Market Tips And Observations

Posted by Dr. Brett. Ten Weekend Thoughts From Dr. Brett

I would say that these are 10 great market tips for all.

* Distractions come from unfinished business;

* I've yet to meet an impressive person who has needed to impress people;

* Passion without commitment is wasted energy;

* The early bird gets the worm; the night hawk gets the early bird;

* Success comes when doing things right is combined with doing the right things;
* When you are doing what you're meant to be doing, effort gives energy;

* In trading, as in life, you succeed by acting decisively on your convictions;

* You will never win if your goal is to not lose;

* Successful people are productive; they traffic in efforts, not intentions;

* Narcissism craves admiration; self-esteem desires understanding.

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Truly excellent as usual. I hope you like it. :D

• I've yet to meet an impressive person who has needed to impress people;

LOL! How indeed true.

One more from him. Trading and Investing: The Danger of Mixing Mindsets

• Several traders that I interacted with today were not able to participate on the long side despite the fact that the stock market was strong throughout the day. When they explained their selling bias, they said things like, "I just don't believe we should be trading up here" and "There's no way we are going higher; the economy is in terrible shape."
  
  Mixing the mindset of trader and investor is hazardous to your wealth. As an investor, I can tell you that I remain very conservatively positioned with my retirement assets. I believe that we entered a secular bear market in 2000, and I believe that bear market has years--not months--to run. Just as we hit bottom in 1932 and did not see a full fledged bull market until the late 1940s, and just as we hit bottom in 1974 and did not see a fresh bull until 1982, we could muddle around for a considerable period in a long-term bottoming process.
  
  And that's generously assuming that we made a price low for the secular bear in March!
  
  All of that, however, is irrelevant to what I think about the stock market *today*. If I see that there is no bearish bias over the next several days and that indicators are strengthening over a three-day period, I am going to look for reasons to buy in today's session if I detect signs of strength. Trading is about exploiting supply and demand during short-term intervals; it is not investing.
  
  You could tell me that President Obama is saddling this country with outrageous debt; you could decry the greed of banks; you could question the ability of the consumer to sustain a durable economic recovery; you could question the fundamentals of the U.S. dollar: for the most part, I would agree with you. But those have nothing to do with whether institutional participants, right here and right now, are purchasing, selling, or avoiding equities.
  
  There's a time for politics, and there's a time for economics. Just not when you're trading the day timeframe.

Good point mentioned by Dr. Brett. The trader should understand that the short term market movements has nothing to do with market fundamentals.

Good example? Look at our stock market!! :p

But what then should the investor do now?

LOL!

The March rally has made so many market experts. Try asking them. :p

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Can I Make It In The Stock Market As A Trader?

Are you a trader who has not much success in the stock market?

Have you bought and read tons of books and yet cannot find any success?

Here's a recommended reading article by Dr. Brett. Can I Trade for a Living? The Quest for Trading Success (do read in full and not only the following highlighted passage)

• The missing element? Skill development. Training. A systematic program of learning that emphasizes pattern recognition, an understanding of market movement across time frames, intermarket relationships, sound execution of trade ideas, and risk management.
  
  Mindset is critical in sustaining motivation, interest, and focus during the learning curve, and mindset is crucial in the consistent application of one's skills. The wrong frame of mind and emotional/cognitive/physical state can disrupt the best of skills, but the best of mental outlooks cannot substitute for developed skills. No positive mindframe and "method that suited me" can provide competencies--in any performance field.

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To Be Correct!

Here's one fantastic blog posting from Dr. Brett: The Need To Be Right Versus The Need To Make Money

• Over the last few days, I've had the opportunity to talk with everyday investors as well as my usual contacts with prop traders and portfolio managers. One of the distinguishing themes in these talks has been stubbornness versus flexibility: the willingness and ability to maneuver and adapt to changing market conditions versus the need to stick with positions and be proven correct.
  
  Among the traders, the ones who have done well in the recent market decline are those who have been selective in their risk exposure, riding short-term market moves, limiting overnight headline risk, and shifting positions tactically to adjust to volatile conditions. They have focused on making money--and limiting loss of capital. They've been quick to recognize when they're wrong, at times getting stopped out once, twice, three times before finally riding the anticipated market move.
  
  The traders who have performed most poorly are those that have been stubborn. They have had strong views of markets and have stuck with those views, even in the face of markets that have moved against them. Convinced that markets are overdue for reversal, they have faced large losses as weakness has led to further weakness. They have been more concerned about being right than making money; they've been reluctant to be stopped out, instead waiting for markets to validate their opinions.
  
