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I am reading through the original Market Wizards book by Jack Schwager. Here’s some notes from his interview with Michael Marcus. Wikipedia has a short bio of Michael Marcus, link here. METHODOLOGY Ride Your Winners – Never Get Out Unless the Trend Changed One time, [Ed Seykota] was short silver and the market just kept … Continue reading
One of the mistakes I used to do is to exit a winning trade early at what I thought to be a “good price”, i.e. a price at or higher than the Ask (for longs), or a price at or lower than the Bid (for shorts). The Process Here is how it usually went: I … Continue reading
Whenever I make mistakes in trading (i.e. did not follow my trading plan), I like to deep dive to figure exactly why that happened, why did I take a certain action? What was I thinking? Why was I thinking that way? Was what I was thinking correct? Should my thinking be changed? How should I … Continue reading
This post examines the psychology of impulsively taking countertrend trades in violation of one’s trading plan, as opposed to the psychology of adhering to a logical trading plan to take countertrend trades. Types of Countertrend Trades During my trading journey, there are two types of countertrend trades that I find myself taking that I logically … Continue reading
I came across a very entertaining TED talk by Dan Gilbert, titled The Surprising Science of Happiness (watch the video here). The point made in the talk, I believe, contributes to a common trading problem of taking countertrend trades. I’ll write a bit more about that in my next post. Some quick points from the talk: The prefrontal … Continue reading
Here’s some quick points on trading breakouts / breakdowns and failed breakouts / breakdowns. For this article, when I write ‘breakout’, most of the time it applies to both breakouts and breakdowns. H, L = Swing High, Swing Low. HH, HL = Higher High, Higher Low. LH, LL = Lower High, Lower Low. Trading Breakouts … Continue reading
One interesting thing that I would like to point out is the linkage between different trade types. Recognizing this linkage helps with the issue of re-entry if exiting a trend trade early, and also ensuring consistency between the trading rules for trading a breakout / breakdown vs. flipping a trade. Countertrend vs. Exiting Early Say … Continue reading
For position trades, you may not want to be too involved in the intraday timing for your entry. Nonetheless, rather than just buying at a random time, e.g. at the open or at the close, your entry price can be improved by taking note of the intraday trend using some quick-and-dirty methods. A quick-and-dirty way … Continue reading
Many people have no problems identifying the trend with their own methods, yet they have difficulties in pulling the trigger to capitalize on that trend. Why is that? And for those with no problems in pulling the trigger, they find themselves exiting too early (too early = earlier than what their trading plan dictates). Again, … Continue reading
SMB had a great webinar on the top five trading frustrations from their community and recommended solutions (watch the webinar and slides here). I found the webinar pretty helpful with lots of good suggestions. They are also having a new 10-week mentoring program called The DNA of Successful Trading @ $2,495. I noted down some of … Continue reading
Eric Barker has a new article (link here) on how to win every argument. The article had a point which made me think whether the same situation happens in trading. So it quoted an experiment by psychologist Drew Westen, which showed to supporters, footage of their favorite candidates completely contradicting himself. The experiment found that … Continue reading
Statistics Win rate Average winner / Average loser Profit factor (gross winnings / gross losses) Number of consecutive losers (needs to match with your psychological ability to handle) Expectancy (i.e. P/L of an average trade) Maximum drawdown Annual return t-statistic > 2 Robustness Markets: The system should be tested across all market environments, e.g. bull, … Continue reading
Why People Chase Prices Many times, you know that you should not be chasing after runaway prices, you know that you are far away from a logical stop, you know that the further price has run the worst the risk/reward, and you logically know from experience that you tend to enter at the worst time just … Continue reading
Almost by definition, the only sure way of telling whether a range (sideways market) is a distribution range or an accumulation range is when there is a conclusive breakout or breakdown from the range. The range is where the battles took place, and whoever emerges from the battle is the victor. When there is a … Continue reading
The full title of this book is Chasing the Same Signals: How Black-Box Trading Influences Stock Markets from Wall Street to Shanghai by Brian R. Brown (2010). Brian served as Director of Pan-Asia Systematic Trading at Morgan Stanley, and also did statistical arbitrage strategies at Monroe Trout’s (a Schwager Market Wizard) Trout Trading Management. This … Continue reading
I came across a good article (link here) of an interview with Bill Lipschutz, former MD and Global Head of Foreign Exchange at Salomon Brothers. The article noted that Bill made more than half a billion dollars for Salomon over 8 years. I highly recommend people to follow the link above to read the full … Continue reading
I have been thinking about how best to identify turning points at retracements of a trend. The Source Material To do that, I find it best to throw away the concept of price bars or charts because it is an unnecessary restriction, and just think of a stream of transactions occurring at different prices (i.e. … Continue reading
The full title of this book is The Art of the Trade: Mastering the Analytic and Intuitive Elements of Successful Trading by R. E. McMaster, Jr (1999). There are a lot of good trading advice in this book. Most of it is standard good advice for any style of trading, with a focus on the psychology … Continue reading
When there is a bout of heavy fighting between bulls and bears, characterized by high volumes being transacted at a particular price area or level, here are some points to look out for. These are from my observations trading the Nikkei in the T session, but most of it would be applicable to other markets. … Continue reading
Reasons from David Hightower, a principal of Hartfield Management Inc. They have inadequate capitalization. They are using someone else’s system. They lack knowledge of the system’s performance. They are unable to sit through flat periods or drawdowns. They are unable to handle stress. They lack commitment. They experience drawdowns that are greater than their hypothetical … Continue reading
Journeys of a Bumbling Trader 