To succeed in trading, one only needs to go back to basics – what Bill Gates advocated apply equally to becoming a successful trader.

Perhaps, we should print this advice out and pin it at our desk, in addition to what we learn on becoming a successful trader.

Bill Gates speech: 11 rules your kids did not and will not learn in school

by Kent Summers

Rule 1: Life is not fair – get used to it!

Rule 2: The world doesn’t care about your self-esteem. The world will expect you to accomplish something BEFORE you feel good about yourself.

Rule 3: You will NOT make $60,000 a year right out of high school. You won’t be a vice-president with a car phone until you earn both.

Rule 4: If you think your teacher is tough, wait till you get a boss.

Rule 5: Flipping burgers is not beneath your dignity. Your Grandparents had a different word for burger flipping: they called it opportunity.

Rule 6: If you mess up, it’s not your parents’ fault, so don’t whine about your mistakes, learn from them.

Rule 7: Before you were born, your parents weren’t as boring as they are now. They got that way from paying your bills, cleaning your clothes and listening to you talk about how cool you thought you were. So before you save the rain forest from the parasites of your parent’s generation, try delousing the closet in your own room.

Rule 8: Your school may have done away with winners and losers, but life HAS NOT. In some schools, they have abolished failing grades and they’ll give you as MANY TIMES as you want to get the right answer. This doesn’t bear the slightest resemblance to ANYTHING in real life.

Rule 9: Life is not divided into semesters. You don’t get summers off and very few employers are interested in helping you FIND YOURSELF. Do that on your own time.

Rule 10: Television is NOT real life. In real life people actually have to leave the coffee shop and go to jobs.

Rule 11: Be nice to nerds. Chances are you’ll end up working for one.

A Matrix for Success

 A good lesson from F1, cross ref:

http://anatrader07.wordpress.com/2010/09/27/a-lesson-from-formula-1/

We in Singapore have been lucky to enjoy and witness first hand the weekend practice sessions leading up to last night’s final lap at the first ever night race held in Singapore – the Red Dot!

I watched every practice session over the weekend starting on Friday night and it reinforces my conviction that to succeed, one has to be focused, practise consistently and to put to practice what one learns re techniques – ie to follow one’s plan to the finish!

The participants all showed good showmanships although only three emerged as top winners at the end of the race.

Throughout the final laps, one could only marvel at the persistence of the participants especially Alonso – Ferrari who truly put up the best show to emerge the number one spot of the Grand Prix.

Behind the scene, there was good support and when it was necessary to change tyres, one could witness how precise they all worked to give the contenders a chance to resume and to contend for the top three places.

As traders, we can take a leaf from the precision and plan of the contenders and their team mates to simulate our own plan to trade successfully.

It is all hard work to win and then not all will win, as we witness how pooped the contenders were after passing  the chequered flag.  This is the price of being a good contender in all we endeavour.

Some video clips of F1 of the final lap:

http://www.youtube.com/watch?v=h9O7RLJ7wSg

http://www.youtube.com/watch?v=kx-e-2By2BI

Idkit aka Ana

Ag Moderator

Expectancy is It!

Our mentor is advised to rest his eyes due to a corneal scratch.  I am standing in as acting moderator today.

As those who have attended his courses will know, he places great importance on Expectancy Returns.

I have a post on this topic  of PE at my website which you are free to read:

Quote:

Today Scott is sharing tips on how to get the most out of your trades by showing you how to discern high expectancy trades from low expectancy trades.

http://anatrader07.wordpress.com/2010/06/25/expectancy-of-your-trades/

Here is the formula:

Profit Expectancy (PE) = (probability of winning trade * average size of winner) – (probability of losing trade * average size of loss)

 Idkit

Ag Moderator

Trading Success

BarroMetrics Views:  Trading Success

I started trading in the early ’70s  to mid ’70s. Looking back I can see the great strides made in the understanding of the human psyche – how we make decisions, what drives us,  etc; we have also made great strides in our ability to test our trading theories. But despite the great improvements, this generation’s success rate is no different to that of the ’70s: 80% to 90% of traders are unprofitable over a large sample size.

I believe the reason for the high rate of failure lies in the ability of humans to deny reality and in the process,  fail to learn the lessons history can teach us: witness Obama’s resort to government regulation to ‘save the US from the business cycle’ – but that is another blog for another day. Today we are speaking about why traders fail.

