Showing posts with label traders. Show all posts
Showing posts with label traders. Show all posts

Monday 30 October 2017

Why few traders make money? What lessons can we learn from them?

Quote:  "I am sure you will come across relatives or friends who have traded the markets for ages but ended up generating more losses than profits.   Accumulation of trading losses over years not only hurt one's financial well-being but is also psychologically damaging as one's self-confidence is eroded along with growing losses.  Eventually these traders quit the markets when they can't tolerate the losses anymore. "

What contributed to their losses and what lessons can we learn from them?

Their mistakes:

  1. Not cutting losses
  2. Taking profits too early
  3. Having too many stocks
  4. Having non-existent or wrong trading rules
  5. Borrowing money to trade/trade on contra
  6. Not doing enough homework
  7. Initiating positions based on tips
  8. Not understanding the risks being taken
  9. Buying high and selling low
  10. Not reviewing after each trade

Ref:  Jumpstart in Stocks and Future Trading
Choong Ty'ng Ty'ng


My comment:  One of the better book I have read on this topic of trading.

Tuesday 12 May 2015

Market Sentiment Explained

DEFINITION of 'Market Sentiment'

The overall attitude of investors toward a particular security or larger financial market. Market sentiment is the feeling or tone of a market, or its crowd psychology, as revealed through the activity and price movement of the securities traded in that market. For example, rising prices would indicate a bullish market sentiment, while falling prices would indicate a bearish market sentiment. Market sentiment is also called "investor sentiment" and is not always based on fundamentals.

INVESTOPEDIA EXPLAINS 'Market Sentiment'

Market sentiment is important to day traders and technical analysts, who use technical indicators to attempt to measure and profit from the short-term price changes often caused by investors' attitudes toward a security. Market sentiment is also important to contrarian investors, who like to trade in the opposite direction of the prevailing sentiment. For example, if everyone is buying, a contrarian would sell.


Read more: http://www.investopedia.com/terms/m/marketsentiment.asp#ixzz3Ztxa2YLw 
Follow us: @Investopedia on Twitter

Thursday 6 March 2014

What is the difference between investing and trading?

Investing and trading are two very different methods of attempting to profit in the financial markets. The goal of investing is to gradually build wealth over an extended period of time through the buying and holding of a portfolio of stocks, baskets of stocks, mutual funds, bonds and other investment instruments. Investors often enhance their profits through compounding, or reinvesting any profits and dividends into additional shares of stock. Investments are often held for a period of years, or even decades, taking advantage of perks like interest, dividends and stock splits along the way. While markets inevitably fluctuate, investors will "ride out" the downtrends with the expectation that prices will rebound and any losses will eventually be recovered. Investors are typically more concerned with market fundamentals, such as price/earnings ratios and management forecasts.

Trading, on the other hand, involves the more frequent buying and selling of stock, commodities, currency pairs or other instruments, with the goal of generating returns that outperform buy-and-hold investing. While investors may be content with a 10 to 15% annual return, traders might seek a 10% return each month. Trading profits are generated through buying at a lower price and selling at a higher price within a relatively short period of time. The reverse is also true: trading profits are made by selling at a higher price and buying to cover at a lower price (known as "selling short") to profit in falling markets. Where buy-and-hold investors wait out less profitable positions, traders must make profits (or take losses) within a specified period of time, and often use a protective stop loss order to automatically close out losing positions at a predetermined price level. Traders often employ technical analysis tools, such as moving averages and stochastic oscillators, to find high-probability trading setups.