  Interestingly, I'm seeing the same dynamics among individual investors. Some have made proactive adjustments to their portfolios to reduce risk, including reducing exposure to vulnerable investments (financial stocks, preferred shares, high yield bonds); some are also revising their views of the financial future, looking for themes and sectors that will benefit in a changed economic environment (firms that generate cash and are less reliant on borrowing; firms that appeal to consumer value rather than luxury; safe yields among beaten down bonds). Other investors are frozen, immersed in hope that "things will come back". They remind me of the dot-com investors who, stunned by losses of 50% in their holdings, insisted that a bottom was at hand. Sadly, many of these shares declined by more than 75% before we saw a durable market bottom--and many of those companies never survived the decline.
  
  This is one of the paradoxes of trading and investing: you need distinct views to put your money at risk, and you need to persist with these views in order to ride winners. At the same time, you can't become married to these views; you need to quickly revise and even abandon your outlooks in order to limit losses. We can trade and invest for ego needs, and we can trade and invest to make money: over the long haul, we can't do both. It takes a strong ego to formulate and act upon one's ideas; an even stronger one to step back from those ideas in the face of non-confirmation.

To be correct.. !!!!

Yes, isn't this what we are seeing in most investors?

The clear and precise changes in the business economics could been seen for so long already.

Yet many chose to be stubborn and delusional and they simply refused to accept the changes. Instead they held on strongly to the believe of long term investing.

Now do not get me wrong, I am a staunch believer of long term investing too. There is absolutely nothing wrong with the investing theories. However, has one questioned about the application of the theory itself? For example, I am realistic about the LIMITATIONS in our market and I am also aware of the lack of the long term COMPETITIVE ADVANTAGE for most of our local business itself and I am also aware of the rather STRONGER CYCLICAL nature of our local business earnings.

How?

Just buy and hold, in regardless?

I would if the company we are talking about is if the same exact quality as a Coke!

And for sure, there is always a strong chance that tomorrow will always be a better day. Crisis like boom times, they come and they go. One day, the present crisis WILL pass us by and it's simply paramount that we are there to profit from it!

Oh yeah the truth does hurt so bad, doesn't it?

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To Continue To Err Is The Greatest Mistake!

Great post by Dr. Brett!

To err is human; to continue to err is the greatest mistake traders make.

Any individual trade can make money or lose money. If you're in a drawdown mode over time, however, at least one of the following problems is present:

1) You're Off Your Game - Not trading well, taking bad trades, failing to take good ones, not managing money and risk well.

2) You're Wrong - You're trading well (i.e., following rules and good trading practices), but you've just misread the market.

Either way, you need to recalibrate. First you need to answer the question, "Is it me, or is it the market?" Then you need to figure out how to get back on your game or you need to reassess the markets and find opportunity.

To recalibrate, it is necessary to step back from trading. The greatest mistake traders make is not making mistakes--we're all fallible, and we're all going to lose money at various points in time. No, the greatest mistake is to *continue* making mistakes.

When we don't step back from trading and recalibrate, we take the magic of compounding and turn it against ourselves.

Some of the best active traders I know routinely take a midday break and review their morning trading. They generate charts of their day's P/L, review markets, and basically start their day fresh whether they're up money or down. Very often they'll use that break to set a goal for the afternoon that corrects any problem they noticed in the morning.

The same idea applies to trading at the end of a day. Reviewing how markets behaved and how you performed--along the lines of the performance idea I linked yesterday--provides you with a sense of how well you're understanding markets and how well you're capitalizing on that understanding.

Professional football and basketball teams know that they need to take a time out when the game isn't going their way. It's a chance to regroup, alter strategy, correct mistakes, and just catch a breath. Similarly, we take the first step toward changing performance by interrupting our performing and entering into a reflective mode.

We set the stage for some of our best trading once we've stopped trading. It's not enough to think about markets. We also have to think about our thinking.

Source: http://traderfeed.blogspot.com/2008/02/greatest-mistake-traders-make.html

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Comments:

Yeah... in regardless whether one is trading or investing, making that same mistake over and over again all the time... now that's really sickening, isn't it? And if ever I do such stuff... it will makes me feel like a darn retarded cow, making the same old silly mistakes over and over again!

Don't you agree?

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How Now Brown Cow?

Here is a fantastic posting from Dr. Brett.

• Suppose you're contemplating a sailing trip. The weather forecast suggests only 10% chance of a thunderstorm, so you decide to set sail.
  
  As you get out onto the ocean, you notice a few raindrops. Then you notice the sky darkening. The air pressure begins to fall rapidly.
  
  What do you do: continue your voyage or pull into port?
  
  When traders examine the historical record for what markets have done under particular conditions, they come up with their own weather forecasts for the market. When conditions have been bullish, the forecasts after market declines are apt to be bullish.
  
  But suppose you begin to venture into the market and notice fewer stocks making new highs. Then you observe more selling pressure than buying with respect to the NYSE TICK. You see the advance-decline line making new lows. You see continued signs of risk aversion among institutional traders.
  
  What do you do: continue buying the market or pull back?

Click here for the rest of the article: http://traderfeed.blogspot.com/2007/08/bit-of-perspective.html

And over at FSO, market commentator asks if Reality Setting In?

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