Top Ten Side Effects of Greedy Trading
- Greed causes the trader to only look at the best case scenario for profits and ignore the worst case scenario for losses in every trade.
- Greedy traders trade WAY to big a position size.
- A Greedy trader’s #1 priority is getting rich quick while ignoring the risk of ruin.
- Traders that are greedy tend to believe they can have returns bigger than the best traders in the world right at the beginning.
- Greed makes traders have absurd targets for their trades.
- Greedy traders tend to buy stocks that are down 50% believing they will double and go back to where they were.
- Greed distorts a trader to focus on the money not the homework involved to make the money.
- Traders take trades where the odds are way against them because of the greed of wanting to make huge returns on one trade. (Far out of the money options)
- Greedy traders trade with no plan and no method they are just pursuing profits randomly.
- Greedy traders are always looking for the easy path to money not to the real path of hard work and experience.
Loss Aversion
Friends are sometimes a big help when they share your feelings. In the context of decisions, the friends who will serve you best are those who understand your feelings but are not overly impressed by them.
That’s the Kahneman I love to read, profound and interesting. But then he follows with this sentence:
For example, one important source of bad decisions is loss aversion, by which we put far more weight on what we may lose than on what we may gain.
I don’t see loss aversion as being nearly as prevalent as lottery-loving: that is, picking things with small probabilities of big gains, as opposed to avoiding things with potentially large losses. Most really bad investments, those with the lowest expected returns, are things with large potential losses (lottery tickets, horse races, highly volatile stocks, options, penny stocks, etc.) This means people don’t avoid them too much, rather, they prefer them too much.
But that’s only one class of bad investments with large losses. Then there’s picking up pennies in front of a steam roller, the kind of trade Kahneman’s good friend Nassim Taleb argues is too common, where one basically sells insurance or options too cheap, making money most of the time but then occasionally blowing up and moving on to the next sucker. Kahneman seems highly respectful of Taleb’s work, and neither try and reconcile these ideas, even though they are really at the top for both. That makes them more like interesting magazine writers (eg, Carl Zimmer, John Horgan) than scientists.
Loss aversion in practice is a curiosity, not common in its domain relative to riffs on its opposite. I think people who love quoting him merely because once you allow irrationality in equilibrium, you are no longer constrained, and Kahneman gives one the authority to do this. So, as much as I enjoy many things he says, I’d say he has been an enabler of sloppy thinking, net net.
The Top Ten Similiarities of Winning Traders
You
can read trading, books until you are red-eyed, you can spend thousands
of dollars on seminars, you can try to get successful traders to give
you the secret sauce of trading or the Holy Grail. But, in the end it is
simply you versus the markets. You have to pick your system, your risk
tolerance, and take the heat in your own account, it will be your own
money you lose.
No
one can tell you the right system and method for you. If you can take
draw downs in equity mixed with long term capital growth then trend
following may be for you. If you love playing the hottest stocks in the
market then CAN-SLIM or the Darvas System may be the right systems for
you. If you just have little patience and love action then you can join
the few who have mastered day trading. There really is no right system
for everyone, it depends on what you can handle. However here is what
all winning traders must have to win in the markets regardless of time
frame and system:
Trading System
- They trade a robust system or method that wins more money over time than it loses.
- Their system gives them a reward to risk ratio that is in their favor.
- Their system or method is proven to work with a live trading record over many markets and trades or has historical back testing.
Trading Risk
- They manage the risk of ruin to avoid blowing up their account.
- They risk no more than 1%-2% of total account equity on any one trade.
- They manage risk through proper position size so they do not risk their account on any one trade.
- They do not risk more than 6% of their capital at one time across multiple trades.
Trading Mind
- They have faith in their system or method and continue to trade it so they capture the wins.
- Almost all winning traders have come back from blowing up their accounts or losing a lot of money, they persevered while many others quit before they won.
- Most winning traders have learned to separate their trading from their self worth and ego. They treat it like a business.
The Top Ten Similiarities of Winning Traders
You
can read trading, books until you are red-eyed, you can spend thousands
of dollars on seminars, you can try to get successful traders to give
you the secret sauce of trading or the Holy Grail. But, in the end it is
simply you versus the markets. You have to pick your system, your risk
tolerance, and take the heat in your own account, it will be your own
money you lose.
No
one can tell you the right system and method for you. If you can take
draw downs in equity mixed with long term capital growth then trend
following may be for you. If you love playing the hottest stocks in the
market then CAN-SLIM or the Darvas System may be the right systems for
you. If you just have little patience and love action then you can join
the few who have mastered day trading. There really is no right system
for everyone, it depends on what you can handle. However here is what
all winning traders must have to win in the markets regardless of time
frame and system:
Trading System
- They trade a robust system or method that wins more money over time than it loses.
- Their system gives them a reward to risk ratio that is in their favor.
- Their system or method is proven to work with a live trading record over many markets and trades or has historical back testing.
Trading Risk
- They manage the risk of ruin to avoid blowing up their account.
- They risk no more than 1%-2% of total account equity on any one trade.
- They manage risk through proper position size so they do not risk their account on any one trade.
- They do not risk more than 6% of their capital at one time across multiple trades.
Trading Mind
- They have faith in their system or method and continue to trade it so they capture the wins.
- Almost all winning traders have come back from blowing up their accounts or losing a lot of money, they persevered while many others quit before they won.
- Most winning traders have learned to separate their trading from their self worth and ego. They treat it like a business.
Federer’s Loss is Our Gain
1. He was out of position, or better put, poorly positioned for all of the match.
2. Up early in the opening of the match, he failed to hold and close his early lead when he had clear opportunities.
3. He made errors in pivot points early in the second and third sets – giving away every chance to get back into the match.
4. He was a consummate professional in defeat in the post match – the opponent was better, played better, and deserved to win.
The pundits will like to call this another sign of his decline, etc. I’m not so sure. Particular in that his inability to hoist another championship trophy is now nearly fully priced in.