Perception losses

Quite a lot of books and articles have been written about how to make money on the markets. Some of them are even written by people who themselves were making money as a trader! However, you do not often see a book or article on how to properly lose money when trading.

“Cut your losses and let profits run” is the most common advice. How do we determine when the position becomes a lose-lose? It is interesting, but most traders, whom I knew, could not articulate an answer to this question, when you opened your position. They concentrated on the entrance, but then did not have a clear idea about exit especially if the output was in a “red zone”.

I am convinced that one of the real problems is the difficulty of traders to separate the reality of the loss in a particular transaction from the psychological perception of yourself as a loser. At a certain level of development, many traders equate trade losses with a personal failure. It frustrates and depresses them, causing them discomfort. As a result, it affects their future decisions, because their profit and loss turn into arguments against their self-esteem. Once the trader starts to focus on themselves, instead of concentration on the market is distorted when making trading decisions are inevitable. read more

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Thomas R. DeMark

Trader and consultant Tom DeMark (Tom DeMark) recently invented dozens of original technical indicators and relies solely on the technical principles of timing in their research and trading.Once he even enrolled in a program of CFA (certified financial analyst – Certified Financial Analyst), but decided not to take it to the end. “Markets in the long term by fundamentals. But my indicators measure psychology – that’s what technical analysis “, – DeMark explained.

The first dive of Demark in the financial world came after graduate school in two professions – business and law, then it is in the early 70-ies was adopted at a fundamental analyst in the company National Investment Service, based in Milwaukee (Wisconsin).The firm managed pension assets and the assets to the joint profit of about $ 300 million by investing primarily in securities and equities with fixed income. Power of National Investment Service was timing. Demark, but said of his first work:”I was a professional gofer. I was low man in the company, but quickly got up, because I was good at market timing. ”

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Steven Cohen

Steven Cohen grew up in Great Neck, NY, in the family clothing manufacturer and a teacher of piano playing. The family was large and noisy. Cohen believes that this is where he learned to concentrate on the essentials. And in the cards, and Cohen succeeded in school. “Every morning on his desk often pile of hundred-ruble notes,” – recalls Donald, 47-year-old accountant from Florida. “With poker, I have learned to take risks” – says Cohen. At the University of Pennsylvania, he studied economics, played poker and became interested in the stock market. He opened his account in the brokerage Gruntal and put back $ 7000, for fees. In the near to the hostel brokerage office, he watched the market and due to several transactions earned enough to pay all the bills. In 1978, Cohen took a job at Gruntal, where the first day the company earned $ 8 000. Ultimately, Cohen made approximately 100 000 $ per day for the company, by 1984 he managed a portfolio of $ 75 million and a group of six traders. He has been a transaction that helped Gruntal cover losses incurred due to the operations of other traders.

In 1992, having left Gruntal, Cohen opened a hedge fund, investing back $ 20 million of equity (the firm now manages more than $ 12 billion $). While the hedge fund industry was still relatively small, and the “bull” market of 1990 was just warming up. Many were taken aback by the high charges for services which he demanded from investors, so the new fund has managed to attract only $ 13 million from outside investors. Dozens of traders and portfolio managers, are located in a small office on Wall Street, managed for the year to double the company’s assets and earn approximately 17.5% per annum. By 1995, SAC’s assets have quadrupled. Cohen moved the headquarters to Stamford and began to open branches. He developed a special computer program that allows you to track undervalued or overvalued stock market.

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Paul Tudor Jones

Paul Tudor Jones II was born on September 28, 1954 in Memphis, Tennessee, USA. Paul Jones received his higher education at the University of Memphis, and later at the University of Virginia, he received a degree in economics. In 1976, quite successfully participated in the championship boxing welterweight.

His business career he began in 1976 with a clerkship, and soon rose to a broker in the company «EF Hutton ». Since 1980, over two and a half years, Paul was an independent trader. He then went to Harvard Business School, but soon realized that what is taught in this school is not the knowledge that he wants to get. So he abandoned the idea of further education and asked for support and advice from his cousin William Danavanta specialized in cotton trade. William Danavant sent him to New Orleans, what would Jones talks and a major broker Eli Tallis, who offered him a pretty good job. Jones began trading cotton futures on the New York Cotton Exchange.

In 1980, Paul founded the company «Tudor Investment Corporation», which is a leading investment fund, the head office is located in Greenwich, Connecticut. During the first five years of fund gave yields over 100% per annum. In 1986, the fund earned 99.2% per annum, this reduction upset Jones – he is regarded as a bad year. Of course, affects the scale: the fund at that time was not too large. Managing small amounts, could not be afraid of the strong market response to its trade manipulation.

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How To Choose A Broker

How should we go about choosing our broker? Which company is the best fit for my trading style? We bring you the list of the biggest brokers in the US and attempt to identify the best of them.

Types Of Brokers

There are basically two kinds of brokers in America, namely full-service brokers and discount brokers. The full-service brokers offer a much bigger support to the client than the discount brokers – especially by providing analysis and research reports, trading tips, offering professional assistance and guidance on particular trades and so on. However, the client has to pay extra for these services, which implies that full-service brokers charge much higher fees for their service than discount brokers. Choosing a full-service broker may be convenient for people who are just starting in the market and often need a lot of advice and answers to their questions. Some of the biggest banks act as full-service brokers for their clients.

