Updates from May, 2011 Toggle Comment Threads | Keyboard Shortcuts

  • Trader Lyn

    Trader Lyn 10:33 pm on May 30, 2011 Permalink | Log in to leave a Comment  

    What happens if Greece defaults? 

    GreeceAll ears and eyes on Greece this week. Some sort of restructuring or “reprofiling” is clearly going to be needed, if not an outright default from Greece.

    If Greece defaults or restructures its debt, then Greek debt would not be eligible to be used as collateral at the European Central Bank, nor would Greek bank debt. Greece and Portugal are effectively shut out of the debt market without the European Union and European Central Bank loans.

    The IMF warned this week it may not continue funding Greek debt in the very near term. If that happens the IMF’s rules could stop the fund from contributing its share of the next of bailout money, due to be paid out to Greece on June 29. The IMF is providing €30 billion of the €110 billion facility, with the balance provided by euro-zone countries. Another form of help the German government has been, proposing asking holders of Greek bonds maturing in the next couple of years to agree to postpone their repayments.

    Since the beginning of the financial crisis, banks in countries like Ireland, Portugal, Spain and Greece have unloaded risks amounting to several hundred billion euros to the European central bank they have accepted securities as collateral, many of which are not particularly valuable. These risks are now on the ECB’s books because the central banks of the euro countries are, part of the ECB system. Germany’s central bank, the Bundesbank, provides 27 percent of the ECB’s capital, which means that it would have to pay for more than a quarter of all losses.

    The failure of a country like Greece, which would lead to the bankruptcy of the Greek banks, would increase the bill dramatically, because the ECB is believed to have purchased Greek government bonds for €47 billion, by the end of April, the ECB had spent about €90 billion on refinancing Greek banks.

    What Happens if the Greeks Default? A domino effect and a huge fall in all equity markets.

     
  • Michael Brook

    Michael Brook 11:28 am on May 27, 2011 Permalink | Log in to leave a Comment
    Tags: pattern, resilience, ,   

    How to Build Resilience into your Trading 

    Anyone trading in the Australian market, and other markets for that matter, over the 5 months would have noticed the see-saw movement of price and volatility that is present at the moment. The chart below consists of XJO over the past months. Since January 1 we have had a 2% downswing, a 5.6% upswing, the Japanese Tsunami crash of 9.4%, the bounce of the Tsunami crash of an 11.25% upswing and then a 7.8% downswing.

    This volatility presents problems for many traders. The rapid changes of direction of the market will present problems for trend following traders who will be unable to have a solid trend. This will be an issue for pattern traders who will trade patterns that rapidly fail after taking the entry. There will be many sharp movements of price that will be taking out lots of trader’s stops.

    In the face of such volatility, many traders have expressed to us exasperation as to how to trade this market and the fact that they are taking losses on a repeated basis. Given the trading environment, the ability to react to volatility and remain focussed and resilient in the face of such a trading environment is challenging many traders.

    This article presents one model of Resilience applied to the trading context to assist them in their trading success.

    A model of resilience.

    In many risk/performance fields, resilience is a required ability or quality to endure the challenges that the performance field throws at them.

    Can you imagine a martial artist being unable to handle the rigours of training being able to acquire a high level of skill? Can you imagine an endurance runner who stopped his running training every time it rained?

    Studies in the field of expertise and expert performance have focussed on the skill acquisition of experts and how they remain resilient through the learning journey. A number of consistent patterns show up in resilient individuals and how they approach challenging environments.

    A resilient individual in response to challenging environments shows:

    1.     The ability to learn from adversity and take a longer term view of events.

    2.     The ability to plan for contingencies. Having contingencies has your ability to have planned actions in the event of bad things happening in the market.

    3.     Robustness – They foster within themselves the ability to respond to the situation in the moment it is happening and execute their contingencies.

    4.     The ability to Recover –They have plans in place for recovery from the situation that they endured.

    Traders who are resilient show these very characteristics.

    Resilient traders are constantly looking to learn from every experience in the market. In adverse market conditions they are seeking to understand those markets because they know they will surely reoccur.

    Resilient traders know what their stops are and know when to stop trading. They have their drop dead points set and know when to pull out of the market all together and act on those plans when the conditions are met.

    Resilient traders know keep and honour their stops and don’t hesitate to act on them.

    Finally, resilient traders are focussed on acting the moment they sense the market has turned around and then maximise their recovery. Resilient traders know when their emotions are clouding their decision making skills and use that as a trigger to get out of the market.

    “Before you can have trading consistency, you must have emotional consistency”

    - Dr Brett Steenbarger

    The core of trading is the mindset of an intense focus on:

    •       Probability orientation.

    •       Pattern recognition.

    •       Decision making.

    A resilient trader is able to make timely decisions, recognise when the probability of a trade is not in his favour and the patterns that are presenting themselves in any market that represent opportunities at that time.

    How to build resilience into your trading plan.

    Every trader who is successful over the long term has a trading plan and they build resilience into their trading through their trading.

    Below are some ways that you can build resilience into your trading plan.

    Have a drop dead point.

    This is the point at which you stop trading all together. This acts as a circuit breaker to reduce your losses. If you don’t know what yours is then your probably should not be trading. At trading state we often deal with struggling traders who don’t have drop dead points in their trading. Successful traders know when to stop losing. Unsuccessful traders do not.

    Having trading patterns for different markets.

    By having trading patterns for different markets, either trending, freefall or rangebound, this builds in contingency planning and focuses on a trader on being able to respond to the markets that are presenting themselves in the moment..

    Using feedback loops.

    Having feedback spread sheets to track the metrics of your trading enables you to learn from every single trade even in a market that is difficult to trade in. This builds learning into trading process that allows you to learn from adverse market conditions.

