Trader's Thread 04 (Feb 12 - Jan 20)

Re: Trader's Thread 04 (Feb 12 - Dec 19)

Postby winston » Wed Jun 26, 2019 2:27 pm

3 Signs You Might be Overpaying for a Stock

by Erika Santoro and Ari Fima

First, look for the catalyst - the catalyst being an event that can sway the stock either way, Marks said.

Secondly, watch out for whether or not the stock has become a crowded trade.

Lastly, look out for stocks that are going up, maybe not on fundamentals but more of like the sector characteristics, said Marks.


Source: The Street

https://www.thestreet.com/video/-signs- ... yptr=yahoo
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Re: Trader's Thread 04 (Feb 12 - Dec 19)

Postby winston » Mon Aug 26, 2019 5:25 pm

Psychology and Trading

by Thomas Hughes

1. Every trade will always be 1% (or 2% or 3%, 5% is getting risky and 10% very risky)
2. I will always trade with the trend
3. I will only enter on confirmed entry signals
4. I will not enter if price action is within 3% of resistance (for bull trades) or support (for bear-trades).
5. I will use support and resistance targets as exits targets for my trades.
6. I won’t have more than one trade open on one asset at a time.
7. I won’t have conflicting trades open on the same asset at the same time.
8. I won’t have more than five trades open at the same time, that’s 5% of the account at risk at one time.
9. I will always follow my rules.


Source: FX Empire

https://finance.yahoo.com/news/psycholo ... 43519.html
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Re: Trader's Thread 04 (Feb 12 - Dec 19)

Postby winston » Sat Sep 14, 2019 7:21 pm

Make Investing Easier By Avoiding These 3 Traps

by Dr. David Eifrig

Trap No. 1: The Anchoring Trap
The anchoring trap happens when an investor is relying too heavily on what he or she originally thought.

Trap No. 2: The Pseudo-Certainty Trap
There are two parts to the pseudo-certainty trap:-
The first is when investors remove risk when their portfolios are performing well. And some folks may be underinvested today as a result.
The second part of this trap is when investors seek risk when their portfolios are falling.

Trap No. 3: The Sunk-Cost Trap


Source: DailyWealth.com

https://dailytradealert.com/2019/09/14/ ... e-3-traps/
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Re: Trader's Thread 04 (Feb 12 - Dec 19)

Postby winston » Sat Oct 19, 2019 7:21 am

Overconfidence Bias

Overconfidence refers to the phenomenon that people's confidence in their judgments and knowledge is higher than the accuracy of these judgments.

Put more simply, overconfidence blinds you to the reality of your ability and the circumstances around you.

Nearly all of us fall victim to overconfidence.

In the latest Retirement Confidence Survey by the Employee Benefit Research Institute, it found that two out of three workers are confident they are doing a good job saving for retirement and know how much they will need to save to live comfortably.

But the truth?

Only 42% have even tried to calculate how much money they will need!

This makes no sense. Without crunching the numbers, how could anyone say they're doing a good job? They're making a huge assumption with zero supporting data.

How certain are you that your portfolio is on target to help you reach your financial goals? Is that certainty rooted in cold, hard numbers or a vague sense of confidence?

Source: Investor Place
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Re: Trader's Thread 04 (Feb 12 - Dec 19)

Postby winston » Sat Oct 19, 2019 9:11 am

The Disposition Effect Bias

Investors tend to cash in gains far too soon and hang onto losers far too long. This is the result of "Disposition Effect Bias."

In one study, researchers noted the reality of stock market momentum -- basically, stocks that have done well over recent months tend to keep doing well over upcoming months; and stocks that have done poorly over recent months tend to keep doing poorly over upcoming months.

Given this, the rational investor would keep the winners and sell the losers. Of course, we tend to do the opposite due to greed and fear.

As you look in your portfolio today, which "losers" are you still holding? Which "winners" are you considering selling? Is your logic for both potential decisions sound?

Source: Investor Place
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
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Re: Trader's Thread 04 (Feb 12 - Dec 19)

Postby winston » Sat Oct 19, 2019 9:14 am

Self-Attribution Bias

In post-game interviews with athletes, the winners will often praise their team effort, while the losers will many times blame the officials or something other than taking direct responsibility.

We see this type of thinking a lot in investing. We also have a tendency to congratulate ourselves for our brilliance when we succeed -- but blame outside influences for our failures ...