Traders fail because in the last resort they fail to manage their risks and fail to manage their trades to minimize their losses.

Let me give you an example.

Recently I have been communicating with someone (X) who is especially open and communicative. It’s a trait I think is necessary for success because we first need to be aware of the problem before we can find a solution. X said:

“when it comes to real life trading, I am still unbelievably biased and stubborn, not willing and daring to admit that I was wrong.

And

“I started short positions too early. And again, because I BELIEVE that this is a bear market rally, I never put a stop loss on my short positions. I believed that the market eventually would come down. I figured that I could not go too wrong by going short in a bear market. Well, I am deeply under water now”.

Will X make it? I believe he/she has a great chance because he/she is prepared to face his/her shortcomings.

Most traders I have met will deny and rationalize. In so doing, they lose any hope they have of solving their  problems. But being aware is only the first step; X still needs to take action to manage his/her risk and manage his/her trade.

All the best X!

Can we trade the news?

I have just received a chat message from our mentor to post for him, if possible. Today being his last day to spend full time with his fragile mother in Sydney, he is rather tired mentally and would like to turn in early. As usual, I cannot refuse although at such short notice. So please bear with me if I touch on a topic which has nothing to do with technical analysis, more on fundamentals. I thought it may be good to touch on trading the news since our mentor is also on television now and then. Here goes:

Trading the news:

Seasoned traders including my mentor seldom watch the media coverage of the markets. Instead he will tell you he prefers to relax by watching HBO or Star Movies. He may now and then flip the remote control to CNBC, BBC or Bloomberg more for Economic News, or to see how the Indices , or Commodities are quoting. Even then he is of the opinion that the quotes that we see on the screen may not be current.

On a side note, he is always joking about American Idol , as he thinks it is so entertaining , vowing one day, he may want to sing in Singapore Idol or Hong Kong Idol. He often related in class how he sang in the street of Sydney and received a big tip for dinner!  Well, what do you know?

Why do other seasoned traders not listen to the media coverage ?

Firstly the news is probably old and trading a stock may not depend on it. We know the adage: Buy on rumour, sell on news!

Secondly it is hard to captilalize on the news if you are not in the trade already. Small online investors may take advantage of the news. The price may move up but there is no momentum to push the price higher to sell for a good profit. The risk reward is minimal and probably may lead to a loss.

EXCEPTIONS:

As with conventional trading wisdom, there are always exceptions. It is a little naïve to think that the talking heads in the financial sections have a crystal ball. Usually, their main objectives are to entertain, achieve high ratings, or sell their products.

Most strategies, however, only work if one has a position already open. For example, one way to capitalize on news involves closely following a stock pattern over time, so that one knows almost exactly how the price moves in cycles throughout the day or week. When a television guest analyst or reporter makes a forecast, the price should move a little, and should the move be in one’s favor, the position could then be liquidated to capitalize on the news.

A related method some traders have involves sheer luck. Suppose one has an open position in a particular stock and a news report rightly or wrongly claims the stock has potential growth. Some traders are able to sell off their existing position for a huge profit following the advice of the media analyst or talking head.

But trading the news is dangerous. It is vital to manage Risk. Some traders have made the mistake of believing a forecast and watching their account balance dwindle.

An innovative contrarian may make money. It takes a special kind of trader to develop trading strategies based on media news. One cannot be a follower of the pack, but an innovative contrarian who must anticipate how the masses will react to the news. The approach may not always work, and so a trader must be able to accept that he or she may be wrong and live with the consequences.


CONCLUSION

Trading the news can make you an unexpected profit or zerolise your account. It is not foolproof method. One should therefore take proper precautions to control risk in the event that it does not work.

Ana aka Idkit

Ag Moderator

6-Week Webinar Course

For some time now there have been requests for a course that straddles the 2-day Habits of Success seminar I run in Singapore and the Mentor Program that I deliver over the net.

Well folks, I have finally completed its design. For details, please go to:

http://www.tradingsuccess.com/6-week-course.php

The delivery platform has been the main problem. I solved that by using omNovia. We tried it with the free webinar and it passed with flying colours – not a hitch with the delivery platform.

The content will be the Nature of Trends material. So if you have read the book and want a clear understanding of how to apply it, now is your chance. Go to http://www.tradingsuccess.com/6-week-course.php, see what it’s all about and, if you like what you read, register.

