Risky Business Indeed!

Would you say that trading success is more attributable to trading techniques or psychology?

The answer is both, but the point where the two intersect is risk management. A huge percentage of trading success or failure can be laid at the doorstep of risk management.  Although it is only one of the pillars of success.  You do need good psychology and trading techniques, but for me it is the most important element.

A book on risk management quoted by specialist trader psychologist Brett Steenburger observed that across different traders and trading firms, 90% of all profits were attributable to 10% of all trades. This is an astonishing discovery.

My own system only produces winners about 50% of the time, but the majority of the big profits comes from the few really big hitters, the +30% winners that come along every month or two.

So while professional traders and novices would like to think of themselves as making money on a majority of their trades, the reality for most frequent traders is that a minority of trades are winners and by year end it is the few large winners that produce most of the favourable results on the profit/loss statement (P/L).  So it really doesn’t matter how many times you are right versus wrong, the only thing that matters is how you control your risk.  Get this right and you are putting the odds of success very much in your favour.

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

John


Onwards and Upwards!

A strange thing happened on the flight back from the UK.  We boarded as normal, taxied from the gate to the runway, then were told that we were turning around to have a mechanical issue looked at.

Now I don’t know about you, but when a pilot says that there may be a mechanical issue, it does not make you think happy thoughts!  But, my philosophy is that if something is going to happen it is going to happen.  We just have to get on with living right?  No point worrying about what might happen.

So, we got back to the terminal and after 20mins or so the pilot said all was well and that everything was working properly.  He said that we would be taking off as soon as we had found the bags for the 2 people that left the plane.  The 2 people that left the plane?  Yes, that’s right, 2 people I suppose got very nervous and decided to jump ship, so it took another hour to get them and their bags of the plane.

Now I am not judging anybody here. They could have left the plane for a number of reasons, it’s just that the most obvious one is fear of something going wrong mechanically.

It made me think about me being the pilot for this website.  Some folks will get nervous from time to time, so nervous that they will want to get off, even before we take off, as we may hit some speed bumps on our way to take off.  However, like the pilot of my plane from the UK.  He knows that the plane is safe, just as I know that my system works.  The pilot knows he will get to his destination, just as much as I know that people will make money if they just jump on board and follow my every move.

It’s a lot of responsibility being a pilot.  But my pilot would not have taken off if he thought he could not get me there safe.  My point being, don’t let the fear of failure get in the way of your destination.

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

John


Trading while on Vacation

Well I am off to Scotland for a week to visit family and friends with my 6 year old son.  Special Daddy and son trip! 

But my members need have no fear, I will be trading as normal albeit a little later in the day for me, as the US markets will close at 9pm when I am in the UK.

One of the luxuries of trading for a living my way, is being able to just get on a plane without interruption to your working activities, as I only set up my trades after hours it allows me to travel just about anywhere in the world without the loss of the required internet connection. 

This time last year I was trading on-board the Disney Cruise ship in the Caribbean.  This does not interrupt my vacation because it only takes me 15mins to do my trading.  Also, even more importantly, as it is a mechanical system that is run via a set of rules that I follow to the letter, I cannot get stressed about what the market is doing, as I no longer have an emotional response to any of it’s chaotic swings. 

On the other hand, I think if you where a day trader it would be mightily inconvenient to trade while on vacation.  Not that there is anything wrong with day trading, some people make a good living at it, I just prefer the freedom of time that trading after hours gives me.  I like that I can continue to follow my system without it getting in the way of me enjoying any time away with my family.

Can you see why I just love trading for a living, such a unique business.

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

John


Enact Your Own Gold Rush

Trading the markets may not be your calling.  But whatever you are currently doing for a living, I believe, the allure of the markets allow us to undertake our very own gold rush.  To chase our dreams of prosperity that will allow us to help others around us and beyond.

So with a reasonable stake and an online account we should be able to prosper, right?  Well not exactly.  In answer to the phrase “many are called but few are chosen”. (It is said that 95% of traders fail).  It is obvious to me that in order to be in the top 5%, we must have persistence.

I think we can all agree that persistence is immensely important in any endeavour.  As inevitably there will be defeats along the way, despite our best efforts.  So I believe persistence is a common denominator between the haves and the have not’s.  Those that persist will make it, those that don’t, won’t. 

