Trading For a Living

Trading Without Ego

2009-04-30T12:51:00.002+08:00

by Ruth Barrons Roosevelt

Make no mistake about it. A trader's self concept has to be separate from the trading. Who you are as a person began before you ever thought of trading and who you will be as a person will extend beyond your trading. When personal self-worth entwines with trading, it not only damages self esteem, it sabotages the trading.

You hear about it. You read about it. Don't be misled. Traders tell stories. They write stories. They tell how great they are. Big trades. Big numbers. Big egos. Hubris. And sooner or later, big downfalls. It goes with the territory.

Consider the outsized egos of certain traders who brought themselves and those associated with them to ruin. Nicholas Leeson brought down the Barings Bank. Victor Niederhoffer ran his fund into deficit. John Merriweather threatened the health of our banking system by betting more than fifty times his capital that his strategies were certain to work, that he could forecast with impunity the direction of various bond markets. There's a pattern here of seeming or real success for a while and then collapse for themselves and for those caught up in blindly following them.

As Wayne Dyer said, Authentic freedom cannot be experienced until one learns to tame the ego and move out of self-absorption.

In his wonderful book, Pit Bull , Marty Schwartz tells several stories of the times he lost money because his ego got in the way. In the end he has this to say about ego:

I've said it before, and I'm going to say it again, because it cannot be overemphasized: the most important change in my trading career occurred when I learned to DIVORCE MY EGO FROM THE TRADE. Trading is a psychological game. Most people think that they're playing against the market, but the market doesn't care. You're really playing against yourself. You have to stop trying to will things to happen in order to prove that you're right. Listen only to what the market is telling you now. Forget what you thought it was telling you five minutes ago. The sole objective of trading is not to prove you're right, but to hear the cash register ring.

Because trading is an uncertain game of probabilities filled with uncertain vagaries, an overly inflated ego or a fragile ego can easily get smashed. Defending the ego uses up unnecessary energy, distorts perception, and sooner or later, will destroy the trading. If your self esteem rises and falls with your trading results, you and your trading are in trouble. Self concept has to be strong and durable and not at the mercy of the current, last, or next trade.

We need to check our egos at the door when we start to trade. Uncertainty is central to trading. If we add the uncertainty of our own self image into the mix of the unknowable endemic to trading, we're in for certain trouble sooner or later.

Some typical symptoms of egotizing trading would be the following:

· Not putting in stops. The ego doesn't want to be proven wrong.
· Hesitating before putting on a trade. The ego wants reassurance before it begins.
· Overtrading. The ego wants to prove itself big time.
· Getting stuck in a trade. The ego has intertwined itself with a trade and is holding on for dear life. It cannot cut out. The ego doesn't want to be wrong.
· Adding to a losing trade. The ego digs its hole deeper in a massive effort to crawl out.
· Grabbing a profit too soon. The ego wants a pat on the back.

How do we separate our ego from our trading? How do we keep from personalizing a trade? How do we avoid personalizing all of our trading?

One way to separate your ego from your trading is to build healthy boundaries between yourself and your trading. Not only do good fences make good neighbors, good boundaries make good traders.

A boundary sets limits, makes distinctions, informs you as to what is you and what is not you, makes clear the distinction between you and others, tells you where one thing ends and another begins. It distinguishes between past, present, and future. It lets you know that another's ideas, values, and feelings are not necessarily yours. A boundary is flexible and permeable. It lets information flow back and forth. It allows you to listen actively without having to take on someone else's opinions and without having to force your opinions on another person. In trading it draws a distinction between yourself and your trading, between one trade and another, between one trade and all of your trading.

One trader would see the signal to take a trade and before she could put the trade on, she'd hear a voice saying, "What if I'm wrong?" Immediately she'd feel small and diminished. The next step was simply to let the trade go by as she sat there stalled by her vulnerable ego. She needed a boundary between her self-esteem and the outcome of a trade. She needed a boundary between self worth and being wrong. With such a boundary she could give herself permission to not always have to be right.

Another trader had had nineteen winning trades in a row. The tension was building and he was strung tighter than a drum when he came to see me. I congratulated him on his recent success and asked him what would be so awful if the next trade was a loser. He said, "I'd lose my self-esteem, and without self-esteem you're nothing. What an untenable state of affairs! His self concept was riding on the results of the next trade. John needed a boundary between himself and his trading. He needed to know that his ego would be intact regardless of what happened to his trading.

A healthy boundary lets you know the difference between your business and yourself, between your trading and yourself. You are more than your business. You are more than your trading. A boundary also informs you that the results of one trade are not to be confused with the results of all of your trading. Boundaries guide you as to the difference between the past, the present, and the future.

Another way to get some distance between yourself and your trading is to look at it from different perspectives. This is also true in your relationships with other people. In most interactions with another person there are three different and separate perceptual positions.

