Tendencia anual del Dow Jones

Here’s a look at how the Dow has performed, on average, throughout the year. I used all the daily closings since 1896.

Looking at the annual trend, there are two basic surges. The biggie is from October 29 to May 6, when the Dow rises 7.79%, which is about 93% of the annual gain. The rest of the time, the Dow gains just 0.49%. The other big surge is from May 25 to September 6 when the Dow rises an average of 4.72%.

The average sell-off from May 6 to May 25 is -1.25%, and the one from September 6 to October 29 is -2.82%.

The most impressive short-term gain is from December 21 to January 7 when the Dow averages a gain of 3.39%. To put that in some perspective, the Dow’s annual gain is 8.32%. This means that more than 40% of the Dow’s yearly gain has come during this brief stretch which is less than 1/20 of the entire year.

The incredible power of momentum stocks

I’m a big fan of Professor Ken French’s data library. I’ve used data from his library at this site many times.

If you’re not familiar with Dr. French, he’s a well-known finance professor at the Tuck School at Dartmouth. He’s also known for his long-time association with Eugene Fama at the University of Chicago.

I was digging around some of the files in the library and I was completely stunned by the incredible outperformance of stocks with high momentum, meaning stocks that are surging have a tendency to keep on surging. I was aware of some of the academic literature on this subject, but I have to confess that I was completely dumbfounded by the results.

I know that stocks with favorable valuation characteristics do better than the rest of the market. For example, stock in the lowest decile (or 10%) of price/earnings ratio have historically beaten the market. The same is true for stocks with higher dividend yields or low price/book ratios. Also, small-caps do better than large-caps (although I’m not particularly impressed by the small-cap premium). These phenomena are very well-known and have been documented countless times.

But simply put—high momentum creams them all.

At the data library, French has ten portfolios listed by momentum (see “10 Portfolios Formed on Momentum”). He gets his data from the Center for Research in Security Prices at the University of Chicago. I looked at the long-term returns of stocks with the greatest momentum.

From the beginning of 1927 through August of 2007, the overall market has returned an average of 10.10% a year. The highest momentum stocks returned an average of 17.76% a year.

What’s more, that’s just the value-weighted portfolio. By looking at the equal-weighted portfolio, which gives more say to smaller-cap stocks, the results are even more impressive. The equal-weighted high-momentum portfolio returned an average of 21.94% a year. Here's the chart:

Wow.

Also, while the momentum portfolios are more volatile, they don’t strike me as being usually high. The monthly standard deviation for the value-weighted momentum stocks is about 20% greater than the rest of the market. The equal-weighted stocks are 37% more volatile.

The problem I have with many small-cap or value-related models is that the results are highly cyclical. It’s true that small-caps do well after several decades, but it’s not unusual to see underperformance for five years of more. That happened to small-caps in the 1990s and I think value is entering a down phase right now. With momentum, the results are much more consistent. Heck, just look at the red and blue lines.

There’s also the question of what we mean by stocks with high momentum. I called Dr. French just to make sure I had it right and he was very helpful in explaining it to me. By momentum stocks, he ranks every stock by how it did over an 11-month period, then skips a month and then tracks them for one month. At the end of the month, the whole thing is repeated.

Confusing?

He’s an example. On January 1, we take the top 10% of stocks by their performance for the previous January 1 through November 30. The stocks are held for exactly one month and the process is repeated again on February 1.

This system in completely mechanistic and all emotions are banished. I’ve known lots of people who are momentum investors but they rarely have the discipline to act by strict rules.

Another interesting aspect of a momentum strategy is the turnover probably isn’t that high. Since it encompasses the best returns for 11 months, many stocks will remain each month. Dr. French said that he thinks the turnover is 91%. That’s high, but not as high as many mutual funds.

There are lots of historically interesting strategies but many are very impractical. For example, the stock market has been net down on Monday, Tuesday and Thursday combined. But it’s highly impractical to sell all your stocks and buy them a few times each week. But I don't think that's the case with a momentum strategy. Also, I’m sure you could even use ETFs to mimic the high-momentum portfolios.

There’s also the question of why. Why do stocks with high momentum continue to outperform for a bit more? Is there something inefficient in their...frothiness? Can a person really play the height of their frothiness all the time by constantly shifting?

