Monday, August 7, 2023

Risks of Looking for a Mentor to Learn to Trade & How to Avoid Getting Scammed




In the past I wrote about why those looking to find the exact details of how to successfully trade by books, courses, clubs, seminar’s, etc, were likely doomed to failure

 

My conclusion was the likely best path outside of finding a legitimate mentor is biting the bullet and making the determination to learn to trade on your own.

I was not positive on seeking help from a mentor since there are a ton of fakes out there and the threats they pose to your success are greater than you may imagine.

The bottom line of successful trading is based on one’s ability to determine the following:

  1. Market trend for the time segment you are interested in trading.
  2. Optimum entry zone area to place your trade.
  3. High probability target area where you exit for profit, and additional target point(s) if you have runners.

Your stop should be beyond your optimal entry zone such that price moving to that level is a signal that your price movement assessment was wrong and you need to exit the trade and reanalyze.

All these things should be determined BEFORE placing the trade. The first problem I see with many “mentors” is they promote only figuring out an entry beforehand and then figuring the rest out as you go along real time. In the age of high speed trading algorithms, this is basically suicidal as there is no way you can reliably react fast enough to market activity against computers that can make thousands of trades per second. The market can turn against you in a split second and there will be no time to start “analyzing”.

Learning to trade successfully is very difficult as shown by the greater than 90% failure rates attributed to many studies.

As hard as learning to trade is, there are big risks in seeking a mentor. The first more obvious risk is wasting your time and money on someone who actually can’t trade. People have spent tens of thousands on signing up for “special” trading classes or sessions that were promoted as sure fire routes to trading success, then when they fail, the customer gets burned by being blamed as not trying hard enough. In truth, the mentor never knew what they were doing and their “expertise” was selling trading courses.

The more dangerous and insidious risk of hooking up with an incompetent mentor is the corruption and poisoning of your mind. If you are fed garbage theories and techniques for trading, you will be trying to fit your understanding of market movement with WRONG assumptions you think are FACTS, which results in you being hopelessly off track in finding actual reliable and repeatable solutions. Any natural solutions your mind might discover will be suppressed by trying to force fit market movements into the phony structure created by the quack mentor.

This is why there is great risk with any information provided that is coming from a non certified source. Some people think that a mentor is harmless or legitimate if they provide free information or don’t charge for their services. But bad information is still bad information regardless of whether one paid for it or got it for free. In the age of people getting paid for viewer clicks, the incentive is to just make info that looks good and attracts people with little regard to quality or accuracy.

You see these suspect fake mentor videos all the time. They supposedly are showing you past trades they made, but they are invariably quiet on exact details and planning to satisfy all criteria of entry, target price, and stop areas and make like they are figuring it out on the fly. 

 

Finding a Mentor that Actually Knows how to Trade

Your first and foremost resource to check is your family tree to see if there is a relative that is actually successfully trading. They likely won’t tell you their exact trading techniques, but they will likely be a great resource for looking at your trading plans and giving you insight on how to go forward. 

 

Testing a Mentor

The only way to be sure your prospective mentor knows what they are doing is to get concrete proof from them and not just accept their word or testimonials from others.

They can prove their legitimacy the following ways:

  1. Show you their tax forms showing that they truly earn a living by trading income rather than selling trading education.
  2. Demand to see them trade live for at least 3 weeks to a month and have them talk through ALL their trades. Note, it’s critically important you see ALL LIVE TRADES not explanations of past trades. You want to see if they can explain their logic in an understandable way and that they are the ones who are actually trading. I see many videos online where the “trading mentor” looks like they are struggling to make sense of a trade as if it wasn’t their trade, but are trying to tap dance their way through a successful trade someone else did.

Watching someone trade live over several weeks will tell you what their consistency and profitability is. Also make note if they are consistent in using an understandable and repeatable method to determine trend, entry price, target price, and stop, or if it looks like they are just winging it. Someone just trading on the fly is not going to help you with making a trading plan even if they trade successfully.

The vast majority of trading mentors promoting themselves will avoid being cornered to prove their legitimacy which are red flags that they should be avoided.



Sunday, June 11, 2023

William J. O'Neil: Legendary Pioneer in Trading Using Both Fundamental / Computer Technical Analysis

 



William J. O'Neil passed away during Memorial Day weekend. He leaves behind a legacy of being an early adopter of computer assisted technical analysis in determining what stocks to invest in and achieved great results with it.

His best selling book, "How to Make Money in Stocks", is one of my first books purchased on trading/investing.

As the founder and former chairman of Investors Business Daily publication, William revolutionized investment analysis, empowering countless individuals to make informed decisions and achieve financial success.