The self position is looking through your own eyes, hearing what you hear, feeling your own feelings, holding your own beliefs, and making your own interpretations. Most of us live our lives in this position. This is the position that gives you passion. It's where the juice is. From this position we have access to some information, but not all of it.

The observer position is that of a neutral observer, a fair witness. This is a dissociated position. Here you watch yourself and the other person. Here you are in the role of a spectator as you listen to yourself and the other person. As an observer you'll have a third party's commentary. This gives you an impartial view, but if you stay here too long, you could end up playing the role of the cold fish.

The other position gives you the other person's point of view. Here you look at things through the eyes of the other, hold the other's feelings, walk and stand in the other's shoes. This position gives you the ability to identify with and through another person. Here you see the world through another person's eyes and get a sense of what they're feeling. If you live too much in this position, you could be in danger of living in the doormat position.

By going to the observer position, you can gain perspective and neutrality. Some successful traders move to the observer position when they put on a trade. If you're getting too involved in a trade, move to the observer position and look at it from that perspective. At the end of a given trade or at the end of a trading day, take a look at your trading from the fair witness position.

You can also look at your trading through the eyes of another person, for example, a trading buddy, a trading coach, or a trader you admire. What would this person say? What would they think? What, if any, advice would they give you?

Ego involves a separateness from all else. Let me recommend an exercise that will help you experience your oneness with the universe and release egocentricity. Go for a walk, or you can even do it inside. I prefer to do it walking down by the New York harbor. Look carefully at a tree, a plant, a cloud, a wave, or a flower or any other object such as a rock, a sidewalk, or a bench. Notice it's shape and the space it occupies. Become the object and experience yourself as filling that space. Keep doing this with different forms. After a while you'll experience wonderful freedom and energy.

"Don’t force trades. Do not attempt to create an opportunity where one does not exist. Be patient. "
Anonymous

Do you have Mental Resistance(MR)?

2009-03-01T11:38:00.006+08:00

Life is balance and fair at least in the context of average people.It really is.Some will say if life's fair,then what about the people in Africa?In developing countries where they face oppression,famine,diseases,etc..? Well,I must say that's the way it is in life.It is true that no one ask for hardship.External factors beyond our reach and comprehension is something that we as individuals are hardly,if not impossible,able to control unless there is a critical mass amount of people which I've yet to see(In the case of Africa economic infrastructure).So if external factors are not in our control,what can we change? Our mind.Internal belief has done mankind a favor through the ages although external factors were mocking and condemning the individuals but yet,this remarkable individuals were able to achieve what they belief in.People like Dalai Lama who seems to smile at the wrath of the Chinese government,Bill Gates who drop out of the herd(Harvard) and believe he had something great and Albert Einstein who many would claim him to be a genius but in his biography(Einstein: His Life and Universe),I realized that he wasn't born with a genius given mind, unlike what majority thought.His strongest traits was his ability to believe in is his own theory on certain topics of physics amidst all the scathing remarks that was hurled at him and not allowing the masses to influence his reasoning even though at that time he was a nobody! His genuine love for physics and maths,not the attention of people,saw him through.

So how do we acquire the mindset of Great Individuals?

From my perspective,certain things may seem hard to get because we have something in us that we are thinking subconsciously(without realizing) against ourselves: Mental Resistance(MR).Neither it is a good or a bad thing.Just see it an important component that we MUST have in our system.Why do I say that? I believe,without MR,we would kill anybody who made us angry or rape anyone whenever we feel a tinge of sexual urge,just to name a few what human are capable of. Without MR,we would do EVERYTHING and ANYTHING instantaneously without rationality, whenever our mind pop up an image or an idea,be it bad or good.

On the positive side of not having MR in your mind,theoretically,majority of human beings will be extremely rich or successful because they are taking advantage of all the positive energy in them without having any form of MR.Great isn't it? Now,lets take a hard look at this scenario.

Because the entire human race now has the power to utilize their positive energy without any form of MR in them and all are rich,powerful and able to do all the simplest jobs in the world...Who is going to the jobs that doesn't need degrees?Who is willing to do the things that rich and successful people doesn't want to do?Who is going to do the jobs that doesn't require much faith and belief?

In my humble opinion,I see MR as a form of balancing instrument in life. Only those able to surpass their MR are entitled to be someone with power.Maybe it is because people that surpass their MR are normally people with good virtues like positive thinking,honesty,belief,compassionate...and so on.Those minority that have surpass their MR eventually controls the majority that have yet to pass their MR. Imagine if it was the other way around,I presumed life on Earth will be chaos because governments with wrong mindset and beliefs are running the show!

Everyone in the right frame of mind has MR.In a way,it acts like a force in the mind to balance between our emotions,desires,needs,logic,etc...Without MR,if the scale is tip heavily in the Emotions part,then we will cry,scold,love or laugh unnecessarily without any common sense.In a way,MR acts as a catalyst to maintain our sanity.

