0 Trading is simple right? Posted by shawn | at 2:03 PM

Trading can be simple if you make it so.  People traded long before there were computers and indicators. So why do you have so many computers and indicators? Read some excellent words of wisdom below:

“Unless you experience the unpleasant symptoms of being wrong, your brain will never revise its models. Before your neurons can succeed, they must repeatedly fail. There are no shortcuts for this painstaking process.”

Pg 54 - HOW WE DECIDE

“Look, for example, at this elegant little experiment. A rat was put in a T-shaped maze with a few morsels of food placed on either the far right or left side of the enclosure. The placement of the food is randomly determined, but the dice is rigged: over the long run, the food was placed on the left side sixty per cent of the time. How did the rat respond? It quickly realized that the left side was more rewarding. As a result, it always went to the left, which resulted in a sixty percent success rate. The rat didn't strive for perfection. It didn't search for a Unified Theory of the T-shaped maze, or try to decipher the disorder. Instead, it accepted the inherent uncertainty of the reward and learned to settle for the best possible alternative.

The experiment was then repeated with Yale undergraduates. Unlike the rat, their swollen brains stubbornly searched for the elusive pattern that determined the placement of the reward. They made predictions and then tried to learn from their prediction errors. The problem was that there was nothing to predict: the randomness was real. Because the students refused to settle for a 60 percent success rate, they ended up with a 52 percent success rate. Although most of the students were convinced they were making progress towards identifying the underlying algorithm, they were actually being outsmarted by a rat.”

Pg 64 - HOW WE DECIDE

“Think about the stock market, which is a classic example of a “random walk,” since the past movement of any particular stock cannot be used to predict its future movement. The inherent randomness of the market was first proposed by the economist Eugene Fama, in the early 1960's. Fama looked at decades of stock market data in order to prove that no amount of knowledge or rational analysis could help you figure out what would happen next. All of the esoteric tools used by investors to make sense of the market were pure nonsense. Wall Street was like a slot machine.”

Pg 67 - HOW WE DECIDE

TRADING IS SIMPLE:

* Price either goes up or down.
* No one knows what will happen next.
* Keep losses small and let winners run.
* POSITION SIZE = RISK / STOP LOSS
* The reason you entered has no bearing on the outcome of your trade.
* You can control the size of your loss (skill) but you can't control the size of your win (luck).
* You need to know when to pick up your chips and cash them in.

Don't let the rat beat you.

“Since your mind is your most valuable asset and your most valuable lever, you need to be careful what you put in it. Sometimes it is even more difficult to get rid of thoughts and ideas that are already in your mind than it is to learn something new” - Pg 119 WHY WE WANT YOU TO BE RICH

F - Follow
O - One
C - Course
U - Until
S - Successful

- Pg 110 WHY WE WANT YOU TO BE RICH

If the rat is beating you, you are the reason why.

Here are some reading material:

• Fooled by Randomness: The Hidden Role of Chance in the Markets and in Life by Nassim Nicholas Taleb 
• The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb
• How We Decide by Jonah Lehrer
• Trading in the Zone: Master the Market with Confidence, Discipline and a Winning Attitude by Mark Douglas
• The Disciplined Trader: Developing Winning Attitudes by Mark Douglas
• Why Smart People Make Big Money Mistakes And How To Correct Them: Lessons From The New Science Of Behavioral Economics by Gary Belsky & Thomas Gilovich

0 How to play PennyStocks Posted by shawn | at 5:16 PM

To make money on penny stock trading you first need to throw out everything you know or think you know about stock trading and come to the realization that

Pennystock trading is penny stock gambling.

Over the years I have honed a maverick trading style based on realistic view of what this “market” is actually all about. If you can get in the proper mind set, you can read the future movement of a penny stock and know when to get in and get out.

To snap you of the world of real stocks let me give you Penny Stock rules to live by:

1.) Penny Stocks do not represent real companies. They exist for one reason, to make people money on the increase of share prices. The transfer of wealth from the dumb to the smart. (Of course, a few Penny Stocks are real companies, but finding them is next to impossible and you will be wasting time that could be better spent on fake companies.)

2.) Great news can be a powerful mover of penny stocks but other than temporarily increasing the price of the stock’s shares it means nothing.

3.) Newsletter tips are just that – tips. Study the newsletters to see who gets the best bounce from their picks but never believe what they tell you.

This is how it generally works: Newsletter or newsletters decide to promote a stock. Many times they work for the Penny Stock “company” and get free shares or buy cheap shares for their services before the promotion starts.They release their newsletters promoting the stock, the penny stock company then will release some “great” news to coincide with the newsletter pump. The stock doubles or more, the newsletter folks and insiders involved with the companies sell shares into the buying spree. After an hour, day, or week the stock returns back to its original price or lower.

4.) Any good news about a penny stock should be considered a LIE.

5.) Never fall in love with a penny stock, it’s like falling in love with your blow up doll.

Ok, now I hope you realize the whole Penny Stock game is the dirty underbelly of stock trading. The thing is, if you understand and live buy rules 1 – 5 above you can make a lot of money.

Why? Stock goes up you get in for a short while and take a small percentage profit, get out. Why would you care if the stock goes back down and those that don’t understand rules 1-5 have lost money? You have made a profit and are already in your next play. Oh, one more rule but it isn’t mine – “pigs get slaughtered” – those that hang on hoping for more profits or to recover a loss aren’t in the penny trading business very long.