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Key Concepts In Risk Management

Key Concepts In Risk Management

by The Mole

I accidentally wiped out my NinjaTrader installation on my VPS this morning and am waiting for the weekend backup to be restored. Per the hosting company it’ll happen sometime during trading hours today. So no new setups today as all my charts are in deep freeze right now. In the meantime I thought it may be a good idea to go over some basic risk management concepts that, judging by the comment stream yesterday, may bode repeating:

Risk

Let’s start with risk as defined as ‘R’. As you already know I strongly discourage any of you from risking substantially more than 1% of your assets on a single campaign (2% is the max). So how exactly do you calculate your R size?

For simplicity’s sake let’s assume you have $100k in your account, so 1% of that is $1000. The goal is to shape your order size so that your initial stop loss (ISL) represents a max loss of as close to $1000 as possible, every single time. You are willing to risk $1000 per campaign (1%) at most – that is the portion of your assets you put at ‘risk’ – thus it represents 1R.

Now every single strategy I employ ‘thinks’ in these R intervals, because without proper risk management I may trade the entry system of a potentially winning strategy but end up actually losing money over the long term. This goes to show how crucial proper risk and campaign management rules really are.

For your convenience I have put together two handy risk calculators, one for trading futures and one for trading forex. Which means you are fresh out of excuses to ever again exceed your maximum risk threshold.

Expectancy

Now that you understand R units, let’s talk about expectancy, which is another key concept in systemic trading and is calculated as follows:

Expectancy = (probability of win * average win) – (probability of loss * average loss)

Example:

You have a trend trading system that wins only 30% of the time. When it wins it however nets you a whopping 5R on average whilst losing trades only set you back 1R:

(0.3 * 5) – (0.7 * 1) = 1.5 – 0.7 = 0.8

So even though this system loses 70% of the time over time you can expect to make 0.8R on each trade. As you now understand R this also means that if you risked $1000 on each trade you can expect to make $800 on each trade on average (not over three trades but over hundreds).

SQN

Measuring expectancy alone however is insufficient. Opportunity is another concept that is often forgotten. Let’s assume you have the same system as shown above (i.e. 0.8R expectancy) but it only triggers 10 times per year. Let’s disregard the fact that this is too small a sample size for a moment. Instead let’s consider that taking such a small amount of trades per year will not bank you much coin.

So clearly the frequency of trades needs to be factored in order to define the amount of opportunity. Given the same expectancy a system that triggers 100 or 200 times a year is clearly preferable to one that only triggers 10 or 20 times.

Which brings us to SQN – system quality number – which was developed by Van Tharp and is used to evaluate the overall quality of a trading system. The formula is as follows:

SQN = root(n) * expectancy / stdev(R)

  • root(n) – the square root of the number of all trades
  • expectancy – as shown above and measured in R multiples
  • stdev(R) – the standard deviation of your profit/loss R multiples

Usually an SQN score of between 1.6 – 1.9 is considered poor but tradable. 2.0 – 2.5 is average. 2.5 – 2.9 is good and anything above 3.0 is deemed excellent.

Given the above we have a system that makes 0.8R per trade and let’s assume the standard deviation is 2.5R and that we make 100 trades in one year. The SQN of this system is:

SQN = root(100) * 0.8 / 2.5 – 10 * 0.8 / 2.5 = 3.20 (which is excellent)

However if you would make only 25 trades per year with this same system the SQN would drop down to 1.6. Tradable but not very exciting (or profitable) due to lack of opportunity. The higher the SQN the better your system and the easier it gets to meet your trading objective with position sizing.

I hope this explains some of the key concepts involved in proper risk management and helps you manage your future campaigns quickly and effectively.

Published at Tue, 22 May 2018 11:31:10 +0000

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The government created a fake cryptocurrency to help you avoid scams

What is an ICO?
What is an ICO?

The government created a fake cryptocurrency to help you avoid scams

There’s a hot new crypto coin linked with luxury travel out there: HoweyCoins.

But this initial coin offering isn’t going to earn you anything more than a better understanding of how crypto works and a warning about scams.

This mock ICO — or initial coin offering is a creation of the Securities and Exchange Commission’s office of investor education and advocacy in an effort to teach people about the dangers and pitfalls of investing in cryptocurrencies.

Lesson one: If it sounds too good to be true, it probably is.

The goal of the project is to acquaint investing novices with signs of fraud before it’s too late.

“The rapid growth of the ‘ICO’ market, and its widespread promotion as a new investment opportunity, has provided fertile ground for bad actors to take advantage of our main street investors,” said SEC Chairman Jay Clayton in a statement. “We embrace new technologies, but we also want investors to see what fraud looks like, so we built this educational site with many of the classic warning signs of fraud.”

The site, HoweyCoins.com, mimics a coin offering, proclaiming, “Combining the two most growth-oriented segments of the digital economy — blockchain technology and travel, HoweyCoin is the newest and only coin offering that captures the magic of coin trading profits AND the excitement and guaranteed returns of the travel industry.”

Anyone who clicks on “Buy Coins Now” will be led instead to investor education tools from the SEC and other financial regulators.

“Fraudsters can quickly build an attractive website and load it up with convoluted jargon to lure investors into phony deals,” said Owen Donley III, chief counsel of the SEC’s office of investor education and advocacy. “But fraudulent sites also often have red flags that can be dead giveaways, if you know what to look for.”

The HoweyCoins site hits on several tell-tale signs of a scam. Guaranteed returns? Check. White paper with wordy-but-vague explanation of the investment? Check. An anxiety-inducing countdown clock? Check. Celebrity endorsements? Check.

While those attributes don’t necessarily mean the offering is bogus, it’s wise to be aware — and skeptical.

The website’s name, HoweyCoins, is a bit of an investor inside joke. The name is a reference to the Howey test that’s used by law enforcement and regulators to determine whether a transaction is an investment contract.

In a landmark 1946 US Supreme Court decision, SEC v. W.J. Howey Co., the court held that a transaction is an investment contract or security, if, “a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”

Investors need to beware and be informed. That the SEC was able to build the HoweyCoins website in very little time, shows just how easy it is for someone to create a scam opportunity. A free and reliable way to ensure your money is safe is to research investments and the people who sell them, according to the SEC, and to visit its consumer website, Investor.gov, before investing.

Published at Wed, 16 May 2018 19:59:00 +0000

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Parents inch closer to college saving goals, study says

Parents inch closer to college saving goals, study says

According to the latest “How America Saves for College” report from lender Sallie Mae, 90 percent of parents who have set a college savings goal say they will meet it.