According to the Efficient Market Hypothesis, this outperformance would rationally be exploited away. I’m not a believer in efficient Market Theory (ironically, it was developed by Eugene Fama) but I do think stocks show a bias towards efficiency. Perhaps there’s something in a surging stock that causes the pre-requisites for an efficient market to break down (flow of information??).

Dr. French was careful to say that he’s not the discoverer of momentum premium. That award goes to Jegadeesh and Titman who in 1993 found that the best-performing stocks of the last six months outperform the worst over the six to twelve month. I'm very impressed. I’m planning to look into more of the academic literature.

Entrevista con Teresa Lo

Interview with Teresa Lo, PowerSwings.com

October 23rd, 2007

For the next interview in the StockTickr Interview Series (RSS feed), I spoke with Teresa Lo, a well known swing trader and founder of PowerSwings.com.

After all the hubbub a while back, I wanted to talk with Teresa directly and make my own determination of her. We had a lengthy conversation and I was impressed with her openness and honesty. We also had a philosophical discussion about R.

Read on for more about how Teresa Lo trades, how she blew up her account in the early years, and the most common mistakes she sees traders making.

StockTickr: How did you get started trading stocks?

Teresa: I started buying mutual funds as a teenager because stocks were fundamentally cheap in the early 1980s. I had money to invest because I was marginally successful at fashion modeling while I was attending university. When I graduated in 1986, I went to work at a local brokerage firm here in Vancouver, which was the premier stock exchange for natural resource exploration stocks in Canada at that time. This is a brokerage town, and all my friends also went into the business because their parents were in the business. I wasn’t burning to be a trader. People went into the investment industry knowing that trading is not the way to riches; corporate finance is the sure way to the big money.

StockTickr: Most traders have a horror story about losing their shirt when they first started trading. What’s yours?

Teresa: One of my friends was a technical analyst. He made a stock recommendation that I took. In no time, it was down 50% and I asked him what the plan was…to which he seemed to have no answer other than to hold on. At that point, I decided it was time to learn about trading. Now, being the mining finance capital, I mainly traded gold stocks, both penny exploration plays and senior gold producers.

A few years later, I learned about the dangers of leverage. I blew out my account not because I was wrong, but because I was levered so high that a small pullback wiped out the equity in my account. If you want to read about it, Art Collins interviewed me for his book, When Supertraders Meet Kryptonite.

The headline for Chapter 5: Teresa Lo is:
“I Prayed for One Thing - That When I Liquidated Everything, I Wouldn’t Owe the Firm Any Money.”

That sort of says it all.

StockTickr: What single lesson did you learn along the way that has helped you the most in your trading?

Teresa: Next to the leverage debacle, the most important thing I learned about was the psychology of the crowd, and by extension, how to anticipate their moves. In his book, Justin Mamis calls it the sentiment cycle. I wrote about this in my blog. The bottom line is that chart patterns form in a certain context, and you need to know what it is.

StockTickr: How important do you believe record keeping is to successful trading?

Teresa: None of the traders at the office did it, and it never occurred to me to do it either. In retrospect, it might have been good practice to do it, and I certainly think it could benefit new traders tremendously. The bulk of my trading is now mechanical, and as such, I have the results at my fingertips and examine the data with Excel.

StockTickr: How could traders improve their trading logs to get more out of them?

Teresa: Discretionary traders should use StockTickr to track their real time or paper trades in order to objectively analyze the results. Once you know that you have an edge, you can trade it unemotionally. It’s important to get away from the emotional need to make the trade in front of you work out by giving it more and more rope.

Trade logs are probably most helpful to those experiencing the emotional roller coaster from watching their account equity fluctuate wildly. My reaction is that this problem is largely an artifact created by using too much leverage rather than bad trading technique. For example, if a trader uses no leverage and bets a certain percent of his account on each trade, poor technique should erode the account over time rather than have huge up and down days. Huge fluctuations are probably an indication that the trader is using too much leverage. StockTickr can help them determine if this is indeed the problem.

StockTickr can be of tremendous help in analyzing stop size. I am utterly convinced that people use stops that are way, way too tight. What they ought to do is reduce position size. “R” must account for the natural range for whatever market and time-frame the trader operates in. “R” should never be calculated by dividing how much the trader can afford to lose by the number of contracts or shares traded.

StockTickr: What’s your exit strategy for winning and losing trades?

It’s the same for both. I have a stop and I use it. The most important part to remember is to actually execute the stop. Just do it.

StockTickr: What 3 books do you recommend traders read?