A trader's "style" refers to the timeframe or holding period in which stocks, commodities or other trading instruments are bought and sold. Traders generally fall into one of four categories:

Position Trader – positions are held from months to years
Swing Trader – positions are held from days to weeks
Day Trader – positions are held throughout the day only with no overnight positions
Scalp Trader – positions are held for seconds to minutes with no overnight positions

Traders often choose their trading style based on factors including: account size, amount of time that can be dedicated to trading, level of trading experience, personality and risk tolerance. Both investors and traders seek profits through market participation. In general, investors seek larger returns over an extended period through buying and holding. Traders, by contrast, take advantage of both rising and falling markets to enter and exit positions over a shorter timeframe, taking smaller, more frequent profits.


http://www.investopedia.com/ask/answers/12/difference-investing-trading.asp

Wednesday 17 October 2012

Tips For Avoiding Excessive Trading

By Ian Huntsley
Investopedia

Fri, Oct 12, 2012

Why do casinos provide both the winners and the losers with complimentary goods or services? Because both will continue to gamble more than the average person.
Despite the fact that the odds favor the house, the losers, desperate to recoup their losses, will try to ride out their bad luck by playing through it. The winners, convinced they're in the midst of an unstoppable streak, will try to ride it all the way to the top and invariably give much or all of their winnings back to the casino.
Professional trading is nothing like gambling, but many amateur traders act as if it is, and trade excessively for the same reasons as an ordinary gambler. Every active trader should learn to trade, instead of gamble. Here we'll take a look at traders' tendency to trade excessively and examine the way this behavior can affect a portfolio.

Evolution of a Trader

As traders develop skills, each one travels virtually the same path: initially as a discretionary trader, then as a technician and ultimately as a strategist or systematic trader. A trader first analyzes the market direction or trend, then sets targets for the anticipated move. Correctly reading or predicting the marke t then becomes the highest priority, so the trader learns as many new indicators as possible, believing they're like traffic signals. This search for a magical combination of indicators leads to the inevitable realization that multiple scenarios might exist. A trader's focus then moves to the probability of each outcome and the risk-reward ratio.
Advancement to the successful professional ranks is not achieved until emphasis is placed on strategy. Excessive trading, or the excessive buying and selling of stocks, may also be referred to as overtrading. It occurs within each step, and correcting it often enables a trader to progress to the next level. The three most common forms of overtrading are bandwagon trading, hair-trigger trading and shotgun trading. Each manifests itself differently, and to varying degrees, depending on whether the trader's style is discretionary or technical.

Discretionary Overtrader

The discretionary trader uses nonquantifiable data - such as advice from a broker or perceived expert, news reports, personal preferences, observations and intuition - to determine entry and exit points. Position sizes and leverage are flexible. Although such flexibility can have its advantages, more often that not it proves to be the trader's downfall. Discretionary traders often find inactivity the hardest part of trading; as a result, they're prepared to embrace any development that will allow another trade. This impulsive behavior, in fact, isn't trading at all - it's gambling, similar to that described earlier. And just like in the casino, the odds are not in the overtrader's favor.
Technical OvertraderTraders new to technical indicators often use them as justification for making a predetermined trade. They have already decided what position to take and then look for indicators that will back up their decision, allowing them to feel more comfortable. They then develop rules, learn more indicators and devise a system. If it's right more often than not, they believe they've finally beaten the odds, and may reason that if a solid 60% of their trades are successful, they'll improve their profitability with increased trading. Unfortunately, this is another example of overtrading, and it can have severe consequences for these traders' returns.

Hair-Trigger Trading
Hair-trigger trading is enhanced by electronic trading, which makes it possible to open or close a position within seconds of the idea forming in the trader's mind. If a trade moves slightly against the trader, it is sold immediately; if a market pundit shouts out a tip, a position can be opened before the ad break. Hair-trigger trading is easy to identify. Does the trader have many small losses and a few wins? Looking back over trade logs, did the trader overestimate his wins and conveniently dismiss his losses? Were trades exited almost as soon as they were entered? Are some positions continuously opened and closed? These are all classic, easily-identifiable signs of hair-trigger trading.
But the fix is also easy: only enter what you "know" will be a good trade (i.e., a high-probability trade according to your research and analysis, meeting all your predefined trade criteria). If there is doubt, do not make the trade. Losses are far worse than inactivity, and compounding losses are devastating.
Shotgun Trading
Craving the action, traders often develop a "shotgun blast" approach, buying anything and everything they think might be good. They might justify this by the fact that diversification lowers risk. But this logic is flawed. First, true diversity is spread over multiple asset classes. Second, multiple bad trades will never be better than just a few. If a trader has isolated a promising trade, concentrating capital on that trade makes the most sense. A telltale sign of shotgun trading is multiple small positions open concurrently. But an even more firm diagnosis can be made by reviewing trade history and then asking why that particular trade was made at the time. A shotgun trader will struggle to provide a specific answer to that question.
If you're attracted to the diversification aspect of investing, it's far better to buy and hold a blend of the market indexes. This puts the "house odds" in your favor. Be very selective when trading individual positions, and trade only the highest probability trades: a respectable success rate trading one position at a time can quickly degrade to less than 50% success with multiple positions.