But perhaps this is because they cut the amount they plan to save to $55,342, down from $61,902 last year.

Regardless, the reality is that parents have saved a fraction of what they think the need to cover college tuition, despite brighter economic times, according to the report, which was released on Wednesday.

Overall, net college savings are up, but the average amount saved now is just $18,135, compared to $16,380 in 2016.

RULE OF THIRDS

The savings numbers align with a strategy recommended by college funding experts: sock away one-third of the cost of college; pay for another third out of current income, and lastly, finance the final third with loans, grants or other assets.

Several factors consistently help boost savings, according to the Sallie Mae study.

The first is just to have a savings goal. The next is setting up a plan to save – those with a plan saved 2.5 times more than those without a savings framework in the survey.

Mark Kantrowitz, who publishes Private Student Loans Guru (www.privatestudentloans.guru), notes that 529 college savings plans also help parents meet their savings goals.

When families use 529s, they know where their college money is and can make adjustments. The amount saved per 529 account has nearly doubled this year, to $5,441 from $2,820, according to Sallie Mae.

“We are heading in the right direction, but there is still more to do,” said Kantrowitz. “Everyone can save a little, even $25.”

Editing by Lauren Young and G Crosse

Published at Thu, 17 May 2018 02:01:47 +0000

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Liquid Certificate Of Deposit

 

Liquid Certificate Of Deposit

DEFINITION of ‘Liquid Certificate Of Deposit’

Liquid certificates of deposit are a type of certificate of deposit (CD) that allow investors to make withdrawals without incurring a penalty. The funds in the account are accessible throughout the lifetime of the product where most traditional CD’s apply a hefty fee for withdrawing early, reducing the interest earned to that point. But investors can’t have their cake and eat it too. Liquid CD’s often offer lower rates than a traditional CD, meaning they sacrifice yield for greater flexibility.

BREAKING DOWN ‘Liquid Certificate Of Deposit’

Liquid certificates of deposit allow holders to make a withdrawal before the maturity date but not without providing the institution with advanced notice. It’s not as simple as making a withdrawal from a checking account. Some banks or credit unions require a week’s notice while others need as much as 30 days. In many cases, there is also an initial lock-up period where investors can’t make a withdrawal in the first week of the fund. That prevents day trading type behavior often prevalent in the stock market. Furthermore, liquid CDs frequently have limits on the amount that can be withdrawn at a given point in time. Some banks permit 100% of the funds to be withdrawn in one transaction while others have more stringent requirements. It can be a minimum percentage of the initial deposit or simply a minimum dollar amount. Breaking these rules can result in withdrawal penalties comparable to a traditional certificate of deposit. Investors interested in a liquid certificate of deposit should remember to read all the terms and condition of the product which plainly state the different withdrawal requirements and minimum account size.

Alternatives to Liquid Certificate of Deposit

Some investors enjoy the flexibility of a liquid CD. It provides quick and easy access to interest-bearing funds in the event of an emergency. That way you don’t necessarily need a huge cushion and idle cash sitting in a savings account. Liquid CDs aren’t for everyone, though. In that case, there are plenty of other solutions that satisfy various financial goals. One option is to purchase a traditional certificate of deposit that offers better returns but less flexibility. With a solid emergency fund and no need to access quick cash, investors will benefit more from a traditional CD. Laddering is a popular approach for investing in CDs that promise consistent income and regular intervals. Other approaches include money market accounts which can pay as much as a CD.

Published at Wed, 16 May 2018 20:58:00 +0000

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Why you might want both a traditional 401(k) and a Roth

Planning young: a retirement roadmap
Planning young: a retirement roadmap

 Why you might want both a traditional 401(k) and a Roth

I split my 401(k) contributions 50/50 between a standard and a Roth. The thought process is that it allows me to take money out tax-free during big spending years in retirement and the opposite during normal years. Is this the correct thought process and a good idea?

Planning for your retirement involves balancing what you’re willing to set aside now, with what you’ll pay in taxes while in retirement later.

For those reasons, and some others, splitting your retirement savings between a traditional 401(k) and a Roth 401(k) — or IRA — is sound planning.

In a traditional 401(k) you make pre-tax contributions and pay taxes in retirement when you withdraw. The contributions to a Roth 401(k) are already taxed, so the money withdrawn is tax free, as long as you’ve had the Roth account for at least five years.

While not everyone has employer-sponsored Roth offerings or even a 401(k), the opportunity to split your retirement savings in a similar way can be done on your own using a traditional IRA and a Roth IRA.

“It does come down to the taxes,” says Catherine Golladay, senior vice president of Schwab Retirement Plan Services in Richfield, Ohio.

The problem, especially as a young person, is that no one knows what is going to happen with tax rates or your income between now and your retirement, and those things can make a big difference down the line.

Traditional vs. Roth — or both?

“Many young people, as they grow into their career, have the expectation that they will become higher earners and subject to a higher tax-bracket,” says Golladay.

In that case it can be advantageous to put money in a Roth when you are younger and your tax bracket is lower.

“For younger workers, they have a longer time horizon for these contributions to grow tax free,” says Golladay.

Those in their 40, 50 or 60’s don’t have as much time for that money to grow. Still, if you’re thinking about a Roth and you’re more than five years away from retirement, Golladay suggests contributing even just a little bit.

You can withdraw from a Roth as early as 59½. The only caveat is that five years must pass since your first contribution before you can withdraw the earnings tax free.

“I’ve seen people put as little as 1% [of their retirement savings] into the Roth, just to start the five year clock,” she says. The annual limit for all 401(k) contributions in 2018 is $18,500.

But if you are scrimping to put aside retirement funds as it is and the tax burden of going all Roth is too great now, splitting your contributions between a traditional and a Roth can be a solid choice.

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Benefits of tax diversification

In addition to shifting the load tax-wise as you pay into your retirement funds, and allowing for flexibility when you’re withdrawing, there are other benefits to a traditional/Roth 401(k) split.

“More sophisticated tax strategies come into play when you have these options,” says Golladay.

If you’re moving into retirement and up against the mandatory withdrawal age of 70½, you have some room to maneuver. Sure, you’ll have to take required minimum distributions from both kinds of accounts after you turn 70½, but your Roth 401(k) withdrawals will be tax free.

