Floor reflections on trading


In addition, large losses inevitably hurt the psyche of a trader, and he needs a way to recover not only their capital, but also confidence. A trader faith in themselves can only be restored through trading, successful real trading. There are no words on paper trade or through simulation can be useful. But this utility is very limited, because such trading is not related to the emotional side of trading, when the stake real money.

The second reason is that trade 100 shares can be a great addition to other types of trading. After all, the vast majority of traders lose money on the scalp. And to create a balance in all aspects of it can be useful to sell 100 shares, using radically different strategies.

The third reason - the ability to consistently build a large position over time. This approach is especially popular among supporters strategy called «covered call». So, since 100 shares trading is not suitable for the scalp, you should find a different approach. The only approach that has any meaning, this approach determine the trend. Look at the graph of any paper. Look at the lows and highs. Ask yourself: "If every time I bought the paper at the minimum and the maximum sold during the year, no matter how much I earned by selling 100 shares? '.

If the paper three times a year was between 5 and 10 dollars, three times back 10 to $ 5, and in the rest of the time hanging around $ 5, it can give an annual profit, three times higher than its average price. That is $ 15 of profit against the average price of $ 5. I note that in this example, a popular strategy «buy & hold» did not work.

Suppose further that you have a machine to determine the trend, and paper that can bring you up to six times more than its price of $ 15. Then, the average cost of buying 100 shares will be only $ 1,500, and annual income - about $ 10,500. Not bad, eh? Considered common knowledge that an individual trader can not predict the behavior of the market over time. Therefore, they say, long-term solutions should be given to professional managers, managing finances and get paid $ 500,000 a year. However, it is easy to see that each year 80% of these "professionals" to the results worse than the "unmanaged» S & P. So professional management is very dangerous to your capital.

It is true that no one can accurately predict the behavior of systematic market. If anyone could do it, he would soon have all the money in the world. However, it is not true that it is necessary to be able to live successfully in the market. For example, large, wealthy investors (Buffett, Gates) do not predict the behavior of the market and are not interested in doing this. They are interested in increasing the number of shares in the companies revenue. They are not interested in the market as such. They are not traders. So, if we set aside the chimera prediction market that leave us?

The fact that the market is perfectly defines and envisions himself. So we do not need to try to predict the market movement. We only need to synchronize our actions with those of the market. To do this, we need a method. The method of determining the direction and duration of the current trend. This method should have some way to harmonize with the market. I must say that the idea of predicting the market is closely linked to the idea of direction or control over the market. Typically technocratic utopia: anticipate to manage. This approach is psychologically fatal to a trader who enters the pre-defined state to the market, based on its foresight. It follows the typical misconception about wrongness of the market, which is the main source of losses traders.

Without exception, all traders with whom I ever knew, suffered from delusions of foresight. They are always better than the market knew what he wanted to do. But back to the desired strategy. It should completely eliminate any element of prediction and control, and thus completely eliminate the trader, his emotions, his mind out of the decision making process and leave it only to perform pure action - placing orders to buy / sell.

With this strategy, you can only choose a paper with a sufficiently high volatility, for example, with an annual channel at least two prices, and then even trade 100 shares will become a thing worthwhile, enjoyable and very profitable. Is there such a strategy or system in nature? If it does, what's the difference between it and foresight? My answer is in order.

I'm more than that, I just know that such a system exists - and not one. All such systems differ from the predictions of the market that they themselves organically laid losses and failures associated with the time lag with which these systems react to truly unpredictable market movements.

Therefore, all such systems have one serious drawback - they are of little profit in the traditional approach to trading. For successful implementation of these systems, they need to be reconciled with the principles of the appropriate trading. And trade in lots of 100 shares on the right paper may well be such a principle. But more on that and much more - next time.