Resolutions

Well it’s approaching that time of year again.  The time when we vow to change what we have deemed as bad habits or behaviour that is detrimental to our health.

I think I really understand why we come to this introspection at this time of year, especially when it comes to our health.  It’s Christmas’s fault!

We stuff ourselves silly with Christmas Turkey, stuffing and dessert followed by too many after eight mints.  I was so full on Christmas Eve and Christmas day that thought I was going to burst!!!  I mean, why must I eat till I am well beyond full just because it’s Christmas!

I guess I am going to have to think of some New Year’s resolution pertaining to my health and how I treat my body…again!

I came to the same conclusion in November 2010 and immediately called in a personal trainer who still turns up at my house 3 times a week.  However, when it comes to eating right and particularly less of what I like, I am hopeless, and working out is not enough unfortunately.

If I approached the markets with the same discipline that I approach my health, I’d be broke! So that will be something for me to contemplate over the next few days, what about you?

May today be a profitable day…for all of us.

John


A Problem Shared…

A few years ago a trainer told me that one of the best ways to stay profitable is to have a trading partner.  They don’t have to be trading the same stocks as you, but it is good to share ideas and just have someone to talk to about trading, as once you have the bug, it’s hard not to talk about it at every opportunity.

I agree that it is good to have a trading partner, but I think it is more important to just have someone else to talk to that, either has a vested interest in what you are doing (i.e. your wife/husband), or is just willing to humour you at least and listen to you drone on for a bit about the latest trading system you are working on.

It is also worth noting that some of my best trading ideas have not come from the master traders that have taught me, but from my wife!

I often present her with a problem when I am trying to improve on something and as she is removed from the trading process and can look at it from a birds eye view, she can often come up with a simple little change or spark and idea in me that solves the issue I was having.  And she doesn’t even trade.  Sometimes we can’t see the wood from the trees and it takes someone impartial to point out the obvious.

So, if you are already trading or just starting out, find someone to talk to, it can spark all sorts of profitable ideas or at least keep you focused on executing your trading techniques flawlessly.

May today be a profitable day…for all of us.

John


The Penny Stock Scam

Ever heard of penny stocks?  Penny stocks are stocks that are generally under $1 in price per share.  I have long since known of a process called pump and dump.  This when someone who has enticed you onto a list with the promise of 200% returns etc., buys a stock the day before then tells everyone to buy it at the open the next day, usually with some story of positive news that is about to be released that will EXPLODE the stock price.  This brings a lot of buyers of the stock into play, hoping to get there massive returns in the space of a few hours or days.  These stocks normally don’t have a lot of trading volume, commonly termed as liquidity, so when buyers rush in it spikes the price due to the underhanded manipulation by penny stock peddlers.  Of course at the open they sell immediately, take a nice profit and as everyone else tries to get out, you can find a buyer and are stuck watching it go to rock bottom, shocking right?  Well I received an email this morning from one such service. (I like to see what my so called competition is doing):

“Dear PSP Members, Free Trial Members and Affiliates of PennyStockProphet.com,

It is with a heavy heart that I write this email to you. I am the James formally behind pennystockprophet.com. My last name is not Connolly we changed the name to protect my identity my true name is James Edington. I am writing this email to let all of you know that I am currently in litigation with my partner who I started the website with. You see the site is owned by a California LLC (Galaxy LLC). Two partners, me and a guy named Jeff Edwards and more recently added a guy named David Gill. The Galaxy LLC also owns secretstockpromoter.com, www.stockonion.com, secretstockpromo.com, and pennypickfinders.com. Galaxy also has about 32 other urls owned but I don’t believe they have any sites attached to them. Now I can vouch for about 90% of these sites content is made up or taken from other sites (I did not write any of the content) my job was to pick stocks in the beginning before we were getting paid to send you advertisements. So basically what these lists are, is you the consumer are paying for us to advertise companies that are paying us to advertise to you. I know that does not make sense but that’s what these list are. I will also warn you about David Gill’s brother, I will not mention his name but he operates a couple sites like this and you may start receiving emails from them after I send this email out. If you do, I will send an email warning you what they are. I currently have no control of the content that is being put out or any of the company’s day-to-day operations. This is why we are in litigation. I thought it was only fair that you should know that if you belong to a site that used my likeness and story you should know that I am no longer making decisions in regards to the messages you are receiving. I would also at this point like to make sure you have read the entire disclaimer. You will read in there about the last name change, you will also read that the testimonials on the home page are all fake as well. We also at one time had a limited spaces available ploy on our site to get you to buy our product. You will read in there where it says, “from time to time we are compensated for the alerts we release”. I can tell you that we have not purposely done any picks in the last 2 years that we were not paid for by a third party to release to you. You may also read on every email that has been sent to you the amount in which we were paid. I will be going back to picking stock the way I used to on the bigger boards, and I will invite all of you to that list for free once I have the website up. I have attached a copy of the disclaimer and a copy of the email highlighting what I have written about in this email. Galaxy LLC (The Owners of the PSP list) is being ran buy two men Jeff Edwards and David Gill. Below you will also find contact information for Galaxy LLC (the owner of the PSP site) and their legal council in case you had any questions.