Einstein had a great quote that describes persistence better than I have ever heard it “It’s not that I’m so smart, it’s just that I stay with problems longer”.  I just love this quote!

For me, I have not had an easy path to trading success, I have had many obstacles placed in my way also.  But this IS my calling and I persisted until I had developed an amazing system and built my confidence in the system, first in testing, then in application using real money. It has been a long road, but I like being in the top 5% and I intend to stay there.  My hope is that I can help others get there also.

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

John


To Positively Expect to Win!

To all that are currently trading or just contemplating trading, there is a term that you absolutely must learn and understand it’s meaning and importance in order to be a successful trader.  The term I speak of is called positive expectancy!

So what is positive expectancy?

Positive expectancy is defined as how much money, on average, we can expect to make for every dollar we risk.

From my experience positive expectancy is a concept that is little understood by the majority of people who are planning to, or are actually trading.  This is very unfortunate, as it is a HUGE contributor and the difference between winning and losing in the market whether you trade a mechanical strategy or are a discretionary trader.

So much focus is put on how many winning trades or how many winners in a row a trader gets.  Some of you may already be on a list from other trading services that report this way in their emails.  Therefore, making money is equated with the accuracy of their trading. The belief is that if you win more often than you lose then you’ll be ahead.

That’s it…Duh…WIN MORE OFTEN…it’s the secret to making money….

Well, no, not quite.  Unfortunately the majority of people focus solely on trying to be right, they believe that success comes with being right more often than you are wrong. I suppose this begs the question, why is this the case?

I think it is only natural for people to want to be right.  I recently wrote a blog post on the subject with a great quote from Ayn Rand, “Am I right? An animal cannot conceive of such a question. Man cannot escape it…”  For the full quote here is a link to the post: https://howdoitradestocks.com/517/.

So, we are programmed to want to be right from a very early age.  But being right in trading is really not that important, what is important is figuring out the positive expectancy of your trading system/plan and then following it to the letter, knowing full well that if you just execute flawlessly, you will win, and in some cases win BIG over time.

No one can predict the future, but trading a system that has a healthy positive expectancy is as close to a guarantee of success as we are ever going to get.

If you want to know more about this concept, there is an excellent article on the subject at the following link:  http://www.stator-afm.com/positive-expectancy.html

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

John


Yoga Pants Selling Faster than Blackberry’s

Just when Research In Motion thought things couldn’t get any worse, it turns out that Lululemon, maker of yoga pants now commands a bigger market cap than them.

According to an article in the Financial Post, Lululemon Athletica Inc. surpassed Research In Motion this week on the Nasdaq in terms of total market capitalization, with the former now sporting a market cap of US$8.72-billion versus RIM’s own US$8.43-billion.

Shares in RIM are down more than 74% in the last year, underscoring the firm’s woes as it struggles with declining market share against smartphone rivals Apple Inc. and Google Inc.

Lululemon, on the other hand, has taken an almost complete opposite trajectory. The company’s stock is up 67% in the last year. Shares hit fresh new highs on Thursday, as the company reported record sales in the United States. That comes after reported sales rose 51% in the third quarter of last year, compared with the same period in 2010.  They also raised their outlook for 2012, so it all bodes well for our continued involvement.

If it’s any consolation,  RIM still has the advantage in Canada. The BlackBerry-maker still has a nearly US$2-billion larger market cap than Lululemon on the Toronto Stock Exchange….for NOW…

Personally, LULU stock has made me money, but I’ve never liked Yoga, my wife once convinced me to go to a class with her, and I duly agreed and subsequently went for a number of weeks.  I just found it completely tedious.  It’s not that it’s not great exercise, it most certainly is, it’s just SO boring.  Each to their own I say!  But I sure am glad that there are a whole bunch of people out there that disagree with me, the stock is going Up Up Up!

My Blackberry on the other hand, I’d miss, I love my Torch.  I’ve had a Blackberry since 2003…you know, the one that wasn’t even a phone with the green screen.  But I wouldn’t invest in RIM right now, I have no clue where their growth will come from.

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

John


Game of Chess Anyone?