With his CAN SLIM® Investing System, William transformed the way investors approached the stock market. His expertise and commitment to providing accurate information empowered investors of all backgrounds to navigate the complexities of investing. His visionary methodology, which focused on identifying stocks with strong fundamental and technical characteristics, became a cornerstone of Investors Business Daily and a guiding principle for countless investors worldwide.

Beyond his professional accomplishments, William's passion for education and mentorship left an enduring legacy. He shared his knowledge and insights, inspiring a new generation of professionals to embrace integrity and perseverance.

Article Link: Link

Legacy: Link

 

 

Tuesday, October 4, 2022

Learning Trading Analogy: Much Worse Than The Hardest Jigsaw Puzzle Ever Faced

 

 

 

The struggle of learning to trade has been compared to puzzle solving, in this case a jigsaw puzzle.

While a puzzle analogy looks good, trading is no ordinary puzzle and provides no short cuts that your standard puzzle does.

Standard puzzles come with the following assists that can aid in solving them:

  1. You know how many pieces are in the puzzle.
  2. You can see the clear shape, color, and configuration of each piece, helping you to figure out which pieces go together. You can easily isolate the border pieces based on the piece shape.
  3. You can usually see a picture of the completed puzzle, giving you help using color groupings to match associated puzzle pieces.

The “trading” puzzle has no such advantages:

  1. You have no idea of how many pieces of the puzzle you need to create a working trading system. The market is a complex system of the resulting input of millions of traders/investors/computers. That creates an infinite number of solution paths along with their corresponding puzzle pieces that are waiting to be discovered.
  2. You don’t have any kind of descriptor information on any piece. You have to work to find working pieces of the puzzle through pain staking observation. There are a myriad of potential behaviors/conditions to analyze to try to determine some type of connection/relationship for each “puzzle piece” to be discovered.
  3. There is no advance “completed picture” to look at that will help you put the puzzle pieces together.

Faced with these additional hurdles, it’s clear the level of difficulty in solving the trading puzzle will be extremely high compared to even complex jigsaw puzzles.

While solving a hard jigsaw puzzle can take weeks or months, solving the puzzle of learning to trade can takes years or even decades, if ever.

 

 

Saturday, July 2, 2022

How to Evaluate a Trade: Good or Bad?

 

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When it comes to trading, the false belief many have is a profitable trade is a "good" trade while one that loses money is a "bad" one.

In reality, this isn't the case if ones goal is to develop good discipline in creating a trading plan that generates consistent profits.

Your developed trading plan MUST answer the following parameters:

  1. Best entry value/range - this is your best predetermined entry area. This is critical as a good entry will have minimal whipsaw into loss area that can cause you to lose confidence in your trade.
  2. Profit target - this is where you exit assuming the market moves according to your plans. You know the target in advance.
  3. Stop Loss- If the market moves against your position, this is the value at which you have decided your trading plan isn't going to work out and you are exiting your trade to minimize loss.

It's important to note that the above 3 values are determined BEFORE you initiate your trade. In the age of super computers, thinking that you are going to have enough time to respond to market moves on the fly is a recipe for future disaster. Having your values set in advance puts your trade in cruise control. Either your trade moves to the profit target or it hits the stop loss.

Evaluating the Trade

Once the trade is completed you have two possible outcomes:

  1. Winning Trade.
  2. Losing Trade.

Executing the trade will also have two possibilities:

  1. You followed the full trading plan.
  2. You deviated from the trading plan.

This gives you four potential outcomes which will be the grade of your trade:

I. You followed the trading plan and had a winning trade

This is a clear good trade. You had a plan, properly executed it and the result was a winning trade.

II. You followed the trading plan and had a losing trade

This also falls under being a good trade. The trading rules were followed. Your next step here is to do some analysis to determine why the trade didn't work out- whether it falls within the expected win/loss ratio of your plan or if your plan needs adjusting.

III. You deviated from the trading plan and had a losing trade

This is a no brainer bad trade that can be expected from not following the trading plan.

IV. You deviated from the trading plan and had a winning trade

This is a bad trade and something many people get wrong by not realizing it. Not following the trading plan results in inconsistent actions and inconsistent results, and can reinforce bad habits. The trade being profitable in this case doesn't change the fact that the trading plan wasn't followed which is going to sabotage any hope of being consistent in generating profits.

 

Monday, August 24, 2015

Market Takes a Breather and Drops over 9% in 4 Days

https://soullfire.files.wordpress.com/2015/08/dow_jones_week_aug_24.jpg?w=653&quality=80&strip=info











What a difference a week makes! Last Tuesday, the Dow closed around 17500. Today the Dow closed at 15781, about 9.3% lower – erasing all its gains for the year.