Thank You,

James “Connolly” Edington”

This is a completely immoral way to make money, these guys should be ashamed of themselves, but I guess they were too busy taking people’s hard earned cash to worry about that!

Beware the penny stock claims, it’s all nonsense.

May today be a profitable day…for all of us.

John


The Retirement Myth

I’m convinced that retirement is a myth.  We are taught from an early age that the secret to success is do well in school, get a job, work for 40 years and then put our feet up or go play golf.  Totally absurd.  The penny dropped for me 8 years ago that there was a better way.  Whether you are an entrepreneur, looking to invest your way out of a job or have never thought about the alternatives, it’s not an easy path, but it is worth striving for.

So what is retirement?  What does it mean?  Do we ever really retire anyway?  Isn’t the secret to long life finding something that makes you leap out of bed for in the morning, (incidentally, I don’t recall doing that very often when I had a J.O.B)  A project that has your full attention that you eat sleep and breath it every day.  And when you are not working on it, you are thinking about it.

Does that end when you get to some government defined retirement age?  I don’t think so, at least I hope not for all of us.  So my view is that retirement is really just a plan that we are supposed to have in place to pay for our life after we are no longer deemed useful to the system because we are now too old to function as well as the young.  Boy, that sounds cynical even to me…but unfortunately I believe it to be true.

We have choices, and we need to act on those choices.  There is nothing wrong with having a job or a career, but we must have it because we love doing it, no other reason justifies the time.  So if you are doing something that is not your passion, look to invest or trade your way out of it.  Trading can get you there, you just need a good teacher, time, money and discipline to follow a plan.  I created this site to help people get there, as no one ever really held my hand when I started out, they just taught me a whole bunch of stuff I barely knew how or why to use.  So I know this site will get you there, only your starting capital determines how long it will take you….

May today be a profitable day…for all of us.

John


We’re designed to hunt woolly mammoths, not trade stocks!

I found a really interesting article on trading and how pattern recognition by the human eye can be a challenge for people.  It was translated from Khomich Andrei Vladimirovich, Ph.D. (Physics and Mathematics), a Russian professor.

He disagreed with the belief that by studying market charts carefully we are able to consistently see popular charting trends, like head and shoulders, cup with handle,  double top and bottom etc. (I apologize if these mean nothing to you, but that’s what they are called!).

It was his opinion that these mainstream trading patterns do not work as they rely on the human eye to spot them and argued that we are not designed for such a task.

He stated that the problem is that the human visual system had been evolving for many millions of years to perform such tasks as mammoth hunting, yes, I actually just said Mammoth hunting!  But there’s more…

He goes on to explain that genetically we are Cro-Magnons (described in wiki as early Homo sapiens), pickers of mushrooms and berries, hunters of beasts…although, I must admit it’s been a while since I picked my own mushrooms or killed for my evening meal!

Khomich said that over millions of years the human visual system adapted for forecasting natural processes.  He argues that as modern markets have existed for no more than 100 years, and are an artificial process. Therefore, it is a fallacy to believe that we can easily find market trends visually, when in fact they are often absent despite our supposed recognition skills. And that’s why there are more failed trades than successful ones.

Ugg….I’m just glad I don’t rely on chart pattern recognition to make a trade!

May today be a profitable day…for all of us.

John


If you don’t risk much, you can’t lose much

One of the biggest mistakes you can make as a trader is have too much money on any one trade.

The more money you risk, the stronger your emotional swings will be, a bit like pouring fuel onto a fire.  Ultimately you are sure to get burned…maybe even so badly that there is no way back.

Most new traders put too much hope into the quick win.  Experienced traders know better.  Good traders who are consistently profitable will risk only a tiny amount of their trading capital on any one trade, usually only 1 or 2% only.

Overconfidence is the other cause of excessive risk.  You know, those set up’s that are sure thing trades.  So much so that you are willing to gamble 50% of your capital on it.  Only thing is, that sure thing trade does not exist and therefore the market hardly ever cooperates. Below is a classic quote about overconfidence:

“This vessel could be cut in halves and each half would remain afloat almost indefinitely. The non-sinkable vessel has been reached in this wonderful craft.”  Edward J. Smith, Captain, RMS Titanic, 1912

So don’t get overconfident and only risk a tiny amount on each trade.  You’ll be more relaxed, and more able to execute whatever system you are using flawlessly.