Although, for most of the traders, choosing a discount broker seems to be a better alternative. Especially for those that do their analysis themselves and rarely need telephone assistance during trading. Because discount brokers usually do not do their own research and offer less services than full-service brokers, they can charge clients much lower commissions. When trading through a discount broker, the client places his trades in an computer application that sends them to the broker via internet. That’s why the execution time of the trades is much shorter than if a trade is placed through a phone call – which is yet another advantage. Some well-known discount brokers are for example Interactive Brokers, Sogotrade, Scottrade, or thinkorswim.

There are several things to consider when choosing a broker.

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Nassim Nicholas Taleb

Nassim Nicholas Taleb was born in 1960 in the Lebanese town Amiun. His family professed Orthodoxy. During the civil war that began in 1975, they were deported. Father Nassim Nicholas Taleb doctor was a medical oncologist, was engaged in anthropological research. Among his ancestors – the politics, representing the interests of the Orthodox community in Lebanon. So his grandfather and great-grandfather on the maternal side were Deputy Prime Minister of Lebanon, paternal grandfather served as Chief Justice, and yet in 1861 his great-great-great-great-grandfather served as governor of a semi-autonomous Ottoman province of Mount Lebanon. Taleb held senior positions at brokerage firms in London and New York and also worked on the Stock Exchange before the company started his own hedge fund “empiricist E-E-C (futures and selling options). He received a Master of Business Administration (MBA) in the Wharton School and received a PhD from the University of Paris. The author of works “dynamic hedging” and “duped accident.

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Nicholas Leeson

In the 1990’s there was little events that roiled the world so much as the collapse of British bank Barings in late February 1995. Most shocked that the bank, whose history 233 years and who trusted their money by representatives of the aristocracy and the royal family, was struck by the overt and covert speculation only one man – 28-year-old trader Nicholas Leeson (Nicholas Leeson). His self-confidence and passion to take risks, as well as greed and stupidity of his bosses, who, admiring the “transcendental” profits through his fingers looking at fraud subordinate, deprived the bank of 850 million pounds overnight ruining investment empire, whose strength seemed unshakable.

History of the collapse of Barings is extremely instructive, because it is not only “the quintessence of morality” of modern financial markets, but also a clear picture of how to dire consequences could result inefficient management of financial risks. In 1996, while in prison on charges of forgery and deception, Leeson has published an autobiographical book “Rogue Trader” ( “roguish trader”), which fully and frankly told of his deeds. Without trying to absolve themselves of blame, he said (and this with him were very many experts agree) that the things done to them was only possible because of the very imperfect methods of auditing and risk management practiced in the bank, not to mention the condoned by superiors and colleagues . Ethical behavior in the Barings, the confirmation of Nick Leeson, was simple: “We all were forced to make profit, profit, more profit …” no coincidence that in his review of “Rogue Trader”, published in the financial newspaper column “New York Times” pointed out that “This is a grim book, written by a young man is extremely busy, but it should be read by all bank managers and auditors.” read more

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The importance of practice

Matayuro Yagyu was the son of a famous swordsman. His father, realizing that his son is too mediocre to expect from him mastery, disowned him. Then Matayuro went to the mountain Futara here found the famous swordsman Bandze. But Bandze confirmed the opinion of his father. – You want to learn the art of swordsmanship under my guidance? – Asked Bandze. – But do not meet my requirements!
- But if I try very hard, for how many years can I become a master? – Insisted the young man.
- You need to balance your life – said Bandze.
- I can not wait that long – explained Matayuro. – I agree to work day and night, if you only agree to teach me. If I become your trusted servant, how much will it take?
- Oh, maybe ten years – softened Bandze.
- My father is old, and soon I will have to take care of it – continued Matayuro. – If I work more, how much will it take?
- Oh, maybe thirty years, – said Bandze.
- How? – Asked Matayuro. – First you say ten and now thirty? I am ready to move any difficulties, just to learn this skill as soon as possible.
- In this case, – said Bandze – you must stay with me for seventy years. Man who so hurry to get results seldom learns quickly. read more

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Mario Gabelli

Mario Joseph Gabelli  was born June 19, 1942. His childhood and youth in the Bronx, where he attended the first elementary school, then a private Jesuit school for boys at Fordham University. In his spare time, Mario learned, reaching out to ride, rode in a northern suburb of New York, in Westchester County, where the moonlighting as Cuddy (porters clubs and other golf equipment) in the leading golf clubs such as Winged Foot and Sunningdale. There he met many people who have achieved success in life, and these people often talked about investing in stocks. Later Gabelli told me that even at that time to read the market reports for their own pleasure, and bought his first shares when he was only 13 years old.

After school, Gabelli received a scholarship and enrolled in college at Fordham University. There he stood out not only the hair, which in those days was still a reddish color, but a desperate and enterprising. He was always ready the next get rich quick scheme, like the sale of electric pocket flashlight from the trunk of own car at a time when the streets and shop windows were poorly lit.

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Michael Steinhardt

Michael Steinhardt was born on December 7, 1940 in Brooklyn, New York, USA. Steinhardt recognized as one of the best investors and managers of hedge funds. He is the founder of hedge fund Steinhardt, Fine, Berkowitz & Co.

One of the best traders and investors grew up in Brooklyn, his father was a jeweler. Michael first became interested in stocks when he was one of the holidays gave a few pieces, he soon began to enter the local branch of Merrill Lynch to check their investments and use the income to buy even more shares. After leaving school at the age of 16 years, Steinhardt went to study at Wharton School at the University of Pennsylvania, where for three years, graduated from the undergraduate program.
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