MR is the reason why we are safe from harm,allow ourselves to have a good reputation among our social circle,keeps our integrity intact,and so on. But it can be bad because most don't know how to harness the MR to their favor,and for the majority,it works against their best interest without them realizing since it is a subconscious trait.,and when this happens,it slows down our progress,or worst,hinders it.

So how do we allow our MR to work in our favor?
Everything and anything starts from the seed.,yours is the mind.
1.Never procrastinate.If you want something go get it.Period.If you want to be mediocre,you can.If you want to be excellent,you can.If there is no time,make time and if there is no way,then you better be firm with yourself and insist on finding a way.
2.You are you.You are not them.They are not you.Even God will judge you as an individual.So why bother worrying about what other people think? Don't follow the
herd.
3.PSP. No,no... not the portable game but,
(i)Perseverance is the hard work you do after you get tired of doing the hard work you already did.
(ii)Sacrifice is the passion of great souls,has never been the law of societies.
(iii)Persistence have a magical effect before which difficulties disappear and obstacles vanish

PS: If Barack Obama didn't surpass his MR, he would be telling himself stuff like,"I can't be President because I'm black", "I'm too young" or "I don't want people to think that I'm a hypocrite by promising a change but not doing it." If your heart and mind is one,and you're able to sacrifice other things for that one thing that you really commit to achieve so badly,past individual experiences has showed us that you can if you really believe.

Cheers
Hyzel

"One determined person can make a significant difference; a small group of determined people can change the course of history."

Sonia Johnson

Why is Money Management important?

2009-02-28T05:26:00.020+08:00

The subtleties of money management unbeknownst to many novice traders is a great cause of concern since it is rarely delve about . Why is that so? Simply because the topic doesn't sell and it doesn't interest readers,unlike strategies,systems and psychology.Majority of the people either hope to find a quick way to make money or the next strategy that has just been "discovered". (or so they say)

I realized that certain sites construe this topic to be a daunting task to understand.I wonder why...I'll give you a straight answer why Money Management is important,there's nothing to beat around the bush really...:

1st)As you have to come to realize on my earlier article :Trading is a random distribution between wins and losers.

After you have accept the 1st rule,you will understand the 2nd rule,which is...

2)It keeps you in the game to play another day.Your money management should be structure in a way that allows you to gradually increase your portfolio even when you face consecutive losing trades.,and during the occasional losing streak where most of us will face,it should be a minor draw down in your overall increasing portfolio.

That is basically the philosophy behind Money Management.

But if you want a more detail answer on Money Management,I bring you...
Michael Covel(Author of “The Complete Turtle Trader”)

Money management is a defensive concept. It keeps you in the game to play another day. For example, money management tells you whether you have enough new money to trade additional positions. Don’t confuse money management with stop placement. Stop placement does not address the how much question.
Money management is risk management. Risk management is the difference between success or failure in trading. Trading correctly is 90% money and portfolio management, a fact that most people want to avoid or don't understand. Once you have the money management down though, your discipline and psychology is 100% of your success.
Money management optimizes capital usage. Few have the ability to view their portfolios as a whole. Even fewer traders and investors make the move from a defensive or reactive view of risk, in which they measure risk to avoid losses, to an offensive or proactive posture in which risks are actively managed for a more efficient use of capital.

The common percentage use among retail traders are 5% of their total portfolio on any one trade.Some 4%,some 3%,some even 0.5%...In my humble opinion,it doesn't matter what percentage you use for a trade really, as long you're able to "stay in the game" for the long term and be there when you're anticipating a profitable move.

Cheers
Hyzel

"Money management is like sex: Everyone does it, one way or another, but not many like to talk about it and some do it better than others. But there's a big difference: Sex sites on the Web proliferate, while sites devoted to the art and science of money management are somewhat difficult to find."

Gibbons Burke

How do I improve on my portfolio performance?

2009-02-27T05:36:00.005+08:00

Simple,just 3 words...
The first would be experience
Second would be experience
and third,would still be...you guessed it, Experience!

There's no holy grails or secrets to achieving the success that one is aiming for.One must get "taught" by the market to be better at trading. It takes time,patient and money.Gaining proficiency is the same in trading as in any other profession - it requires experience, and experience takes time.

How can one improve on his portfolio performance?
Well,since there are couple of factors attributing to an increasing equity curve,I will prioritize them from the most important to the the not so important.

1.Gain experience.No amount of education around the world can give you that unique trading edge.Experience is within yourself.To have experience,one must be patient through the random lessons that will be laid to you,for sometimes at a cost(losses) and this may sound cliche,but one must resist the urge of giving up as trading is not an easy profession.

2.Give yourself a fighting chance.When I say this,it means have a huge amount of capital and place extremely small trades. By doing this,you allow room for yourselves to incur consecutive losses and still trade another day. Not forgetting this axiom-"Trading is a random distribution between winners and losers." Be it you're a fundamentalist or a technician.