Closer to retirement, you may want to roll both over to Roth IRAs to avoid required minimum distributions. You don’t need to take required minimum distributions on a Roth IRA until after the death of its owner. Or, you could roll the traditional 401(k) into a traditional IRA and the Roth 401(k) into a Roth IRA to keep some tax diversification.

“In years that an individual has a big expense, to pull the additional amount of money out of the tax-free source — out of the Roth — is a huge benefit,” says Golladay.

The other thing that she sees people doing is using the two funds to manage their marginal income tax bracket, she says. They may pull some money out of the tax-deferred fund, and anything needed beyond a certain amount they’ll pull out of their Roth to avoid moving up to the next income bracket.

“With a 50/50 you’re maximizing the tax diversification strategy,” says Golladay. “Even if you don’t know what tax bracket you’ll be in once you’re retired, you have the best of both worlds.”

 

Published at Thu, 10 May 2018 17:24:17 +0000

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Will your nest egg last?

Will your nest egg last?
Will your nest egg last?

Will your nest egg last?

An old saying among investors is that annuities aren’t bought, they’re sold. This is because annuities often are very complex, very expensive financial products that carry heavy commissions for the advisers who sell them.

Unfortunately, that saying is frequently very, very true.

Annuities are insurance products that are frequently marketed for their investment-like features. In general, the more complicated a product is, the more expensive it winds up being — either through direct costs and fees or through cases of “the large print giveth, the small print taketh away.”

As a result, if you’re considering an annuity, your best bet is to keep yourself focused on why you need the annuity and what features of that annuity really matter to you.

Why buy an annuity?

The best reason to consider buying an annuity is because you have money set aside for your retirement but have no interest or ability to manage that money. For instance, if you’ve worked your entire career without thinking about investing, and then you get a lump-sum distribution from your retirement plan at work, you might be a candidate for an annuity. Alternatively, if your spouse always took care of the household finances but is no longer able to, an annuity may be right for you.

Still, even if you fit into one of these categories, you should know what you’re getting into and the downsides of even the best-designed annuity. For one, it’s only as good as the financial strength of the insurance company issuing it. If the insurance company goes bankrupt, you’re at the mercy — and limits — of the state’s insurance-guarantee program for any potential recovery.

For another, in most cases, annuities promise to pay you for a certain amount of time — and that’s it. Frequently, that amount of your time is either for your life, the longer of your life or your spouse’s, or a specific calendar duration. If you want to leave an inheritance to your children, your alma mater, or your favorite charity, you either can’t do it with your annuity or it will cost you significantly to do so.

The simplest is usually the best

In most cases, the simplest form of annuity is the best to buy — the one known as a single premium immediate annuity. As the name implies, you make a one-time investment in the annuity and the annuity company begins immediately (or possibly, the very next month) paying you a monthly income. A key reason these annuities are often the best is because they’re the simplest, and thus the easiest to compare across providers.

Because single premium immediate annuities are so easy to comparison shop, annuity companies often offer solid and competitive deals on those straightforward plans. Part of their hope is to establish their reputations for “fair dealing” with their customers, and then upsell you on a more complex (and likely profitable for them) offering.

The big benefit for you is that you can turn your lump sum of cash into a reliable, predictable income stream that can potentially last the rest of your life. A key thing to watch out for, though, is that as soon as you get beyond a plain vanilla contract — such as adding inflation protection, second-to-die rights, or a guarantee your estate will get back at least what you paid into it — the costs start adding up. The insurance company knows that most annuity buyers want those features — and is happy to charge to provide them.

In a similar vein, you often can find a reasonable deal on another form of straightforward annuity known as a single premium deferred annuity. With this type of annuity, you also make a one-time investment and the annuity starts paying out that monthly income at some agreed-upon time in the future. These can be useful if you have temporary income early in your retirement — such as a severance benefit or proceeds from a deferred-compensation plan — but will need the income in a few years.

The key trick to shopping deferred annuities is to keep it simple there, as well. Once you start getting past the plain vanilla promise of a fixed payout starting at a specific date in the future, different plans and providers get tough to compare — and the costs can really add up. For instance, many annuity providers will steer their deferred annuity customers toward variable annuities. Those offer the potential of higher returns while you accumulate money, followed by a guaranteed payout based on the unknown future value of your account once you annuitize.

Be careful what you’re buying

The danger to you is that once you get into the realm of variable deferred annuities, the insurance companies start to stack the deck in their favor. For instance, if they offer “stock-market-like returns,” they often have “participation rates” or other caps that limit the total percentage you can earn on the upside when the stock market does well.

The act of mixing insurance and investments in an annuity may sound good on the surface, but the costs and fine print quickly add up to make them less useful for you. If you want to invest, then invest. If you want a guaranteed fixed income for life, consider an annuity. It’s when you try to combine the two together that you most often find yourself paying more than you should for less total benefits than you otherwise could have gotten on your own.

Published at Tue, 15 May 2018 14:00:27 +0000

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How to replace income with a bond ladder

How to replace income with a bond ladder

The biggest challenge that retirees face at the end of their careers is how to make ends meet financially without a paycheck.

Social Security provides basic income to millions of retirees, but it’s important for those who’ve successfully set aside money in retirement savings to invest well and make their investments work as hard as possible for them.

After retirement, many investors turn away from the stock market toward less volatile fixed-income securities, such as bonds and bank CDs. One strategy that involves using bonds or CDs can help you ensure that you’ll have set amounts of income ready for you at fixed intervals throughout your retirement, while also giving you flexibility if it turns out that you don’t need as much income as you had initially projected. This strategy, known as a bond ladder, is easy to use and can also help you boost how much income you get from your portfolio.

How bond ladders work

The bond ladder strategy involves building up a portfolio of multiple bonds that fit with your investment needs. To set up the initial bond ladder, you can buy a large set of bonds that mature at different times, typically investing equal amounts that match up with your anticipated expenses. Alternatively, you can invest in smaller groups of bonds at regular intervals, gradually building the whole bond portfolio rather than seeking to do so all at once.

An example can make bond laddering easier to understand. Say you have $100,000 in retirement savings in 2018 and anticipate needing to replace $20,000 of income each year over the next five years.

To build a bond ladder, you could invest $20,000 in a bond that matures in 2019, $20,000 in a bond maturing in 2020, and equal $20,000 amounts in bonds maturing in 2021, 2022, and 2023.

Alternatively, you could invest just a quarter of your $100,000 total right now in one- to five-year bonds, and then invest another $25,000 three months from now in five bonds with maturities from one to five years. You’d then repeat the process six months from now and nine months from now to be fully invested.