Teresa: I’ve already mentioned Justin Mamis’ book, The Nature of Risk. A Mathematician Plays The Stock Market by John Allen Paulos is a must read. The Handbook of Parametric and Nonparametric Statistical Procedures by David J. Sheskin is very useful because much of the work in trading has to do with identifying outliers. In my opinion, anyone using indicators really ought to carefully evaluate the theoretical foundation and purpose of the indicators they use and confirm for themselves that the assumptions, construction and application are all valid. Since most indicators only use price, they fall within the realm of univariate time series analysis, a subject that is not that fancy or new.

StockTickr: What is the most common but easily correctable mistake you see traders make?

Teresa: I think the most common problem is also the hardest to correct. For example, everyone starts out envisioning a tight stop, but they only use tight stops when the trade is in the money. When the trade is out of the money, people tend to loosen their stops to give the trade more room to “work out”, often to the point where they just take the stop out all together. They know they shouldn’t do it, but they always do it, and end up taking small profits and huge losses.

The other thing is that people think that they should have a trade on all the time. The time to trade is when there is a setup. Waiting is not easy. The temptation is to get in there and position for a breakout.

StockTickr: What technical indicators could you not live without?

Teresa: I can trade with no indicators, but if I had to watch one, I would use the usual moving averages since I know other market participants set up trades based on certain moving averages.

StockTickr: How do you think the market has changed over the last several years? How have you adapted?

I don’t think the market has changed. It’s always featured periods of high and low volatility. I wrote a blog entry about this.

StockTickr: Do you suggest backtesting and if not, how do you suggest traders instill belief in their system?

Teresa: The term backtesting is quite loaded. Yes, I believe in backtesting, but not of the usual canned technical indicators because there is an assumption there that they work, and therefore, the mission is to find the right combination and permutation through brute force with optimization. I think most people know by now that it doesn’t work like that.

My approach is more along the lines of the scientific method. Observe the phenomenon, make a hypothesis, test, confirm and repeat. There is no optimization. It’s more like simulations. This means each trader needs to watch the market and come up with ideas to test, not just pull canned stuff off the shelf. And that’s only for the buy and sell signals. Next comes position sizing and leverage. These two factors might even be more important. For example, if a trader uses 19:1 leverage — meaning that for every dollar of their own money, they use 19 dollars of margin — a 5% drawndown means your equity is gone and you’re out of the game.

StockTickr: What advice can you offer traders who are just starting out?

Teresa: This is counterintuitive, but I think it might be best to refrain from reading too many books that feature technique. This way, you don’t get too many preconceived ideas. Rather, watch the market for a while and learn to be a sophisticated consumer of performance and efficacy claims. In other words, do your own homework. Learn some statistics. Take a good look under the hood of any indicator you wish to use. Ask yourself, “Why is this supposed to work? Is there a valid theoretical foundation? What is the purpose of this tool?” The focus should not be directed solely to researching buy and sell signals. Position sizing is very important, perhaps even more important than the buy and sell signals.

Those who wish to trade chart patterns have to know that they form within the context of the sentiment cycle.

StockTickr: What do you like best about trading?

Teresa: Trading per se is just another job, and certainly not an easy one. The one good thing about it is that the market offers variety, since no day unfolds like the one before. If you have a lot of intellectual curiosity coupled with attention to detail, it’s like a puzzle that just goes on and on and on. You might get close to perfection, but you will never, ever attain it.

I think this quote from Fischer Black and the Revolutionary Idea of Finance by Perry Mehrling sums it up:

The best problems, like the best toys, are hard to exhaust. You can approach them from a variety of different angles, each new angle making the problem fresh again, and bringing the opportunity to discover something new. Any idea, no matter how crazy seeming, might work and can be worth exploring. Indeed, the harder the problem, the more degrees of freedom one can allow in tackling it. Fischer relished hard problems because he relished that freedom, but in practice he did not try just anything. In his view, if a problem does not yield to known methods, that doesn’t mean we need more sophisticated methods, indeed probably just the opposite. Usually problems are hard not because our technique is deficient but because our understanding is deficient.

StockTickr: Thanks, Teresa!

You might be wondering why we need to take a detour to discuss The Sentiment Cycle. Surely mechanical trading is designed to do away with emotions, right?