Bandwagon Trading
Bandwagon trading is a deliberate attempt by discretionary traders to piggyback or mimic those they consider to be "in the know." This ploy is fundamentally flawed for two reasons. First, even experts don't have all the answers, and they can't predict the future. Their experience and talents are merely two factors among many.

The second reason is that when many traders follow the same path - led by a loudmouthed pundit, a biased stakeholder or the results of many technicians inadvertently using the same indicators - the initial move may degenerate rapidly. This is a basic economic principle: competition reduces margins. In trading, this manifests itself when bandwagon traders compete to exit identical positions as early as possible, often causing a price stall or reversal.
To make matters worse, novice traders are most likely to trade on the bandwagon and most likely to exit prematurely, exacerbating this effect. The strongest signal of bandwagon trading is adhering to someone else's recommendations, or a system devised by someone else. Is there a dependence on popular indicators with the same settings as taught to beginners? Has the "hot" new system or indicator lost its reliability?
If you find comfort in crowds and conformity, buy the index. If you want to trade, first develop your own system, do your own research, customize your indicators and finally - test, experiment and test some more before you trade.

Movers and Shakers

The market is not always smooth sailing. Instead of large trending moves, it sometimes shakes about in a choppy, sideways direction. Many novice traders will overtrade by assuming that minor market corrections are the beginning of the next trend. They'll then jump in and out as the expected trend forms and fails. They may even compound the situation by doubling their positions.
This can be the most destructive form of overtrading. Confident that the reversal is imminent, the trader doubles the size of a losing trade in the belief that he or she has averaged down to a better entry price and will therefore make a bigger profit on the move. Most often, however, this just increases losses. On the other hand, successful traders sometimes double winning trades - never losses - and are quite content to sit out the market, waiting for the right conditions under which to re-enter. An unskilled trader, however, will be continuously drawn back in.
The Bottom Line
The various forms of overtrading can be explained by the amateur's order of priorities. First and foremost, the beginner trader wants to confirm the advisability of his trade by taking profit whenever possible. Secondly, the novice trader wants to reduce his emotional discomfort either by selling as soon as a loss appears or by immediately re-entering the market after a loss or period of inactivity, hoping to "win it back" just like the casino gambler. Overtrading makes only a broker happy; the true professional's priorities will look like this: 
  1. Avoid losses
  2. Minimize risk
  3. Minimize volatility
  4. Maximize returns
Stick to these simple guidelines, and you'll be able to steer clear of overtrading.

More From Investopedia 


Thursday 12 July 2012

The Roles Of Traders And Investors In The Marketplace


July 11 2012

Many people use the words "trading" and "investing" interchangeably when, in reality, they are two very different activities. While both traders and investors participate in the same marketplace, they perform two very different tasks using very different strategies. Both of these parties are necessary, however, for the market to function smoothly. This article will take a look at both parties and the strategies that they use to make a profit in the marketplace.