Trading Rules Guidelines

GUIDELINES to Trading Rules

Cross ref http://awanginvest.com/?p=709

Before I proceed, as you can see, I prefer to use my real name although short ie Ana aka IDkit in all my posts or comments in my own weblogs or others. After all in my own city, I am almost demi-public, and there is no point in my hiding behind an anonym. In fact, I tried to hide behind my popular name under Yin Wang at a recent free webinar for NOT (Nature of Trends), and I received a couple of queries whether I was Ana. Yes, I am Ana aka Yin aka IDkit.

Here, I am also echoing the sentiments of John Forman , author of The Essentials of Trading.

I say this because in the past, not now since I started my own Newsletter IDkit, I encountered some  cantankerous characters , taking my posts personally or did not like me/my mug for whatever reasons. The best way to deal with such is to either write them off or explain briefly your stand, without more. This is the best way to stop further acrimony, and move on in a positive light.

Having said all this, I would like to comment on some other trading rules to which you are free to comment too, but civilly, please.

Here goes:

Some Trading Rules to do:

1. Using Stop orders. I refer to my post yesterday on Stops. Comments have been mild so far. I know some traders, especially the experienced ones, may not believe in putting on a stop, although they admit they have a ‘mental stop’. I have also touched on mental stops in my own post, if you care to read.

2. Do not change your stops. My mentor teaches the same but what he means is we should not put a wider or shorter stop after having put it in. This is also generally good advice.

3. Close your position when profit is decent. Yes and no. I have been taught to run my profits long. One way is to use the Rule of 3 from my mentor, which is essentially scaling my exits to run my profits long, with trailing stops.

4. Do not overtrade. This is why money management is important and one simple way is to use the Turtle Formula for newbies.

5. Position sizing is vital. Again the Turtle formula for newbies would be a starter.

6. Look out for trending or range bound market. This is the first thing to look at because how you take a trade depends on going with the trend, which is your friend. Different rules apply for trending or directional market and sideways market.

7. Plan your trade and trade your plan. Having a plan is one thing, but to be able to recognize your plan is wrong, one must act swiftly and exit if necessary.

8. Clear rules of trading plan. As my mentor often does, he uses scenarios to base his rules for trading. One way is to use the If/then logic.

9. Paper trading for would-be traders. Most trading platforms offer paper trading for those completely new to trading and this is a good way to start. However, once this period of learning how to put on a trade is over, a newbie must learn how to trade LIVE in order to feel the pressure of trading with money on the line. Those who trade know the psychological difference when paper-trading and live-trading. Unless a newbie has traded LIVE, one cannot gauge one’s ability to trade well.

10. Aim for consistent profits , not to make money . For newbies, trading to make consistent profits is the hardest thing. This may take up to three years for most newbies to achieve just trading well consistently.

11. KISS system – Keep It Simple, Student (stupid is the saying). At the recent August seminars that I organized at the SMU, I find that some newbies are impatient and instead of focusing on learning good habits , the aim of the seminar, some want to learn more tools eg Barros Swings and Ray Wave, which are for advance students of BarroMetrics, to start with. Until one has mastered the basics with good habits, it is not helpful or too soon to add more tools to your learning curve.

12. Always or Never. Be careful of these two words as not all strategies are optimal. There are always grey areas in any rule, as my mentor has always reminded us.

AND ALWAYS strive to learn continually, and you will NEVER be in vain to be a better trader.

I welcome more comments on trading rules to add to the list aforementioned.

ANA aka IDKIT

Ag Moderator

STOP in the name of Preservation

STOPS!

Cross ref  http://awanginvest.com/?p=706

IN the name of capital preservation.

I find many  newbies are not too familiar with stops. I will just touch very briefly on stop loss orders.

STOP LOSS ORDER: An order placed with a broker to sell a security when it reaches a certain price. It is designed to limit an investor’s loss on a security position. Also known as a “stop order” or “stop-market order”.A stop loss order is one of those little things, but it can also make the world of difference. Every trader can benefit from this tool in some way.

Another use of this tool, though, is to lock in profits, in which case it is sometimes referred to as a TRAILING STOP.

It is also a great idea to use a stop order before you leave for holidays or enter a situation in which you will be unable to watch your positions for an extended period of time. Putting a stop loss order is a good habit which all traders irrespective of experience should have. A stop loss is your safety net, your comfort zone in taking a loss , a plan that things do not work out , an emergency exit.

