Trader's Thread 02 (Jan 09 - Mar 10)

Trader's Thread 02 (Jan 09 - Mar 10)

Postby winston » Sun Jan 11, 2009 9:47 am

Welcome 2009 -- by Bill Kraft

I hate to see any year end because every one has provided wonderful experiences and pleasant memories. 2008 was no exception in those categories, but most of us are glad it is over from a market perspective, at least. The Dow finished down 34%, the S&P 500 lost 38% and the Nasdaq and NYSE both fell 41%. Most of the calls I received from prospective coaching students included comments that they wanted help because their accounts were down significantly.

In mid-December, I received an email from Dr. Alexander Elder (author of several excellent trading books including "Trading for a Living" and "Come Into My Trading Room") pointing out that up to that time, none of the U.S. Stock Mutual Funds tracked by Morningstar, not one, was up for the year. In fact, the average performance was a whopping minus 43.63%. That information underscores the importance of cutting losses, paying attention to reward to risk ratios, and of money management, topics I have repeatedly addressed over the years in these articles. If we are down 50%, it means our position must gain 100% just to get back to even. That is a significant problem with the buy and hold philosophy.

It has often been said that even the best traders only win about 1/2 their trades. If that is so (and I believe it is) how can they succeed? First, they can cut losses so that the amount of gains, in general, exceed the amount of losses. One important way to do that is to pay attention to the potential reward versus the risk assumed in any given trade. If, for example, we enter trades where the potential reward is 2.5 times the risk we are taking, we can lose 70% of our trades and still make money. Looking at the Table below, we can see that if we lose $1 on each losing trade and make $2.50 on each winning trade, in 10 trades, even if 70% are losers, we would still make a little.

Lose Win
1. -$1
2. -$1
3. -$1
4. -$1
5. -$1
6. -$1
7. -$1
8. +$2.50
9. +$2.50
10. +$2.50
_____ ______
-$7 +$7.50


Of course, in some cases, the winners would run beyond the $2.50 while the losers can most likely be kept fairly close to the loss set at the beginning of a trade.

All that aside, I reviewed my trades in the three subscription services I edit for MarketFN and found that I did not trade particularly actively as a result of market conditions. I closed 19 trades in Trend Trader, 27 trades in Option Trader, and 28 trades in $10 Trader. Not surprisingly, in light of the downward direction of the market, Option Trader had the highest percentage of winning closed trades with 63%. $10 Trader came in a close second with a winning percentage of closed trades of 61% and Trend Trader with a not too shabby 53% profitable trades. Both Trend Trader and $10 Trader are services in which I am looking to buy stocks so they are directed more to bullish plays where I want to buy the stock and then have the stock price increase. 53% and 61% winners, respectively, in those services when the Nasdaq fell 41% and the Dow 34%, and not a single mutual fund followed by Morningstar had made money by the middle of December seems pretty decent all things considered.

What will 2009 bring? I can assure you that absolutely no one knows. One thing we can do is add to our knowledge. I guess I wasn't surprised when the publisher of my book "Trade Your Way to Wealth" told me that sales of trading books were down this year, but it seems to me that it is exactly at times like these when people should be reading books, adding to their knowledge, learning how to cut losses and let profits run rather than throwing unopened brokerage statements into the trash.

Source: MarketFN.com
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Re: Trader's Thread (Jan 09 - Mar 09)

Postby kennynah » Sun Jan 11, 2009 2:52 pm

winston wrote:Welcome 2009 -- by Bill Kraft

I guess I wasn't surprised when the publisher of my book "Trade Your Way to Wealth" told me that sales of trading books were down this year, but it seems to me that it is exactly at times like these when people should be reading books, adding to their knowledge, learning how to cut losses and let profits run rather than throwing unopened brokerage statements into the trash.


hahaha.... afterall, just another one of those who are out to push for sales...
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Re: Trader's Thread (Jan 09 - Mar 09)

Postby millionairemind » Sun Jan 11, 2009 8:23 pm

kennynah wrote:
winston wrote:Welcome 2009 -- by Bill Kraft

I guess I wasn't surprised when the publisher of my book "Trade Your Way to Wealth" told me that sales of trading books were down this year, but it seems to me that it is exactly at times like these when people should be reading books, adding to their knowledge, learning how to cut losses and let profits run rather than throwing unopened brokerage statements into the trash.


hahaha.... afterall, just another one of those who are out to push for sales...


