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Why is trading such a mind game?

by Bruno Deshayes on 23 Jun 2016 permalink
One buys at the current price, one sells at the same current price. A transaction takes place: Can they be both right?

If they are both entering the market one with a long position and one with a short position obviously they have two opposite views as to what the market might do next.

So this is the game of bluff that goes on in our trading exchanges (casinos?) Has investing turned into a game of poker?

How long are you prepared to wait until you bring the bacon home? Are you rationalizing a bad trade by saying you are in it for the long term? Shouldn't that capital be used to ride on a profitable trade instead?

How far in the red are you prepared to let the market go before you call it quits? Do you have a stop in place? Are you thinking about moving it away to take more risk? Can someone see all the stop orders in place and manipulate the market to hit them all and make a quick profit when the stock returns to where it was?

"You have to be in it to win it!" Sometimes you wish you were not into anything at all. Does your trading keep you awake at night? Does your partner know what you are doing?

Do you have enough integrity to monitor your own trading performance? Do you keep a log of all your past trades and the assumption you made at the time you entered each trade? I mean do you set an entry point, an exit point and a stop point BEFORE you place a trade? That is the only way to find out if your method is profitable or not. If it is then you know how long the longest string of losing trades was. You also know that each trade you took brought home x dollars in profit.

In that case instead of fretting and if you keep to your strategy - each new trade in the long run should simply fit into your law of averages - bringing home x dollars of profit. This is simply what you earned for the risk you took, for your participation in bringing liquidity into the market...

You know all that good stuff - so why is it not working for you? The reason might be that you are cheating, have become impatient and are breaking your own rules. That's easy to fix - get back to your own discipline. Don't confuse speculation with gambling.

There is still another reason why things might go astray: the market may have changed just like tides and equinoxes do - you have to redo your analysis all over again.

Tale of the Farmer and the Share Trader

by Bruno Deshayes on 19 May 2016 permalink
Are you in the market? If not, why not? Have you sown your seeds in order to reap a harvest? One thing we know for sure: No seeds in the ground is tantamount to a zero return. So what is it about agriculture that makes a good pattern for long term investing?

First you have to be in the race to win the prize. No matter what adverse conditions prevail the farmer always plants a crop because conditions can change and do change over time. Compare that with fidgety investors staying on the sidelines waiting for that perfect entry point. We know you cannot pick the tops or bottoms of the market. You can only find that out three months later looking back at the charts. By then it is useless information apart from setting a precedent for the next support/resistance level.

Later as soon as the seedlings emerge the farmer waters them with tender loving care. But some investors are so paranoid that they protect their position with a stop too close. Sure enough they get bumped off at the first retracement to re-test the last support level. That would be like a farmer pulling up a plant off the ground to check how the roots are doing.

Lastly plants do grow in the wild without the help of anybody. The farmer knows that time is on his side. The process that was started will eventually reach fulfilment. The seasoned investor also knows that time is on his side. The economy keeps going and going simply because consumers keep consuming what producers keep producing. Yes peaks and troughs follow their erratic ways but there is also an upward bias in the market that will reward those who stay for the long haul.

But what about you? Have you sown your field? Are you in the market? If not, why not? Maybe you heard so many horror stories of people who lost their life savings that you don't know who to believe. Obviously you do not have yet a positive personal experience to fall back on.

What if you could look over the shoulder of a successful trader, gaze at the trading log and ascertain the overall performance?

Find out more at Trading Pal

Only trade money you can afford to lose

by Bruno Deshayes on 19 Mar 2016 permalink
Share trading forex or commodities trading is mainly a game of bluff. You can only take a trade if you find someone else willing to buy when you want to sell or sell when you want to buy.

It stands to reason that you can't be both right. One will end up with a profit and the other with a loss.

At the end of the day you save face by trading anonymously. You probably would never trade again if you saw the professional rubbing his hands after making an easy win at your expense.

The market loves to backtrack over the values reached in the preceding days and it's a game of who blinks first. You can be prudent and go home with a small loss or you can be bold and hold on for sheer perseverance only to be punished with a much bigger loss.

That's where all the psychology comes in. The market rewards you for taking a risk but your risk taking ability depends on your present situation. Are you under stress to make ends meet? That's' the worst situation to trade with a clear head. Are you going through separation or divorce? Please do not trade now. Have you just lost your job? Smell the roses but do not turn yourself into an overnight portfolio manager...

The more desperate you are to pull money out of the market the more likely you are of being fleeced. There is a fine line between trading and gambling. You are crossing that line when

* You place more than 2% of your capital on a single trade. (Instruments that move in unison count as one trade here).

* You have done no specific research and trade on a hunch.

* You do not use technical analysis to indicate objectively when the market changes from rising to falling.

* You do not set a stop loss and a limit target before placing the trade.

* You hide your trading from your spouse.

* You dash off at work to the bathroom to check your stocks on your iPhone.

* You pray to the god of the markets that this stupid stock should turnaround now.

* You double your position to get even with that wild beast and recover your losses before it reaches back your entry point.

* You have visions at night of yourself placing a bomb in the basement of the exchange.

* You take up smoking and upgrade to a supersize meal at the fast food outlet.



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Bruno Deshayes

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