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How to Accelerate Your Trading Learning Curve and Increase Your Largest Profit Days, Part 1

There’s a hidden enemy hurting your trading results. It’s not a lack of discipline, or falling prey to your emotions, or using bad strategies. All those things do hurt, but they’re usually visible and can always be fixed. What I’m talking about is more dangerous.

It’s more dangerous because it’s not readily apparent. And also because it directly affects everything else. So what is this powerful hidden enemy? It’s simply this: being satisfied with your best performances.

Wait, what? Aren’t you supposed to be happy when you do well? Of course you are. And you should reward yourself mentally and emotionally. But don’t linger there. Enjoy the achievement, but don’t be satisfied. Here’s why…

Being satisfied with your best results to date leads to complacency and untapped opportunity. It causes you to not progress rapidly and reach your true potential. And yet the key to surviving your learning curve, and to reaching elite levels of performance if you’re already profitable, is to keep making your ‘best’ better.

If your current best trading day resulted in a net profit of 7 points on the ES emini S&P’s and you’re satisfied with this performance because on most days you barely break even, what kind of motivation are you giving yourself to break through that level and have a 10 or 15 point day? And if you’re not motivated to achieve that, how can you expect to improve?

The Secret to Great Performance

You may be reading up to this point and thinking that you don’t have to always be improving your best performance to improve; you could simply improve by having less bad performances. Very true. But let me ask you a question. What is easier to do, fix your weaknesses or improve on your strengths?

Think about it. What do you find easier to accomplish in life in general, overcoming something that you struggle with or getting even better at something that you’re already good at? I think the answer is pretty obvious. And the answer brings forth an interesting conclusion…

That conclusion is that while elite performers (whether they be top athletes or top traders) definitely do constantly work on their weaknesses, they spend just as much time- if not even more- working on their strengths. This keeps making their ‘best’ even better, and those good performances greatly compensate for all the times they don’t do well.

Let’s take an example. Suppose you’re good at trading intraday trends. Your strengths are patience and a lack of fear of regret. You’ve always had these character traits and they translate into giving you the great ability to hold your winners longer than most people since you’re able to wait and are not always worried about regretting losing the profits. You also have the technical strength of detecting trends early and reading them well. On the other hand, you often over-trade range-bound days because you find all the fake breakout moves highly frustrating, and they bring out the anger in you, which are your natural weaknesses. You also don’t have a good eye for reading choppy days well.

Like most traders, you’re constantly working on those weaknesses. Always trying to control your frustration and anger so that you don’t over-trade and take losses. Always trying to improve your ability to detect and read range days. Now this is all well and good, and you should definitely be working on these weaknesses. But what about your strengths?

Well, if you’re like most traders, you’re not even focusing on your strengths. You’ve taken them for granted and are satisfied with the gains they bring you. But let me pose a question to you. What if you improved your ability to hold trending moves even longer and also became better at detecting them earlier? If in the average month you made 30 points from all the days with trending moves and lost 30 points from all the range-bound days- making you a break-even trader- improving your performance on the trending moves by only 20% puts you 6 points in the green, and suddenly makes you a profitable trader!

Of course improving on the range-bound days by 6 points would also have the same effect, but the point is that it’s much harder to improve that weakness of yours than it is to improve a strength! All things are already aligned in your favor when working on strengths, and this makes a given % improvement easier to achieve. And that makes all the difference.

What the Great Performers Do Differently

The great performers in any discipline naturally understand what I’ve explained above. They definitely always work to eliminate their weaknesses, but they focus even more on accentuating their strengths. They take the more efficient route to great performance.

If a boxer has a great natural right hook, he may work diligently on his weaknesses, but he’ll work even harder on perfecting that right hook. Because he knows that if it’s great, it can win him fights. And he knows that he can make it greater than he can make his other punches, and he can also achieve this feat faster. And if a tennis player has a good forehand, she’ll work a lot on all of her other shots, but she’ll become better overall if she makes that good forehand truly world-class. Because having a bunch of average shots makes her average, but having a killer forehand can win her games, sets, and matches.

So given all of this, here’s what I want you to do right now. Take an inventory of yourself and your trading results. What are your strengths? What key character traits contribute to your best performances? Do you have certain types of market environments that you make more money with? Note all of this down.

In Part 2 of this series, I’ll share with you the strategy I’ve used to improve my trading strengths, and how it leads to faster overall learning (which also helps improve the weaknesses), and to increases in overall profitability

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How to Accelerate Your Trading Learning Curve and Increase Your Largest Profit Days, Part 2

In Part 1 of this series, I talked about a surprising thing that the top performers in any field do differently than the rest. In this part I’ll be sharing the strategy that builds on this knowledge, and which has helped me accelerate my own learning curve and increase my largest profit days.

By the end of this post you should have a practical method for speeding up your learning, while improving your overall results by becoming better at what you do best. If you’re a developing trader, this could be what pushes you to profitability. If you’re already a consistently profitable trader, this can help take you to elite performance.

The Method

Simple principles can often prove very powerful when put to use. I think you’ll find this method to be simple, and its effects to be highly beneficial.