3.Once your mind,heart and soul genuinely accepts any kind of losses and just do not worry about it,the trader is having the correct mindset and is on his way to the status of a pro trader.Why do I say that? Because when you have fear, it is detrimental to your learning curve.Fear confuses one's knowledge that one attain. That is why sometimes you see 2 people in a same situation,same resources and same skills but end up with different results.Why?Fear restricts one natural logical thinking.,and one of the solutions to reduce that fear dramatically is to trade in small amounts and mentally prepare yourself for a loss.

4.Embed the skill of "High Probability Trading".I might get some stick by saying out this point,but it has help me stay out most of the bad trades that I will usually trade. So what is High Probability Trading? For one,there is diverse definition on it. What is high probability for me,may not be for you. it depends on what angle you're looking at.While some may follow a trend,others may pick a bottom.,etc.Bottom line,be choosy in your trades. Trade only the ones that gives you the highest chance of profiting.And yes,you will still face inevitable losses even after you methodically choose your trades,but hey,that's part and parcel of trading.Losses will forever be a part of a trader's life.

5.There's a famous adage that the trading society frequently likes to remind each other,which is,"Let your profit run and cut your losses short." I find it funny and contradictory to my belief. For me,if it is time to get out,I'll get out.,via the systematic way.I won't let my "profits run base on blind hope".But I stand fast beside the axiom of cut your losses.As funny as it sound,the reason why people hang on to losses is simply because they don't want to lose.So instead of,"Let your profit run and cut your losses short.",it should be "Take your profits and run and cut your losses short."

I'm sure you realized that there's no or little form of technical aspect in the discussion because honestly,it's all in the mind. There's no Secret strategy or any of that sort. The Greatest Teacher is YOURSELF.

Cheers
Hyzel

"All traders make mistakes, great traders, however, limit the damage."
Anonymous

What you need to know about the Option Market

2009-02-27T05:34:00.007+08:00

You don't need thousand of dollars to trade options.Just a few hundred will do...that is,if only your capital can sustain the frequent sporadic losses that will inevitably come along the way or if you're able to conjure up consecutive wins without losing which is highly improbable.So,my humble advice to you like any other veteran traders will say,"Have an amount that you're willing to lose and(in my opinion) start of with USD$2000,just a rough estimate,the amount it's up to you.The more you can afford to lose,the better...as losses will will show you the mistakes you made and once you learn from it,you'll be a better trader.Take this money as "tuition" money and do not to be fearful of losing it albeit I know it's hard.

So what do you need to know about the Option Market?
Well,I have to say that there is no one or two things that sums everything up about the Option Market.There are many things that you need to know,and there may be somethings that I have yet to know.What I'll tell you is the most important things that you need to know before you start to trade options.Before I go any further,I have to point out that I'm no guru and I feel the topics that I'm about to mention will be best explain by the experts(that you have to do your due diligence).I wouldn't want to mess up your understanding on certain option theologies.

1.Understand all the Greeks
2.Understand all the types of Volatility associated with option trading
3.Understand Money Management
4.Understand Technical Analysis or some say...,Charting
5.Understand Candlesticks

There may be more,but I strongly believe these are the 5 pillars of Option knowledge that you need to grasp before you go on any further.Happy Trading! =)

Cheers
Hyzel

"I always laugh at people who say "I've never met a rich technician" I love that! Its such an arrogant, nonsensical response. I used fundamentals for 9 years and got rich as a technician"
Marty Schwartz

How should I start if I want to learn Option Trading?

2009-02-26T20:20:00.008+08:00

1st and foremost,I would like to assure you that Option Trading is not as hard as people make it sound to be.They do that to either make themselves look sophisticated or they're trying to sell you their seminars,products or newsletters. The best tuition you'll ever get is through someone guiding you,educational trading books and your unavoidable losses that you will make as a rookie. I know cause I've been there and done that. If you are fully committed to be an Option trader,I hate to be a wet blanket,but first, you need to have an amount that you are willing to lose.I don't care(actually I do,if I wasn't,I'd be lying to you) that you will frown on me thinking that I don't have your best interest and I'm asking to you lose,but I'm just saying as a matter of fact that it will happen, simply because you have yet to understand the concept of trading.I've read tons of books,learn and analyze, promising to myself that I will never blow my account like "those traders" before I traded with real money.After 6 months of virtual trading,I started trading using real money with methodical and conservative approach and what happen after a month?You guess it! My account was pulverize to HALF! Now,don't be intimidated by this experience of mine,what I'm trying to tell you is that in trading,you need time to develop the unique skill that will manifest upon itself that you will discover along the way if you are serious enough.Educating oneself is paramount but one also need the sufficient capital to trade to pay for the tuition money(loss). You might be thinking,"Why not use Virtual Trading?" Ask any traders around you,whether trading with real and virtual experience the same feeling. They will slap their forehead as hard as possible and they will shrieked words like,"MONUMENTAL!,SIGNIFICANT!YOU CAN'T IMAGINE THE LEVEL OF STRESS...and similar stuffs like that.I know it sounds absurd to some of you when I say this:Conditioning one's mind to accepting losses is also a form of education,albeit I know majority frown at this fact. Heard of this cliche,"If you can't beat them,join them"? Since losses are an inevitable component in the trading arena,when the loss comes,embrace it and lose it as little as possible.Don't hate the fact that you lost.Be proud of the fact that you loss on an amount that you have predefined before you enter a trade.It's much better than a loss that spirals out of control and wipes out all your previous wins and maybe even your account right?OK, enough on losses.1.Get an online broker and start virtual trading,you will gradually carve out a strategy.2.Get someone to teach you the tricks of the trade.3. Read,read and read,4. Record every trade you make.,it is pointless if you don't learn from your mistakes.5.Just do it and stop finding for seminars that promise you untold riches.