What Is an Investor?An investor is the market participant that the general public most often associates with the stock market. Investors are those who purchase shares of a company for the long term with the belief that the company has strong future prospects. Investors typically concern themselves with two things:
  • Value - Investors must consider whether a company's shares represent a good value. For example, if two similar companies are trading at different earnings multiples, the lower one might be the better value because it suggests that the investor will need to pay less for $1 of earnings when investing in Company A relative to what would be needed to gain exposure to $1 of earnings in Company B.
  • Success - Investors must measure the company's future success by looking at its financial strength and evaluating its future cash flows
Both of these factors can be determined through the analysis of the company's financial statements along with a look at industry trends that may define future growth prospects. At a basic level, investors can measure the current value of a company relative to its future growth possibilities by looking at metrics such as the PEG ratio- that is, the company's P/E (value) to growth (success) ratio.


Who Are the Major Investors?There are many different investors that are active in the marketplace. In fact, the vast majority of the money that is at work in the markets belongs to investors (not to be confused with the amount of dollars traded per day, which is a record held by the traders). Major investors include:
  • Investment Banks - Investment banks are the organizations that assist companies in going public and raising money. This often involves holding at least a portion of the securities over the long term.
  • Mutual Funds - Many individuals keep their money in mutual funds, which make long-term investments in companies that meet specific criteria. Mutual funds are required by law to act as investors, not traders.
  • Institutional Investors - These are large organizations or persons that hold large stakes in companies. Institutional investors often include company insiders, competitors hedging themselves and special opportunity investors.
  • Retail Investors - Retail investors are individuals that invest in the stock market for their personal accounts. At first, the influence of retail traders may seem small, but as time passes more people are taking control of their portfolios and, as a result, the influence of this group is increasing. 

All of these parties are looking to hold positions for the long term in an effort to stick with the company while continuing to be successful. Warren Buffett's success is a testament to the viability of this strategy.

What Is a Trader?Traders are market participants who purchase shares in a company with a focus on the market itself rather than the company's fundamentals. Markets that trade commodities lend themselves well to traders. After all, very few people purchase wheat because of its fundamental quality - they do so to take advantage of small price movements that occur as a result of supply and demand. Traders typically concern themselves with:
  • Price Patterns - Traders will look at the price history in an attempt to predict future price movements, which is known as technical analysis.
  • Supply and Demand - Traders keep close watch on their trades intraday to see where the money is moving and why.
  • Market Emotion - Traders play on the fears of investors through techniques like fading, where they will bet against the crowd after a large move takes place.
  • Client Services - Market makers (one of the largest types of traders) are actually hired by their clients to provide liquidity through rapid trading. 
Ultimately, it is traders that provide the liquidity for investors and always take the other end of their trades. Whether it is through market making or fading, traders are a necessary part of the marketplace.


Who Are the Major Traders?
When it comes to volume, traders have investors beat by a long shot. There are many different types of traders that can trade as often as every few seconds. Among the most popular types of traders are:
  • Investment Banks - The shares that are not kept for long-term investment are sold. During the initial public offering process, investment banks are responsible for selling the company's stock in the open market through trading.
  • Market Makers - These are groups responsible for providing liquidity in the marketplace. Profit is made through the bid-ask spread along with fees charged to the clients. Ultimately, this group provides liquidity for all the marketplaces.
  • Arbitrage Funds - Arbitrage funds are the groups that quickly move in on market inefficiencies. For example, shortly after a merger is announced, stocks always quickly move to the new buyout price minus the risk premium. These trades are executed by arbitrage funds.
  • Proprietary Traders/Firms - Proprietary traders are hired by firms to make money through short-term trading. They use proprietary trading systems and other techniques in an attempt to make more money by compounding the short-term gains than can be made by long-term investing. 

The Bottom LineClearly, both traders and investors are necessary in order for a market to function properly. Without traders, investors would have no liquidity through which to buy and sell shares. Without investors, traders would have no basis from which to buy and sell. Combined, the two groups form the financial markets as we know them today.