The advantages of bond ladders

There are two key benefits of bond ladders. First, if you anticipate spending down all of your savings according to a set plan, then the bond ladder ensures that you’ll have the money you’ll need when you need it. Strictly speaking, if you know you’ll need a fixed amount several years from now, you can even invest a bit less than the full amount now, because you can count on the interest that the bonds pay to help you reach your target. It’s usually safer to go ahead and invest the full amount now if you can, because that way, the interest can help offset any erosion in the purchasing power of your money from inflation over the period.

Bond ladders are also beneficial when you don’t expect to spend down every penny of your savings. That’s because when a bond comes due on your bond ladder, you can reinvest whatever money you don’t need right away in a new bond that matures after the last bond in your current portfolio.

For instance, in the example above, when the first one-year bond matures in 2019, you could take any amount remaining and invest it in a new five-year bond that will mature in 2024, a year after the five-year bond you initially purchased matures in 2023. Because longer-term bonds tend to pay higher interest rates, bond laddering can boost the total amount of income you’re able to get in interest payments from your investment portfolio.

The downsides of bond ladders

Despite their advantages, bond ladders aren’t perfect. Traditionally, bonds haven’t had as good returns as the stock market has provided, and so for those who need their money to grow during retirement, bond ladders aren’t the ideal solution for all of your investment capital. In other words, you end up paying for the certainty that bond ladders provide by giving up some potential return on your investment.

More importantly, bond ladders lock you into a set of assumptions about when you’ll need your money, and it can be difficult or costly to get at your money before that if circumstances change. If you use traditional bonds for a bond ladder, then market-price changes can result in a loss of principal if you try to get at your money early. Some people use bank CDs instead of regular bonds in order to eliminate this market risk, but in that case, you can end up paying a penalty for early withdrawal that forfeits the interest that your CD generated over a certain period of time.

Ladder up

Bond ladders can be useful for those seeking to replace set amounts of income at fixed intervals. They won’t produce the same growth that stocks can, but they’ll offer peace of mind that your financial needs will be met while giving you some flexibility in producing as much income as possible from your investments.

Published at Mon, 14 May 2018 17:27:26 +0000

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Cognitive Behavioral Techniques for Changing Your Trading Psychology – Part One: Overcoming Procrastination

Cognitive Behavioral Techniques for Changing Your Trading Psychology – Part One: Overcoming Procrastination

I recently had the pleasure of joining four accomplished colleagues in the psychotherapy world for a presentation on brief therapy for the American Psychiatric Association’s annual meeting.  One of the presenters, Dr. Seth Gillihan, was kind enough to pass along a copy of his recent book, Cognitive Behavioral Therapy Made Simple.  It’s a self-help text detailing specific, research-backed techniques for changing patterns of thought and behavior.  

As I read the book, I was struck by how relevant many of the exercises are for traders in financial markets.  In this short series of posts, I will outline several common areas of challenge for traders and techniques for working on those, as outlined in the book.  We will begin with procrastination, the tendency to avoid things that we know we need to do.

Dr. Gillihan points out that many factors can contribute to procrastination, including fear of falling short in our performance and avoidance of discomfort.  One common area of procrastination among traders is putting off the work of preparing for the trading day, whether it’s completing a journal or laying out plans for the coming session.  Some of the techniques Dr. Gillihan outlines in the book for overcoming procrastination are:

a)  Using a Calendar – The more specific we are about the work we want to do and when we want to do it, the more likely it is that we’ll get the tasks done.  I like scheduling daily activities for the same time each day, turning work routines into positive habit patterns.  Scheduling activities a day ahead and reviewing the coming day’s calendar in the evening helps prime us for action.  For unpleasant tasks, I schedule a reward period following the completion of the task.  

b)  Working in Shorter, Uninterrupted Segments – Dr. Gillihan points to what is known as the Pomodoro technique, in which work is broken down into 25 minute segments that are uninterrupted.  This has the natural advantage of making a large workload more doable and it provides mini-breaks for renewing our energy and willpower.  I use the breaks between work segments as mini-rewards, when I can take a snack, play with one of the cats, etc.

c)  Mindfulness – Many times procrastination results from distraction and (negative) thoughts about the future.  We tend to avoid what we anticipate will be uncomfortable.  By bringing our attention and awareness to the present through methods like meditation, we can remove mental clutter and focus on doing one thing at a time.  Very often, breaking through and completing one or two subtasks can lead to momentum and completing a larger project.

d)  Self-Reminders – A powerful technique is to vividly remind ourselves of the negative consequences of behaviors we wish to avoid.  This works well in alcohol treatment, where the mental rehearsal of the negative consequences of drinking helps a person avoid relapse and helps them reach out for support.  Reminding ourselves that procrastination prevents us from being the best traders we can be can become a helpful prod toward action.

Another technique that works well for me is a shift of environment.  When I want to complete a difficult task, such as editing a writing project, I will bring my computer to a Starbucks or the food court of a large grocery store and I commit to not leaving until the work is completed.  In the new environment, there are no other distractions (phone, emails, interruptions from people) and I find it easy to enter into a focused work mode.  Sometimes the environmental shift is as simple as playing music in the background while I work, providing stimulation that doesn’t distract.  (I’m listening to JWeihaas as I’m writing this).

Our actions play an important role in shaping our experience of ourselves.  We cannot act as decisive traders if the majority of our time is spent in procrastination mode.  Avoiding any single task may seem to have few consequences.  A pattern of avoidance, however, reduces our productivity and effectiveness.  Ultimately, we are either in control of the time and challenges of life or those control us.  How we approach our efforts daily shapes the mindset that emerges in our trading.  

There is much to be said for using daily calendars as repeated experiences of efficacy.

Published at Sat, 12 May 2018 12:59:00 +0000

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Why you might want both a traditional 401(k) and a Roth

A pair of elderly couples view the ocean and waves along the beach in La Jolla, California March 8, 2012. REUTERS/Mike Blake

Why you might want both a traditional 401(k) and a Roth

I split my 401(k) contributions 50/50 between a standard and a Roth. The thought process is that it allows me to take money out tax-free during big spending years in retirement and the opposite during normal years. Is this the correct thought process and a good idea?

Planning for your retirement involves balancing what you’re willing to set aside now, with what you’ll pay in taxes while in retirement later.

For those reasons, and some others, splitting your retirement savings between a traditional 401(k) and a Roth 401(k) — or IRA — is sound planning.