In Part 1 I told you to do an inventory of your strengths. Particularly, which types of market environments and set-ups do you have the best results with? And which character traits / abilities contribute to your out-performance in these instances? Once you have those, here’s what you simply do:

Each time you reach a new ‘best day’ or ‘best trade’, instantly set a new goal to beat that mark.
You mean that’s it? No complicated strategies? Yes, that’s it. But don’t be fooled; this simple method will start a chain reaction of inevitable consequences that are about to take your game to another level.

The Benefits

To understand why this method is so powerful, let’s think about what happens when you instantly and perpetually set new goals to beat your best performances.

When you want to always better your best, you have to figure out how to improve your skills. So when you have these constant goals, it acts like fuel to push you far beyond what you’d ever normally do. Now you’re no longer satisfied with your good performances. Instead you’re instantly trying to figure out what you’ll need to learn to beat them. And since this is your goal, you won’t believe how much more you’ll push to learn.

Instead of stopping and resting when the market closes, now you stay at your desk and review the day and the trades. After all, you have to beat your new best mark next time around. What could you have done better? What subtle market behavior did you miss? How could you catch it next time? What mistakes did you make? How could you avoid them next time? What things did you do right? How can you do them even more right next time? Put more size on at the right time? Enter earlier? Don’t scale out? Add another trade at certain point? The possibilities for improvement are endless. Both in terms of learning to read the market better, and learning to execute on your insights better.

But something else happens when you use this method instead of being satisfied with your best performances: you start pressing it more when you recognize your ideal trading conditions. In fact, you become better at recognizing those ideal conditions to begin with. Since you’re constantly studying them, you become adept at detecting when they’re likely to occur. And since you want to beat your best, you don’t stop trading when you’re up a nice profit for fear of losing it. No. Now you’re on a mission. Fear of regret gets thrown aside as the bigger regret becomes not beating your best when you had the chance. And given that one of the biggest hidden weaknesses traders have is quitting while they’re ahead for fear of giving back the profits (even though this is often the best time to press it) , you simultaneously remove this weakness.

That’s the power of this simple method. It sets a whole virtuous chain of events in action. And knowing that you have a ‘best mark’ to beat, your focus also increases and becomes laser-like. In the end, and somewhat ironically, you not only end up improving your strengths, but in the process you improve your weaknesses too, and get better on the whole.

Action Plan

So now that I’ve shared with you this powerful strategy, it’s time to go put it to use. From Part 1 you pinpointed your specific strengths. You know when you’re at your best. Now each time you hit a new best performance level (whether on a specific type of trade, day, or period of favorable market conditions), enjoy and reward yourself but instantly set a goal to beat the new mark. You may not achieve it for a while, but the benefits that are brought about from striving to do so are what matter.

If you constantly follow this plan of action, you should find your learning curve accelerating, and your largest profit trades and days increasing, as you capitalize more on your strengths and improve overall.

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This is a list of simple beliefs I, the trader, follow:

1. Love the Process of trading.

Trading is embracing a lifestyle, an attitude, and accepting the long journey where change and uncertainty are constant companions. Expect to sweat out during the learning part, and master many things before seeing peaceful days roll by.

The key here is: Have no desire to act inappropriately. Love and be proud of all the times when you consistently are able to not have any desire to act inappropriately, notice that this happens when you are engaged in the process instead of focusing on rewards/reprimands.

2. Patience and Inaction are Your Edge

Avoid taking trades, playing at all unless your mind calmly notices that it is time to act. Doing nothing is trading (more so than taking marginal trades and then hoping, coaxing and praying).

Patience and inaction arise from Discipline (not from Sloth). Wait until there is money lying in the corner and all you have to do is pick it up. Once you know what you are looking for then wait in preparedness for that to materialize. Not taking a single trade all day is perfectly acceptable.

To repeat the key again: Have no desire to act inappropriately. This comes easier when you are in complete immersion, in the flow, in the zone - these being alternate terms for Being in The Present Moment where time fades, hence impatience does not exist.

3. Don't make much ado about being patient and disciplined

Make your ego so small, so minuscule, and so elastic that it is blessed with agility and flows naturally with the market and be peaceful with the fact that you are achieving your goal - namely that of being here to make money and getting paid for having an edge. The call of sirens being loudest when you are virtuous - as if the market owes you and wants to pay you; as if being a good tape-reader, patient and disciplined means 'you have arrived' - all these thoughts simply mean you are shifting focus away from the process and glamorizing it in itself. As a lifestyle change, remove the'I' from everything in life and be humble, helpful, kind and know your place in the universe is not in the center of it. Simple and frugal living, surrendering to some faith, and understanding that the order that move the markets is the same order than makes the earth spin,sun rise and seasons happen is the enlightenment that is always needed for trading.

