Google

Monday, August 14, 2006

 

THANK YOU!

For taking the time to read my blog daily for the past few months. It has been a wonderful experience, I learned a lot during the process and I am grateful for all the positive and negative input. In order to write about a new subject each and every day became a very research intensive process. I did not just want to put out figures without verifying them and I don't have the time to do so any longer. I wish you all much success with your trading and as a last entry I am republishing an older blog that hits home every time I execute a trade. Take care and be well!

Sergio Avedian

"Two roads diverged in a wood, and I took the one less traveled by, and that has made all the difference." Robert Frost probably did not intend for that sentence to be a tutorial for a trader but at some point in most investors' lives, they approach a divergence in the road and which path they take dictates not only their level of success, but also their destiny. Everyone metaphorically takes a look at both paths, then consciously or unconsciously decides. One of the roads is steep and winding, it is filled with potential, both good and bad, it appears beautiful but also looks exhausting to navigate. The second is a familiar path, though void of beauty it is seemingly safer and less strenuous. Most people I know would choose the later only to look back and realize all the squandered opportunities and possibilities.

This blog is dedicated to those who are looking to break out of the mold of mediocrity and become one of the select traders who make money consistently in the markets. It is for those believing in themselves enough to make trading a primary source of income regardless of the financial and emotional sacrifices. This is one of many maps that will get you to your destination and hopefully you will enjoy the journey as well. Fortunately, there have been many people who have trekked the path before and have proven that it is virtually possible for anyone to accomplish their goals. Trading has all sorts successfully participating in the markets, from ultra conservative to ultra adventuresome, type A to type B personalities. Once you take that first step down the path less traveled, you may feel fear, anxiety and uncertainty but rest assured that as long as you continue to follow the required path to success, your progress is almost assured, quoting Henry Ford: "Obstacles are those frightful things you see when you take your eyes off your goal." As you take your first step towards trading for a living, there are a few common denominators shared by those who reached the pinnacle of their career. The remainder of this blog is the blueprint I have seen used most often by those ending up as successful traders. Whether they used all or most of the steps, the majority were implemented before attaining their goal. If you are not willing to put something into this, don't expect to get anything out.

The most successful traders I ever came across never rested on their past accomplishments, they were always looking for that extra intangible. Educate yourself to the best of your ability, if you are a technician, read a lot of books related to the subject, if your choice is fundamental analysis, go to school and study finance or economics. I use a mixture of both valid forms of analysis to trade, hence my new title, "Technofundamentalist". The best thing about trading is that it never gets stale, it is not a routine job when one day blends into another and another until you are presented with a gold watch. Over the past 25 years of trading, I have learned that the markets are influenced by two primary driving forces, fear and greed. Equities, options, currencies, bonds, commodities all have their time and place in the sun. Start paper trading before you commit your hard earned cash to work, there are guys like me out there that are looking to eat your lunch and dinner before breakfast. Depending on your level of ambition, start trading small, less than 25% of the capital you intend to risk, once you are more knowledgeable and experienced, increase your capital expenditure to about 50% of what you intend to allocate to speculation. You get the idea, you have to trade to learn, every day is full of challenges and your losing trades should be your most valuable lessons, after all, you have literally and figuratively paid for them.

Get a solid, consistent positive track record going in a market that is non-directional. By this I mean you will want to prove to yourself that you are making money because of your trading ability and not because you are in a trending market. There is a saying, a bull market trader is a genius, meaning most people make money in bull markets and confuse the trend with real ability. Once you have made money in stagnant, bullish and bearish markets, it is usually safe to go to 100% capital allocation. This point on the road to becoming a full time successful trader arrives at different times for each of us. I have seen more gifted people get there in months, I call them naturals and some people will take several years. The learning curve is dictated by the sum total of your past experiences, your willingness to accept new ideas, your ability to amend and adjust your trading system. Whatever you spend on education is usually a sound investment compared to what can be lost through ignorance, as far as I am concerned, the mind is a muscle, if you don't use it, you will lose it.

GREED
Other than education, the most crucial element to a successful trading career is to control the sense of greed. I am certain you all have heard the saying "Pigs get fat, but hogs get slaughtered." From my own personal experience, I can look back and embarrassingly admit that my biggest losses were the times I was bored or saw a great trade and allowed myself to get greedy without considering the risk. The NASDAQ run up from 2,000 to 5,000 within a few years was a classic example of the greater fool theory and greed at work. Everyone knew that all he internet stocks were expensive according to all business models we learned at school, yet many people bought them, not because they were great investments, but because traders were convinced someone dumber than they would be around tomorrow to pay an even more ridiculous price for them and sure enough, the buyers were there the next day. Until the bubble burst and we all know what happened after that, if you are not a historian of the markets, go back and take a look at some internet stocks and their charts starting 1997, you will find out what the true cost of greed was.
HONESTY
Another key component to staying on course is honesty, first and foremost with oneself and then with others. Once you start lying to yourself, it is impossible to obtain the level of objectivity needed to trade successfully. When trading, you have to be able to tell yourself you made a mistake and correct it quickly and move on. Unfortunately, I have seen many short term traders become long term investors due to lying and their ignorance of the obvious. Every morning, you have to check your ego at the door, try to put it away until 1 PM, it is one of the most difficult tasks you will face as a trader. The following subject is a perfect example of lying to oneself, it involves dollar cost averaging, it is a losing proposition over the long run, it is force fed by brokers to clients to make them feel better about a losing trade, it is a form of greed.