Of course all the market talking heads have plenty to say about it after the fact, but what were they saying before it happened? If they don’t have the ability to warn of impending market reversals, then how much weight should you put in their “after market” analysis?

Mega moves like this is a great illustration of why one should always employ stop losses and risk management when in the market. The only absolute control you have is when you enter the market and when you exit.

It’s a guaranteed fact that there were traders who were long in this market without employing any stop losses. It’s also a near guarantee that those traders had their accounts wiped out.

It’s also likely that there are traders who were short without using stops, and those who didn’t blow up their accounts with the market’s move up during this year likely made a killing these last few days, but these type of traders are doomed to give their returns back to the market because eventually they will be on the wrong side of a massive move and suffer the same fate as the traders who wiped out their accounts. Trading without using stop losses is equivalent to engaging in Russian Roulette on a continual basis- it’s not a question of if you will suffer devastating losses, but when.

The true professionals love downdrafts like this as they look for some good bargains that were oversold due to excessive fear. Of course low prices can head even lower, so risk management and stop losses are still needed.

Those like myself, analyzing market price behavior, have been given a golden year of data. The market spent several months in a pretty narrow trading range that heavily favored a delta neutral style of trading. The big drops now favor trending and momentum players. Seeing how the market behaves in both a tight range and trending environment provides great insight opportunities.

Saturday, July 11, 2015

Life Cycle of Trading Blogs

In the past I blogged about the scarcity of personal trading blogs, and the difficulty of finding US based trading blogs in general on the Web. For the trading blogs found, they typically go through the following stages of existence:

1) The Introduction

The start of a trading blog is very similar to any blog in general- a brief introduction followed by what they intend to write about. There we see one big split among trading blog intros:
a) Normal
b) Attention Grabber/Proclamation

Normal intros just state their case that it will be a blog on trading without much fanfare. The "proclamation" intro makes a big claim about intended performance that attracts attention from others. An example of attention grabbing blog intros:
I'm new to trading, but will try to make big bucks from my modest account.
These fall under claims such as someone starting with around $30K, and saying they plan on building it up past a million bucks over time. Some even put a time limit on this feat to add to the pressure of achieving it. Mind you every trader is aware of (or at least should be) the high rates of failure in day trading and the corresponding low rates of success. Hope springs eternal with new traders. =) Another example would be someone saying they will double their money on a regular basis over time.
It's fair to say even those who make far more modest claims privately hope to achieve these type of results, but don't wish to be judged by that bar level.

2) The Activity Phase

Here is where the actual blogs of traders put their plans into action. Results here invariably follow the reality of low success probabilities with the majority of trading results being mediocre at best or losing big sums of money at worst. There are a few rare ones that show high promise with successful results with at least a positive balance over time. The successful ones attract a good amount of attention since they are few in number.

3) The End Phase

Trading blogs reach a point in time where they mostly end in one of the following ways:

a) Blowing up- when a day trader loses all their money and can no longer trade. The odds favorite for this type of scenario typically goes to the blogs that make those big proclamations of making big bucks fast. This makes sense since the pressure to perform results in greater risks being taken. A side effect of many "blow up" blogs is their sudden disappearance, as in the blog will be taken offline as if to erase the past.

b) Abandonment- this is the typical path most blogs of all types take. Blogs become less frequent over time and eventually stop with no official ending.

c) Official Hiatus - When a trader decides to take some time off to work on their system due to lack of performance expectations. The majority of these don't return.

These above three are the most common ways trading blogs end. Here are the extremely rare ones:

d) Officially Giving Up- Trader admits day trading is too hard to master and actually calls it quits. No one like to admit defeat so this makes sense.

e) Successfully Retired- When a trader successfully trades the market over time and eventually retires the blog to move on to other ventures and generally enjoying the lifestyle successful day trading provides. As expected, this is the rarest of all endings.

I've seen some short term successful trading blogs stop blogging, but I've never seen one that showed their continued success over a significant amount of time like at least a year or more of consistent high profits, which justified their reasons to stop blogging along with a formal ending saying they were moving on. Just to be clear, I'm referring to personal trading blogs and not commercial ones of any individuals selling training courses or systems of some sort.

Of course, that's not to suggest successful non professional traders don't exist, just that many likely don't blog.  Here's an example of one of the best past blogs I've seen chronicling the performance of traders that don't blog: Link

An example of an extremely successful personal blogging trader is Michael Burry, a medical doctor who traded/blogged during his off time as a hobby. He eventually created a hedge fund and scored huge on his correct market calls during the 2008/2009 market crash.

Thursday, June 13, 2013












The big market moves of Wednesday and today are a great illustration of how deceptively easy the market appears along with the potential for stellar gains and/or losses.