4. Love thyself

Make peace with yourself. Place yourself in the best position to Give your Best; but also Forgive yourself for letting that trade slip away, for missing those zillion pips had you stayed in instead of exiting. Love yourself enough not to take marginal trades, revenge trades, or do any other thing that will diminish confidence in the Self or see yourself any lesser than the imperfect but yet so perfectly trustworthy being you are. Never hate yourself; this is the key to prevent depression, mania, hatred and irrationality. Only allow the clear stream of reason to run the forefront of your engine - be your boss by reasoning with yourself and not tolerating lapses of discipline, never adding to losers, not exiting a perfectly working trade, never slack on studying and improving. Do not substitute attitude for work, do not fool yourself into procrastinating by trading needs a special elevated mood or that one needs to meditate one's self into some magical zone. By doing the necessary preparations in whatever mood you are in, you make sure that you do not refuse the pips that the market offers NOW; do not foolishly say that this Now is not right for me to make money, I'll have that Now tomorrow or (insert time period). Days turn into weeks turn into months and you will find yourself looking back at a series of days when you were 'broken' and realize it was all a game of pretend and excusitis. The other end of this is wanting to win Now and seeing things that haven't materialized yet (good trades where there are marginal ones or sometimes no setups at all) - this is assigning more importance to the I, making it bigger and more bloated than it really is - the I is not important, and the I needs to submit itself to the market's agenda and flow with it, and get out if that isn't happening. Not getting excited is a part of loving yourself and taking I out of the equation. In this game you win when you surrender.

As Mark Douglas says, be the observer of the I - catch yourself thinking about committing a trading error - if you don't then your realizations come after the experience.

5. The Journal is your ultimate line of defense

Record your losses most of all. The journal allows you to judge whether you erred or whether you took the best decisions in the light of available information, but the bad result was simply due to variance. Anyone reading your journal should be able to follow your line of reasoning and follow the same steps that you would later.

A journal does not ask 'What do you do in this situation?'

A journal asks The Relevant Question 'What all aspects have you considered when you approach this situation before determining what is to be done?' and also records the honest answer.

6. Be natural. Forcing yourself is suicide

The mind has a muscle for self-regulatory behavior. That muscle has limited strength and energy and needs building up, conservation. As we trade and take decision after decision, the resource is weak and tired and depleted. Removing the I allows pure strength to be fed directly this muscle, adding I cramps it and restricts it. Nevertheless lot of screen time is akin to a workout and you become capable of sustaining more of its continued use. Know where your meter stands and be prepared to walk away when you realize that further decisions on a tired muscle may bring the weight crashing down and cost you dearly. The players who simply play defensively break even, the ones who play the A game become profitable. It is simple, difficult.

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  • 2 weeks later...
Discomfort Zone: How to Master the Universe

‘The only thing I can’t stand is discomfort.’ ~Gloria Steinem

By Leo Babauta

Of all the skills I’ve learned in the past 7 years of changing my life, one skill stands out:
Learning to be comfortable with discomfort.

If you learn this skill, you can master pretty much anything. You can beat procrastination, start exercising, make your diet healthier, learn a new language, make it through challenges and physically grueling events, explore new things, speak on a stage, let go of all that you know, and become a minimalist. And that’s just the start.
Unfortunately, most people avoid discomfort. I mean, they really avoid it — at the first sign of discomfort, they’ll run as fast as possible in the other direction. This is perhaps the biggest limiting factor for most people, and it’s why you can’t change your habits.

Think about this: many people don’t eat vegetables because they don’t like the taste. We’re not talking about soul-wrenching pain here, not Guantanamo torture, but a taste that’s just not something you’re used to. And so they eat what they already like, which is sweets and fried stuff and meats and cheeses and salty things and lots of processed flour.

The simple act of learning to get used to something that tastes different — not really that hard in the grand scheme of life — makes people unhealthy, often overweight.

I know, because this was me for so many years. I became fat and sedentary and a smoker and deeply in debt with lots of clutter and procrastination, because I didn’t like things that were uncomfortable. And so I created a life that was deeply uncomfortable as a result.

The beautiful thing is: I learned that a little discomfort isn’t a bad thing. In fact, it can be something you enjoy, with a little training. When I learned this, I was able to change everything, and am still pretty good at changing because of this one skill.

Master your fear of discomfort, and you can master the universe.

Avoidance of Discomfort

When people are stressed, they often turn to cigarettes, food, shopping, alcohol, drugs … anything to get rid of the disomfort of the thing that’s stressing them out. And yet, if you take a deeper look at the stress, it’s really an unfounded fear that’s causing it (usually the fear that we’re not good enough), and if we examined it and gave it some light of day, it would start to go away.

When people start to exercise after being sedentary, they are uncomfortable. It’s hard! It can make you sore. It’s not as easy as not exercising. It’s not something you’re used to doing, and you fear doing it wrong or looking stupid. And so you stop after awhile, because it’s uncomfortable, when really it’s not horrible to be uncomfortable for a little while. We’re not talking about incredible pain, but just discomfort.

When people try a healthier diet, they often don’t like it — eating veggies and raw nuts and flaxseeds and fruits and tofu or tempeh or black beans isn’t as thrilling as eating fried, fatty, salty or sweet foods. It’s a form of discomfort to change your taste buds, but the truth is, it can easily happen if you just get through a little discomfort.

Discomfort isn’t bad. It’s just not what we’re used to. And so we avoid it, but at the cost of not being able to change things, not being healthy, not being open to adventure and the chaos of raw life.

Mastering Discomfort

The way to master discomfort is to do it comfortably. That might sound contradictory, but it’s not. If you are afraid of discomfort, and you try to beat discomfort with a really gruelling activity, you will probably give up and fail, and go back to comfort.