Read more: http://www.investopedia.com/articles/basics/07/trading_investing.asp#ixzz20KcDub4Q

Monday 14 May 2012

Joris speaks to a trader about City short-termism, high pay, the excitement of recent years and why he now wants a way out


Derivatives trader: 'The trouble is, regulators are idiots'

Joris speaks to a trader about City short-termism, high pay, the excitement of recent years and why he now wants a way out

• This monologue is part of a series in which people across the financial sector speak about their working lives
Financial Services Authority
'Why would a smart, aggressive, competitive 22-year-old decide to work for the Financial Services Authority?' Photograph: Sean Potter/Alamy
We are meeting in Lombard One, a restaurant in the heart of the City popular with financial types where a beer goes for £4.50. He is a confident man in his early 30s, the son of south-east Asian immigrants who now works as a derivatives trader, at director level. It's around 6.30pm and he orders a beer.
The Joris Luyendijk banking blog
City of London
  1. Anthropologist and journalist Joris Luyendijk ventures into the world of finance to find out how it works
  2. This is an experimentFind out more
  3. Are you an outsider?Meet the people who work in finance
  4. Are you an insider?Find out how you can help
  5. Follow updates hereThe Joris Luyendijk banking blog
  6. ... or on Twitter@JLbankingblog
"Why trading? I read maths in university, and I love the beauty of it. Success in trading is binary. In areas like history, geography or languages, grey is the most obvious shade. Trading, at its core, is black and white. I have generated value today, or I haven't.
"Why trading? There was the glamour of it. You know, the money, the girls, rock and roll without the guitars. Another thing is, in trading you get to define yourself from an early age. You come in at 22 and you can prove yourself right away. I know guys making £1m a year at 25. This doesn't happen a lot, but it does happen and that's such a contrast with other jobs. As you know, investment banking breaks down into financial markets, where I work, and advisory, such as mergers & acquisitions. I could never be in M&A. A friend of mine works there. He was told in the first year he couldn't leave the M25 [London ring road], ever. He had to stay within a radius where he could be in the office within an hour.
"In M&A you don't really get to do anything of value in the first years. Asthese guys in your interviews are saying you work horrible hours, fidgeting with pitch books and getting the spacing right. Worst of all: if you sell advice, like M&A bankers, you almost have to puff yourself up. Why would clients pay for your advice, unless you are the smartest person on earth? It's a salesman's job – you know, a dirty job?
"If you don't come from money, you realise early on that actually, money is quite important. Let's say experienced traders like me can make anywhere between £300k and £1m a year. Meanwhile somebody fighting for our country in Afghanistan is making £22,000. It's funny how that works. When you ask me if that's fair, I also think of the guy who is making £5m, while I know I am smarter than he is. Life isn't fair.
"I come into the office around 7, in time for the 7.15 morning meeting. There'll be salespeople there, and traders. The traders will get up and give their ideas; basically they're telling the salespeople, this is what you should be pushing with clients. Salespeople have spoken to their regular clients, and they might say, there's massive client interest for this or that. You don't get much out of these morning meetings.
"At 8 the market opens, and I'll be responding to both clients and the market. It can be so hectic you can't even go to the toilets. Or so dull you end up doing your internet shopping.
"At 4.30 the business closes, you calculate your P&L (profits and losses) and file a report on why you made or lost money. Around 5.30 people begin to drift away. The more complex stuff you trade, the longer you need. If you have positions in the US, you may need to stay in as markets there are open until 9pm London time.
"Trading is a seductive world. In a bull market, with prices going up, basically everybody makes money. You ask yourself, was it me or just the market going up? It's tempting to attribute everything to your brilliance. What do I say to people claiming that a monkey with darts regularly outperforms traders? Well, for me the money hits the bank every month.
"I wish I could take you on the trading floor. There's no privacy, people are meant to overhear each other on the phone. The toilets are always in a horrible condition. I don't know why, because people on a trading floor are animals? It's just how it is.
"I love to be one of those people there, the energy, the buzz … Weird thing is, sometimes you can feel the floor exhale before you see the price action on your screen that people are responding to. The price action might be a number coming out, say higher inflation or lower unemployment … It's almost like an opera.
"There's jealousy, of course. People whispering "he had a really easy book to trade", after you had a good year. I'd say the low point is when everybody around you is making money and for some reason you are not. Everyone has bad periods, like sportspeople. You need to be strong, tell yourself "it's fine, I'm good". It's everyone's fear: to have lost "it".