In my office, we refer to this as "confusing a bull market for brains." A potentially fatal side effect of this all-too-human trait is what happens when we get good results from bad decisions: We do the same thing again, usually to a bad outcome.

As you look at your portfolio and your investment decisions, was it truly your expert analysis that led to your winners? And was it truly external, out-of-your-hands influences that resulted in your losers?

If you decided to take complete accountability for all outcomes, how would that change your next stock purchase or sale?

Source: Investor Place
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
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Re: Trader's Thread 04 (Feb 12 - Dec 19)

Postby winston » Sat Oct 19, 2019 9:17 am

Crowd-Seeking Bias


Back to 100,000 B.C.:

... you and your hunter/gatherer tribe are out and about ... you see three dozen terrified members of your neighboring tribe running for their lives ... Your instincts will tell you to run like the wind.

Your instincts will say there's a good reason three dozen people are running for their lives. It doesn't matter if you can't see a saber-toothed tiger or a rival tribe with spears ... you just know it's time to run.

As humans, we have "survival" coded into our DNA. This spills over into our investment choices, think "financial survival." When we see the crowd taking part in a certain investment, we believe there must be some wisdom in that decision. But is that always the smartest move?

There's an easy way to resist our tendency for crowd-seeking, and it's to look for buys when a stock has become a bargain. And I don't just mean "cheap"; I mean a good value.

In other words, look for a company that's still growing like crazy -- in terms of sales, operating margins, and especially earnings. Whenever its stock experiences a sell-off ... then that's a great opportunity.

Do you have a plan like this in place to help you avoid following the herd?

Source: Investor Place
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
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Re: Trader's Thread 04 (Feb 12 - Dec 19)

Postby winston » Sat Oct 19, 2019 9:18 am

Present Bias

Present bias is when an investor chooses the "sooner" options between two prospective choices.

When it comes to our money, this typically means we choose the "sooner" pleasure of spending what we have today, versus the "later" option of investing it, being patient, and letting it compound for tomorrow.

Americans would rather spend the money they have now than wait, even though saving it would mean having a comfy, stress-free retirement later ...

Of course, this goes far beyond just saving for retirement. In everyday investing, the investor may take their profits in a stock too soon when it grows a little volatile, even though the company's fundamentals are still perfectly healthy and growing.

Or they invest too early because the financial media is hyping the stock up. As a result, they overpay for the stock and are stuck with it when folks lose interest.

One of the best ways to avoid this bias is by adopting a plan. Do you know how much you need to set aside for savings and investment today? How much does that mean is left over for you to spend on everyday purchases right now?

Source: Investor Place
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Re: Trader's Thread 04 (Feb 12 - Dec 19)

Postby winston » Sat Oct 19, 2019 9:20 am

Recency Bias

You certainly understand Recency Bias if you've ever had an annual performance review at your job.

Odds are that your supervisor remembers a lot of what you've done in the last month but can't remember work completed nine months ago. As a result, you're more likely to be judged for the last month, than the last year.

And this same bias is likely affecting your portfolio, too.

We often extrapolate the direction of a stock or an entire market far out into the future, dismissing the potential for it to change directions.

Now, while there is some value in momentum investing, blindly adhering to recency bias can result in major portfolio damage. Just think of the Dot-Com investors who believed the tech bubble would continue expanding in 2000/2001.

Are you holding on to certain investments simply because they've been climbing recently? If so, is that alone a good enough reason to have them in your portfolio?

Source: Investor Place
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Re: Trader's Thread 04 (Feb 12 - Dec 19)

Postby winston » Thu Dec 05, 2019 10:31 pm

Three Lessons From the Worst Trade I Ever Made

by Marc Lichtenfeld

1. Don't let a trade become an investment. I had a specific goal in mind: a short-term trade for quick profits. Then I ended up holding the stock for much longer.

Once I realized I was wrong, I should have gotten out quickly. A trailing stop would have done the job nicely, allowing me to participate in further upside but getting me out of the trade after a decline.

2. Don't take on more risk than you can handle. I bought too much stock. No investment should cause you so much stress that you lose sleep.

3. If you're married, make decisions together. You both don't have to be stock pickers, but big-picture things should be discussed. One partner should not be uncomfortable with an investment decision. Financial issues cause a lot of stress in marriages, especially if one partner thinks they are taking too much risk.


Source: Investment U
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