So do it in small doses.

Pick something that’s not hard. Take meditation as an example. It’s not really that hard — you just sit down and pay attention to your body and breath, in the present moment. You don’t have to empty your mind (just notice your thoughts), you don’t have to chant anything weird, you just sit and pay attention. If you don’t like meditation, try a new healthy food, like kale or raw almonds or quinoa. Or a fairly easy exercise if you’re sedentary, like walking or jogging.

Just do a little. You don’t have to start by doing 30 minutes of something you’re not used to doing. Just do a few minutes. Just start.

Push out of your comfort zone, a little. My friend and Zen priest Susan O’Connell has a favorite meditation instruction that you can use for any activity actually: when you’re meditating and you feel like getting up, don’t; then when you feel the urge to get up a second time, don’t; and when you feel the urge to get up a third time, then get up. So you sit through the urge, the discomfort, twice before finally giving in the third time. This is a nice balance, so that you’re pushing your comfort zone a little. You can do this in exercise and many other activities — push a little.

Watch the discomfort. Watch yourself as you get a bit uncomfortable — are you starting to complain (internally)? Are you looking for ways to avoid it? Where do you turn to? What happens if you stay with it, and don’t do anything?

Smile. This is not trivial advice. If you can smile while being uncomfortable, you can learn to be happy with discomfort, with practice. When I did the Goruck Challenge in 2011, it was 13 hours of discomfort — raw and bloody knees, sand in my shoes as a hiked and ran with 60+ pounds on my back, carrying teammates and logs, doing pushups and crabwalks and other exercises, needing the bathroom and being tired and hungry and cold. And yet, I practiced something simple: I tried to mantain a smile through all this discomfort. It’s an important practice.
Repeat this practice daily. It will be strange, perhaps difficult, at first, but soon your comfort zone will expand. If you practice it enough, with different activities, your comfort zone will expand to include discomfort. And then you can master the universe.

What You Can Now Master

If you master discomfort, what can you now master as a result? Just about anything:

Procrastination. We procrastinate to avoid something that’s not comfortable, but if you can learn to stay with that task, even if it’s not comfortable. The discomfort isn’t bad. Those of you going through the Procrastination module in my Sea Change Program are learning about dealing with the discomfort of staying with your important task.
Exercise. We avoid exercise because it’s not comfortable, but if we expand the comfort zone a little at a time, we can make exercise something we’re comfortable with, after a little repetition.

Writing. If you want to write but always seem to put it off, that’s because writing is often difficult, or less comfortable than checking email or social networks (for example). Stay with the discomfort, and you’ll write more than ever.

Eating healthy. It’s amazing how much our taste buds can change over time, if we gradually get used to healthier foods. That means going through small periods of discomfort, but it’s not that bad in little doses.
Meditation. We avoid the disomfort of sitting and doing nothing, of focusing on the present. But it’s not that hard — just a little uncomfortable.

Waking early. Waking early means being a little tired for a little while, but that’s not a horrible thing. Read more about rising early.

Learning a language/instrument. Want to learn something new? That means doing something you’re not used to, by definition, and so we often quit before we master this new skill, simply because (you guessed it) it makes us uncomfortable. Stay with the discomfort, and before long you’ll enjoy learning this new skill.

Clutter. Clutter is just another form of procrastination. You don’t put things away, or you let a pile of things you don’t need build up, because it’s not comfortable dealing with it right now (as compared to, say, browsing the Internet or watching TV). But dealing with something right now isn’t that hard once you get past the discomfort.
Reading novels. We tend to avoid simply sitting with a book, because we are pulled towards something more comfortable (again, Internet browsing as an example). If we can just sit with the book and a little discomfort, we can read more.

Empty email inbox. Another form of procrastination — you get some emails, maybe look at them, but put off dealing with them right now because it’s easier not to.

Debt. This is a series of things we have to deal with that are uncomfortable — listing out our debts and bills, making a simple budget, doing things that are free instead of shopping, etc. But I got out of debt by finally facing all of these things, and it was wonderful.

New adventures. Many people stay with places they’re comfortable with, which means missing out on new experiences that might be a little uncomfortable. Even when they travel, many people stick with the tourist sights and food that they’re used to, rather than finding strange but more authentic experiences in a new land. We avoid meeting new people, speaking on stage, letting go of what we know, being open to new things … to avoid discomfort.

And that’s just the start. Within each of these areas there’s many things you can work on over the coming years now that you’re not afraid of discomfort, and there are many other areas of exploration now open to you.
Discomfort can be the joyful key that opens up everything for you.

‘Discomfort is very much part of my master plan.’ ~Jonathan Lethem


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Discomfort Zone: How to Master the Universe : zenhabits

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  • 2 weeks later...


