A day to day activities for the market

Showing this daily chart from the YM futures, Dow Jones, it is still a day to day status about where the market is going/heading.

There is no clear cut idea because of the unpredictable news events that is coming from different parts of the continent.

One thing for sure is that the market is still a traders market, a day to day activities.

The market is a news driven action, but that is already given since the bear market started in 07'.

It's an unsettling market behavior the past five years, same year started doing full time trading.

The chart below is in the range mode, and notice the bar size are full of longer ones.

A sign of unpredictable outcome or happenings in the market.

Let's see and always keep watching when the market settles.

10 rules for rookie day traders

Set limits, stay focused, and use your money wisely

By Michael Sincere

MIAMI, Fla. (MarketWatch) — If you are going to day trade, it’s essential to have a set of rules to manage any possible scenario. Even more important, you must also have the discipline to follow these rules.

Sometimes, in the heat of battle, traders will throw out their own rules and play it by ear — usually with disastrous results.

Although there are many rules, the following are the 10 most important:

1. The three E’s: enter, exit, escape

Rule No. 1 is having an enter price, an exit price, and an escape price in case of a worst-case scenario. This is rule number one for a reason. Before you press the “Enter” key, you must know when to get in, when to get out, and what to do if the trade doesn’t work out as expected.

Escaping a trade, also known as using a stop price, is essential if you want to minimize losses. Knowing when to get in or out will help you to lock in profits, as well as save you from potential disasters. Read more: 4 big risks to your investment portfolio now.

2. Avoid trading during the first 15 minutes of the market open

Those first 15 minutes of market action are often panic trades or market orders placed the night before. Novice day traders should avoid this time period while also looking for reversals. If you’re looking to make quick profits, it’s best to wait a while until you’re able to spot rewarding opportunities. Even many pros avoid the market open.

3. Use limit orders, not market orders

A market order simply tells your broker to buy or sell at the best available price. Unfortunately, best doesn’t necessarily mean profitable. The drawback to market orders was revealed during the May 2010 “flash crash.” When market orders were triggered on that day, many sell orders were filled at 10-, 15-, or 20 points lower than anticipated. A limit order, however, lets you control the maximum price you’ll pay or the minimum price you’ll sell. You set the parameters, which is why limit orders are recommended.

4. Rookie traders should avoid using margin

When you use margin, you are borrowing money from your brokerage to finance all or part of a trade. Full-time day traders (i.e. pattern day traders) are usually allowed 4:1 intraday margin. For example, with a $30,000 trading account, you’ll be given enough buying power to purchase $120,000 worth of securities. Overnight, however, the margin requirement is still 2:1.

When used properly, margin can leverage, or increase, potential returns. The problem is that if a trade goes against you, margin will increase losses. One of the reasons that day trading got a bad name a decade ago was because of margin, when people cashed in their 401k(s) and borrowed bundles of money to finance their trades. When the bull market ended in 2000, so did many traders’ accounts. Bottom line: if you are a novice trader, first learn how to day trade stocks without using margin.

5. Have a selling plan

Many rookies spend most of their time thinking about stocks they want to buy without considering when to sell. Before you enter the market, you need to know in advance when to exit, hopefully with a profit. “Playing it by ear” is not a selling strategy, nor is hope. As a day trader, you’ll set a price target as well as a time target.

6. Keep a journal of all your trades

Many pros swear by their journal, where they keep records of all their winning and losing trades. Writing down what you did right, or wrong, will help you improve as a trader, which is your primary goal. Not surprisingly, you’ll probably learn more from your losers than your winners.

7. Practice day trading in a paper-trading account

Although not everyone agrees that practice trading is important, it can be beneficial to some traders. If you do open a practice account, be sure to trade with a realistic amount of money. It’s not helpful to practice trade with a million dollars if the most you have in your account is $30,000. Also, if you do practice trade, think of it as an educational exercise, not a game.