Justin Mamis: Example of a Simple Sentiment Cycle

Yes, a good trading system helps us stay the course and do the right thing. It prevents us from chasing performance, from loading the boat at the top. A good trading system does not allow us to experience the trauma of puking at the bottom after a long downtrend by virtue of using stops and position sizing. A good trading system frees us from our worst fears - the fear of losing, and the fear of missing out.

If you make a bad trade and you have money management you are really not in much trouble. However, if you miss a good trade there is nowhere to turn. If you miss good trades with any regularity you’re finished. — William Eckhardt

Buying high and selling low is not the way to go, but human nature makes it hard to resist doing it because we are simply designed to feel most confident and have the most conviction to act when there is a massive amount of public opinion that concurs with the fundamentals, along with widespread agreement that a big trend in place. Contrarians tend to be way too early, and often experience the old “light at the end of the tunnel is the on-coming train” phenomenon. By and large the typical human “gut” is simply not geared for trading.

Human nature does not operate to maximize gain but rather to maximize the chance of a gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance. Two of the cardinal sins of trading - giving losses too much rope and taking profits prematurely - are both attempts to make current positions more likely to succeed, to the severe detriment of long-term performance. Don’t think about what the market’s going to do; you have absolutely no control over that. Think about what you’re going to do if it gets there. — William Eckhardt

We tend to worry too much about making the trade at hand work out for us as if we want bragging rights or something. Let’s not forget that each trade is inconsequential in the big picture (unless every trade is a loser!), since the goal is to make as much money - over a reasonably long run - with as little risk as possible. If you don’t believe me, read the papers at SSRN on Prospect Theory. One of the best ones was The Diversification Puzzle by Meir Statman.

Because each of us we will conduct many transactions over the course of a lifetime, we can’t get worked up about every single one of them. Some will make money; some will lose money, but if I know that my approach is correct and my methodology is sound, then the only thing I need to do with the trade in front of me is make sure that it will not be the one to put me out of business.

We have to keep the ball moving toward the end zone, but we can’t go for the 90-yard “only in the movies” touchdown attempt every time. Most often, the hardworking team grinds it out play by play - a few steps forward, one step back. Always be defensive. Recover those fumbles.

The Mamis Sentiment Cycle

The following is an exerpt from my book, The Ultimate Trading Course. I discuss Justin Mamis’ writing in his classic, The Nature of Risk.

What we have (in Chart 14 of The Nature of Risk) is essentially a graphical representation of the manic depressive moods typically experienced by market participants as a function of time and price in one complete sentiment loop. There are two areas in a typical loop where the market does something that traders describe as ‘churn’ or ‘chop’, and two areas where directional trends are found.

RETURNING CONFIDENCE
On the upside, the area where churning takes place is in between the Returning Confidence phase and the Subtle Warning phase, after a significant advance has already taken place. This often appears in the form of a head and shoulders top on weekly or monthly charts. By the time confidence returns, the market has already been going up for ages while the retracement patterns become ever larger, each one scarier than the last.

To technical traders, this type of price action tells us that the market is getting tired. Perceived bull market volatility excites investors. They waited forever on the sidelines for fundamentals to confirm that the move up was ‘real’. The coast is finally clear and they jump in with both feet. This phase typically ends with a failure on test of top, and the big, super scary ‘buy the dip’ pullback begins.

BUY THE BIG DIP
The public continues to pour money in, lured by glowing good news and economic data. After the long move up, finding attractive stocks becomes difficult for technical traders and market veterans. Traders chase momentum where they find it. Investors believe that the game is back on, and they are willing to take big risk and buy big dips. This Big Dip usually comes after a failed test of top in the Returning Confidence phase. The Big Dip typically takes price below the 50-day simple moving average and quite often, to the 200-day moving average. This is where ABC Corrections are typically found.

ENTHUSIASM
Once it is widely accepted that economic and corporate fundamentals are supporting higher prices, a bell goes off. The bull survived The Big Dip. Those who had previously been afraid now have plenty of reasons – and proof – that it is safe to go back into the market and buy again.

At this point, we detect a subtle change in psychology, a shift from the fear of loss to the fear of missing out, and the appetite for risk becomes evident. Investors buy on faith, bolstered by analyst and media reports projecting the trend to continue. As price rises to new highs, they all scream, “It’s a breakout!” They are supremely confident that the best is yet to come.

The high made in the Returning Confidence phase typically marks the ‘point of breakout’ and becomes an important psychological number. We know this high is where sellers showed up before, and if price should sink below this area, traders and investors might come to the conclusion that the breakout failed, and therefore, begin selling in case the uptrend is approaching the point where it starts to bend.

