Monday, December 6, 2010

Review of learned concepts

The title of this entry is "Review of learned concepts" when in reality I am still trying to learn these ideas.  In trading/speculation it seems like you could write a strict list of 4-6 rules and you end up breaking them anyway.  Discipline in most ventures is an attribute that is hard to teach and even harder to learn.

I'm writing this review because I am falling back into some old habits that continue to resonate in my mind even after writing this blog and spending vast amounts of time trying to change established customs.

Gambling vs. speculation and how to avoid this natural inclination.  Intra-day trading although some are extremely good at this, is truly a vice for me.  In most cases it is a reverse ATM because it is just way too difficult to control one's self.

Establishing positions gradually on an increasing line is a strategy that allows not only prudent risk management but, superior returns in my opinion.   There is no need to place the entire bet at once, that's gambling not speculation.  On top of this you are able to see if your analysis was correct and if so, you can then increase your size accordingly.

Patience, and this kind of coincides with establishing positions gradually.  If positions are made in two to three varying purchases (always on an increasing line, if positions is long) then you have time to examine your idea instead of just placing a blind bet on the proverbial 'red or black.'

Following the opening range strategy frankly keeps you on the right side of the market, and more importantly helps you determine when to get out.  Looking for stocks, futures, or commodities to in effect show their cards helps you understand who is in the market.  Also, staying above or waiting for the market to pierce the prior time periods pivot range is crucial in proper speculation and in a game with few rules helps one stay with current flows of capital.  Remember, you can't make money without a trend.

Staying with your chosen time frame is crucial.  It is very difficult to juggle multiple time frames and I lack the mental capacity to stay disciplined and move back and forth in time frames that don't have much to do with each other.

Understanding that the mind is your biggest enemy and that our pre-programmed and learned ideas are the main reasons why 98% of people who attempt this fail.  The only conclusion that I have drawn is supply and demand cause changes in price, not what you think or even what you think others market participants think.  As soon as I gave up trying to out think the market I made money.  The conclusions we draw are wrong whether instantly or in the long run because A) the inputs we use are skewed  B) We just don't know what everyone else is thinking C) The conclusion you have come to, has already been concluded way before you.

I know you might not all agree with this, and in time as I continue to learn I may alter my 'learned' ideas but I just can't make sense of every market move, and if you try to make sense of the market you will lose your mind.  So how do you make money?

  • Risk management
  • Buy on an increasing line
  • Don't gamble
  • Understand your conclusions are probably wrong
  • Try to understand supply and demand in your time frame
  • Be conscious of the Trend
  • Understand that this is something you can't understand
  • Know where you will get out if you are wrong

1 comment:

  1. I think that discipline is incredibly important when it comes to the market.

    Would it be possible to contact you? I'd love your email, or if you wanted mine, my email is