8. Never act on tips from uninformed sources

Most pros know that buying stocks based on tips from uninformed acquaintances will almost always lead to bad trades. Knowing what stocks to buy is not enough. You also have to know when to sell, and by then the tipster is long gone. Legendary trader Jesse Livermore said it best when he wrote this about tips: “I know from experience that nobody can give me a tip or a series of tips that will make more money for me than my own judgment.”

If you can’t trust your own judgment, you may want to avoid day trading altogether.

9. Cut your losses

Managing losing trades is the key to surviving as a day trader. Although you also want to let your winners run, you can’t afford to let them run for too long. It’s more art than science to get it right, but learning how to control losses is essential if you are going to day trade. Once again, never forget the three E’s: (enter, exit, and escape).

10. Be willing to lose before you can win

Although many traders can handle winners, controlling losing stocks can be difficult. Many rookies panic at the first hint of losses, and end up making a series of impulsive trades that cost them money. If you’re day trading, you must be willing to accept some losses. The key: know in advance what you’ll do if you’re confronted with losses.

Although anyone can learn to day trade, few have the discipline to make consistent profits. What trips up many people are their emotions, which is why it’s so important to create a set of flexible rules. Your goal: follow the rules to help keep you on the right side of any trade.

“The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.” – Jesse Livermore

The Science of Irrationality

A Nobelist explains our fondness for not thinking

By JONAH LEHRER

Here's a simple arithmetic question: "A bat and ball cost $1.10. The bat costs $1 more than the ball. How much does the ball cost?"

The vast majority of people respond quickly and confidently, insisting the ball costs 10 cents. This answer is both incredibly obvious and utterly wrong. (The correct answer is five cents for the ball and $1.05 for the bat.) What's most impressive is that education doesn't really help; more than 50% of students at Harvard, Princeton and the Massachusetts Institute of Technology routinely give the incorrect answer.

Daniel Kahneman, a Nobel Laureate and professor of psychology at Princeton, has been asking questions like this for more than five decades. His disarmingly simple experiments have profoundly changed the way that we think about thinking. While philosophers, economists and social scientists had assumed for centuries that human beings are rational agents, Mr. Kahneman and his scientific partner, the late Amos Tversky, demonstrated that we're not nearly as rational as we like to believe.

When people face an uncertain situation, they don't carefully evaluate the information or look up relevant statistics. Instead, their decisions depend on mental short cuts, which often lead them to make foolish decisions. The short cuts aren't a faster way of doing the math; they're a way of skipping the math altogether.

Although Mr. Kahneman is now widely recognized as one of the most influential psychologists of the 20th century, his research was dismissed for years. Mr. Kahneman recounts how one eminent American philosopher, after hearing about the work, quickly turned away, saying, "I am not interested in the psychology of stupidity."

But the philosopher missed the point. The biases and blind-spots identified by Messrs. Kahneman and Tversky aren't symptoms of stupidity. They're an essential part of our humanity, the inescapable byproducts of a brain that evolution engineered over millions of years.

In Mr. Kahneman's important new book, "Thinking, Fast and Slow," his first work for a popular audience, he outlines the implications of this new model of cognition. What are the most important mental errors that we all make? And can they be overcome?

Consider the overconfidence bias, which drives many of our mistakes in decision-making. The best demonstration of the bias comes from the world of investing. Although many fund managers charge high fees to oversee stock portfolios, they routinely fail a basic test of skill: persistent achievement. As Mr. Kahneman notes, the year-to-year correlation between the performance of the vast majority of funds is barely above zero, which suggests that most successful managers are banking on luck, not talent.

This shouldn't be too surprising. The stock market is a case study in randomness, a system so complex that it's impossible to predict. Nevertheless, professional investors routinely believe that they can see what others can't. The end result is that they make far too many trades, with costly consequences.

