Archive for January, 2010

When looking at futures stock market trading curbs, it`s a well-known saying that `traders should have a healthy fear of the market`. It seems like a perfectly reasonable assumption to make when it come to trading goals. The market is volatile, and each trade you make is to some extent unpredictable. But, it`s one thing to learn to accept the risk of the market, and another entirely to be afraid of it.

Ninety-five percent of the futures stock market trading curbs errors you are probably going to make, those errors which will cause you to consistently lose money, will be due to your attitudes your fear about being wrong. Fears of losing money, of missing out on profitable trades, or of leaving money on the table will cloud your thinking when you are trading. Your fears can cause you to act in such a way that what you are afraid will happen. If you`re afraid of being wrong, your fear will influence your perceptions of market information in a way that will cause you to do something that ends up making you wrong.

When you are afraid of something happening, all other possible outcomes cease to exist. You can`t perceive the other possibilities, or act on them properly if you do recognize them, because your fear paralyses you. Physically, fear causes people to freeze or to run. Mentally, it causes them to narrow their attention to the object of their fear. This means that thoughts about other positive stock market trading curbs outcomes, as well as other information from the market, are barred from your mind. You can`t think about all the rational things you`ve learned about the market until the event is over and you are no longer afraid. Then you will think to yourself, `I knew that. Why didn`t I think of it then?` or, `Why couldn`t I act on it then?`

It`s difficult to understand that the source of these problems is usually our own attitudes. Many of the thinking patterns that adversely affect our stock market trading curbs are a natural result of the ways in which we were brought up to see the world. These thought patterns are so deeply ingrained that it rarely occurs to traders that the source of their trading difficulties is internal, and derived from their state of mind. It can seem more natural to see the source of a problem as external, in the market. This happens because it feels like the market is causing pain, frustration, and dissatisfaction. Most traders do not want to be concerned with such abstract considerations as considering how their thoughts influence their trades, but understanding how beliefs, attitudes, and perception effect your futures stock market trading curbs are as fundamental as learning how to serve is in tennis.

You could say that understanding and controlling your perceptions of market information is important only to the extent that you want to achieve consistent results. You don`t have to know anything about yourself or the markets to make a winning trade, just as you don`t have to know the proper way to swing a tennis racket or golf club in order to hit a good shot occasionally. The first time you played golf, for instance, you might have hit several good shots throughout your round, even though you hadn`t learned any particular technique. But your score was still probably well over 100 for 18 holes. Obviously, to improve your overall score, you needed to learn technique. The same is true for developing good stock market trading curbs in your trading.

Traders need technique to achieve consistent results. If a trader isn`t aware of, or doesn`t understand, how their beliefs and attitudes affect their perception of market information, it seems as if it is the market`s behaviour that is causing the lack of consistency. As a result of this perception, it stands to reason that the best way to avoid losses and achieve consistent profits is to learn more about the markets.

This bit of logic is a trap that almost all traders fall into at some point. Unfortunately, this approach doesn`t work. The market simply offers too many variables to consider, and these variable often conflict. Furthermore, there are no limits to the market`s behavior. It can do anything at any time. In fact, since every person who trades is a market variable, it can be said that any single trader can cause virtually anything to happen.

That means no matter how much you learn about the market`s behavior, and no matter how brilliant an analyst you become, you will never learn enough to anticipate every possible way the market can move. If you are afraid of being wrong or losing money, you will never learn enough to compensate for the negative effects these fears will have on your ability to be objective and to act without hesitation. You can`t be confident in the face of constant uncertainty by acquiring information. The hard, cold reality of stock market trading system curbs is that every trade has an uncertain outcome. Unless you learn to completely accept the possibility of an uncertain outcome, you will try, either consciously or unconsciously, to avoid any possibility you consider painful. In the process, you`ll subject yourself to any number of costly self-generated errors.

You can get over the bad futures stock market trading curbs by accepting the risk, and moving beyond your fears, you can greatly increase your ability to be a consistently profitable trader. This requires self-knowledge and discipline, but the rewards that can be attained on the market more than make the effort worthwhile.

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David Jenyns and Stuart McPhee, famous, experienced traders, discuss the merits of keeping part of one’s trading float back from active trading.

David: We have a question: do you recommend having all your trading capital in active trades or should some be kept as cash, and if so what percent?

