Monday, March 26, 2012

Market update: S&P 500 at 3 year highs

It wasn't so long ago we were watching 1,260 as a key resistance level on the S&P 500 ($SPX).


Today we see the $SPX bumping up to 3 year highs.


Once the market closed above that same level and really held it after the start of the year, it stair-stepped higher with relatively tight pullbacks since. The last few months have been much more of a slow grind higher, as opposed to the choppy , volatile swings of last July through December 2011.

We are now approaching prior resistance levels near 1,440 from 2008. If the market can clear that, then pullback/consolidate and continue its move higher, we'll be approaching the prior peaks from the 2008 market top. 


Of course, a move towards 1,500 on the $SPX might be some time off given the extent of the move we've just seen.

Tuesday, March 20, 2012

Trader Interviews: Overcoming Your Fear of Pulling the Trigger

Archer pulling bow and arrow taking aimTim Bourquin at TraderInterviews.com brings us this helpful discussion with top trading psychologists on, "How to Overcome the Fear of "Pulling the Trigger" On a Trade"

The full interview (and transcript) with Dr. Brett Steenbarger, Dr. Doug Hirschhorn, and Dr. Gary Dayton has been made available for free, so click through to check it out anytime. 

Here are a few key insights from Tim's discussion with these trading MDs. Now, not all of the interviewees agree on each and every Q+A topic, but there are some very interesting common threads running through each of the 3 interview segments. 

  • The interview begins with Tim asking Brett Steenbarger why some traders may have problems "pulling the trigger" on their trade ideas. Dr. Brett points out that we must first correctly diagnose the problem before offering a solution. In his view, there are likely two main reasons, one being a trader's lack of confidence (setup ideas haven't been tested, etc.).   
  • Paper trading and simulation with real market data, followed by live trading with small amounts of money, may offer the proper testing and experience-building trials a trader needs to build his skills and confidence (Steenbarger's view).
  • Performance anxiety is the 2nd problem highlighted by Steenbarger. He mentions some visualization exercises which can prepare athletes and traders for the anxiety of performing in a high-pressure environment. You should also focus on the process of trading, rather than the outcome of each individual trade.
  • Dr. Doug Hirschhorn tells us that a lack of personal trust is behind a trader's failure to pull the trigger on trades. He does not favor paper trading, but says traders should trade smaller sizes to practice building their skills and get comfortable with their market and style.  
  • Traders who get over the fear of failure more quickly tend to look at the larger statistical picture. They begin to see beyond the individual trades immediately at hand and instead look out to the next 100 trades, the collective picture of their longer-term trading process. 
  • Increasing one's trade size, getting bigger in a winning position, is another major theme in improving trading performance. Dr. Hirschhorn briefly offers his perspective here, and this is an area we may want to explore and study further.    
  • Tim's talk with Dr. Gary Dayton delves into the issue of dealing with fear and emotions in trading.  As Dr. Dayton points out, we cannot remove our thoughts and feelings from our daily work. He discusses the idea of practicing "mindfulness", which teaches us to defuse our emotions and be aware of what the mind is telling us (since our thoughts are impermanent and often inconsistent).
As you can see, there are some common threads running through this discussion. Anxiety, lack of experience or methods testing, and lack of preparation may hinder the trading process and lead to a fear of "pulling the trigger".   

These are issues I've had to deal with (and continue to work on) in my return to trading. What we can do, as businesslike speculators, is focus on defining our method/style and our edge.    

We also need some sort of learning process to help us begin to get comfortable with our chosen trading style. Whether it's some sort of realistic simulation or a "start small" process that has us trading real money with smaller position sizes, it seems some form of real-time trading education is key to building confidence and overcoming the fear of pulling the trigger.  
  
Have you faced these problems in trading? What have you done to overcome your fears? Share your experiences with us.    