RISK
Risk is something you have to identify, study quickly but effectively and then you should pull the trigger. Let's admit to one obvious point, there is certain amount of risk involved in everything we do, it ranges from minute to excessive, you must moderate between the two extremes, you must learn to play for another day. Know ahead of time the risk you are undertaking, with some strategies, risk can be defined in terms of margin, sometimes the margin is ridiculously overpriced or under priced compared to the real risk of the trade. There will be times when it makes sense to risk $4 to make $1, but the mathematical probabilities of making that $1 had better be greater than 75%. After all there has to be a method to the madness.

MENTOR
Whenever possible, find a mentor to help you learn. I know of people who have gone to the trading floors and worked for a year or more for free to study under a good trader. One of my first jobs in New York was as a runner at the old COMEX (The Gold Futures Pit) in the World Trade Center, it was madness but with a method. I can still recall the feel and smell of being trapped in the octagon as we call it, what a rush, the education I got and the experience I gained was worth all the effort. For most people, it is impractical to do the same exercise I went through, so try to find a mentor, someone who is years ahead of you on the learning curve and glean knowledge.

JOURNAL
Keep a journal of your winning and losing trades, it is a hard fact of a trader's life that we usually learn more from our mistakes than our successes. The problem is that it is emotionally painful and draining to go over losing trades and dissect them. After all these years, I still look at some mistakes I made and avoid studying them, I want to quickly tell myself, I know what I did wrong, why dwell on it? By writing the trades in a journal, you can study them when you are in the right frame of mind, there will be days that you don't even want to think about trading, those are the days that you stay away from your journal. It further allows you to go back in hindsight and see other factors that may have caused you to lose money, it still is part of my routine. It is easy to tell yourself, "Well, if Al Qaeda didn't blow up the buses in London that day, the markets would not have opened lower". Days, weeks or months later you will have the perspective to realize your real mistakes such as trading with too much risk, being hedged poorly etc., were the reasons for your bad day, not Al Qaeda. I like to set aside a few days every year to go over my notes from the past and study my success and failures.

AVOID INSANITY
Albert Einstein once defined insanity as, "Doing the same thing over and over again, expecting different results." No matter how good you get, you will still have losses, but if those losses consistently outweigh the gains, you are doing something wrong. The first rule to follow when you find yourself in a hole is to stop digging, stop and reevaluate if what you are doing applies to the current market conditions. Do something different or better yet do nothing until things go back to normal, but most importantly don't keep repeating your mistakes. My mentor used to say, "what is your rush, the markets will be open tomorrow", bottom line, don't do the trade because you have to, pull the trigger because it fits your pattern. When I start trading poorly, I talk to another trader I respect because he will tell me what I am doing wrong, not what he thinks is going to happen in the markets. Once you have gone through your checklist, start all over again. You will always make progress as long as you are adjusting and learning, keep in mind that education is critical, a good physician, lawyer, accountant, surgeon, fighter pilot, race car driver is always learning. The great thing about trading is that most people who are good at it will make a lot more money than all the occupations mentioned above. It is the greatest career in the world, but you have to dedicate yourself to it. If you are reading this, it is likely because you're at the crossroad or already well down the path less traveled, I congratulate you.

Wednesday, August 09, 2006

 

Vacation Time!

Well, the following is what I was supposed to post before I left. I completely forgot. I want to thank everyone for their support and e-mails. I am in the process of deciding if I can continue with a daily blog, it truly has become a lot of work. I may write a longer version of it a couple of times a week. I will let everyone know by Monday. If it was the end, I enjoyed all the positive commentary and wish all the readers success with their trading.

I will not be publishing for the upcoming week. Look out Kiawah Island, South Carolina, here we come. We are going to enjoy southern hospitality, warm Atlantic waters and will definitely try to keep them in the short grass. Please, do yourself a favor and revisit some of the very timely older posts of this blog and keep clicking those ads.

I need your support to keep the blog going! The only source of revenue is through advertising, I urge you to contribute! If you enjoyed reading my posts in the past, I am certain you will do so going forward. Please, send the link to all your contacts and friends, even if they don't trade, they will be kept well informed by the daily commentary on current topics of interest.

Friday, July 28, 2006

 

Middle Class vs. The New Rich (Part 2)

I need your support to keep the blog going! The only source of revenue is through advertising, I urge you to contribute! If you enjoyed reading my posts in the past, I am certain you will do so going forward. Please, send the link to all your contacts and friends, even if they don't trade, they will be kept well informed by the daily commentary on current topics of interest.


Continuing from yesterday. In most large counties, about one household in 12, or about 8.5 percent, was worth $1 million or more, Ms. Luhr said. An exception was Nassau County on Long Island, where millionaire families were more than twice as common, at 17.5 percent of all households. The households had an average net worth, excluding principal residence, of nearly $2.2 million, of which more than $1.4 million was in liquid, or investable, assets. The survey counted some tax deferred retirement savings but did not include individual retirement accounts in the liquid assets.

There's another discussion about how the rich themselves are stratifying. There's the merely rich, and the super rich but that's an enitrely different issue. Meanwhile, some of the details about the US millionaires are pretty surprising and fascinating. A survey by the WSJ found that 29 percent of the millionaire households did not own stocks or bonds and 32 percent did not own mutual funds. One in four had a second mortgage on a home. Half of the heads of millionaire households were 58 or older and 45 percent were retired. Just 18.7 percent of the millionaires own or owned before they retired, part of a business or professional practice, an indication that high wage earners who save and invest are the dominant group amongst those on the lower rungs of the millionaire class.

Two groups seem to be bearing the brunt of economic change, the middle class, and those who have entered into the work force over the past 20 years. Whether this is a temporary phenomenon or a full blown secular change will have a significant impact on society, on the economy, and on the markets.

Today's Trades:

This page is powered by Blogger. Isn't yours?