reblog: How to Maintain Control and Discipline in Your Trading


If as a TRADER you want to have disciplined and profitable trading, The Core Concept you need to Understand is

As a Trader, you do not have any control on the market.

Nil Control on Market

You’ve either figured out or you will figure out the fact that not much at all remains under your control as a trader. Dealing with an endless set of variables using a mind that’s geared by nature to defining constants is a tough task.  Most of traders focus on returns and not focusing on the process of trading.

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How to avoid disastrous stock declines


A common phenomenon that happens to all investors. Having bought a stock, how do we handle declines? Here are a few thoughts and ideas posted from the blog post that originally appeared here. While these may be talking about US stocks, the underlying philosophy applies to all investors be they in New York or London or Singapore or even in Mumbai.

  • Avoid falling in love with a company or its stock. The emotional attachment will cloud your judgement and prevent you from making sound decisions in the market. The “pet stock” phenomenon occurs more often than you may think.

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