And it's not just investors who suffer from this mental flaw. The typical entrepreneur believes that he or she has a 60% chance of success, though less than 35% of small businesses survive more than five years. Meanwhile, CEOs who hold more company stock—taken here as a sign of self-confidence—also tend to make more irresponsible decisions, overpaying for acquisitions and engaging in misguided mergers.

Even consumers are hurt by this bias. A recent survey of American homeowners found that they expected, on average, to spend about $18,500 on remodelling their kitchens. The actual average cost? Nearly $39,000.

We like to see ourselves as a Promethean species, uniquely endowed with the gift of reason. But Mr. Kahneman's simple experiments reveal a very different mind, stuffed full of habits that, in most situations, lead us astray. Though overconfidence may encourage us to take necessary risks—Mr. Kahneman calls it the "engine of capitalism"—it's generally a dangerous (and expensive) illusion.

What's even more upsetting is that these habits are virtually impossible to fix. As Mr. Kahneman himself admits, "My intuitive thinking is just as prone to overconfidence, extreme predictions and the planning fallacy as it was before I made a study of these issues."

Even when we know why we stumble, we still find a way to fall.

Know thyself

The noise across the venture investing landscape is deafening. Is there a valuation bubble? Is the boom in angel investing about to tip? Should large venture funds be doing seed stage investing? Is small-ticket Micro VC a legitimate strategy? Can new venture managers get funded? Blah, blah, blah. Bottom line: I don’t care and neither should you.

Whether you are building a new business, investing as an angel or deploying the capital of others, the guiding principles are the same:

1. Have a plan
2. Speak to lots of smart people about the plan
3. Iterate the plan
4. Execute the plan
5. Constantly critique the plan
6. Adjust the plan as necessary
7. Rinse, repeat

In short, know thyself and stay true to the mission. Just because someone else’s mission looks cooler and more successful than yours doesn’t mean that yours sucks; it may just take longer to play out. And if you try and adopt someone else’s mission, odds are that people will know you’re faking it and lack the true passion necessary for its successful execution. And if your mission, over time, proves to truly suck, then it’s time to ditch the mission and reassess: the market has spoken.

There is a huge difference between incorporating the feedback of smart people while preserving your core philosophy and changing missions as the wind blows. I can tell you that such a lack of rootedness will invariably lead to failure. Whether a business builder, an investor or both, it takes maniacal focus, passion and intensity to be successful. Only you can find your way; you simply can’t dial in the mission.

Worried about the macro environment? If you’re a company then raise 2-years of cash, not 9-12 months. If you’re a fund, make sure you are properly reserved for a hostile fund-raising environment where you’ll need to step up and support your companies until the market thaws. Otherwise, you’ll likely get jammed in pay-to-plays and get flushed at the worst possible time. These are things you can plan for and they don’t involve rocket science. Just plain good judgment and planning. It is perfectly reasonable to take a different view and be more aggressive, either by raising less and taking less dilution now (if a company) or by making more investments with lower or no reserves on the theory that the strong start-up market will continue to run (if you’re an angel or a fund). As long as you go in eyes wide open, I’m cool. You might get carried out in the end, but you took a calculated risk and lost. In my book that’s fine. Unfortunate, but fine. You proactively made the decision and followed through.

In short, I think both founders and investors are, in many cases, paying way too much attention to reverberations within the venture echo-chamber instead of just making good, sensible plans consistent with their missions. If a certain set of investors don’t like it, too bad. Find some others. If LPs don’t like your approach? Either take friends-and-family money or execute your plan as an angel and prove out your thesis. It’s within your control. Don’t cede control of your destiny to the oscillating waves of popular thought. Who cares what’s popular? Often what’s popular today falls out of favor tomorrow, so giving up on what looks like a contrarian strategy might be the worst decision you could possibly make.

Every trader must believe in God.

Written on October 17, 2011 by Eli Radke

 

Ok, not God but you have to have a believe in something you can’t always see, profits and progress. This is a big problem I see with traders. Either they are new to trading or they have gotten beat up in the past. They do not know what hard work is or how to not self destruct. They are uncommitted.