Stuart: Good question, but it all depends. For example, my super fund I always have roughly ten percent in cash because, and this is probably more specific to Australian taxation law, during the year you have an obligation to pay tax, pay as you go. So I’ve always got that account with about ten percent of my capital – it’s cash, it’s secure, nothing will happen to it. It allows me to fulfill those tax obligations throughout the year as I have to pay as you go. But having said that, if that isn’t a requirement for you and trading opportunities present themselves, there’s no reason to keep some cash set aside. Using nearly everything in active trading is a great idea.

David: I’m in a very similar frame of mind about that. If you’re looking to trade the markets and you’ve set aside your trading float that’s your intended purpose for the money assuming you have appropriate trading candidates. My gut feeling would be you should have, whenever possible, all your money invested. Obviously, it comes back to your system, making sure you are getting the signals. You don’t want to put your money in just for the sake of having all your money in without a trading plan.

But I do not see any reason to limit, oh, I’ll keep ten percent of the trading float just sitting in the account, just accruing interest, not involved in active trading. It’s part of how you structure your wealth creation; you’ll have a certain amount allocated for your trading float, you’ll have a certain amount allocated for your real estate, you’ll have a certain amount for cash in the bank. I see that separate from my trading float. Also with regard to trading backtesting you can see the utilization of your trading float. You can enter your trading float in before. You can see over a set period of time whether you’re fully utilizing or partially utilizing your cash and I always try to get as close to the top of that band as possible. So I’m as close to being maxed out as possible without being maxed out all the time.

If you’re maxed out all the time and new trading opportunities come up and you don’t have any capital available, it’s going to throw out your backtesting a little bit because with trading opportunities you may not have been able to open.

Depending on which trade you ended up taking could really affect the ultimate end of your testing as to whether you made a profit or not because of whether or not you took a particular trade. So that’s why if you are going to trade a particular type of system where you are constantly maxed out, where you look at Monte Carlo testing, where you look at what is the standard deviation of my trading system. How far is it between my backtesting results? What is the least profitable scenario and the most profitable scenario and you find that gap widens the more you fully utilize your cash.

You don’t want to be maxed out as possible when you are doing backtesting. But for sure the major part of your float should be used for active trading.

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David Jenyns, a successful trader in his own right, interviews long-term trader and friend Stuart McPhee about the need to learn stock trading if your time is limited, and how to start out as a trader. Here are his trading tips.

Stuart: A question has been asked what is the best to trade if you are time poor. There are methodologies you can use that really don’t demand a huge amount of your time and the obvious one is trading stocks using medium-term trends.

In fact you don’t even have to check things every single day. You don’t need to scan every day. My medium term funds I scan once a week. Admittedly when I’m in a trade, I’ll monitor during the week. So far as scanning and identifying new opportunities, it’s a once a week thing. I think a lot of people scoff at oh, only a few hours a week or one hour per day or less than an hour per day.

Absolutely you can trade using a specific style that doesn’t demand a huge amount of your time. Trading stocks medium term trends is certainly one of those and is the most obvious and common one for people who are time poor.

David: I think many people are facing this. The next question is: I’m a beginner in trading and I started trading the forex about six months ago. In one of your videos, you recommended for beginners not to start with short term trading such as intra day trading. For a person like me who has a full-time very demanding managerial job with the aim to trade on a part-time basis as a starting point, what type of trade would you recommend: forex, futures, stocks etc? What type of trading, swing trading position trading and can you specify timeframes, medium term or longer term?

Stuart: There may be a number of people out there who start trading foreign exchange straightaway and make a killing. I just know that’s going to be the exception rather than the rule, and it’s going to be a very rare exception. I really believe in laying the foundations. The groundwork for me is to learn stock trading for a period of time and just concentrate on trading stocks. They are the easiest, you won’t get hurt if things don’t go your way. You’re not trading with leverage, you can’t lose more than you physically have, where with some of the other products you can.

It’s just the simplest way to start, it’s a great grounding and then if you can’t trade stocks profitably consistently, then you’re certainly not going to be successful trading the others. That’s why I believe in starting with the basics.

When you have a demanding job time wise and trading such a short term instrument as forex, it’s not easy. The beauty today is you can place conditional orders and place our stops physically as soon as we get in so we don’t have to watching the screen but I think so far as analysis is concerned and doing other things it can be demanding of our time.

David: He asked too, regarding swing trading and position trading or a particular method of trading. If you were to put a label on it so he’s got somewhere to start to reach your trading goals.

Stuart: Yes I say learn stock trading using medium term trends. Analyze peaks and troughs. Identify those and those stocks achieving higher peaks, higher troughs, that’s the sort of thing I’m interested in. Good solid conservative, medium term steady sort of movement stocks.

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