Cheers
Hyzel

“Gifts count for nothing; will alone is great;
All things give way before it soon or late”

Ella Wheeler Wilcox

How to Trade Options"properly"?

2009-02-26T19:49:00.009+08:00

There are 101 ways to "trade properly". In fact,even your way is the correct one as long as you are able to profit. There are no right or wrong ways to start with. This article is more for newbies who need a path to guide them. I have no right to say mine is the best way,I'm just saying that after trading for a year, fine tuning my knowledge and filtering off the unnecessary things, I have come to a basic mental template that I am able to understand and execute easily. Oh, did i mention that I made humble returns with my methodology.Well,here goes...

1.Turn off your TV and throw away the financial newspapers.You don't need to listen what the "experts" has to say,not because you're an "arrogant-I know-everything"...It's simply because you react on what the chart tells you. Just because Mr Financial Expert and the newspapers say the market will be ABC because of conditions XYZ doesn't mean you'll profit from their theory. If they say market is bullish but the chart shows bearish sentiment,which side will you be on?

2.Never fight the Market Emotions. I'm not a financial theorist or an economist,but somehow or rather, stocks are correlated to the market sentiment.If you're planning to buy a Call(up),make sure the market is in sync with your stock that you are buying(positive),vice versa.

3.Choose your Option Stocks that has...
(i) high liquidity (avg Vol above 500 000)
(ii)fluctuates to a degree that allows you to earn money fast(but not too volatile)
(iii)make sure the bid-ask spreads are less than 20%(for me 10%)
(iv)oversold or overbought positions,so that you can enter when the momentum starts. I use Bollinger band to compliment this style of entry.

4.Cheap Premiums are Expensive Premiums.
Price Sensitivity (Delta)
It's true that the higher the Delta,the more expensive the premium will be,but
there is no point in choosing the right direction trade if the cheap premiums that you bought has very little Delta,unless, you don't have to pay commissions to your broker.I always make sure that my premiums have a minimum delta of 0.5 so that I can profit even when the stock move a little.

Time Decay(Theta)
Make sure your premiums are at least 60 days old before you sell it, because time decay(theta) will start to "corrode" your premiums at a terrifying speed.I'm exaggerating a bit here,but think about this scenario: Premium A cost $100 and you are profiting $15 a day(lets assume you are right on the direction),but you are losing $8 everyday to time decay because you have 20 days to go before the expiration date.Premium B cost $300 and you are profiting $15 everyday but you are losing $3 everyday because you have 70 days to go before the expiration date. So which would you choose?

Volatility factor(Vega)
I try to not trade Stocks that has unusually high Implied Volatility when you compare with Historical Volatility because if volatility drops for some unknown reason,(you can never anticipate the drop) your premiums will shrink drastically even if the underlying price stays stagnant. But if you must trade stocks with high IV because maybe it's too good to miss out, then get in and get out ASAP because anything can happen when IV is unusually high.

I sincerely apologize if it's too brief but I think that's as far as I can explain.If you really need to understand the fundamentals of Options,Trading,Technical Analysis,etc...I sincerely urge you to pick up a book and find a fellow trader to teach you.
On how to Enter and Exit a trade,maybe I'll write a full article on it some other time.

PS: For the paragraph "Choose your Option Stocks", you can go to FINVIZ.COM to filter out stocks that meet the requirements that you want.

Cheers
Hyzel

"The worst mistake traders make is taking their profits too soon,and their losses too long."

Michael Price

Technical Indicators

2009-02-26T19:46:00.012+08:00

"Which are the best indicators that are very accurate?!" That was the first thought that i had in mind when I got my very first charting software from Optionsxpress. What most novices don't realize are that the oscillators and indicators are created by calculating the average historical information,thus formulating the probabilities of a direction. The common ideology amongst novices on oscillators are that they think they got a "crystal ball" that predicts the future.That's where they start to wrong themselves once they have this idea that oscillators,themselves and the experts can predict the future.One of the axioms that I hold strongly as a trader is that I never think I know about what is going to happen next.That is one of the reason why I dislike watching CNBC,after getting the reports and listening to them,subconsciously I start to think I know without realizing that my mind has been messed up.Going back to the Indicators,so should we use them? Of course! Without it, it's like driving a car with one hand,possible,but not easy.Use indicators with the thinking of probabilities,not assumptions. So which are the commonly(or the best) use Oscillators?