In a traditional 401(k) you make pre-tax contributions and pay taxes in retirement when you withdraw. The contributions to a Roth 401(k) are already taxed, so the money withdrawn is tax free, as long as you’ve had the Roth account for at least five years.

While not everyone has employer-sponsored Roth offerings or even a 401(k), the opportunity to split your retirement savings in a similar way can be done on your own using a traditional IRA and a Roth IRA.

“It does come down to the taxes,” says Catherine Golladay, senior vice president of Schwab Retirement Plan Services in Richfield, Ohio.

The problem, especially as a young person, is that no one knows what is going to happen with tax rates or your income between now and your retirement, and those things can make a big difference down the line.

Traditional vs. Roth — or both?

“Many young people, as they grow into their career, have the expectation that they will become higher earners and subject to a higher tax-bracket,” says Golladay.

In that case it can be advantageous to put money in a Roth when you are younger and your tax bracket is lower.

“For younger workers, they have a longer time horizon for these contributions to grow tax free,” says Golladay.

Those in their 40, 50 or 60’s don’t have as much time for that money to grow. Still, if you’re thinking about a Roth and you’re more than five years away from retirement, Golladay suggests contributing even just a little bit.

You can withdraw from a Roth as early as 59½. The only caveat is that five years must pass since your first contribution before you can withdraw the earnings tax free.

“I’ve seen people put as little as 1% [of their retirement savings] into the Roth, just to start the five year clock,” she says. The annual limit for all 401(k) contributions in 2018 is $18,500.

But if you are scrimping to put aside retirement funds as it is and the tax burden of going all Roth is too great now, splitting your contributions between a traditional and a Roth can be a solid choice.

Benefits of tax diversification

In addition to shifting the load tax-wise as you pay into your retirement funds, and allowing for flexibility when you’re withdrawing, there are other benefits to a traditional/Roth 401(k) split.

“More sophisticated tax strategies come into play when you have these options,” says Golladay.

If you’re moving into retirement and up against the mandatory withdrawal age of 70½, you have some room to maneuver. Sure, you’ll have to take required minimum distributions from both kinds of accounts after you turn 70½, but your Roth 401(k) withdrawals will be tax free.

Closer to retirement, you may want to roll both over to Roth IRAs to avoid required minimum distributions. You don’t need to take required minimum distributions on a Roth IRA until after the death of its owner. Or, you could roll the traditional 401(k) into a traditional IRA and the Roth 401(k) into a Roth IRA to keep some tax diversification.

“In years that an individual has a big expense, to pull the additional amount of money out of the tax-free source — out of the Roth — is a huge benefit,” says Golladay.

The other thing that she sees people doing is using the two funds to manage their marginal income tax bracket, she says. They may pull some money out of the tax-deferred fund, and anything needed beyond a certain amount they’ll pull out of their Roth to avoid moving up to the next income bracket.

“With a 50/50 you’re maximizing the tax diversification strategy,” says Golladay. “Even if you don’t know what tax bracket you’ll be in once you’re retired, you have the best of both worlds.”

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Adjusting Your Trading Focus

 

Adjusting Your Trading Focus

My most recent Forbes article relates an unusual trading experience that I had last week.  I greatly reduced the number of things I watched on my screens and adapted a meditation routine I have long used to tracking the ES market.  

This was contrary to my usual trading in a few respects.  I was not working with any preconceived ideas about market direction (although I had reviewed all my research in advance) and I was not looking for trade “setups”.  My sole focus was focus.  I immersed myself in market behavior the way I would immerse myself in the behavior of a distressed client I was speaking with in my work as a psychologist.

What I can relate (and the Forbes piece details) is that the extreme level of focus completely changed my trading.  I picked up on patterns I had not even considered in advance.  It was the most unusual and powerful trading experience I have had in years.  It was also the most profitable in years.

There aren’t many experiences I would describe as “life-changing”, but this one comes awfully close.  As a result, I have committed myself this year to literally relearn trading, with the central component being the creative perception and pattern recognition that come from enhanced focus.

It is ironic that we fill our heads with more and different things to track in markets: various indicators, time frames, charts, chats, and so forth.  It was only when I thoroughly emptied my head that I was actually able to *see* what was happening.

I am all too aware that this sounds hopelessly mystical and subjective.  If I didn’t have the experience of doing my best work as a psychologist when I have been most highly focused on people, I probably wouldn’t have believed what happened with trading under focus.  It may well be that controlling emotions, enhancing discipline, and all the things traditional trading psychology talk about are effective only insofar as they improve our focus.  By working directly on techniques to enhance our focus, we may best access our ability to process noisy market data.

Published at Sat, 28 Apr 2018 06:18:00 +0000

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Guggenheim Partners’ Minerd: ‘This is the rally to sell’

Guggenheim investment chief: Expect a recession in the next two years
Guggenheim investment chief: Expect a recession in the next two years

Guggenheim Partners’ Minerd: ‘This is the rally to sell’

Scott Minerd, managing partner at the global investment and advisory firm Guggenheim Partners, has a message for investors.

“This is the rally to sell, not to buy into,” Minerd told CNN correspondent Paula Newton on CNNMoney’s “Markets Now” on Wednesday.

Minerd said a recession could hit in about two years. He cited two historical patterns: A narrowing of what’s called the yield curve, the gap between short and long-term Treasury rates, and a move toward what economists consider full employment.

But there are still opportunities to gain in the market, Minerd said.

“That penultimate year before a recession often has the best return for equities, on average in the area of 15 or 20%,” he said.

The recent surge in earnings, he added, and relatively low interest rates mean that “we probably have some more room to run in stocks.”

“I think for people that are in the market, they should stay in,” Minerd said. But “you’re kind of getting late in the game,” to start buying, he said.

Last year’s tax cuts and more government spending could stimulate the economy in the short term, but all that deficit-financed help from Washington could also speed the demise of the recovery.

For years, the economy has recovered slowly but steadily from the Great Recession, which ended in 2009. At 106 months old through April, the recovery is tied for the second-longest economic expansion in American history.

But it won’t set any records for speed. It took far longer than many hoped for unemployment to get back to healthy levels, and wages have only recently begun to accelerate meaningfully.

“Markets Now” streams live from the New York Stock Exchange every Wednesday at 12:45 p.m. ET. On Wednesday, Newton filled in for the program’s regular hosts, CNNMoney editor-at-large Richard Quest and CNNMoney anchor Maggie Lake.

