08 December 2013 - 14:23 pm
Some quick points, to be making money, Profit Factor must be greater than 1.
- Profit Factor (PF)
- = Gross Gains / Gross Losses
- = (Average win * number of wins) / (Average loss * number of losses)
- = R * w / (1-w)
- where R = Average win / Average loss
- w = win rate, i.e. % number of winners compared to total number of trades
Re-arranging, we have
- w = PF / (PF + R)
- R = PF * (1 – w) / w
Sample numbers showing the minimum R required to break-even (i.e. PF = 1, assuming no transaction costs) for varying win rates.
- w = 90% >> R = 0.11
- w = 80% >> R = 0.25
- w = 70% >> R = 0.43
- w = 60% >> R = 0.67
- w = 50% >> R = 1
- w = 40% >> R = 1.5
- w = 30% >> R = 2.33
- w = 20% >> R = 4
- w = 10% >> R = 9
The style of trading strongly influences the win rate and R (average winner / average loser). For example, >> Read More
07 December 2013 - 22:28 pm
There are things that make you win in the stock market over the long term and then there are things that make you lose quickly even in the short term. The key to trading success is learning the difference quickly and doing what really works not what you emotions or opinions tell you to do.
If you want to win then you must create your own trading plan and follow it, if you want to lose just trade whatever you want whenever you want based on your own opinion.
If you want to win then you must control your risk carefully with only 1% or 2% of your capital at stake in every individual trade, if you want to lose then just trade huge position sizes, put all your chips on the table.
If you want to win plan your entries and exits before you enter a trade then follow them, if you want to lose ask for everyone’s opinion and just make decisions based on other people.
If you want to win cut your losses short and let your winners run, if you want to lose hold your losers and hope that they come back and sell your winners quickly to lock in gains.
If you want to win trade only the best high quality stocks in the market, if you want to lose trade the junk and hope for a miracle come back.
If you want to win then build complete confidence for your system through chart studies and back testing, if you want to lose trade with no idea of if what you are doing even works.
If you want to win go with the current trend of the market, if you want to lose fight the trend and trade against it.
If you want to win then go long the hottest stocks in a bull market, if you want to lose short the hottest stocks in a bull market.
Do what makes money not what you feel like doing.
07 December 2013 - 19:38 pm
1. The mixed spot performance of the dollar is reflected in the speculative positions in the currency futures. On a net basis, speculators are long the euro, sterling, Swiss franc, and Mexican peso. They are short yen and the Australian and Canadian dollars. This is almost the opposite of earlier this year, though the speculative market was short yen then too.
2. Gross long currency positions were generally added to, except in the yen and Mexican peso. Almost a quarter of the peso longs were squeezed out (10.9k contracts), but in the three sessions after the reporting period ended, the peso has come back strongly. Gross short currency positions were more mixed, but the larger adjustments came from adding to shorts (especially the Canadian dollar, 17.2k contracts and Australian dollar 13.8k contracts).
3. Gross sterling longs saw the biggest increase, 17k contracts. The gross long sterling position is the largest of the currency futures we track. At 18.4k contracts it is nearly twice as large as the second place euros (9.3k contracts).
4. At 134.7k contracts, the gross short yen position is at a new five year high. The gross short Canadian dollar position (41.6k contracts) is the largest in six months.
5. The net euro position swung back to the long side (9.3k contracts) after briefly and shallowly (0.4k contracts) to the short side the previous week. The net position had been near 72k contracts in early Nov. The shift was more about longs liquidating than new shorts entering. From Oct 22 through end of November, the gross long position fell 55k contracts, while the gross shorts rose by about 15k contracts in roughly a slightly longer period. The price action since the reporting period ended suggest this position adjustment was being reversed.
06 December 2013 - 12:18 pm
Global bond investors are demanding higher yields just ahead of the US payrolls report, implying they are pricing in the risk of interest rates climbing.
Yields on the world’s safest bonds are at multi-month highs, suggesting investors are getting ready for a strong jobs report, which many analysts say could persuade the Federal Reserve to pull back on its stimulus programme.
A “taper” as soon as this month would send longer-term interest rates up. Since interest rates move inversely to prices, that would cause bondholders to lose money.
A quick look at major benchmark bonds around the globe:
05 December 2013 - 13:38 pm
1) Capacity for Prudent Risk-Taking - Successful young traders are neither impulsive nor risk-averse. They are not afraid to go after markets aggressively when they perceive opportunity;
2) Capacity for Rule Governance - Successful young traders have the self-control needed to follow rules in the heat of battle, including rules of position sizing and risk management;
3) Capacity for Sustained Effort - Successful young traders can be identified by the productive time they spend on trading–research, preparation, work on themselves–outside of market hours;
4) Capacity for Emotional Resilience - All young traders will lose money early in their development and experience multiple frustrations. The successful ones will not be quick to lose self-confidence and motivation in the face of loss and frustration;
5) Capacity for Sound Reasoning - Successful young traders exhibit an ability to make sense of markets by synthesizing data and generating market and trading views. They display patience in collecting information and do not jump to conclusions based on superficial reasoning or limited data.
03 December 2013 - 23:21 pm
Paul Volcker has long since left the White House, but a major US regulator is at last getting round to vote on the rule that bears his name.
The Commodity Futures Trading Commission (CFTC) announced on Tuesday that it will hold a public meeting and vote on the highly anticipated rule aimed at banning proprietary trading on December 10.
CFTC chairman Gary Gensler has called the rule the most challenging of those emanating from the Dodd-Frank legislation passed in 2010 to reform the financial system.
The Federal Deposit Insurance Corporation and the Securities and Exchange Commission are also considering the rule.
03 December 2013 - 11:00 am
John Maynard Keynes was not only a renowned economist, he was an investor. He managed his own money as well as that of King’s College, his friends and family, and insurance companies. As John C. Bogle writes in his introduction to the book, “His spectacular success showed not only his passion for making money, but his growing aversion to losing it. As someone who had gained two fortunes through his trading prowess and lost them through his hubris, Keynes is a stellar example of how an investor can learn, fall on his face more than once, and still come out ahead.” (p. xxxiv)
John S. Wasik explores this investing journey in Keynes’s Way to Wealth: Timeless Investment Lessons from the Great Economist(McGraw-Hill, 2014). Let me start with the rewards of the journey: what Keynes did with his wealth. He bought art as well as rare books and manuscripts. The Keynes collection of rare books, bequeathed to King’s College in 1946, is, according to the college’s web site, “especially strong in editions of Hume, Newton and Locke, and in sixteenth and seventeenth century literature. About 1300 books in this collection have been catalogued on the online catalogue. … Keynes’s collection of manuscripts by Newton, Bentham, John Stuart Mill, etc., is housed in the Modern Archive Centre.” A man after my own heart, but with a bigger budget.
Keynes was a speculator. According to his own definition, “The essential characteristic of speculation … is superior knowledge. We do not mean by this the investment’s actual future yield … we mean the expected probability of the yield. The probability depends upon the degree of knowledge in a sense, therefore it’s subjective. If we regard speculation as a reasoned effort to gauge the future from present known data, it may be said to form the reins of all intelligent investing.” (p. 8) >> Read More