Actually if you go to your local library and look at the investment/finance section, the section is bursting with returned books.

When the market was in a bull run like back in 2007, the shelves would be half empty. Now there is no need to reserve a book that you want to read and find out that you are no. 10 on the list. :lol:
"If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong" - Bernard Baruch

Disclaimer - The author may at times own some of the stocks mentioned in this forum. All discussions are NOT to be construed as buy/sell recommendations. Readers are advised to do their own research and analysis.
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Re: Trader's Thread (Jan 09 - Mar 09)

Postby kennynah » Sun Jan 11, 2009 8:37 pm

i was at the main national library at bugis last fri evening. i had frequently visited that branch.

on this last visit, i was rather surprised that the "finance/investment" shelves seemed less stocked with I/T books. it used to be that i had a choice of books spanning 2 aisles. this time, most the I/T books were all located only on 1 side of ONE aisle. i could have been mistaken though.

imo, every I/T must continuously read relevant books to attain inspiration and knowledge, not dissimilar to an academic who needs to update themselves with latest research findings in their fields of expertise. even, if it is just to refresh past knowledge is a reason to keep reading.

personally, i re-read many of the books which i read 12 months before. i cannot expect myself to remember all of the lessons/theories/applications learned previously, without constant revision. to cement across this point, i recently read GR's post on an option strategy termed, Reverse Ratio Spread. I was lost and GR reminded me that we discussed this in 2008 and it was from a book we both read.

we forget most of what we read, unless we keep reading them consistently. we do this in preparation for our school examinations, and so, why should it be different now ? not unless, we forget, we are humans.
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Re: Trader's Thread (Jan 09 - Mar 09)

Postby b0rderc0llie » Sun Jan 11, 2009 9:28 pm

Hehe we tend to forget what we do not constantly use. You won't forget how to trade a covered call or a bull spread right? But since you do not use the reverse ratio spread, it tends to get forgotten. For knowledge that we constantly use or practice, it is more like second nature already.
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Re: Trader's Thread (Jan 09 - Mar 09)

Postby winston » Tue Jan 13, 2009 12:15 pm

Finger length may predict financial success By RANDOLPH E. SCHMID,AP Science Writer AP - Tuesday, January 13

WASHINGTON - The length of a man's ring finger may predict his success as a financial trader. Researchers at the University of Cambridge in England report that men with longer ring fingers, compared to their index fingers, tended to be more successful in the frantic high-frequency trading in the London financial district.

Indeed, the impact of biology on success was about equal to years of experience at the job, the team led by physiologist John M. Coates reports in Monday's edition of Proceedings of the National Academy of Sciences.

The same ring-to-index finger ratio has previously been associated with success in competitive sports such as soccer and basketball, the researchers noted.

The length ratio between those two fingers is determined during the development of the fetus and the relatively longer ring finger indicates greater exposure to the male hormone androgen, the researchers noted.

Previous studies have found that such exposure can lead to increased confidence, risk preferences, search persistence, heightened vigilance and quickened reaction times.

In a separate study last year, Coates and colleagues reported that the hormone that drives male aggression and sexual interest also seemed able to boost short term success at finance.

They studied male financial traders in London, taking saliva samples in the morning and evening. They found that those with higher levels of testosterone in the morning were more likely to make an unusually big profit that day. Testosterone, best known as the male sex hormone, affects aggression, confidence and risk-taking.

In the new study, the researchers measured the right hands of 44 male stock traders who were engaged in a type of trade that involved rapid decision-making and quick physical reactions.

Over 20 months those with longer ring fingers compared to their index fingers made 11 times more money than those with the shortest ring fingers. Over the same time the most experienced traders made about 9 times more than the least experienced ones.