MACD:This oscillators helps prevent you from getting whipsawed.I rely this more than any other oscillators.My settings are 7,13,7.I usually enter a trade when both MACD line cross.

Volume: It is one of the best ways to "see the future".Not exactly see the future,but you can sense what is goin to happen to the price.The price is being bullish,but if you start to see a decline in volume,the price is going to stall or it is going to change direction

Bollinger Band:You have to use this! Before I knew of this oscillator,I would always be entering at a overbought position,but now with this,I know my trades are high probabilities success trades!and most of the time if the price passes the middle band,it will usually go all the way through.For a call position,I would only buy,if the price is hovering around the bottom band and if prices reach to a point where they are touching the top band,I would sell it. Everything I say is base on probabilities.It doesn't neccesarily mean if the price is below the band,it has to go up and vice versa.The lines are historical statistics,formulated out to give you the standard deviation average.

Stochastic: The cousin of MACD,reliable but certain times they set up for a false entries and then you get whip sawed.

RSI Stochastic:The cousin of MACD,I would use this if I was a Day trader,but I'm not. This is one of the oscillators that I don't heed.They react to the slightest price movement and if you were to follow this oscillator blindly,there would a good possibility that your account could go bust.From my opinion,this oscillator gets you whipsawed most of the time.

ATR:Stands for average true range.Go to the current line and get the figure.Multiply it by 1.5. Take the answer and add or subtract the current opening price.If the underlying price were to past the calculated answer,it usually means that it will continue the direction that it pass.

The other popular oscillators that I don't use:
Open Interest: I don't use it because I don't have this in my online software. I would definately use this indicator if I have it in my software. Similar to Volume,If Open Interest increase/decrease,be sure to watch out for price movement.

Force Index: Shows how strong the sentiment of the underlying price movement is.

RSI: This just tells you whether it is overbought or oversold. And when the line passes the 50 mark,it is usually a sign that the direction will continue.

Cheers
Hyzel

"A good trader has to have three things: a chronic inability to accept things at face value,to feel continuously unsettled, and to have humility."

Michael Steinhardt

Do I need to understand Greeks to trade Options?

2009-02-26T19:43:00.008+08:00

Straight up, if you have yet to understand Greeks, do not trade Options. I started trading Options without understanding the Greeks,I thought it wasn't important until I face problems like my profits were not as much as I thought it would be and my losers were much worst than I anticipated. I was bemuse to say the least until I discovered that Greeks played an extremely important role in Options. Now,Greeks are not difficult to understand,you just need some time to get use to the idea that they affect Option premiums(price) one way or another. For those who don't know what Greeks are,let investopedia.com explain them:

Delta:If you see a delta of 0.7 means that for every $1 the underlying stock increases, the call option will increase by $0.70.
Put option deltas, on the other hand, will be negative, because as the underlying security increases, the value of the option will decrease. So a put option with a delta of -0.7 will decrease by $0.70 for every $1 the underlying increases in price.

Theta:A measure of the rate of decline in the value of an option due to the passage of time. Theta can also be referred to as the time decay on the value of an option. If everything is held constant, then the option will lose value as time moves closer to the maturity of the option.For example,if the strike price of an option is $1,150 and theta is 53.80, then in theory the value of the option will drop $53.80 per day.

Gamma:The rate of change for delta with respect to the underlying asset's price.It is the first derivative of delta and is used when trying to gauge the price of an option relative to the amount it is in or out of the money.
When the option being measured is deep in or out of the money, gamma is small. When the option is near the money, gamma is largest.

Vega:The amount that the price of an option changes compared to a 1% change in volatility. Vega changes when there are large price movements in the underlying asset and vega falls as the option gets closer to maturity. Vega can change even if there is no change in the price of the underlying asset, this would happen if there is a change in expected volatility.
For example, if the vega of an option is -96.94 and if implied volatility were to rise by 1% then the option value would fall by $96.94.

Rho:Rho measures the sensitivity of an option or options portfolio to a change in interest rate.For example, if an option or options portfolio has a rho of 12.124, then for every percentage-point increase in interest rates, the value of the option increases 12.124%.

I completely understand if you feel lost and confused right now, if this is your first time reading about Greeks. Don't worry,it is completely normal to feel like Options are too hard to understand. I assure you that after a couple more reviews on Greeks,you'll be able to grasp the concept. I've been trading for a year now and I only focus primarily on Delta and Theta,albeit I'm not saying that you should discount the other 3 Greeks.