Hard work (new trader)

They see other people making money and they think it is easy. It takes awhile to become an overnight success. It takes even longer if you start from scratch and without help. I am perplex to find that many traders have not done the first thing required to be successful, a trading plan. We define a trading plan as a set of rules applied to a strategy. However you define it; it should shift the focus away from you and unto the market, answer the questions the market answers, and strategy must be repeatable and improvable. If you do not have plan it is hard to make money because you are always doing random things for random reasons, there is no constant and every experiment needs a constant.

Self destruction (older trader)

A trader can be his own best friend or worst enemy. At some point he will become his own worse enemy. Undoing days, weeks, or months of psychological and financial progress in a single trading session. When you lose “too much” , you probably have not stopped losing. Take a deep breathe when you are hurting, take some time away. I said it before but the bad does become worse with frightening regularity. When it is hardest to be discipline, it is the most important time to do so. As my mentor always told me, be able to trade tomorrow whenever tomorrow is.

Why belief is important.

You have to be committed to accomplish anything that is a difficult. There are times when it is going to be bad. There are times when you have to pick yourself up. There are going to be times when you figure it all out and it changes the next day. There are many times when you are going to question whether it is worth it, if you are asking that question the answer is always no. It is not worth it; you have not reached your goal, yet. The better question is, will it be worth it? You can’t be half pregnant when it comes to trading, in the times when you are in front of the screen you have to be 100% committed.

If you are new, believe the work you are doing has value. If you have lost a lot, that is in the past and believe you will put yourself in a situation to make it back. In order to sustain belief you have to see progress but to progress you need to start with belief. Does God exist, I am not sure. Do I believe in God, yes I do. The problem with not believing in God is that you may be wrong. Upside of believing in God is you might be right, if not you are dead anyways. Trading is the same, yes you are going to have to do some extra work but it beats the alternative which is not giving yourself a chance.

Do You Know Your Edge?

Obviously, you need an edge with your trading methodology or you’re not going to make it. If you haven’t back-tested it or cannot articulate it, you may not have one. But many traders who do happen to have an edge with their methodology are still not performing well. I sometimes refer to this as the ‘profit gap’ – the difference between your plan/method and your actual results. As a trading psychologist and an active trader myself I have a different view of “edge”.

As traders, we use logic and data and a method to justify our decisions, and we spend lots of time looking at charts….but at the crucial moment, where the rubber meets the road, it’s our emotions/feelings that actually provide the fuel to pull the trigger or not, whether it’s an entry or an exit, a winner or a loser. See my recent webinar where I show why your emotions can not be ignored and how they play an important role in your trading decisions.

The reality in trading is that you are your own edge. It’s in the gray matter between your ears. More specifically, your edge is your ability to adapt to whatever you see in the market. Call it cognitive flexibility, or whatever you want, but this is the reality of trading.

For example, when it comes to entries, one’s ability to adapt is critical, especially for the discretionary trader, because set-ups often don’t look neat and clean. Mixed signals and some degree of ambiguity are common. Ability to tolerate ambiguity is a psychological skill. Part of your personal edge.

And when it comes to exits, adaptability is even more critical. While entries and trade location are important, its ultimately your exits that will determine how much success you experience as a trader. Dealing with losers effectively and maintaining flexible expectations is a function of adaptability, your personal edge.

Trading involves a lot of disappointment (entries are not always perfect, targets not always reached, we exit and then see it go on to work, etc), and that disappointment often puts traders on tilt causing emotions to trump will power, paving the way for traders to veer from their plan and break their rules. Resilience in the face of disappointment is your personal edge.

Most people focus on what causes the market to move, but the harder part of trading is knowing what causes YOU to move. Once you have a handle on understanding on what causes the market to move you need to work on understanding yourself to know what causes you to move. This is how is how you develop your personal edge.