The chart above is  ES market activity for Tuesday, Wednesday, and Thursday of this week. I included Tuesday to show you a typical trading range for the market - about 15 - 17 points in a day. The market moves on Wednesday and Today were more than double that with a 40+ point range - giant moves!!
Viewing the completed chart makes it look fairly orderly and straight forward- market drifts, then dives sharply, then recovers. You might even be tempted to think the movement looks pretty predictable and easy to forecast. Ah, but things aren't as easy as they appear. Cover up the 3/4 of the right side of the chart, and slowly move the paper to the right, and try to predict where the market is headed. Not as easy or predictable now, is it? =) That's what traders face trading real-time - trying to gauge where the market is headed with only past data/charts as a reference/guide. They key to being successful is trying to map out in one's head what the "end of day" chart looks like long before it actually takes shape on the chart.

The majority of traders were fooled by the Wed/Thurs big swings. These are people who are seasoned traders, not beginners.

Before I describe the events on the chart, I need to define two terms. The ES futures market runs nearly 24 hours/day and is composed of two parts:
1) Cash ("Live") Market - This is the time floor traders at the exchange actively trade the market, 9:30am - 4:15pm EST.
2) Globex Market - The time outside of Cash Market hours - from the afternoon through the next morning until the Cash Market reopens.

Okay, so looking at the chart, Tuesday was a normal day and ended down. During the Globex session, the market rose slowly but steadily. Then we get to the Cash Open on Wednesday, and the market starts moving down. During this time all the Twitter message traffic shows traders are going long, buying as the market is dropping, thinking that the market is going to resume moving up. The market keeps drifting lower, but people still keep buying. At this time there is hardly anyone mentioning going short (selling).
As the chart shows, the market was basically a one way trip down and those who bought now had to get rid of their positions with losses, then they would buy in again at a lower level, only to exit that position with losses as well. They never considered reversing and going short instead.
Some who bought at the start of the day and held their position, starting feeling lots of pain later in the day with mounting losses until finally, they close their position with a big loss. This is why you should use stop loss orders to keep small losses from becoming big losses. Unfortunately traders including me don't like using stops because the market tends to seek them out before continuing in the planned direction. But big market moves like on Wednesday/Thursday show why not using stops poses such a big risk.
So the cash market closes and continues to drop during Globex before slowly starting to rise before Thursday's cash open. At this point Bulls are very jittery and Bears are licking their chops to short more when the market moves up. A lot of the same people who were trying to "buy the dip" on Wednesday are now shorting the market rally, expecting it to fall back down. As the really continues, they exit with losses, and short again higher, only to close with losses as the market moves higher.  The Twitter traffic is the reverse from the day before - lots of people selling, very few buyers. Instead of reversing their mindset to buy, they keep selling. Towards the end of the day the market climbs at a faster pace, giving enough pain to sellers to force them to close, which adds pressure for other sellers to close, otherwise known as a "short squeeze". The market zooms up and makes up all the ground it lost the day before, as if Wednesday never happened. shocked

Summary:
Wednesday: Market falls but majority is tricked to thinking it will go up and wind up losing. Bears are giddy with delight, and think market will be falling further the next day.
Thursday: Market roars back, but the folks who lost money on Wednesday are not likely participating because they are too nervous and wounded. The Bears who stayed in thinking the market would keep falling lost all their profit. New Bears who shorted today and stayed in lost their shirts with big losses.

You should find it fascinating that so many seasoned traders were tricked into doing the opposite of what they should be doing. This is what makes trading difficult - the market send out signals that are meant to confuse the majority of traders, despite their preparation.

How did I do? Well, I successfully got the bulk of Wednesday's down move, but even though I expected Thursday to be an up day, I got left watching since it never pulled back to what I was expecting as a low risk entry point. I can live with that, and I'm all kinds of glad I wasn't lured into trying to short this market today...it was a beast in the up direction!

In terms of the potential gains or losses made by traders - they were amplified by the big size of the swings: a 40+ point range! So for example, 1 ES contract gives you a $50 gain/loss with every point move up or down respectively. So a 40 point swing represents a $2000 gain/loss depending if the trader had a winning or losing trade- and that's just 1 contract. So you can see if a trader had many contracts and was wrong, things could get ugly fast.
In a worst case scenario a trader would be long on Wednesday and stay long, getting big losses. Then they would try shorting the market Thursday and wind up with huge losses again. The size of these swings could easily break an account - which is the risk all traders face. On the other hand, the trader who is on the right side can get tremendous gains. Therein lies the risk and reward of trading. It's not easy, you can lose big if not careful, but the potential is also there to make life changing wealth.