10 Things A Trader Needs to Give Up if They Want to Make Money

  1. Give up your need to be right.

  2. Give up control.
  3. Give up blaming “They” for your losses.
  4. Give up beating yourself up for losing trades.
  5. Give up your own opinions.
  6. Give up your inability to change your mind.
  7. Give up your past trades.
  8. Give up letting your trading define your self worth.
  9. Give up on losing trades quickly when your stop is hit.
  10. Give up on price targets let your winners run as far as they will go.
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Litt matematikk som kan hjelpe på veien:


Det finnes faktisk 3 matematiske formler for "gjennomsnitt", avhengig av hva man trenger. Siden pris er "vekst-basert" (øker prosentvis med "renters rente effekt" / logaritmisk), så er geometric mean "riktigst" (midt i "price action"). Simple moving average lar seg trekke mot høyere ekstremverdier, og harmonic mean lar seg trekke mot lavere ekstremverdier:



Tips: Geometric mean kan være vanskeligere å beregne da det krever svært høye siffre for lange tallserier. Float og double strekker ofte ikke til, men man kan tilnærme seg den ved å ta et gjennomsnitt mellom average og harmonic mean istedetfor (ingenting fungerer 100% nøyaktig da pris alltid krysser alle mulige nivåer uansett).


Mange muligheter: En mer pessimistisk bull-strategi kan benytte harmonic mean og få litt mer handlingsrom, f.eks. for lettere å sammenkoble med andre faktorer. En optimistisk bull-strategi kan benytte average. Man kan også sammenligne de forskjellige gjennomsnittene, for sortering ol. analyse. En større spredningen av de vil reflektere lengere tids volatilitet i pris, og kan muligens brukes som en objektiv enhet for diverse målinger relatert til volatiliteten.



Om man ønsker å analysere pris / prisutvikling, så bør man bruke Ln av pris istedetfor en villkårlig Log (Pris, X), da Ln er forbundet med E, og har endel andre fordeler enn alle andre logaritmer:




Siden pris er vekstbasert, så er geometric mean en bedre formel for å finne "midten" av distribusjonen. Da er STDEV rett og slett "feil" å bruke, ihvertfall om man ønsker å finne volatilitet i forhold til "midtpunktet". Man bør matematisk sett heller bruke Geometric Standard Deviation, eller STDEV av Ln av pris. Bruker ikke dette selv, men kan komme til å gjøre det i fremtiden:



Om noen har tid til å teste ut denne ideen, så hadde det vært fint med en tilbakemelding :)



True range burde vel da også regnes ut i prosent, eller vha Ln av pris (som er to metoder å gjøre det samme på).



Lei av SMA, WMA, VWMA, Hullete averages og alskens IIR-filtre som kan hoppe i alskens retninger basert på startpunkt og sluttpunkt?

En simpel regresjonskanal er antakelig den trend-dekteroren som raskest og sikrest konvergerer mot nåværende historisk trend:


Siden pris er vekstbasert, så blir det riktigste resultatet å kjøre regresjonskanal mot Ln av pris. Regresjonskanal har mange forskjellige resultater som alle kan brukes i analyse. En fordel er at om en trend holder seg, så vil kanalen gi ganske samme resultater gjennom hele trenden. Det er dog sjeldent, og det er vanligere at pris dukker under, for så å komme opp igjen, slik at pris tegner en bue mot toppene, og "spisser" mot bunnene ("sunn bull-trend"), og omvendt polaritet (ofte forårsaket av midlertidige sell-offs, men som over litt lengere tid likevel kan snu opp).



Over lengere tid vil lineære charts lure deg til å tro at pris er mer volatil i toppene enn den egentlig er. Det er ingen grunn til å bruke lineære charts. Logaritmiske charts er mye mer riktig bilde av prisutvikling (prosentvis skalering).



For de som liker å leke med tallene, så gir dette litt flere verktøy i verktøykassa, og kanskje en bedre forståelse av hva matematikken egentlig beskriver.

Jeg tror det absolutt er en fordel å vite om slike ting, så man ikke analyserer på feil forutsetninger. Men om det fungerer, så kan det jo være en grunn til det også, så man må beholde et åpent sinn selv om man har fått vite litt mer :)

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Litt mer matematikk:


Prosent er et forholdstall mellom to verdier. F.eks.: 10 / 5 = 2 = +100%

10 er altså 2 ganger større enn 5, en prosentvis forskjell på 100%.


Men dette fungerer dårligere når forholdet er mot en høyere verdi i dividend. F.eks.: 5 / 10 = 0.5 = -50%

Slik prosentvis sammenligning, som desverre er veldig vanlig, gir en ubalanse mot bull-siden: 100 > 50


En balansert prosent-beregning er å alltid dele det største tallet med det minste tallet, og så snu fortegnet ved behov:

-10 / 5 = -2 = -100%


Da blir det balanse mellom positiv og negativ prosentvis utvikling.

Man kan da prosentvis skalere et gitt tall begge veier ved å både multiplisere og dividere med: abs(balansert prosent tall) + 1



Skal man benytte en OHLC-verdi, så er Close nesten alltid er veldig godt valg da dette er prisen som er resultatet av alle dagens handler, og det er også den sluttprisen alle ser på etter slutten av handelsdagen. Close er derfor mye mer viktig enn de andre verdiene, avhengig av hva man ser etter selvfølgelig.

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  • 4 weeks later...
  • 3 weeks later...

This is an excerpt from Don Millers blog...

"Outliers are Critical. In poker, it's usually best to play conservative until you get a hand where the probabilities are strongly in your favor. When trading, it's usually the same. You need to wait until the odds are strongly in your favor, and then go in heavy. Unfortunately, those conditions may exist only 2 to 3 times per day and only in windows of a few seconds where you can get in at the right odds.