If you're enjoying these posts and would like to see more, please subscribe to our free RSS updates and follow Finance Trends in real-time on Twitter and StockTwits. You can also check out our related posts below for more market wisdom and trading insights.  


Photo creditStudent Archer, via U of Iowa digital library.  


Related articles and posts:  

1. Zen and the Art of Trading.  

2. Mark Minervini interview: define and refine your approach.  

3. What Makes a Great Trader? Managing Risk

Tuesday, March 06, 2012

Mark Minervini interview: define and refine your approach

Veteran stock trader and "Market Wizard", Mark Minervini shares his story in an interview with the Your Money Matters podcast. 

I thought this interview with Minervini, a largely self-taught trader who transitioned into trading after working as a musician, would make a nice follow up to our recent post on self-education and the school of hard knocks

Here are some key points Mark makes in this interview:
  • "I wasn't always successful. In fact, for the first six years I didn't make any money at all."
  • Mark started trading in 1983. He began visiting the library and one day came across Richard Love's book, Superperformance Stocks. Mark spent "the next twenty-seven years" refining his approach.
  • Persistence can be more important than knowledge. Learning to trade the stock market can be difficult, and there is a long learning curve. Mark stayed with one approach and spent his time mastering it. "It's not going to happen right away". 
  • "I don't believe in failures". Instead, Mark says he views outcomes in terms of results. There are desirable results and undesirable results. We try things, we learn, and we make some adjustments while trying again
  • "I made my big mistakes when I had the least amount of money, when I was just starting out". You have to define yourself as an investor or an aspiring trader with a given style, and know that it will take a long time and a lot of work to become a professional trader. However, the work is justified by the rewards. 
  • You have to review and analyze your results to help build your approach. Minervini did this after an early losing period, and soon gravitated towards a more sound approach to stock selection. Keep a journal and track your trading performance so you can make improvements. 
  • Is there a certain personality type that makes a standout trader? Mark says he's learned not to judge a book by its cover. As Mark puts it, citing his own experience, "I was a musician, I had long hair, I dropped out of school in the 8th grade...I'm completely self-educated so you might not have bet on my results." Good traders aren't necessarily born, but they are developed over time.
This is just a sampling of what you'll find in the interview with Mark Minervini. To sum up one of the main themes of the discussion, get started learning a particular style or approach, then "define it and refine it".

Related articles and posts:

1. Self education and the school of hard knocks - Finance Trends.

2. Mark Minervini interview via Pradeep Bonde - StockBee.

3. Charles Kirk interviews Mark Minervini - The Kirk Report.

Sunday, March 04, 2012

Self-education and the school of experience

You may find this next quote about self-education personally relevant, but then again, you may not. From Claude C. Hopkins' autobiography, My Life in Advertising... 

"...To poverty I owe the fact that I never went to college. I spent those four years in the school of experience instead of a school of theory.  I know nothing of value which an advertising man can be taught in college. I know of many things taught there which he will need to unlearn before he can steer any practical course."  

Having attended college (for a time), and from my own experiences and observations, I know that this passage rings true. You could substitute the words "advertising man" with the titles "artist", "writer", "economist", or "trader" and still get the same meaning.

You may have heard many entrepreneurs or autodidacts make similar remarks about the value of self-guided education and experience. You may also have heard many experienced, degreed professionals lamenting the need to unlearn much of what they were taught in universities. 

Someone mentioned Claude Hopkins in a book review I read today and I found my way to the aforementioned memoir from 1927. I thought I'd share it here with you. Hopefully, it will spur your thoughts on the value of formal education vs. "school of hard knocks".

Maybe we'll find some more chestnuts of wisdom inside. In fact, I'm sure we will, as the above passage came straight from chapter one! 

In the meantime, can you think of some important lessons (business, trading, creative, or otherwise) you've learned through self-guided education or your own passage through the school of hard knocks?   



Related posts

1. Marc Faber's advice to young people and the meaning of "success".

2. Michael Bigger: Starting Over.