It is a priority of all traders to incorporate some form of risk management as we need to respect the market and set our ego aside. If we do not respect the market, the market will force us to respect it sooner or later. This means we have to accept some risk level as well as a measure of humility.

We can consider having multiple stops like applying the Rule of 3 where we can scale out to reduce risk, by taking some profits and moving our stops, called trailing stops. Partial exits offer freedom and to reduce risk. We do not have to win on every trade. We will get wrong from time to time in the market but the best traders are those who know how to limit their losses when they are wrong. Even if we get hit with stops, we can always re-enter later when we look for the zone to re-enter.Commissions are not so expensive that we cannot afford to re-enter if we see fit. Some brokers allow conditional orders which specify multiple conditions before your stop orders get triggered.

In fact, our mentor has always recommended that newbies put a stop loss order first before even having entered a trade in order not to forget.

Stop loss orders should be seen as the tool to limit your ‘wrongs’ and by cultivating a habit of having a stop loss order, you will have the key to long term success. We will keep our losses small, especially when a black swan event takes place eg 9/11.

However, putting a stop loss level should preferably not be arbitrary. One should take into account risk reward and position sizing when working out a stop level, which you can bear.

With a stop order, your trade will be executed only when the security you want to buy or sell reaches a particular price (the stop price). Once the instrument has reached this price, a stop order essentially becomes a MARKET ORDER and is filled.

One disadvantage of the stop order is that the order is not guaranteed to be filled at the preferred price stated. Once the stop order has been triggered, it turns into a market order, which is filled at the best possible price. This price may be lower than the price specified by the stop order.

Consider these orders:
A LIMIT ORDER is an order that sets the maximum or minimum at which you are willing to buy or sell a particular stock.

BUY STOP ORDER : An order to buy a security which is entered at a price above the current offering price. It is triggered when the market price touches or goes through the buy stop price. People using a buy stop hope to gain if momentum gains on a particular instrument. If the price exceeds the price you have set, it will automatically trigger a market order.

 

ANA  aka   IDKIT

Ag Moderator

Impact of Weekly Economic News Releases

The case for Weekly Economic News Releases

Cross ref: http://awanginvest.com/?p=701

September 3, 2008 – 12:00 am Once more unto the breach – as our mentor has to answer to the call of other urgent personal duties taking him further away from home to the Northern Hemisphere!

This gives me an opportunity to take aim at the participants of the last seminar held at SMU. One of the findings that surface from the weekend seminar is: more than half of the class are would-be traders or with less than 1 year of trading experience. The rest have more than 2 years of trading experience.

How much the cohort is aware of how fundamental economic news will impact on their decisions when analysing the markets to find the zone and entry point especially when trading the forex market is probably not much. Technical analysis is not enough. To trade the forex market is complex. Fundamental analysis is usually used to predict long-term trends but for short-term traders, economic news releases are fundamental indicators of currency values released at different times of the week or month.

Hence, my constant reminders in my posts to newbies to listen to such weekly economic news data especially of the US, namely:

  • Non-farm Payrolls – released monthly.

It is a compiled name for goods-producing, construction and manufacturing companies. The U.S. Department of Labor Bureau of Labor Statistics releases preliminary data covering the previous month’s survey at 8:30 a.m. ET on the first Friday of every month, or according to the U.S. Department of Labor the report is released on the third Friday after the conclusion of the reference week, i.e, the week which includes the 12th of the month, and usually heavily affects the USD, the Bond Market and the Stock Market if it is even slightly different from what is expected.

  • Purchasing Managers Index -PMI or ISM Index.

A PMI of more than 50 represents expansion of the manufacturing sector, compared to the previous month. A reading under 50 represents a contraction, while a reading at 50 indicates no change. Prior to September 1, 2001, the acronym (PMI) stood for Purchasing Managers’ Index. The Institute of Supply Management (ISM) now uses only the acronym, PMI.

  • Consumer Price Index – CPI or Headline Inflation.

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living.

  • Retail Sales

The U.S. Census Bureau produces the Annual Revision of Monthly Retail and Food Services to provide revised national estimates by kind of business of annual and monthly sales for establishments classified in the retail trade and food services industries. Estimates of end-of-month inventories and inventory-to-sales ratios are also provided, but only for retail trade.