"What is "it"? Call it intuition, call it the equivalent of what Messi can do with a ball. In the morning you ask traders who have "it", what do you think the market is going to do? And they go: "up". And up it goes. It's quite something.
"There seems to be this blanket anger towards bankers. It's as if you'd say: all sportspeople are bad, after some doping scandal or obnoxious misconduct by a footballer. Outsiders seem to think we're all the same. But even among traders, there is equity (shares), commodities (oil, grain etc), fixed income … Within fixed income there are interest rates people and foreign exchange. Within equity there's say, the oil and gas sector, the financials sector etc – and these are completely different beasts from those trading CDOs (complex financial instruments).
"You've got prop traders who use the bank's money to make money for the bank. And flow traders, like me, who trade on behalf of clients. Again, a huge difference.
"For flow traders the holy grail is to become a prop trader, and be away from all the politics, salespeople, clients. "Prop" is the purest form of trading. It's dying out because regulators don't want banks to take risk with their own capital.
"How it works in flow trading. At the beginning of the day I have "a view" of how the market will go. On that basis I will take "positions". Then I wait for clients to call, or be called by our salespeople, who want to buy some of that position. We pocket a commission for doing so, and we may make money from the margin between what I bought the contracts for, and what I sold them on to clients for.
"I said earlier that the beauty of trading is the black and white, but actually there is grey. There's office politics involved when it gets decided what book you trade – for example, the oil and gas sector, or the financials sector. Clearly, there can be more client flow in one book than in another.
"Sometimes a client who is very important to the bank wants to do a trade you think isn't going to be profitable. Sometimes in the interest of holding on to that client you end up doing the trade. Then office politics kicks in because you want your manager to know you sacrificed your P&L. The industry is a microcosm of society, only more intense, sharper and more fast-paced.
"Traditionally banks and firms have cared only about so-called top-line revenue, the net number of how much money you made. But management should look below the line. Say you made a lot of money from one massive trade for a client. Is that really you? Also, firms should look at revenue in relation to risk. If nobody takes notice of the potential losses you exposed the bank to, then you get traders taking huge risks, obviously. Because the easiest way to make a lot of money is to take some massive position and hope it works out. 'Efficient use of capital' is the new buzzword. Capital used to be almost infinitely available. That's over.
"It's a valid question: do we, as a society, want 25-year-old traders making £1m a year? If not, you need regulation, on a global scale. The trouble is, regulators are idiots. I am sorry to put it so bluntly but you can't expect it any other way. If an investment bank hires a graduate, two years later they will be making over £100,000. Meanwhile at the regulators you are getting £30,000. Why would a smart, aggressive, competitive 22-year-old decide to work for the Financial Services Authority?
"You now have a generation who were told as graduates by their bank: we'll make your rich. They weren't taught to think in terms of risk. Basically at banks it's quite simple: if you are generating £100m a year in profits, you can be the biggest arsehole and get away with it.
"A thing that struck me going over the comments on your blog is that people seem to think all of us saw the crisis coming. But apart from Goldman and maybe Deutsche Bank, nobody expected this. I am also angry about the crisis. When I think of the CEO of some Wall Street bank that went bust, and he still has his $400m … I mean, I owned shares in some of these banks, and they've gone to zero.
"Another thing is some people don't seem to understand risk. Risk per se is not bad. Banking is about properly pricing the risk of everything. There are very different sorts of risk, for traders. We seem to be seen as gamblers, but I know of few people who live up to that cliche. It's really quite hard to take a huge gamble. There's risk and compliance, you have risk limits you can't exceed. If you suddenly take a massive position, somebody will see it.
"Sometimes I hear outsiders say about trading 'I could do it'. When we hire people we tell them, you have to be comfortable with running an amount of risk every day of your working life. You end up thinking about it in your sleep, while you eat. It starts when you wake up and never goes away. On an emotional level, it's not that easy.
"In the old days, before the democratisation of knowledge, only a limited number of people had access to information. Our sales guys would get calls from clients who read something in the FT. These days clients go on the internet themselves. Our added value is a lot less. Investment banks have this army of analysts putting out research, salespeople peddling it to clients, traders … Do we need all this?
"An element of panic is pervading the industry. What's our business model going to be? In the past 10 years I have never seen this pace of people dropping out. Pay will only go down. A lot of people are thinking, screw it, I'll survive as long as I can, take the money, and see what happens next.