At some point, all the buyers who want to be in the market have bought, and they stop buying. Smart money begins to take some off the table. The net result is rotation of buying and selling from sector to sector, causing the major stock indexes to stop going up in any meaningful way and price charts to churn and chop. In the old days, they called this ‘distribution’, marking the transfer of stock from smart to dumb money, from strong to weak hands. This area is where a buildup of participants in position to write sell tickets takes place. If price fails to move up or it comes back under the point of breakout, selling begins.

DISBELIEF
The market fails to go higher, and indeed many of the early leaders have broken down under the 50-day moving average, giving technicians the Subtle Warning. This marks the beginning of the ‘something is not right’ gut feeling, but in the absence of bad news, investors hold on to hope. Not only are they heavily invested in the market, they are psychologically invested in being right and they ignore anything that does not go with their worldview. Indeed, they even wonder aloud why their beloved stocks cannot go up amidst good news, higher earnings guidance and analyst upgrades.

OVERT WARNING TO PANIC
The area of sustained directional trending price action to the downside takes place is between the Overt Warning and Panic phases. There will be some sort of catalyst. Perhaps it is an earnings warning or some point of economic data that leads the crowd to finally clue in that the nagging negative price action they have been watching is the beginning of something big and bad.

The 200-day moving average is broken, and CNBC alerts investors. Everyone knows that the ship is sinking. Those who bought in the churning top realize they are holding the bag and stop buying the dips. Smart money shorts each failing bounce. Stop losses are hit, and margin calls force liquidation. Supply simply overwhelms demand and price action becomes a one-way street.

DISCOURAGEMENT AND AVERSION
After a long price slide, the area where churning takes place is between the Discouragement and the Aversion phase, after a significant decline has already taken place. Often, this appears as a head and shoulders bottom, a cup and handle or a saucer dish pattern. As the public continues to dump stocks, short sellers become bold and bearish. Their views are supported by bad news and poor economic data. Prognostication of lower prices to come is undoubted. This is when everyone knows that the market cannot ever go up again, and that anything, even cash, is preferable to owning stocks.

WALL OF WORRY
While the broad indices are still going down, certain sectors will have bottomed. At some point, everyone who wants to sell has done so, and the selling stops. Low prices and relative value returns, and early buyers with deep pockets begin to nibble at the market. The net effect is that the major stock indexes stop plunging and begins to dribble or moves sideways.

This area is where we find a buildup of participants in position to write buy tickets, producing potential buy pressure. With sellers gone, the market even goes up on bad news. Rallies are labeled as ‘technical bounces’ or are written off as ‘short covering’. Short positions add more on every bounce, confident that lower prices are around the corner. When good news trickles in, it is summarily dismissed as aberrations, subject to revision next month.

AVERSION TO DENIAL
Sustained directional trending action to the upside begins between the Aversion phase and the Denial phase. As the market slowly creeps up, the shorts start to sweat while those who don’t own a piece of the action vow to themselves that they will get in on the next dip that they believe is sure to come. The market continues higher and does not let them in.

More and more bids materialize as buyers show up again while shorts begin to cover. Since there are not many sellers overhead, the move up can be big and fast, and on low volume. If it keeps going, eventually those left behind in the dust have to get in again, and the loop continues.

CONCLUSION
Take note of the way churning precedes trending as an entire group of market participants are trapped in the wrong direction. Indeed, we could argue that trends can only take place after a large group of market participants have been lulled into believing the status quo will last infinitely. When the reversal finally takes place, the ensuing mad scramble becomes a directional trend.

The sentiment loop neatly summarizes the market and all its associated psychosis in a nutshell. I use the word psychosis on purpose, as it is medically defined as “a loss of contact with reality, typically including delusions (false ideas about what is taking place or who one is) and hallucinations (seeing or hearing things which aren’t there).” It is the only way to describe the things that people do at the tops and bottoms. It is similar to how some people break with reality when playing games such as Dungeons and Dragons, and their existence enters another realm. What we must do is to know where we are on the map at all times and maintain a separate sense of self by standing on the outside as impartial observers. That is the only way to preserve sanity and to make money.

To succeed in the long run, we have to become Zen Masters in the financial media circus. We pay attention to our own work. We conduct our own research, and when the market experiences bouts of mania and depression, we examine it with a practiced clinician’s approach to working up a patient - assessing blood pressure, pulse, bloodwork and the like to determine the state of the patient’s health. For example:

• August 15, 2007: How Much Lower Will This Market Go?

