invitation for wisdom
- Thread starter beginner_av
- Start date
Rules,Rules and more Rules
Here is some wisdom from Pradeep Bonde
When your trading is not working make more rules. That seems to be the general rule in trading blogs. Or if you want more people to read your blog make more rules.
Every day I find a new blog proclaiming with absolute certainty that if you followed the 10-12-15-20-100 rules of trading, success is assured. I have seen many traders making new rules everyday or every week. There seems to be some relationship to their struggle for profitability and rule making.
Trading psychologists are another set of people who are peddling the rule following magic miracle pill to your trading success. Most of these psychologists have not been successful in trading. But they are very successful in making unsuccessful traders believe that if you follow their rules, making millions is easy.
Another set of rule makers are the trading gurus and newsletter writers. Now these people are very good at making rules that appeal to followers. It is an excellent marketing strategy. Most unsuccessful people have a feeling of inadequacy. When a guru tells them your success is guaranteed if you follow these simple rules, then there is instant reassurance and more subscribers. I am yet to see a newsletter writer who does not claim to have his own rules to guaranteed riches. When own rules lose appeal then there is always a recourse to searching for rules by others like Jesse Livermore, Richard Donchian, Nicolas Darvas, Bernard Baruch etc. and promoting them to others.
Now if you look at the actual rules, they are often vague, self contradictory and in most cases based on some unproven market assumptions. A rule which sounds good or is a clever play on words or is a nicely constructed sentence like " Plan your trade and trade your plan", does not mean it will work. Often there are contrary rules someone says " As a rule I never buy 52 week high", someone says "Never buy a 52 week low". Then there is a rule which is often the most quoted one with various twist to it- " Never risk more than 1/2/5/8/10% of your capital on a trade". The same rule gets twisted in some cases to "Never put more than 10 or 20% in one position". While the billionaire trader George Soros says be a pig if you have a good idea. Warren Buffet risked more than 30% on one trade. But what do those two gentlemen know about trading. If you examine each of the most widely quoted and popular rules you will find such contradictions.
The other problem with the rule makers is, those rule might be working for that specific trader (in totality of what they do in their trading) but the way they promote it is in absolute terms. No rule maker says " As a rule I never risk more than 1% on a single trade" or " As a rule I never buy 52 week low". Instead the rules are proclaimed like Moses handing out The Ten Commandments.
Profitable trading is based on clear well defined logical concept. It is based on some central market tendencies. No amount of rules are going to make an unprofitable trading system or trading approach profitable. You have a choice you can be profitable trader or rule maker. Making rules is easy.
Here is some wisdom from Pradeep Bonde
When your trading is not working make more rules. That seems to be the general rule in trading blogs. Or if you want more people to read your blog make more rules.
Every day I find a new blog proclaiming with absolute certainty that if you followed the 10-12-15-20-100 rules of trading, success is assured. I have seen many traders making new rules everyday or every week. There seems to be some relationship to their struggle for profitability and rule making.
Trading psychologists are another set of people who are peddling the rule following magic miracle pill to your trading success. Most of these psychologists have not been successful in trading. But they are very successful in making unsuccessful traders believe that if you follow their rules, making millions is easy.
Another set of rule makers are the trading gurus and newsletter writers. Now these people are very good at making rules that appeal to followers. It is an excellent marketing strategy. Most unsuccessful people have a feeling of inadequacy. When a guru tells them your success is guaranteed if you follow these simple rules, then there is instant reassurance and more subscribers. I am yet to see a newsletter writer who does not claim to have his own rules to guaranteed riches. When own rules lose appeal then there is always a recourse to searching for rules by others like Jesse Livermore, Richard Donchian, Nicolas Darvas, Bernard Baruch etc. and promoting them to others.
Now if you look at the actual rules, they are often vague, self contradictory and in most cases based on some unproven market assumptions. A rule which sounds good or is a clever play on words or is a nicely constructed sentence like " Plan your trade and trade your plan", does not mean it will work. Often there are contrary rules someone says " As a rule I never buy 52 week high", someone says "Never buy a 52 week low". Then there is a rule which is often the most quoted one with various twist to it- " Never risk more than 1/2/5/8/10% of your capital on a trade". The same rule gets twisted in some cases to "Never put more than 10 or 20% in one position". While the billionaire trader George Soros says be a pig if you have a good idea. Warren Buffet risked more than 30% on one trade. But what do those two gentlemen know about trading. If you examine each of the most widely quoted and popular rules you will find such contradictions.