Each week, the 15-minute show features interviews with markets experts who share insightful commentary on the news. You can watch “Markets Now” at CNNMoney.com/MarketsNow from your desk or on your phone or tablet.

Last week, hedge fund manager Kyle Bass told Quest that he believes demand for oil is about to go up.

Can’t watch at 12:45 p.m. ET? Don’t worry. Interview highlights will be available online and through the Markets Now newsletter, delivered to your inbox every afternoon.

— CNN’s Matt Egan contributed to this report.

Published at Wed, 02 May 2018 18:22:50 +0000

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Why Relative Volume Matters for Your Trading

 

Why Relative Volume Matters for Your Trading

Above is a two-day chart for Monday and Tuesday’s SPY trade.  A number of traders I spoke with missed the market drop, fearful of “chasing” prices when they had been reversing.

The key identification in Tuesday’s trade is the rising relative volume to the downside.  Recall that relative volume tracks the volume for each time period (in this chart I’m using five minute periods) and compares it to the average volume for that same time period.  So, for example, a relative volume reading of 0.5 means that we’re only doing half the normal volume for that specific time of day.  A reading of 2.0 means that we’re doing twice the normal volume.

Notice how, as Tuesday moved forward, relative volume expanded well above 1.0, particularly on market selling.  This started to occur well before we saw the waterfall decline in the afternoon.  The increased relative volume told us that participation was increasing to the downside.  This participation represents directional participants who move size and thus can lead to momentum and trending moves in the market.

The steadily rising relative volume tells us that we’re picking up participation as we’re going lower.  Selling is by no means drying up.  That is a market where you can afford to “chase” prices lower.

Simple tools like relative volume are very helpful for identifying opportunity in the market.  If volume is shrinking, it’s unlikely that moves will extend.  Breakouts from ranges with increasing relative volume suggest that traders are indeed accepting new levels of value.

Who is in the market is a key ingredient in how you should trade.

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Published at Wed, 25 Apr 2018 22:15:00 +0000

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Rate Trigger

Rate Trigger

WHAT IS ‘Rate Trigger’

A rate trigger is a drop in interest rates significant enough to cause a bond issuer to call its bonds prior to maturity.

BREAKING DOWN ‘Rate Trigger’

A rate trigger is a decline in prevailing interest rates that leads an issuer of a callable bond to call that bond. In this case, call refers to the early redemption of a bond by the bond’s issuer. This can only be done if the bond issue includes a call provision in the offering, and this provision often includes a callable date. A bond with a callable date is not eligible for a call prior to that date. To make these bonds attractive to potential investors, callable bonds are typically offered with a higher coupon rate and a call price above par value.

Fluctuations in interest rates have implications across the economy. Many investments are subject to interest rate risk, also known as market risk, which is the risk that an investment loses value due to the relative attractiveness of prevailing rates. A bond with a fixed coupon rate is one example of an investment subject to interest rate risk. The rate trigger realizes that risk. In the case of a callable bond, a second danger is reinvestment risk, or the risk that investment options available to the investor after the bond is called are not as attractive as the original bond.

A Rate Trigger Turns Market Risk into Lost Interest Income

On January 1 of 2018, Company ABC offers 10-year callable bonds with an 8% coupon rate callable at 120% of par and a callable date of January 1, 2022. Interest rates rise and fall between the issue date and the callable date but remain close to 8% for one year after the callable date. On the first day of 2023, interest rates dip to 5%. This drop is a rate trigger. Company ABC closes a deal to offer new debt at 5% and will use the proceeds from this offering to repay its 8% bondholders. Company ABC exercises the option to call away the 8% bonds, so the investor receives $1,200 per $1,000 bond. The bondholder loses, however, the $400 in interest that would have been paid over the remaining life of the bond.

This example demonstrates the risk and rewards of a callable security in the event of a rate trigger. Prior to the company calling its bonds, the investor enjoys an above-market interest rate. The 2023 rate trigger realizes the market risk of a callable bond which results in lost interest income.

Published at Wed, 25 Apr 2018 22:52:00 +0000

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Time To Strike

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By Tumisu from Pixabay

Time To Strike

April 24, 2018

I think I’m going to have to see a chiropractor given all the whipsaw in equities over the past few weeks. But out of chaos often spring new opportunities which to most of course only become obvious in retrospect. Meanwhile a temporary spike in the Dollar has led to quite a bit of movement across our ongoing campaigns, so let’s work our way backward today:

If you were a sub last week (yes, I’ll keep rubbing it in) then I hope you caught the perfect long entry on the DX futures, which yesterday advanced to almost 5R in profits.

I’m now trailing at 4R hoping for massive short squeeze higher over the rest of this week. Realistically however we’ll most likely going to see a retest of the 100-day SMA near 90.2.

Almost a perfect entry on the USD/JPY as well just ahead of shifting into trending mode. It didn’t even look back once and I’m also trailing at 4R here now.

Once again however the 100-day SMA beckons from above and will no doubt except a bit of resistance.

My E-Mini campaign to stopped out at the 2R mark last week and that’s fine as I was expecting pushback once again near the 100-day SMA.

By the way don’t ask me why that one always works so well, I don’t see anyone else using it.

Silver is about to roll over and that’s where I would be taking profits had I not been stopped out at the 3R mark last week.

I am actually considering a re-entry in the July contract after it’s done doing its thing. Once I do I’ll make sure to post it for you subs first and then rub it in with all you leeches (too soon?)

And finally Bitcoin has treated us well over the past week and it’s time to advance our trail to the 2R mark. Once again the medium term SMA (guess which one) is right above us and I would expect that the easy ride is over which is why I’m tightening up a bit.

Okay, now per the title of this post I just went long the E-Mini futures as I very much like this very bearish looking formation on the daily panel.

If that triggered an acute bout of cognitive dissonance then I can’t blame you but fading my inner instincts is an approach that has generally served me well over the years.

Basically the bulls are now officially in trouble having been unable to overcome the 100-day SMA (yes, that one again – don’t ask me why) last week.

Continuation lower here may unleash forces which may propel us beyond the bearish event horizon, so the onus is on the bulls now to stop fucking around and get the tape back into gear.

Quite frankly speaking a short campaign at this stage probably has similar odds weren’t it for the fact that the bears continue to fumble near important inflection points every single time. It’s like betting on Rudy to finally nail a home run (to my non-european readers – look up Daniel ‘Rudy’ Ruettiger).