  • Durable Goods

The durable orders release measures the dollar volume of orders, shipments, and unfilled orders of durable goods (defined as goods whose intended lifespan is three years or more). Orders are considered a leading indicator of manufacturing activity, and the market often moves on this report despite the volatility and large revisions that make it a less than perfect indicator. These problems can be minimized by looking at the breakdown of orders. The total number is often skewed by huge increases in aircraft and defense orders. An increase based solely on strength in one sector tends to be discounted, while the market is more impressed with broadbased increases in orders.

Also notable in this report is the narrow category of nondefense capital goods. These goods mirror the GDP category producers’ durable equipment (PDE) — the largest component of business investment. Shipments of nondefense capital goods are a good proxy for PDE in the current quarter, while nondefense capital goods orders provide an indication of PDE growth in the quarters ahead.

INTERPRETATIONS

1. What the unemployment rate is in the economy as a percentage of the overall workforce. This is an important part of the report as the amount of people out of work is a good indication of the overall health of the economy, and this is a number that is watched by the Fed as when it becomes too low (generally anything below 5%) inflation is expected to start to creep up as businesses have to pay up to hire good workers and increase prices as a result.

2. What sectors the increase or decrease in jobs came from. This can give traders a heads up on which sectors of the economy may be primed for growth as companies in those sectors such as housing add jobs.

3. Average hourly earnings. This is an important component because if the same amount of people are employed but are earning more or less money for that work, this has basically the same effect as if people had been added or subtracted from the labor force

4. Revisions of previous nonfarm payrolls releases. An important component of the report which can move markets as traders re-price growth expectations based on the revision to the previous number.

Interpretation for the Financial Markets

While the overall number of jobs added or lost in the economy is obviously an important current indicator of what the economic situation is, the report also includes several other pieces of data that can move financial markets:

There are also several meetings that can affect markets just as much as any report, such as the FOMC and Humphrey Hawkins Hearings.

ANA aka IDKIT

Ag Moderator

A Post-Mortem

Last weekend I ran the first retail Habits of Success seminar in Singapore. It’s a no-frills (no lunch, no drinks etc ) about US$290 for 2-days. The aim of the seminar is a simple one: to change the focus of retail traders from the plan (10% of the success equation) to Winning Psychology (60% of the success equation) and Money Management (30% of the success equation).

The aim of the Winning Psychology section is an ambitious one: to teach a method of setting goals in line with our dominant values. This entails identifying our values, creating a Vision based on the values, then creating goals, action plans and a review process. The review process includes a suggested journal template.

The aim of the Money Management section is to create a habit of risk assessment, position sizing and ongoing monitoring of the trade as long as it remains open. I provided an Excel spreadsheet which if followed would provide a template for the attendees.

What I found interesting at the end of the seminar was the probability that I was unable to help around 60% of those attending. A couple had clearly decided that all they needed was a computer black box system to generate winning trades. All I can say is ‘good luck’.  With some, nothing I say will shake them of the mistaken belief that all you need to succeed is a ‘super-duper’ guaranteed win system.

Of the remaining 60%, the main problem was the thought: “Wow! All this work!”. No matter that I suggested the attendees start with baby steps and build up.

Ten percent of the attendees are on the 50-50 list. They could easily tip one way or the other. I guess the early trades will make the difference. If they hit a series of wins, then they’ll most likely stay the course.

The remaining 40% will make it. Interestingly a good many have not traded before but they are willing to do whatever it takes to attain their dream.

The figures remain true in this first week that I ran the Google Group follow-up. Of 45, 35 have accepted. Of those that did not join, I was surprised by only two omissions (they fell into the 10% category). The remaining 10 all came from my 60% assessment.

Having said the above, I rate this as a highly successful retail seminar. There was a buzz in the room at the end. If indeed we have 30% attaining habits of success, I’d have achieved. I’ll know in 3 months when I send out the evaluation form.

The success was entirely due to Ms Ana Wang’s tireless efforts. In 20 years of teaching, I have never seen participants queue up to thank the organiser. Thanks, Ana! I hope the September show goes as well.

thankq.jpg 

FROM DONNY

What does this blog mean to you?  Do you profess to hold Winning Psyhology and Money Management high among your endeavours? Do your intentions match your behaviour – that would be great place to start.