Good Investing Lessons

It was better to risk taking many small losses than to risk missing one large profit. In order for this to work, you must have a trading edge. Without which, you are taking unnecessary risk. Trading is like gambling. You want to know your edge first. You need to calculate your edge for every trading decision you make, because you can’t make “bets” if you don’t know your edge. It’s not about the frequency of how correct you are; it’s about the magnitude of how correct you are. For winning edge to happen, the expectancy of the trades must be positive: E = (PW x AW) - (PL x AL) Where: E = Expectation or Edge PW = Winning Percent AW = Average Winner PL = Losing Percent AL = Average Loser

"You shouldn’t care about how you got to the current state but rather about what you should do now. A trader who trades differentially because of swings in confidence is focusing on his or her own past rather than on current realities." - Bill Eckhardt. Key trading rule: Forget how you got here! Do not let your emotion affect you. If you keep thinking about how you got to your current state, your emotion will affect your decision making. For example, if you are sitting on the paper gain of 10%, you emotion may want to urge you to take profit even though the current market trend is still at your advantage. On the other hand, if you are sitting on a paper loss of 10%, your internal urge is to ask yourself to hold on to it hoping that it will turn around even when the trend clearly tells you that it will continue. Eckhardt clarified, “What this means is that once an initiation is made, it should not matter at all to subsequent decisions what the initiation price was.” It is impo...

Recently, I had missed out the opportunities to make a few thousand dollars due to impatience. In each of the 4 cases, I sold out just before the break out because the counters refused to move while I was holding over a week. That cost me to missed out over $6,000 of profits. I noticed that I had unfounded fear of tying down my capital and not being able to fully utilizing my capital for additional gains. However, the true fact is that I have 75% of my capital sititng there and waiting. So, there is no compelling reasons to sell my existing positions since they had not breached the stop loss point. This is an important lesson to learn. Be patient and committed. Trade with more conviction then trying to hit-and-run. Quote Eckhardt did not want the Turtles to worry about linear decreases in their accounts. The slightest exponential curve from a big trend would eventually surpass the steepest linear curve they saw while losing. Discipline, money management, and patience were the only way...

Here are some trading systems that can be used for trend following trading: ATR Channel Breakout : A volatility channel system that uses ATR as the volatility measure. Bollinger Breakout : A volatility channel system that uses the standard deviation as the volatility measure. Donchian Trend : A breakout system with a trend filter. Donchian Trend with Time Exit : A breakout system with a trend filter and a time-based exit. Dual Moving Average : A system that buys and sells when a faster moving average crosses over a slower moving average. Unlike the other systems, this system is always in the market, either long or short. Triple Moving Average : A system that buys and sells when a faster moving average crosses over a slower moving average but only in the direction of the major trend defined by a very slow-moving average.

In order to get positive return in the long run, we need to have positive expectancy in our trading system. In trading, the best edges come from the market behaviors caused by cognitive biases. To find an edge, you need to locate entry points where there is a greater than normal probability that the market will move in a particular direction within your desired time frame. You then pair those entries with an exit strategy designed to profit from the type of moves for which the entry is designed. Simply put, to maximize your edge, entry strategies should be paired with exit strategies. To understand why this is important, let’s dig further into the components that make up the edge for a system. System edges come from three components: Portfolio selection : The algorithms that select which markets are valid for trading on any specific day Entry signals : The algorithms that determine when to buy or sell to enter a trade Exit signals : The algorithms that determine when to buy or sell to ...

Drawing from the teachings of Turtle Traders, I must keep my trades to myself and increase confidence and faith in myself. The Golden Agri case is a classic example. I bought at 0.315 on 15th July and it went up to 0.335 the next day. I happen to call a friend (who is a full time trader, sort of) for some sharing. He warned me to sell away stocks that are in-the-money to cash out quickly because overall market seems to be soften. That prompted me to sell off my Golden Agri at 0.315 for a quick profit (5.5%). Sounds good for a one-day job. After selling, I realized that I had made 2 mistakes. One, I was succumbing to fear of losing because I didn't justify the selling by the chart and the counter did not hit my stop loss. Two, I was not sticking to my rules and consult my charts before making any moves. Important Rule: Trading is a lone game (Jesse Livermore, Turtle Traders). Do not discuss your trade with other people. This important rule was both mentioned by Jesse Livermore and T...

One of the key factor in successful trade is the set the stop loss at the right place. Selling off too early is often the cause of my losing trade and at the end I sit and wait to see the stock move up much higher that it was and could has resulted in reasonable profit. I sold off Ascendas India Trust at 0.68. I was getting impatient over this counter. Within the next 3 trading sessions, it went up to 0.71. Healthway was sold at 0.10 and it closed at 0.105 on 17th July. Parkway was sold off at 1.69 on 17th July during intra-day and it turn out that it was closed at 1.71. Now the counter looks a little bullish. Again, the same mistake as the above 2 counters. Looking back at my records, I could have made a lot more money if not for selling off too early. I was able to pick the right stock but often too early in the stage. But if I has set my stop loss a little lower, those trades would not have been prematurely sold off. Another issue is the trading horizon. I seems to be very impatient...