Published at Tue, 24 Apr 2018 12:19:45 +0000

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Creating Your Own Trading Culture

 

Creating Your Own Trading Culture

Interesting research that I summarized in a recent article finds that the single most powerful factors determining the success of romantic relationships are acts of kindness and giving.  Conversely, relationships that end poorly are characterized by sarcasm, contempt, and negativity.  When we give, we encourage gratitude in others, and that gratitude leads others to then also engage in acts of generosity.  

What is less appreciated is that this same dynamic plays itself out in the trading world.

Within the trading teams I’ve worked with at SMB, for example, results are dramatically better when team leaders coach junior traders and when those developing traders support the trading of their mentors.  “Each one teach one” is a virtual mantra for successful teams:  everyone provides value to one another.  Conversely, the poorest results I’ve seen at trading firms are achieved when developing traders are left to their own devices to “figure it out”.  No giving and no receiving means a slower turning of idea wheels and a more tortured learning curve.

I see this dynamic among individual traders as well.  The successful ones cultivate networks of peers to share ideas and encourage one another.  It is not by coincidence, for example, that the Investors Underground live chatroom is also instrumental in Traders4ACause, a group that uses trading education as an opportunity to “give back”.  When traders operate in a culture of giving, they are inspired to also be givers.  Everyone wins.

Here’s a great metric for your trading:  Who are you making better and how well are you doing it?  In giving value, you attract the right people and that, in turn, provides you with more and better resources.  Some of the best ways of working on our trading is to contribute to the trading of others.  Some of the best ways of working on ourselves–enhancing our health, well-being, and success–is contributing to others.

Published at Wed, 18 Apr 2018 18:58:00 +0000

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Billionaire investor: It’s time to short Facebook

Zuckerberg says his personal data was shared
Zuckerberg says his personal data was shared

Billionaire investor: It’s time to short Facebook

Jeff Gundlach, the billionaire investor, isn’t buying Mark Zuckerberg’s apology tour.

Gundlach, known as the king of the bond market, urged investors to bet against Facebook(FB) stock because of the risk that the company’s user data crisis will trigger a government crackdown.

“Equity bubbles get popped by regulation,” he said on Monday at the Sohn Investment Conference in New York.

Gundlach, the chief investment officer of DoubleLine Capital, pointed to how tobacco and biotech stocks “tanked” following increased regulation in those industries.

“What’s happened in the past will happen again and again and again,” Gundlach said.

Facebook(FB) shares turned negative for the day after he spoke. The stock has lost about 10% since the scandal erupted last month.

That selling pressure eased when Zuckerberg navigated questions from nearly 100 lawmakers during 10 hours of hearings this month. They quizzed him about how Cambridge Analytica, a data firm with ties to President Trump’s campaign, improperly accessed the data of tens of millions of users.

Zuckerberg mostly got high marks for his performance. But Gundlach pointed to quotes that he said suggested Zuckerberg was dodging responsibility.

For instance, he noted that Zuckerberg told CNN’s Laurie Segall last month: “I’m really sorry that this happened.” And Zuckerberg told Congress: “It was my mistake and I’m sorry.”

Gundlach said to laughter: “What’s ‘it’? Sounds like Bill Clinton. ‘It depends on what the meaning of “is” is.'”

Facebook bulls argue that its lucrative advertising business is supported by its 2.2 billion monthly active users.

“When I hear that,” Gundlach said, “I hear 2.2 billion compliance breaches.”

Facebook has promised to alert everyone whose data was accessed by Cambridge Analytica, create safeguards and hire thousands more employees to prevent a repeat.

Gundlach urged investors to pair the short Facebook trade with a bullish bet on oil drilling companies. Specifically, he endorsed the SPDR S&P Oil and Gas Exploration ETF(XOP), which he said is “looking really good.”

The price of crude oil has surged because of production cuts by OPEC and Russia, conflicts in the Middle East and concerns about President Trump’s threats to reinstall sanctions on Iran.

But while crude has jumped 14% this year, to the highest price since late 2014, energy stocks have lagged. The ETF that Gundlach likes is only up 5%.

Gundlach is betting that will change. He warned that inflation tends to rise before economic downturns.

“As the next recession approaches, commodities should have a big gain,” Gundlach said.

Gundlach was speaking to financial professionals who paid $5,000 to hear the best ideas from superstar investors. The event raised more than $3 million to treat and cure pediatric cancer.

Published at Mon, 23 Apr 2018 20:12:28 +0000

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High-profile investors bet on stocks tied to millennials: Sohn Conference

by 5688709 from Pixabay

High-profile investors bet on stocks tied to millennials: Sohn Conference

NEW YORK (Reuters) – Hedge fund managers at the high-profile 2018 Sohn Investment Conference in New York pitched stock ideas on Monday ranging from online food ordering to homebuilders that should benefit from the growing clout of the millennial generation.

John Khoury, founder and managing partner of $2.7 billion hedge fund Long Pond Capital, revealed a long position in U.S. homebuilder D.R. Horton Inc (DHI.N), which he said should see a boost as more millennials age into the first-time home buyer market.

The country’s largest homebuilder has been increasingly focused on its entry-level segment, which it told analysts in January should grow strongly over the next three years.

At least two investors, meanwhile, pitched online food ordering companies. Alexander Captain, who runs Cat Rock Capital Management, introduced Dutch company Takeaway.com NV (TKWY.AS) while Lin Ran, who runs Half Sky Capital, pitched GrubHub Inc (GRUB.N), the parent company of Seamless. She said GrubHub averages $30 per order, and it earns 15 percent of each order, earning the roughly 15 percent, while spending growth at restaurants is outpacing spending at grocery stores.

“I like to call this chart ‘Millennials can’t cook,” Ran said, to laughter.

Millennials, a term for those born between 1981 and 1996, are expected to become the largest generation in the United States in 2019, according to estimates from Pew Research.

Jeffrey Gundlach, one of the world’s most closely-watched investors, recommended a short position in social media giant Facebook Inc (FB.O) and a long position in the SPDR S&P Oil and Gas Exploration ETF (XOP.P).

“Facebook used to be a place people felt good going to,” Gundlach said.

Facebook has come under pressure as the company acknowledged misuse of users’ data.

Investors were confident about their stock picks at a time when the broad S&P 500 .SPX has been lagging and retail clients have expressed nervousness about the durability of the stock market’s long-running gains.

Khoury, from Long Pond Capital, suggested that DR Horton had more than 60-percent upside, while Ran, from Half Sky Capital, said that GrubHub could hit $160 a share, up nearly 55 percent from its Monday afternoon trading price of $103.25.