Because there are clear phases in the sentiment loop, we need to know about them in order to determine the “what” and “when” to buy and sell. Each of us can make certain policy decisions. In my opinion, the Discouragement and Aversion phases are best spots to buy for position trades while the area between the Buy the Big Dip to the Overt Warning phases are clear signs to lighten up long positions. A swing trader might be more inclined to look at other phases for appropriate opportunities.

One of the first books I read in this business oh-so many years ago was Stock Market Wizards. It had a profound impact on my thinking about trading, psychology, risk, capital preservation, etc.

Sometime ago, I came across a good discussion of the lessons from the book at Simply Options Trading. What follows is my edited adaptation of those rules he derived from Stock Market Wizards:

1. All successful traders use methods that suit their personality; You are neither Waren Buffett nor George Soros nor Jesse Livermore; Don't assume you can trade like them.

2. What the market does is beyond your control; Your reaction to the market, however, is not beyond your control. Indeed, its the ONLY thing you can control.

3. To be a winner, you have to be willing to take a loss;
(The Stop-Loss Breakdown)

4. HOPE is not a word in the winning Trader's vocabulary;

5. When you are on a losing streak -- and you will eventually find yourself on one -- reduce your position size;

6. Don't underestimate the time it takes to succeed as a trader -- it takes 10 years to become very good at anything; (There Are No Shortcuts)

7. Trading is a vocation -- not a hobby

8. Have a business/trading plan;
(Write This Down)

9. Identify your greatest weakness, Be honest -- and DEAL with it

10. There are times when the best thing to do is nothing; Learn to recognize these times (Nothing Doing)

11. Being a great trader is a process. It's a race with no finish line.

12. Other people's opinions are meaningless to you; Make your own trading decisions (The Wrong Crowd)

13. Analyze your past trades. Study what happened to the stocks after you closed the position. Consider your P&L game tapes and go over them the way Vince Lombardi Bill Parcells reviewed past Superbowls

14. Excessive leverage can knock you out of the game permanently

15. The Best traders continue to learn -- and adapt to changing conditions

16. Don't just stand there and let the truck roll over you

17. Being wrong is acceptable -- staying wrong is unforgivable

18. Contain your losses
(Protect Your Backside)

19. Good traders manage the downside; They don't worry about the upside

20. Wall street research reports are biased

21. Knowing when to get out of a position is as important as when to get in

22. To excel, you have to put in hard work

23. Discipline, Discipline, Discipline !

>

The links in parantheses are part of The Apprenticed Investor series I did for the Street.com.

Las diez lecciones que un trader debe aprender

Brett N. Steenbarger, Ph.D.

1) Trading affects psychology as much as psychology affects trading – This was really the motivating factor behind my writing the new book. Many traders experience stress and frustration because they are trading poorly and lack a true edge in the marketplace. Working on your emotions will be of limited help if you are putting your money at risk and don’t truly have an edge.

2) Emotional disruption is present even among the most successful traders – A trading method that produces 60% winners will experience four consecutive losses 2-3% of the time and as much time in flat performance as in an uptrending P/L curve. Strings of events (including losers) occur more often by chance than traders are prepared for.

3) Winning disrupts the trader’s emotions as much as losing – We are disrupted when we experience events outside our expectation. The method that is 60% accurate will experience four consecutive winners about 13% of the time. Traders are just as susceptible to overconfidence during profitable runs as underconfidence during strings of losers.

4) Size kills – The surest path toward emotional damage is to trade size that is too large for one’s portfolio. We experience P/L in relation to our portfolio value. When we trade too large, we create exaggerated swings of winning and losing, which in turn create exaggerated emotional swings.

5) Training is the path to expertise – Think of every performance field out there—sports, music, chess, acting—and you will find that practice builds skills. Trading, in some ways, is harder than other performance fields because there are no college teams or minor leagues for development. From day one, we’re up against the pros. Without training and practice, we will lack the skills to survive such competition.

6) Successful traders possess rich mental maps - All successful trading boils down to pattern recognition and the development of mental maps that help us translate our perceptions of patterns into concrete trading behaviors. Without such mental maps, traders become lost in complexity.