Cheers
Hyzel

"The average bottom-of-the ladder person is potentially as creative as the top executive who sits in the big office.The problem is that the person on the bottom of the ladder doesn't trust his own brilliance and doesn't,therefore,believe in his own ideas."

Robert Schuller

Which type of trader performs better? Technician or Fundamentalist?

2009-02-26T18:36:00.003+08:00

Excerpts from Mark Douglas

Fundamental analysis(recent news,statistics) has been around for ages even before our grandfathers was born. Technical Analysis(chart interpretation) started out in the early 1980s. Back then,Technical Analysis was considered to be a form mystical hocus-pocus.In short,CRAZY!
Now of course the opposite is true. Almost all experienced trader use some form of Technical analysis to help them formulate their trading strategies while the "purely" fundamental analyst is virtually extinct. What cause this dramatic shift in perspective? Simply because the trading community gradually come to realize that Technical Analysis fulfills their objective profoundly: Getting MORE money!

Fundamental Analysis is the attempt to take into consideration all the variables that could affect the relative balance or imbalance between the supply of and the possible demand for any partcular stock,commodity or financial instrument.Using primarily mathematical models that weigh the significance of a variety of factors (interest rates,balance sheets,weather patterns and numerous others), the analyst projects what the price should be at some point in the future.
Fundamental Analysis rarely works because PEOPLE move prices,not models. Trading activities are prompted by a response to emotional factors that are completely outside the parameters of the fundamental model.In other words,the people who trade that move the prices don't always act in a rational manner.

Technical Analysis is a method that organize collective behaviors into identifiable patterns that can give a clear indication of when there is a greater probability of one thing happening over another.In a sense,technical analysis allows you to get into the mind of the market to anticipate what's likely to happen next,based on the kind of patterns the market at some previous moment.It keeps the trader focused on what the market is doing now in relation to what it has done in the past,instead of focusing on what the market should be doing based solely on what is logical and reasonable as determine by a statistic model.Technical Analysis makes available to the trader a virtually unlimited number of possibilities to take advantage of.The technical approach opens up many more possibilities because it identifies how the same repeatable behavior patterns occur in any time frame.In other words,Technical Analysis turns the market into an endless stream of opportunities to enrich oneself.

So which one do you want to be? The answer is obvious...=)

Cheers
Hyzel

"Historical price patterns continue to work because human nature doesn't change,and neither does the law of supply and demand.Study past successful stocks if you want to know what future ones will look like."

William J. O'Neil

Psychology is the ONLY thing that separates the Pros and the Wannabes

2009-02-26T15:53:00.002+08:00

One of the most underrated yet the most comprehensive subject is Psychology.Many have gone into the market getting killed(metaphorically speaking)without acquiring the mindset of a Trader.
It is imperative that one condition their mind to a Trader mindset first. So how do we acquire this skill? I wish it could be as easy as a snap of the fingers but it ain't.For the majority(like me),many of their subconscious belief on how life should be,is a total contradiction to the market dynamics and perspective.Worst,some of them have certain beliefs that are so ingrained in them that it acts as a counter productive force whenever they do a trade. Let me give you an example: A Pro trader genuinely do not mind losing money in a trade because he knows trading is base on probabilities/numbers game and when the odds are against him, he sells it for a manageable loss.,but for a novice,in his mind,he MUST win on every trade and when the direction of his trade goes against him,what novices do is this: clasp their hand and look up at the sky and say,"Please help..." while their money gradually diminishes bit by bit. These almost surreal way of thinking is very common. This character trait is embedded in most of us because we grew up in an environment where sympathy is a factor in our social circle.I'll give you an example: Remember the time where you could extend your curfew time by pleading with your parents? or negotiate to someone about something,so that both parties can come to an agreement? and many more situations that allows you to experience the sympathetic factor.So subconsciously,it is telling you that the markets behavior should be aligned to what you face in life which is the contrary.In life,if you set a target,it is possible to reach the goal,because you are able to control the external factors to a degree where your mind sets.For example,if you say you want to have a 100 bucks today,all you have to do is dig some stuff in the store and sell it in the flea market.Where else traders are flexible in their goals and expectations because they solely depend on what the market gives.The only guarantee are their rigid rules that are executed without hesitation.No trader in the right frame of mind will tell you that they force the market to give them money.And as funny as it sounds,I know this is happening to most traders (I know because I did this without realizing) But the mindset of a Trader is a completely different blueprint.Contrary to popular myth that Traders "make" a lot of money,they actually HARNESS the flow of the money. Relate a trader to a fisherman.He can't "make" fish,all he just do is caste the net over an area where he feels(after analyzing) there is a high probability of fishes.Although some of you might think this kind of thing won't happen to you,subconsciously you'll do it without consciously realizing. On hindsight,it's easy to say that you'll cut your losses but try to do this "easy skill" when you trade.Until you are able to accept the truth about trading-Wins and losses are a random distribution in trading, you will be always trade with fear and illusion resulting in inconsistency.
When you place a trade,you have to check yourself for Fear.When you have fear,either you are putting too much money on the line,you don't know what you are doing or you haven't accept that losing is a inevitable component of trading. When you still have the feeling of fear or you haven't genuinely accept the truth about trading..., it just says that you have yet to reach the Trader mindset. And it's perfectly OK! Nobody was born with the mind of a Trader.The best Traders persevere,learn and gradually condition their mind to have the proper Trading mindset.If they can, you can too...