In Malcom Gladwel’ book, blink, Lieutenant General Paul Van Riper’s, a veteran of Vietnam and Desert Storm was talking about strategic military decision making:

“Some of these new thinkers say if we have better intelligence, if we can see everything, we can’t lose,” Colonel Van Riper said. “What my brother always says is, ‘Hey, say you are looking at a chess board. Is there anything you can’t see? No. But are you guaranteed to win? Not at all, because you can’t see what the other guy is thinking.’ More and more commanders want to know everything, and they get imprisoned by that idea. They get locked in. But you can never know everything.”

I really like the analogy about the chess board.  If you think about it, the stock market is like a chess game.  You can never know what a stock is going to do, because you can never know everything about a stock all the time.  For example, we don’t even know what the CEO is thinking, never mind anyone else.

Also, instead of one so called opponent, you have thousands that are trying to win. Now when I say win, I do not believe they are trying to win at your expense, they just want to make sure that they are making money.

But we can’t know what the thousands of stakeholders that are in the same game as us are thinking.  It is my belief therefore that the only way to consistently win in the market is to embrace the chaos of it.  What I mean is accept that it doesn’t matter if you are right or wrong on a trade, just have a system that controls your losses and takes advantage of your winners and lets them go on a run.  Effectively taking yourself out of the decision making loop.

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

John


So you do get what you pay for sometimes!

It’s been years since I ever owned a video game system. The last one I had was the Playstation 1 in the early 1990’s. However, my 6 year old son now has an XBOX 360 Kinect system and I must admit, I enjoy playing it with him from time to time….OK alot! 🙂

So, this weekend I decided to treat him to a few new games as I got sick or renting at the video store for $10 a week.  Well, I’m Scottish, and I suppose I live to up to the stereotype of being somewhat frugal with my money…So I was straight into the used section like a dog with a bone.

Unfortunately it turns out you cannot play the old XBOX system games on the new super duper XBOX 360. So when I arrived home all pleased with myself, and presented the new games to my son, he was left disappointed as they just wouldn’t work. I’m such a video game dunce! I guess you do get what you pay for sometimes…

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

John


Confessions of a Stockaholic!

HELP!!…I think I am obsessed with the stock market….is this a problem?  I eat, sleep, drink, and talk about it all day long, I just love it.  Maybe I shouldn’t have started a site that allows me to even blog about it everyday…yikes, is there such a thing a traders anonymous for us addicts!

Seriously, if you are already into investing you’ll know what I am talking about.  It’s an ever growing fixation.  But is there really a better way to get rich….really rich, I don’t think so.

I think as a former market analyst this is why I am so attracted to trading.  I’ve always loved numbers crunching, and problem solving.  I’m also never satisfied with my mechanical trading system and am always working to improve it, part of my love for numbers.  I suppose this makes me what is called an algorithmic trader.

Anyway, hope you find your work as interesting and inspiring as I do.

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

John


The ONLY thing that counts is the Result!

Trading is quite the experience, it is not like any other business.  It is said that as you become a better trader, you become a better person.  Interesting phrase, right?  I would certainly agree that you become a happier person, success in our chosen filed often brings happiness to us.

I have found that as I evolve and become better it is really difficult to look back at where I was, or even how I got here.  It is so easy to forget how we got to where we are, the trading strategy we use, why we use it above all others out there.  I suppose that it’s a little like learning to drive a car, once you learn and become well practiced in the art, our subconscious mind logs the skills and often takes over without us even having to think about it.  This explains why my wife once told me that she was painting her nails, while talking to me on her blackberry AND driving around Vancouver a number of years ago, all at the same time, and that was before hands free!

As someone who wants to give back and start to teach my own propriety method for making money consistently in the market it has forced me to really think about how to break down the processes involved in my success.  There are of course no right or wrong ways to trade, the ONLY thing that counts is the result.  Trading in a lot of ways reflects your own personality.  I know that there are people that my system will not suit.  They really want to day trade.  For me the idea of sitting in front of a computer all day is completely foreign to me.  Each to their own I say.

However, I know that for many others, following my path will be perfect for them, as they will make money every year, and be able to simply get on with whatever else they are involved in or interested in doing, as the day is yours.  And if you can get enough money in the market, you will soon be completely free.

Taking the first step to do it by yourself is one many would be traders find the most difficult, but it is essential. If you don’t want to find your own path, then I invite you to follow me and we will reap the rewards together.

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

John