Looking only at experienced traders, the long-ring-finger folks earned 5 times more than those with short ring fingers.

While the finger ratio, showing fetal exposure to male hormones, appears to signal likely success in high-actively trading that calls for risk-taking and quick reactions, it may not indicate people who would do well at other sorts of financial activities, the researchers said.

Some traders require additional skills on dealing with clients and sales workers.

And the advantage may even reverse for some, Coates team said, such as traders taking a more analytical and long-term approach to the markets.

One study, which looked at average finger ratios in university departments found that faculty from math, science and engineering exhibited longer index finger ratio, rather than ring finger, they noted.

Source: AP
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Re: Trader's Thread (Jan 09 - Mar 09)

Postby kennynah » Thu Jan 15, 2009 3:39 pm

the simple method to calculate the time needed to obtain 2 times your investment capital

it is to use the number : 72

you all know this, i am sure. but it is still important to reflect on this topic.

supposing you only have S$10,000 as your initial capital and you target a gross 6% annual return (meaning, not adjusting for inflation).

in order to double your capital, you will need approximately 12 years (72/6) to turn that initial S$10,000 into S$20,000. It implies, if you can attain 7.2% gross annual returns on your investments, you will need 10 years (72/7.2), and so on.

now, if we adjust for inflation, assuming it to be a constant 3% annually. then, your initial target of 6% annualized returns, really is only a NET 3% (6% - 3%) and that means, you now require 24 years (72/3) in order to turn $10K into $20K in real terms value.

24 years, based on a 6% gross annual target return.... i don't see how this can be enticing???

of cos, if you had $10million capital base, making another $10million in 24 years, may not sound too bad in real terms. but let's face it. if you had $10million, you wont be so hard pressed about wanting another $10million, right?
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Re: Trader's Thread (Jan 09 - Mar 09)

Postby Cheng » Thu Jan 15, 2009 8:25 pm

I'm curious, fellow traders, be it forex, commodities, futures, options, stocks, warrants etc... what is your returns for last year after commissions?

No doubt it's a tough year for all investors.

If you think you did well, maybe you can share some of your trading rules. :)
"The really big money tends to be made by investors who are right on qualitative decisions." Warren Buffett

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Re: Trader's Thread (Jan 09 - Mar 09)

Postby kennynah » Thu Jan 15, 2009 8:52 pm

buy low, sell higher...buy high, sell higher...

manage risks exposure.... etc.... :lol:

joke only lah...

if u go thru this thread...u wull see many have stated their trading strats.... it's all within this forum...
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Re: Trader's Thread (Jan 09 - Mar 09)

Postby Cheng » Thu Jan 15, 2009 9:15 pm

winston wrote:Finger length may predict financial success By RANDOLPH E. SCHMID,AP Science Writer AP - Tuesday, January 13

WASHINGTON - The length of a man's ring finger may predict his success as a financial trader. Researchers at the University of Cambridge in England report that men with longer ring fingers, compared to their index fingers, tended to be more successful in the frantic high-frequency trading in the London financial district.



Previous studies have found that such exposure can lead to increased confidence, risk preferences, search persistence, heightened vigilance and quickened reaction times.

Over 20 months those with longer ring fingers compared to their index fingers made 11 times more money than those with the shortest ring fingers. Over the same time the most experienced traders made about 9 times more than the least experienced ones.

Looking only at experienced traders, the long-ring-finger folks earned 5 times more than those with short ring fingers.

While the finger ratio, showing fetal exposure to male hormones, appears to signal likely success in high-actively trading that calls for risk-taking and quick reactions, it may not indicate people who would do well at other sorts of financial activities, the researchers said.

Some traders require additional skills on dealing with clients and sales workers.

And the advantage may even reverse for some, Coates team said, such as traders taking a more analytical and long-term approach to the markets.

One study, which looked at average finger ratios in university departments found that faculty from math, science and engineering exhibited longer index finger ratio, rather than ring finger, they noted.


Zhun or not? Don't make me happy haha...

I just looked at my ring finger, it's longer than index finger. Isn't everyone's ringer finger longer than their index's? :roll:
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