Outliers are the keys to the castle. You add to your winners. Try to turn each and every trade that goes in your favor into an outlier. Get as much out of each trade as you can. Inverse applies to trades going against you. Limit your losses to the best of your ability by knowing you're wrong and scratching before the market proves you're wrong.

At the end of the day, 1 or 2 outlier trades can make up for every missed opportunity or good trade gone bad. And those become outlier days. And those lead to outlier weeks. Pretty soon, you don't have to worry about being right 70+ percent of the time. You take all that stress of "being right" off your shoulders and that in turn makes it easier to scratch a trade that's lost its premise. I no longer think that it "may come back so I don't have to take the loss" or "just try to get out here on this limit!" Who cares, scratch it. Next bus is coming. It's a heck of a lot easier to come back from a 200.00 loss versus a 2000.00 loss."


And this is another post from that blog where he demonstrates the concept...





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Hardcore Truth for CEOs and Traders ("The Hard Thing About Hard Things" Review)

Given the author's love of rap - and willingness to include rap lyrics as chapter intros - my only quibble with "The Hard Thing About Hard Things" was not referencing the most motivational rap song of all time: "Till I Collapse" by Eminem featuring Nate Dogg.

As the song begins, with Eminem talking over an army drill cadence:

"Cause sometimes you just feel tired, feel weak... and when you feel weak, you feel like you wanna just give up... but you got to search within you, and try to find the inner strength... and just pull that s-- out of you... and get that motivation to not give up, and not be a quitter... no matter how bad you wanna just fall flat on your face, and collapse..."

It's the ultimate theme song (if you like rap) for Horowitz' time as CEO of Loudcloud and later Opsware, going through hell - and being forged into steel via incredible trials by fire - along the hard, bloody road to success (seeing Opsware acquired for $1.6 billion). Highlighting lessons from that experience is the purpose of the book.

In another section, Horowitz distinguishes between okay CEOs and great CEOs by pointing out a difference in perspective on how they made it through killer trials. When Horowitz would ask fellow CEOs "how did you do it," as in "How did you survive that brutal gauntlet," okay CEOs would point to something specific. Whereas the great CEOs would simply boil it down to a simple hardcore essence: "I never quit."

They simply refused to give in or give out, as the "Till I Collapse" chorus puts it:

Til the roof comes off, til the lights go out
Til my legs give out, can't shut my mouth
Til the smoke clears out, am I high perhaps
I'm a rip this s-, til my bone collapse...

You must know what this means, on a deep level, to be a great CEO. And the same goes for traders. Nearly all traders, like nearly all CEOs, face their "time in the wilderness" - when nothing feels easy, everything feels impossible, and killer challenges press on every side.

I devoured "The Hard Thing About Hard Things" in less than 24 hours, having heard about it via youtube interview of Horowitz at a tech startup conference. The sense of realness - of someone who has been down in the mud and the blood and fought their way through - was absolutely compelling.

This book - basically a series of guidelines for CEOs and building a business - is not some fluffy management tome written by a theoretical management consultant with no personal concept of what brutally hard decisions are like. This is front-line reporting from a CEO who has gone to war... taken severe casualties... made series after series of life-or-death decisions... motivated troops in the trenches... and ultimately won. (As such, the book will almost certainly offend or turn off those with a more 'civilized', and less emotionally raw, perspective on company leadership.)

The book had triple resonance for on three fronts: Entrepreneur, CEO, and Trader. The "building a business" aspect spoke directly to our plans: Mercenary Trader, our financial publishing and trading education startup built on founder sweat equity, is on the cusp of critical mass after four-plus years of blood, sweat and tears. Our model is built around cultivating a true community of traders - monetizing the research we use to trade and invest our own funds (and those of clients), while educating members in our community (in a way that no one else does) that they might join us, share ideas and insights, and take their own trading to new heights.

In terms of hardcore challenges, we have already had to deal with questions like whether to sell a major piece of the business... how to handle joint venture projects (including a major software initiative) gone south... the bloody business of firing people (of course)... and lots of other things, all while managing capital simultaneously.

Ultimately we want to provide seed capital to the breakthrough star traders in our community, having trained them and equipped them with shared community resources - our own version of Julian Robertson's "Tiger Cubs" - and use flowback from publishing profits to further deepen and expand our research capabilities, even while creating a shared idea environment that fosters partnerships and even life-long friendships. Think hedge fund incubator crossed with "trader greatness training" and deep community value-add.

Not unlike what a great Silicon Valley firm cultivates for tech founders (and hence the tie-in to this review)... the VC model of A16Z (Horowitz' and Andreessen's firm) was compelling in this regard too, in the way they took a bunch of long-standing VC industry conventions and simply decided to blow them up.

(I found it hilarious, as an aside, that the historical reason VCs are extremely private, and totally disdainful of publicity, is because this is how the original banking houses did it, like the Rothschilds and whatnot - as Horowitz relates, those guys were publicity-shy because they so often funded both sides of wars.)