7) Markets change – Patterns of volatility and trending are always shifting, and they change across multiple time frames. Because of this, no single trading method will be successful across the board for a given market. The successful trader not only masters markets, but masters the changes in those markets.

8) Even the best traders have periods of drawdown – As markets change, the best traders go through a process of relearning. The ones who succeed are the ones who save their money during the good times so that they can financially survive the lean periods.

9) The market you’re in counts as much toward performance as your trading method – Some markets are more volatile and trendy than others; some have more distinct patterns than others. Finding the right fit between trader, trading method, and market is key.

10) Execution and trade management count – A surprising degree of long-term trading success comes from getting good prices on entry and exit. The single best predictor of trading failure is when the average P/L of losing trades exceeds the average P/L of winners.

Las diez razones por las que un trader pierde su disciplina

Losing discipline is not a trading problem; it is the common result of a number of trading-related problems. Here are the most common sources of loss of discipline, culled from my work with traders:

10) Environmental distractions and boredom cause a lack of focus;

9) Fatigue and mental overload create a loss of concentration;

8) Overconfidence follows a string of successes;

7) Unwillingness to accept losses, leading to alterations of trade plans after the trade has gone into the red;

6) Loss of confidence in one's trading plan/strategy because it has not been adequately tested and battle-tested;

5) Personality traits that lead to impulsivity and low frustration tolerance in stressful situations;

4) Situational performance pressures, such as trading slumps and increased personal expenses, that change how traders trade (putting P/L ahead of making good trades);

3) Trading positions that are excessive for the account size, created exaggerated P/L swings and emotional reactions;

2) Not having a clearly defined trading plan/strategy in the first place;

1) Trading a time frame, style, or market that does not match your talents, skills, risk tolerance, and personality.

¿Coarta nuestra identificación con un partido politico nuestra capacidad de voto?

No pude por menos que reirme hace unos días cuando escuché a Zapatero decir: "...compañeros..las elecciones del 2004...fueron muy importantes...pero las próximas son DECISIVAS."

Tiene mucha razón ZP. Por supuesto que son decisivas...pero no para los españoles sino para D. José Luis Rodríguez Zapatero que se puede quedar sin seguir siendo Presidente de Gobierno.

¿Pero qué le pasa a este hombre? ¿Sufre el síndrome de los directores de las organizaciones que identifican su beneficio o perjuicio personal con el de la organización, o piensa que los españoles somos gilipoyas? Yo apostaría por lo segundo.

Otra perla del razonamiento del sujeto. Portada de EL PAÍS. "Zapatero pide una amplia mayoría para frenar a la derecha." Nuevamente ¿o este hombre es incapaz de razonar o los incapaces somos nosotros que no se lo hacemos notar? ¿Qué tendrá que ver una amplia mayoría con frenar a la derecha? Yo comprendería que pidiese ganar las elecciones para gobernar, y que de este modo no gobierne el PP, pero la amplia mayoría a quien frena es a los nacionalistas, que no tienen tanta fuerza a la hora de vender su voto.

Leí un estudio de un catedrático de psiquiatria que apuntaba a una curiosa forma de comportamiento humano. Asombrosamente, sucede que cuando existe una discordancia entre lo que nos dicta nuestra razón y lo que nos pide el cuerpo sólo en una de cada cinco veces hacemos caso a nuestro cerebro.

Corolario: si los politicos son tan astutos de conseguir que nos identifiquemos con unas siglas políticas (son los nuestros) tienes garantizado el 80% de los votos de los identificados hagas lo que hagas. Vaya chollo.

Por favor, dejemos de seguir la política como si fuéramos forofos del Real Madrid o del Barcelona, y dejemos de pensar que cuando el Madrid ha ganado la Liga la hemos ganado nosotros, porque no es así: la han ganado los jugadores del equipo.

Que no nos ocurra lo mismo con la política. Y sobre todo que no se aprovechen de nuestras fobias a otros partidos. No debemos identificarnos con un partido político porque nos impedirá ser libres para enjuiciar y consecuentemente para votar. Los partidos contarán con nuestro voto y no necesitarán hacer bien su trabajo para salir reelegidos. Ya hemos podido ver cómo ni España se ha hundido cuando ha gobernado el PP ni cuando ha gobernado el PSOE, Por favor, aunque Intentan atemorizarnos con los cataclismos que ocurrirán cuendo gobiernen los otros, que no nos enturbie nuestra objetividad al analizar los acontecimientos y votar en consecuencia.