"Generally the trading floor is meritocratic and I never felt any racism. A couple of pockets, like foreign exchange, are mostly populated by old school English white boys. No idea why that is.
"The trading floor is like a playground. I was in a minority in a white school and I have learnt to see how a comment about my background is meant. Jokes can be about your weight, hair, the university you went. It's an expression of camaraderie. There you are, sitting with two levels of screens in front of you, as in the trenches. You know that the guy to your right and the guy to your left both understand exactly what it is you're doing. We all have the same desire: to get on the floor, to make money.
"Derivatives flow traders have very little scope to rip off clients – a better word would be counter parties – actually, as these are professional investors. Multiple traders at multiple firms and banks can provide the kind of derivatives I am trading.
"In my experience salespeople have very weak technical knowledge of the products. If not, they would be trading themselves. With salespeople it's crucial they have this rapport with that really important client, so they can call him in bed at 10pm. We call this the ability to make the "first call in a non-standard environment". Say the shit hits the fan and we need to offload some inventory on a client. That's when you need the salesperson.
"Salespeople always want you to meet the clients, so they can say: here's my trader. Look at him. Just like a human being, he won't steal your children's inheritance.
"The repeal of the Glass-Stiegel Act allowed investment and retail banks to merge – that was a mistake in my view. There's no easy way to go back now. The Too Big To Fail banks have become even bigger. These banks will always find a way through. What so many people fail to grasp: banks are subject to the same discipline of quarterly earnings reports as the rest of the corporate world.
"Global heads of banks know: I have to make x billion in the next 18 months or I'm out. They can't say: it's going to be difficult for the next five years. The market demands results, from banks as much as from any other company.
"Bank CEOs are like salespeople. They are selling the dream to the outside world of how they are going to make the bank more profitable. The way it works, if you are a pension fund with shares in Morgan Stanley, and you see that Goldman Sachs made 50% more profit, you will not like that. These numbers make you look like a bad investor. So you put pressure on Morgan Stanley, saying, you have 18 months to prove you can turn this around or there'll be a sell-off.
"The short-termism is endemic. In my career I have almost never seen anyone trying to build something. There are just cycles of new guys coming in. They put forward a plan promising to make money in three or four years. So the pressure is huge, and the easiest way is take more risk. It doesn't always have to be obvious, visible risks, sometimes it can be "shadow" risks that are harder for outsiders to see.
"It's like an election cycle, really. You get new management coming in, and they will go for levers that can hit the revenue number within 18 months to three years. They go over the numbers and decide: this desk doesn't work. They fire the senior guy and bring in a new guy, for x million. New guy kicks out four more guys, and brings in his own. When after three years it hasn't worked out, the bank fires those five, and it starts all over.
"This is what a lot of people miss about Goldman Sachs. You look at most guys at the top there, they are Goldman guys. There's actually less short-termism there – for me their consistent management is one of their great strengths.
"Some managers are simply psychopaths. They come up to you on a day when you've lost money, and say: "you are losing money. Why are you losing money? Do you enjoy losing money?" I mean, that is not constructive, or is it? Management, on the whole, is terrible. You rarely get somebody who understands that managing me is not about competing with me, but about getting the best out of me.
"The City, or my niche in it, is like a club. Everybody knows everybody. We went to the same universities, at one time or another dated one another's girlfriends. It's relatively incestuous.
"The past few years were the most amazing, difficult, interesting times. Absolutely exhausting. In the morning you come in and RBS is down 40%. It's Sunday evening and you get a call: Lehman is about to go bust.
"That kind of excitement has washed by now. It's back to normal, the drudgery. I wonder, is this just what happens to people 10 years into a job? You get disillusioned? Everyone around me is thinking about exits. Then again, everyone in finance seems always to be playing with this idea of "getting out", of your "escape route".
"Banking is very honest, you can measure performance and keep score. On the other hand there are so many elements contributing to your performance that you do not control (market conditions, what product you trade, how interested clients are in what you offer them). So sometimes it feels like a very expensive prison term.
"Would I want my kids to work in finance? Most people would say no. Me too. I wouldn't feel they're adding anything. I find myself more and more interested in people who have built something. My life has revolved around a number on a screen for more than 10 years now. It can't be healthy to trade a number on a screen for your entire life?"
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Sunday 29 January 2012