Organizers said they were expecting as many 3,000 attendees at New York’s Lincoln Center, making Sohn one of the most high-profile investment conferences of the year.

Against a background of more volatile markets and worries that some of the biggest hedge fund managers are nursing losses this year, many in the audience focused on the smaller, better-performing investors like Oleg Nodelman.

Nodelman, founder and managing Director of EcoR1 Capital LLC, whose fund returned a reported 53 percent last year, announced a long bet on drug company Ascendis Pharma A/S (ASND.O).

Reporting by David Randall; Editing by Nick Zieminski

Published at Mon, 23 Apr 2018 17:40:14 +0000

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A Deeper Look at Emotions and Trading

A Deeper Look at Emotions and Trading

On Wednesday morning, 8 AM EST, I’ll be doing a webinar with the good folks at Two Blokes Trading.  Brandon sent me very good trading psychology questions that we’ll be addressing during the session.  (By the way, check out the excellent podcasts on their site.)

One question I particularly liked asked, As a retail trader, what is the most effective way to emotionally detach yourself from a trade? Is this even a good thing to try and do?”

Here is my answer–it’s a little tricky:

To be successful, you *have* to be emotionally detached from your trade.  To be successful, you *have* to be emotionally connected to the market.

Let’s explore:

To the degree you are attached to something, that thing owns you.  That is why we have to be so very careful with our attachments.  Two people are attached in a good marriage and, yes, they own each other.  Something is lost of me if I do not have my partner.

Any trade, however, is merely a probabilistic bet.  Would I attach myself to a relationship if my wife was faithful 75% of the time?  Of course not.  I have to stay detached from my trades and their outcomes because I know that there will always be occasions when the odds fail to play out.  I own my trades–I take ownership for them–but I cannot allow them to own me.

That is very different from staying emotionally attached to the market itself.  That emotional attachment is similar to empathy:  you’re not just observing market activity, but *feeling* it.  As a psychologist, I have to be fully attuned to the person I’m working with.  I can’t be distracted with thoughts about myself, how much money I’m making from my sessions, etc.  In that emotionally attuned state, I can pick up on subtle shifts in tone of voice and shifts of topic that tell me what’s going on with the other person.

Similarly, when we are emotionally open to markets and focused on them, we can identify subtle shifts of buying and selling that alert us to opportunities.  That attachment to the market is vital to pattern recognition.  When we lack that degree of emotional connection, we become tone-deaf to the market’s communications.  Later, we look back on poor trading decisions and wonder what we were thinking.

Emotionally detached from our trades and emotionally focused on the market–that is not an easy balance.  The common element is that we remove our egos from trading.  To the degree that you’re wedded to an outcome, you can’t be fully immersed in the process.

Published at Sun, 22 Apr 2018 12:30:00 +0000

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The Big Face Off

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By geralt from Pixabay

The Big Face Off

by The MoleApril 17, 2018

The bulls are getting more energized now with hopes that the worst for this year is now behind us. But the big face off is still looming ahead and if a major punch burning the shorts is to happen then it better happen now, this week:

As you may remember from previous posts, week #15 statistically is the most bullish week of the year – by far I may add. But wait there is more:

Weekly SKEW suggests that this upside bias is in fact NOT due to outliers as this week’s reading is near the zero mark.

Which is why the weekly % positive panel also shows us the highest reading of the year – a whopping 80%!

Now it’s Tuesday morning and we’ve got another four session to go until we close the books on this week. When I referred to the big face off in my intro then it was due to the support zone that’s been developing on the VIX over the past few months.

A drop to the 15 mark and perhaps a bit below is where the bears will be looking at a take down. Or we once again run out of buyers, whatever happens first 😉

Either way I’ll be collecting 1R here from last week’s speculative entry as my trail has now been lifted to near 2670.

On the crypto side things have been looking a bit iffy yesterday but so far so good as BTC has returned to our entry range with hourly Bollingers now being massively pinched. A resolution here should be swift and forceful. Nothing to do until then.

Gold isn’t looking so stellar unfortunately as it appears that we’re in for more chop chop chop…

Silver fortunately seems to be the most bullish in the sector as it looked like we had lift off yesterday but then reverted to our entry zone. Nothing has changed here frankly and I would be taking this entry today had I not done so yesterday.

Published at Tue, 17 Apr 2018 10:05:23 +0000

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Preventing Trading Stress From Becoming Trading Distress

Preventing Trading Stress From Becoming Trading Distress

All true performance activities bring stress.  That is because true performers care about winning.  There may be external pressures to win, but for the best, there are always internal pressures.  Elite performance demands that we push the envelope and attempt to perform at our best.  That demand–that stress–can be a great motivator.  

Stress in itself is not a negative.  It is an inherent part of any activity in which near-term outcomes truly matter.  

Sometimes it is important in life to minimize stress, particularly in areas that aren’t central our most important life activities and goals.  For example, when I fly for work or vacations, I select the flights that have the best on-time percentage to their destinations.  That greatly minimizes the probability of delayed or canceled flights.  Margie and I recently found a two-year certificate of deposit with a yield very close to the yield on 10-year Treasuries.  For our savings, that’s good enough.  We don’t want to have to be concerned with price movement for that portion of our money.

Reducing sources of stress in more peripheral areas of life helps us stay focused on the most central areas of life.

It is in the central areas that we experience the need to do well and the demands of performance.  That is why it can be stressful to be a parent, a trader, or an entrepreneur.  Many retired people lose those central areas of life and experience few performance demands.  That is not necessarily a blissful life.  Happiness–doing fun things–is not enough for many people.  We also need fulfillment, and challenge is one important source of fulfillment.

How we handle stress determines whether it will be a motivator or a source of dis-stress.  

A great way to turn stress into distress is to make performance activities our only or main source of fulfillment.  Then we have much more than PnL on the line.  Our entire sense of self can feel jeopardized.  Often, it’s not the trading that is stressing us out.  It’s our investing our sense of worth in our trading results.  If you can experience yourself as a successful, fulfilled person even when your PnL is not moving higher, you know you are well diversified emotionally.  If you can’t experience yourself positively during times of drawdown or flat performance, no tweaking of your trading will address that underlying vulnerability.

We can perform well when trading is important to us and when that importance pushes us to continually learn, adapt, and improve.  We can perform quite poorly when trading is all-important and outcomes control our sense of self.  A great way of reducing trading stress is to improve fulfillment outside of trading.

Published at Thu, 12 Apr 2018 12:15:00 +0000

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