May today be a profitable day…for all of us.

John


Is emotion free trading even possible?

It’s a good question. For those of you who are just starting out, this may not seem like it is that big a problem. I mean, surely if you know you have a good method that makes money, isn’t it easy to just stick with it and laugh all the way to the bank. Unfortunately for those of us that have been trading for a while, controlling our emotional impulses while trading is one of the hardest things to do.

Trading is really quite different from everything else we do. For example, there are so many black and white outcomes available to us in our environment. If we choose to take an action like pressing the power button on our computer, it will most likely come on or if you turn the key in the lock the door will probably open.  These are things that we make consciously happen because we are changing the environment around us.

In trading we cannot control what a stock or the market is going to do, so we cannot control the environment. No matter how much you want your stocks to go up, they don’t always cooperate. So we can’t just turn the lock or push the button to make things happen. The only thing we can do is continually control our actions, which is much easier said than done.

So finding the best technical method or mechanical system is really only half the battle.

“A person with good self-discipline but a poor trading method will outperform a person with poor self-discipline but the best trading method currently available” Larry Levin

Having discipline is the best friend we have in trading. Trading will be very rewarding to you, it will give you the freedom you deserve, and it will allow you to stop swapping time for money via a J.O.B.  But only if you learn self-discipline, it is the most important concept there is and without it you are destined to fail.

May today be a profitable day…for all of us.

John


What’s the difference between Gambling and Trading?

People that are not traders or investors are always commenting that investing in the stock market is just the same as gambling, however I firmly believe that there is a difference between the two.

The difference between trading and gambling is the same as the difference between being the house and being the guy in the chair at the blackjack table.

The house controls the size of the bets they take (money management), they know the probability of making money (their system), they can’t control the cards any more than we can control what a stock is going to do, but they know that their system will make them money over time.

The gambler in the chair is most traders, especially the new ones, no risk management, they switch trading systems/ideas often…oh look another shiny penny over there.  They also have no clue of their probability or risk reward ratio and all this leads to emotional trading/gambling which leads to being wiped out….sad but true, been there, bought the t-shirt, learned to be the house.

Of course you could argue that people who visit a casino, expect to lose, it’s purely for entertainment value, but traders expect to win, it’s not very entertaining to lose money in the market, completely different mentality and approach, but with the same outcome if you don’t act like the house.

May today be a profitable day…for all of us.

John


I love to lose money!

There are so many books written on how to make money in the market.  However, what you don’t see often, however, are books or articles written on how to lose money.

“Cut your losses short, but let your winners run” is common sense, but how do you determine when a position is going to be a loser?

Interestingly, a lot of investors and traders don’t have an answer to the above question. Their focus is on getting in at a good price, but they don’t have a clearly defined place to exit, especially if it goes against you.  I mean let’s face it, would you buy a stock if you expected it to go down?

One of the real culprits, I believe, is in the separation of the reality of a losing trade with the sense of feeling like a loser. At some level, we often equate losing in the markets with being a loser. This can frustrate, depress and heighten anxiety and may interfere with your future decision making abilities to take a trade, particularly when your system says re-buy the same stock!  Once bitten so to speak…

The late Everett Klipp (1926-2011), who was dubbed the “Babe Ruth of the CBOT”. Once said, “You have to love to lose money…It’s against human nature what I teach and practice. You have to overcome your humanness.”

Klipp’s system was quick to take profits, but even quicker to take losses (hence the loving to lose money). Instead of viewing losses as a threat, Klipp treated them as an essential part of trading. He believed that taking a small loss reinforces a trader’s sense of discipline and control. Small losses are not failures, only the big ones that could have been prevented.

So all together now, “I love to lose money!!!!”

May today be a profitable day…for all of us.

John


Money Management

Below is a passage from Dr. Alexander Elders book “Come Into My Trading Room”:

“successful trading requires 3 M’s — Mind, Method, and Money.  Mind means developing psychological rules that will keep you calm amidst the noise of the markets. Method is a system of analyzing prices and developing a decision-making tree. Money refers to money management, which means risking only a small part of your trading capital on any trade; think of the way a submarine is divided into many compartments so that it won’t sink if one section becomes flooded—you have to structure your account this way. Psychology, trading tactics, money management—you can learn these skills.”

As you can see there is a lot more to trading than just picking a good stock that you expect to go up.  Money management was the single most powerful tool that I learned, it really is the key to long term sustainable profits.  Trading is a marathon, not a sprint, so we take what the market gives us and by way of letting our winners run, but cutting our losses quick.  Our losses are managed by never taking a hit of more than 2% on our capital.

If your trading and you’re not sure what money management really entails, go to youtube right now and type in money management and learn all you can, it’s that important.

May today be a profitable day…for all of us.

John