Market Analysis and Market Traders

Investors are continually bombarded with market analyses, all of which fall into one of two categories:

1. The first approach is backward looking. It constitutes "chart reading" of past behaviour.
2. The second is forward looking. It anticipates interest rate changes, industry cycles, business and political conditions that might impact corporate earnings or investor attitude.

Trading on market movements seems easier and maybe more PROFITABLE IN THE SHORT RUN, but it is MORE DIFFICULT FOR MARKET TRADERS to ACCUMULATE LONG-RUN PROFITS AND HOLD ON TO GAINS.

In market analysis there are NO margin of safety; you are either right or wrong, and if you are wrong, you lose money.

Benjamin Graham took a conservative approach to investments. He viewed the stock market as a RISKY PLACE where investors can make money as long as they keep their heads about them.

Friday 14 October 2011

3 Ways to Not Lose Money in the Stock Market


People ask me all the time how I haven’t lost hoards of money like most others. How I do I pick winners every time?
Well the truth is that I don’t always pick winners. In fact, I’m sure the percentage of winners to losers is somewhere around 50-50%; however, I am able to keep my losses to a minimum because of my strict entry and exit plans before taking part of any stock.
If you have ever read any of my free stock recommendations, then you realize that I am a big user of technical analysis and for every stock I keep an entry, stop, and exit point. These three items I believe are an absolute must have before throwing your money into the market.
I’ll briefly go over each one so you understand what I am talking about.

Entry

Before entering any stock you should have a predetermined price at where you want to enter the stock. Basically you want to choose a price that symbolizes the stock has broke out or gained momentum.
Although my stock winners and losers percentage is 50-50%, my entries allow me to avoid stocks that are not right. If the stock never hits my price, than move on. There are so many things you can invest in. Don’t get caught up with any one stock.

Stops

There are various forms of stops, and different times to use them. A stop is a price point where you will exit the stock. Depending on your savvy, stops can be a changing variable. Typically you want your first stop at a point where you would consider the trade a failure. So if you buy at $15, then you might create a stop at $14.80.Listening to this stop is very critical because these are where most people incur the most losses.
The easiest way to avoid losses is to cut them. Trim the fat. If something is not working, then why should you still hold on to it? The more you lose the longer it takes to recover, and now your money is tied up.
If you are fortunate enough to see gains, then move your stops up. So if the stock goes to $16, then maybe your move the stop to $15.80. There are many different ways to determine a stop, but ultimately it depends on what you want.

Exits

Lastly, no trade is complete unless you cash out. The worst thing you can do is blindly go into any stock and not have some sort of price target. You will notice in my charts that I find potential price targets. This is one of the hardest things to do, but don’t get caught up with trying to squeeze every penny out. Any profit is better than no profit.
Once that price target is reached, then its okay to play with house money, but make sure to take some profit off the table or at least move your stop up.
When implementing these three items it is very important to stay discipline. Don’t change anything on a hunch.Unless there is some strong evidence to change your initial stance, then don’t do it. Ultimately that is how you keep your losses to a minimum and profits to a max.
You can learn more about techincal analysis through Chart Pattern Analysis.




April 22nd, 2009 

http://thewildinvestor.com/3-ways-to-not-lose-money-in-the-stock-market/