For the longest time, as Horowitz makes clear, VCs assumed that tech founders needed "adult supervision." Even worse, they would sometimes try to eyeball a founder to decide if they were "CEO material" based on appearance and superficial impressions, not unlike the worst practices of the redneck talent scouts in "Moneyball" pre-Billy Beane. One almost imagines choosing a candidate to lead an organization simply because he (or she) looks a little better in a tailored suit - which is apparently what actually happens, given an utter lack of substantive process.

Horowitz and Andreessen, in contrast, realized that great tech CEOs are MADE, not born - shaped and created via community experience and support - and that all the truly great tech companies were led to greatness by the passionate founders who created them in the first place (Jobs, Gates, Hewlett and Packard etc).

They thought tech founders would likely be in synch with a vision of empowering founders, rather than expecting to hand their passionate idea over to an empty suit... and they were right. So they set up A16Z, a different kind of VC firm, to facilitate that transition: "Making" the CEO out of the founder, or rather helping the founder to come into his own as CEO, through guidance and support.

This view had deep parallels with a great point of frustration, for yours truly, in respect to the trading industry: There are so many books, so much literature, talking about what makes for a "great trader," or what makes someone "trader material," not unlike someone being "CEO material."

But great traders, like great CEOs, are also MADE - it is at least partly an unnatural thing, as Horowitz says - and there is a huge amount of psychological and emotional development along the way. There is training needed for this stuff. And not the same old "cut losses and let profits run" stuff either, but real, deep, meaningful training. Having potential is not the same thing as being developed - not by a long shot.

Apart from the excellent (and very specific) insights into building, running and selling a business - and various aspects of CEO day-to-day - here are ten things from the book that struck me personally as to where the jobs of CEO and Trader overlap:

1) CEOs and Traders are paid to make decisions. The reason CEOs get paid so much (relative to normal jobs) is because they have to make the hard calls. The bigger the enterprise in question - the more that is riding on every key decision, for good or ill - the more important those decisions become. It's the same with traders: Pay is commensurate with good decision making, not activity level, and in synch with the size of one's asset base. It's not physically harder to run $100 million or $1 billion than, say, $10,000, but the trust required to be awarded stewardship of those assets has to be earned.

2) CEOs and Traders are always accountable. Whatever happens, "it's your fault." Good luck, bad luck, meteor strike, employee sabotage, doesn't matter. If it goes wrong, the negative outcome for the business - or for P&L - is laid at the feet of the CEO (or the trader). This is a mental and emotional burden that most people who haven't born that kind of permanent pressure don't understand.

3) CEOs and Traders need knowledge handed down. Colleagues and mentors who have been through comparable experiences, and can share wisdom, are truly invaluable. Horowitz underscored this repeatedly with key lessons learned from Bill Campbell, often at critical decision making junctures. Reinventing the wheel is just unnecessary, and highly dangerous, in contrast to tapping the seasoned wisdom of others who have already been through it.

4) CEOs and Traders need a support network. Both of these can be incredibly lonely jobs at times. The weight of hard decision making - which no one can take off your shoulders - can create a sense of feeling isolated. Employees, family and friends can't help with this burden. Sometimes they even add to it (though not intentionally), by being party to the outcome of the decision (but not the requirement of making it). There is no substitute for having friends and mentors at arm's length from the situation - fellow CEOs, fellow traders - who know what this is like, and can empathize and share while remaining removed from the situation itself.

5) CEOs and Traders need ability to handle "the struggle." The description of "the struggle" was one of my favorite parts of the book. It's a description of the dark times, as in the REALLY dark times, like dark on the way to pitch black. Even if you get super lucky and avoid it, you need mental preparation for the day "the struggle" potentially comes. Going through it is a rite of passage.

6) CEOs and traders need a healthy tolerance for pain. This is different than "the struggle." Pain tolerance is required even when things are going well. In a world where competition for scarce resources is the natural order of things, achieving excellence is always hard. There is no such thing as perfect - mistakes are inevitable, sometimes big ones. Indeed if there is a "secret to success," a willingness to endure pain - to fail forward, correct mistakes, and stay brutally honest and doggedly determined the entire time - would be it. It even becomes desirable (if not always possible) to enjoy the pain as it makes you stronger.

7) CEOs and Traders need deep cognizance of their own psychology. On the outside, as Horowitz says, everything is always "great" and "amazing" and otherwise perfect for those who ask. Inside, emotions can be tossed about like a ship on a storm. This requires more than just "suck it up" psychological fortitude. It requires a nuanced awareness of one's personal psychology and ability to manage it.

8) CEOs and Traders need "Wartime" skills. Horowitz' distinction of "peacetime CEOs" and "wartime CEOs" applies to traders too. There are markets where everything is unfolding nicely and confident optimism is richly rewarded; and then there are markets where the manning of battle stations and ruthless risk control win the day. While most traders, like most CEOs, will more naturally gravitate to "peacetime" skill sets, the potential for war must always be accounted for.

9) CEOs and Traders need trial by fire. How do you know if you've got what it takes? Get thrown in the shark tank and see what happens. It's not enough to do okay in favorable conditions. The water has to get bloody. There is no way to deny this or shy away from this, if the goal is to play for meaningful stakes. Playing for real stakes in the real world means being tested.