PS:A book to compliment the conditioning of your mind to a trading mind would be "Trading in the Zone" by Mark Douglas.From my perspective,this is the best Psychology book you'll ever need.I've read it thrice because it really improve my performance as a Trader. 5 Star.

Cheers
Hyzel

"A loss never bothers me after I take it. I forget it overnight. But being wrong - not taking the loss - that is what does damage to the pocketbook and to the soul. "

Jesse Livermore

How can I be a CONSISTENT trader?

2009-02-26T07:24:00.002+08:00

You can be a consistent trader but you can NEVER achieve consistent consecutive wins.This I promise you.Why? Because the name of the game is this: At its most fundamental level, trading is a random distribution between wins and losers.What you want to see is a steady inclination equity curve with minor draw downs in your portfolio. You can be the world best analyst,economist or trader and I can bet that you will face a couple of losers in your trading record.Why am I so adamant on this point? It is because in the stock market,there are infinite amount of unseen variables influencing the movement of the prices.There has been countless times where the news and sentiments has been bullish but the market went spiraling down.Why? Unseen variables at work! Now,you might say,ok dude,we accept your point,so how do we become a Consistent trader with overall positive expectancy? Simple,I'll make it short and sweet.

1.Understand and apply a trading methodology that will give you the highest probability of a win.
2.Cut your losses the moment you realize the probability of a win has been thrown out of the window when you see the direction going against you.
3.Let your profits run and cut your losses short
4.Stick to your trading strategy.It is OK to fine tune your strategy but don't be like novices who always change their strategy whenever they face a loss.Your objective must always be focus on the long term.
5.React to the price movement,don't be opinionated just because the news or "experts" said this or that. The market don't give a damn what you or the experts thought.
6.If only trading is as easy as having to adhere to only 5 points. Not quite my friends, but this pointers are basically the main ones. There are so much more to trading than just 5 simple points. But don't worry,just keep on learning...even I still do.Always trying to get my hands on trading materials whenever I can.

Do drop me questions or share your ideas if you have any yea? =)

Cheers
Hyzel

"Once we realize that imperfect understanding is the human condition there is no shame in being wrong, only in failing to correct our mistakes."

George Soros

Is trading the stock market difficult?

2009-02-26T06:39:00.002+08:00

There are many instruments to trade the market.,Options,Stocks,Futures,Forex,etc....this are some of the many that I know of. Going back to the question-Is trading difficult?To be more specific on most peoples minds-Is trading meant only for those highly intellectuals, for those who knows how to interpret market fundamentals and news,for those who has a lot of money,...and the list goes on.
I can only say for Options,since I'm trading only this instrument.,trading is not easy, but it is certainly doable.I guess you must be wondering now,"Then why the heck are people around me,in forums,etc... are telling me that trading in the market is basically throwing your money away?!" I may not know the real answer to their comments but I do get all of this negative comments back when I just started out trading and I gradually realize that ALL those who said it wasn't possible to trade for a living,are basically frustrated by the loss of their hard earn money or they simply do not understand the dynamics of the market. It takes a lot of time,perseverance,patience,researching,analyzing,asking questions....bottom line is: HARD WORK! Trust me,you can trade your way to Financial Freedom but you really need to get your hands dirty by continuously learning and reading(and losing money along the way) until you get YOUR "Holy Grail" strategy that churns for you the stash.Period.

In my opinion, you're able to make a living out of the stock market.

PS:Only if you GENUINELY understand what trading is all about...

Cheers
Hyzel

"Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it."
Warren Buffet

Who Am I ?

2009-02-25T21:19:00.003+08:00

Or should the question that I pose be, "Who do you want to be?"Hi,my name is Hyzel and I come from Singapore.Currently I am trading Options for a living and on my way to Financial Freedom.(From my perspective) =p

The reason why I initiated this blog is because I have too much time to spare in the afternoons while I trade the US market from 10pm to 5am(S'pore time) and I feel I can help those who need any advice on how to trade.

I've been trading Options for a year now and although I do not proclaimed myself to be a Guru,I am sure I can be an assistance to trading novices.

So,feel free to ask questions...=p

Cheers
Hyzel

"No one can see ahead three years, let alone five or ten. Competition, new inventions - all kinds of things - can change the situation in twelve months."

- Thomas Rowe Price, Jr.