The other problem with the rule makers is, those rule might be working for that specific trader (in totality of what they do in their trading) but the way they promote it is in absolute terms. No rule maker says " As a rule I never risk more than 1% on a single trade" or " As a rule I never buy 52 week low". Instead the rules are proclaimed like Moses handing out The Ten Commandments.
Profitable trading is based on clear well defined logical concept. It is based on some central market tendencies. No amount of rules are going to make an unprofitable trading system or trading approach profitable. You have a choice you can be profitable trader or rule maker. Making rules is easy.
and how do you translate your great logical concept to a profitable trading system?
Sorry, I have not invented any great logical concept.
For great logical concepts ,Go to SSRN network,Search "Trading"
You will find hundreds of academic research papers on stock markets.Go through the papers whenever you get time.You will find many profitable,statistically proven,market behaviours and anomalies.
Select some ideas you think you can translate into trading system.Write your own scans and back test.Improve upon it and paper trade.
These research papers ,I think are more reliable than the popular books because these authors have no commercial interests like selling news letters.
For example momentum strategies are found to be profitable in all the markets at all times.We can find the results of many research on momentum at SSRN,
and we will get clues for selecting the right stock,formation period of the trend, holding period etc.
Download a research on Indian Stock Market
http://rapidshare.com/files/21360478/momentum.pdf.html
SSRN Network
http://www.ssrn.com/
Regards
Niranjanam
Sorry, I have not invented any great logical concept.
For great logical concepts ,Go to SSRN network,Search "Trading"
You will find hundreds of academic research papers on stock markets.Go through the papers whenever you get time.You will find many profitable,statistically proven,market behaviours and anomalies.
Select some ideas you think you can translate into trading system.Write your own scans and back test.Improve upon it and paper trade.
These research papers ,I think are more reliable than the popular books because these authors have no commercial interests like selling news letters.
For example momentum strategies are found to be profitable in all the markets at all times.We can find the results of many research on momentum at SSRN,
and we will get clues for selecting the right stock,formation period of the trend, holding period etc.
Download a research on Indian Stock Market
http://rapidshare.com/files/21360478/momentum.pdf.html
SSRN Network
http://www.ssrn.com/
Regards
Niranjanam
Greatest enemies in market:-
As per my evaluation of myself, I have found out the following to be the greatest enemies for me in the market.
1. Lack of consistance approach:-
with regards to the indicator, system, time frame (daily/weekly/hourly) and all this inconsitancy will lead to inconsistancy of mind.
2. Failed to remained discilplie:-
Discipline with regards to following system (which developed by you and you implemented only after you was fully convinced that it works). Hesitation to follow entry points, exit points, profit booking and stop loss levels.
I belive that trader / investor should be so disciplie that even if Warran Buffet comes and suggest to buy/sell something, he should have ability and courage to deny the same, if his system refuses.
Lack of discipline may be result of undue and unwarranted emotions, but the point is, it is the greatet enemy.
3. Lack of alertness:-
4. Lack of Action:-
5. Lack of follow up:-
point number 3,4,5 are more or less covered in 1 and 2.
Comments of the members are welcome.
As per my evaluation of myself, I have found out the following to be the greatest enemies for me in the market.
1. Lack of consistance approach:-
with regards to the indicator, system, time frame (daily/weekly/hourly) and all this inconsitancy will lead to inconsistancy of mind.
2. Failed to remained discilplie:-
Discipline with regards to following system (which developed by you and you implemented only after you was fully convinced that it works). Hesitation to follow entry points, exit points, profit booking and stop loss levels.
I belive that trader / investor should be so disciplie that even if Warran Buffet comes and suggest to buy/sell something, he should have ability and courage to deny the same, if his system refuses.
Lack of discipline may be result of undue and unwarranted emotions, but the point is, it is the greatet enemy.
3. Lack of alertness:-
4. Lack of Action:-
5. Lack of follow up:-
point number 3,4,5 are more or less covered in 1 and 2.
Comments of the members are welcome.
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