10) CEOs and Traders always have opportunity. As the book puts it, "there is always a move." If you feel completely boxed into a situation with no way out, you may not be thinking hard enough (or creatively enough). When it comes to strategic decision making, the deep complexity and open-boundary nature of the sheer number of options available can be ruthlessly intimidating in one sense, but intoxicating and freeing in another sense. If thriving in conditions of uncertainty doesn't sound appealing, then as with pain tolerance, you may want a different gig.

In conclusion, CEOs and traders have the coolest jobs on the planet. What other careers let you strategically and tactically allocate resources, sometimes vast quantities of such, with sky-is-the-limit potential for profit creation and impactful change? What others jobs are so ruthlessly demanding, yet so ultimately fulfilling, while remaining interesting almost every single day? What other jobs not only require, but DEMAND, such an elite and diverse array of skillsets, including management capabilities both external and internal? Very few.

If you are serious about building a business, becoming a CEO, or stepping up your game as a trader via leadership lessons with strong cross-application to trading, buy this book.

If no-holds-barred honesty is a turn-off and you prefer a rose-colored-glasses view of reality, however, don't buy this book. It pulls no punches, which is fantastic for those with the clear-eyed courage of Thucydides:"The bravest are surely those who have the clearest vision of what is before them, glory and danger alike, and yet notwithstanding, go out to meet it."

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Paul Tudor Jones Quote from 2008 Interview: “I see the younger generation of [hedge fund managers] hampered by the need to understand and rationalize why something should go up or down. Usually, by the time that becomes self-evident, the move is already over. When I got into the business, there was so little information on fundamentals, and what little information one could get was largely imperfect. We learned to go with the chart. Why work when Mr. Market can do it for you? These days there are many more deep intellectuals in the business, and that, coupled with the explosion of information on the Internet, creates the illusion that there is an explanation for everything. There are young men and women, graduating from college who have a tremendous work ethic, but they get lost trying to understand a whole variety of market moves….[at the end of a bull market or bear market] there’s typically no logic to it; irrationality reigns supreme, and no class can teach you what to do during that brief, volatile, reign.

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n my time as a trader, I have been in the fortunate position of being in direct contact with several huge and extremely successful traders. In some cases sitting directly next to them. I am talking about traders that have not only have a track record of profitability that spans many years but also whose P&L goes off the scale of whatever I thought possible - traders making hundreds of thousands of pounds each week.

I have brought all their advice together below. And do so without comment. Some of them directly contradict each other. Some of them you may agree with. Some of them you may not. I will leave that for you to think over. But since I noted them down at the time, and it is these notes I refer back to now, these quotes are almost verbatim.

1. "The key to this game is finding an entry spot that is as close as possible to where you would be wrong on the trade idea."

2. "If you are bullish when you look at a chart. Turn the chart upside down and see if you are bearish for extra confirmation. If you are, pull the trigger."

3. "If you take profit for no reason than that you have a profit and don't want to lose it, you are a cunt."

4. "Why do you fucking insist on selling when the market is red? Are you some kind of cunt? You buy on red. Sell on green."

5. "Double tops and bottoms can be very profitable opportunities if you trade them AS they form."

6. "You're buying just because there's a "psychological" round number? Are you some kind of fucking cunt?"

7. "You have to act on your intuition. If you get a strong feeling about a market - even if you are not sure completely why - act on it. But know that feelings can be wrong and be quick to act if the market does not confirm your intuition."

8. "There is no such thing as a price that is too high or a price that is too low."

9. "You need to grow a pair of balls when your position goes onside. There is little point in calling a top or a bottom only to take a few points. You have to be able to hold a position."

10. "If you can't make a decision, leave your trading desk and take a break. Take a 10 minute walk around the block. Come back and sit down. Close your eyes and take a few deep breaths. Open your eyes and immediately do what you think is best. "

11. "When a price is at extremes and you want to attempt to fade it, take small positions and be prepared to act quickly to cut your losses if price does not turn. "

12. "Look for clues. The market almost always tips its hand to which way it is going. If you can't see this, you haven't watched it long enough."

13. "The only technical you need are support and resistance."

14. "If I get an easy fill at the price I want I know I'm probably fucked."

15. "See the bigger picture. I don't care if you are on a tick chart. Where are we on the higher timeframes? How much room do we have to move?"

16. "Get involved. You need to live and breathe your market to make money consistently. Watch it as much as you can. Time spent watching is time spent learning."

17. "The news is fucking useless."

18. "I don't know how anyone can make a trading decision without knowing the fundamentals behind a trade."

19. "One of the best trades is where the fundamentals all point to the market making a move in a particular direction and yet it begins to move counter to that. "

20. "Remember why you got in. If you are position trading a market and you are, for example, buying a considerable distance above support, then that last support is the reason for entry. Until that is invalidated, your trade reason still stands. The "market" knows or cares nothing of where your break even point or fixed trailing stop is. These two latter terms, if based on monetary concerns (not wanting to lose, wanting to protect profits) rather than based on technicals (keeping a valid s/r level between you and the price) are useless."

21. "Make sure you don't buy when the market is drifting towards your entry. If its not steam rolling towards you, don't be fooled. No one makes money fading the drift of death"

-Tom Dante-

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