    Use position size decay.

    Position size decay is the concept where with each losing trade the next trade becomes incrementally smaller. This progressively reduces your risk exposure and can substantially reduce drawdowns on your trading balance. The prepares you as a trader to be fully available for  the opportunities that will present themselves when the market turn.

    “You can’t change the market, but you can change how you respond to it.”

    As traders we live in a world that is inherently risky and uncertain on a daily basis. Few other professions or occupations have the same degree of uncertainty.  This is something at we are unable to change.

    We can however be prepared for bad markets as well as good ones. We can’t change the market but we can change how we respond to it and what we do in each moment

     
    • Trader Lyn

      Trader Lyn 11:39 am on May 27, 2011 Permalink

      Thanks Mike for another great article!

    • Keith Kong (ZTrade) 12:33 pm on June 3, 2011 Permalink

      Hi Michael,

      Thanks for sharing. It is a very good article. “You can’t change the market, but you can change how you respond to it.” I couldn’t agree with you more. I’ve seem so many people to response to the market use the “buy and hold” strategy and to be exact they are “pray and hold”.

  • Michael Brook

    Michael Brook 9:42 am on May 5, 2011 Permalink | Log in to leave a Comment  

    The Correlational Tendency – If you don’t know what it is, it could be costing you lots of money. 

    As a trader, you are required to sift through huge amounts of data in order to make good decisions. There are a very large number of choices you could make in terms of the instruments you trade, whether it’s indices, commodities, equities or futures.

    Consider just the ASX for a moment. There are approximately 3500 listed companies on the ASX and that does not include derivative instruments built around those companies. Each company produces a stream of data from which the aggregate of traders’ responses becomes the trade volume, price and the chart patterns that are formed.

    Even if you reduce the data to the five primary pieces of information on each listed equity on end of day data, that is; open, high, low, close and volume, you still get 87,500 pieces of information a week that can influence your trading decisions. Considering there could be many other options, warrants and futures associated with just the Australian equities, the volume of data you have available for influencing your decisions is very large.

    When making a decision about what to trade and when to take it, the data needs to be sorted with reference to your trading plan and trading style. Once a trade opportunity is identified, then the trade is executed.

    What happens next is critical to your success as a trader.

    Many traders do everything right up to this point but never achieve the success they desire.

    Having made a decision about a trading opportunity, then they search the data stream to find material that confirms the correctness of their decision. This is called the correlational tendency.

    Humans have a tendency to look for data that confirms previous decisions in all areas of life. This can continue long after the passage of time has actually proven an original idea or decision to be incorrect. In trading, this is manifested by holding on to a losing position long after you should have exited the position.

    Here is a real life example of the correlational tendency.
    Several years ago, a sniper was shooting people randomly around Washington in the US. The offender’s vehicle was originally reported as a white van, so the police started looking for a white van at their roadblocks. Subsequently the offender was apprehended in a blue sedan. The police chief gave a press conference saying they were still looking for a white van driven by someone who may have helped him, even though he had already been arrested in a blue sedan.

    The police chief refused to believe that they had been wrong and was looking for something that was never there to correlate with his previous belief. Traders often do this to their cost.

    The correlational tendency operates without deliberately directing our attention as well. If you have ever bought a new car of a relatively unusual make or model, you have probably observed that all of a sudden, the roads seem to be full of them. In fact, there are no more than usual, but your attention has been redirected by your interest in that particular vehicle so that you notice them instead of ignoring them.

    Trading skill is a function of:

    • Probability Thinking
    • Decision making ability
    • Pattern recognition

    As a trader, you make a successful trade when you have a good understanding of the probability of the success of the setup, if you have made clear decisions about the trade and subsequently decided to keep it or get out of it and you recognise when the pattern of data really is in your favour.

    If you are attempting to correlate the data with your previous decision as is the normal human tendency, you will tend to stay in trades too long and keep trading into a market that is not rewarding your trading style. Either of these two outcomes is death to your trading balance.

    How to change this?

    As a trader you need to ensure that you are looking at the data without correlating it to your previous decisions.  You can do this in a number of ways.

    First, if what you are doing isn’t working, take a break. Trading is entirely voluntary. You don’t have to do it. If you are not seeing the data correctly, get out of the market and take a break.

    Second, talk to someone else, preferably a coach about your positions. If you can explain cogently what you are doing to someone else and it makes sense to them too, than you will probably be looking at the data with minimal bias. If your coach or knowledgeable person has a different opinion, you need to consider how you have been thinking about that position.

    Third, assume you may be wrong with your idea and consider that possibility at all times.

    Finally, develop the ability to manage your emotional and decision making state so that you can consider a number of points of view of the data simultaneously.

    This is one of the topics to be explored in the Clear Mind Trading course to be held in Sydney on the 4-5 June 2011.

    Our Sydney Seminar last year was attended by Ray Barros. Ray has been an expert trader and educator for many years. Here is what Ray had to say on his Blog

    “I’ll comment on a workshop I attended on the weekend hosted by Trading State. For me it was a great experience. “Clear Mind Trading” emphasizes the psychological aspects of trading with experiential learning. If you are looking for a workshop where you sit, listen and take notes, then this workshop is not for you. But if you want to come away with a clear understanding of the issues facing a trader and with tools that you have experienced using that will assist, then this is a fabulous workshop.”

    Our Upcoming workshop is on the 4th -5th of June at The Adina on Crown in Surry Hills. The investment is $1650.
    Places are Limited. Call us on 0432 681 321 to book your place.

     

c
compose new post
j
next post/next comment
k
previous post/previous comment
r
reply
e
edit
o
show/hide comments
t
go to top
l
go to login
h
show/hide help
esc
cancel