Do You Need Real-Time Data?
Real-time data flows to your screen tick by tick, as prices change in the markets. A live screen is one of the most captivating sights on Earth, right up there with nude co-ed volleyball or a chain collision on an expressway. Watching your stock dance in front of your face can help you find the best spots for buying and selling—or make you forget reality and swim in adrenaline. Will live data improve your trading? The answer is “yes” for a few, “maybe” for some, and “no” for most. Having a live screen on your
desk, says a trader friend, is like sitting in front of a one-armed bandit.
You invariably end up feeding it quarters.
Trading with live charts looks deceptively easy, while in fact it is one of the fastest games on the planet. Buy at 10:05 A.M., watch the price rise a few ticks, and take a couple of hundred dollars off the table by 10:15.
Repeat several times a day, and go home at 4 with thousands of dollars
and no open positions. Sleep like a baby and return in the morning. Trouble is, you need perfect reflexes to do that. If you pause to
think, delay taking a profit, or quibble accepting a loss, you’re dead.
This game requires lightning-fast reflexes, as well as a certain
thoughtless capacity to jump.So know your reflexes and start flexing ur
biceps if you are fast and furious.
Markets keep changing, and flexibility is the name of the game. A
brilliant programmer told me recently that he kept losing money but
whoever was buying off of his stops must have been profitable because
his stops kept nailing the bottoms of declines. I asked why he didn’t
start placing his buy orders where he now placed stops. He wouldn’t
do it because he was too rigid, and for him buy orders were buy orders
and stops were stops. A high level of education can be a handicap in
trading. Brian Monieson, a noted Chicago trader, once said in an interview,
“I have a Ph.D. in mathematics and a background in cybernetics,
but I was able to overcome those disadvantages and make money.”
Many professional people are preoccupied with being right. Engineers
believe that everything can be calculated, and doctors believe that if
they run enough tests, they’ll come up with the right diagnosis and
treatment. Curing a patient involves a lot more than precision. It is a
running joke how many doctors and lawyers lose money in the markets.
Why? Certainly not for lack of intelligence, but for lack of humility
Markets operate in an atmosphere of uncertainty. Trading signals are
clear in the middle of the chart, but as you get closer to the right edge,
you find yourself in what John Keegan, the great military historian,
called “the fog of war.” There is no certainty, only odds. Here you have
two goals—to make money and to learn. Win or lose, you have to gain
knowledge from a trade in order to be a better trader tomorrow. Scan
your fundamental information, read technical signals, implement your
rules of money management and risk control.
Buy low, sell high. Short high, cover low. Traders are like surfers,
trying to catch good waves, only their beach is rocky, not sandy.
Professionals wait for opportunities but amateurs jump in, driven by
emotions—they keep buying strength and selling weakness, bleeding
their equity into the markets. Buy low, sell high sounds like a simple
rule, but greed and fear can override the best intentions.
A professional waits for familiar patterns to emerge from the market.
He may notice a new trend with rising momentum, indicating higher
prices ahead. Or he may detect the feebleness of momentum during a
rally, indicating weakness. Once he recognizes a pattern, he puts on
a trade. He has a clear notion of how he’ll get in, where he’ll take profits,
and where he’ll accept a loss if the market turns against him.
A trade is a bet on a price change, but there is a paradox. Each price
reflects the latest consensus of value of market participants. Putting on
a trade challenges that consensus. A buyer disagrees with the collective
wisdom by saying the market is underpriced. A seller disagrees with the
wisdom of the entire group, believing the market is overpriced. Both
the buyer and the seller expect the consensus to change, but meanwhile
they defy the market. That market includes some of the most brilliant
minds and some of the deepest pockets on Earth. Arguing with this
group is dangerous business, and it has to be done very cautiously.
An intelligent trader looks for holes in the efficient market theory.
He scans the market for brief periods of inefficiency. When the crowd
is gripped by greed, the newcomers jump in and load up on stocks.
When falling prices squeeze the fingers of thousands of buyers, they
dump their holdings in a panic, disregarding fundamental values. Those
episodes of emotional behavior dilute the cold efficiency of the market,
creating opportunities for disciplined traders. When markets are
calm and efficient, trading becomes a crapshoot, with commissions and
slippage worsening the odds.
Crowd mentality changes slowly, and price patterns recur, albeit
with variations. Emotional swings provide trading opportunities, while
efficient markets chop up and down, offering no edge to traders, only
piling up their costs. Technical analysis tools will work for you only if
you have the discipline to wait for patterns to emerge. Professionals
trade only when markets offer them special advantages.
THE DISCIPLINED TRADER
Traders come to the markets with great expectations, but few make
profits and most wash out. The industry hides good statistics from
the public, while promoting its Big Lie that money lost by losers goes
to winners. In fact, winners collect only a fraction of the money lost by
losers. The bulk of losses goes to the trading industry as the cost of
doing business—commissions, slippage, and expenses—by both winners
and losers. A successful trader must hop over several high hurdles—
and keep hopping. Being better than average is not good
enough—you have to be head and shoulders above the crowd. You
can win only if you have both knowledge and discipline.
Most amateurs come to the markets with half-baked trading plans,
clueless about psychology or money management. Most get hurt and
quit after a few painful hits. Others find more cash and return to trading.
We do not have to call people who keep dropping money in the
markets losers because they do get something in return. What they get
is fantastic entertainment value.
Markets are the most entertaining places on the face of the Earth.
They are like a card game, a chess game, and a horse race all rolled
into one. The game goes on at all hours—you can always find action.
Most people live in a deep invisible groove—no need to think,
make decisions, feel the raw edge of life. The routine does feel
comfortable—but deathly boring.
Even amusements stop being fun. How many Hollywood movies
can you watch on a weekend until they all become a blur? How many trips
to Disneyland can you take before all the rides in plastic soap dishes
feel like one endless ride to nowhere? To quote Thoreau again, “A
stereotyped but unconscious despair is concealed even under what are
called games and amusements of mankind. There is no play in them.”
And then you open a trading account and punch in an order to buy
500 shares of Intel. Anyone with a few thousand dollars can escape the
routine and find excitement in the markets.
Suddenly, the world is in living color! Intel ticks up half a point—
you check quotes, run out for a newspaper, and tune in for the latest
updates. If you have a computer at work, you set up a little quote window
to keep an eye on your stock. Before the Internet, people used
to buy pocket FM receivers for market quotes and hide them in halfopen
desk drawers. Their antennae, sticking out of desks of middleaged
men, looked like beams of light shining into prison cells.
Intel is up a point! Should you sell and take profits? Buy more and
double up? Your heart is pounding—you feel alive! Now it’s up three
points. You multiply that by the number of shares you have and realize
that your profits after just a few hours are close to your weekly salary.
You start calculating percentage returns—if you continue trading like
that for the rest of the year, what a fortune you’ll have by Christmas!
Suddenly you raise your eyes from the calculator to see that Intel has
dropped two points. Your stomach is tied in a knot, your face pushes
into the screen, you hunch over, compressing your lungs, reducing the
flow of blood to the brain, which is a terrible position for making decisions.
You are flooded with anxiety, like a trapped animal.
You are hurting—but you are alive!
Trading is the most exciting activity that a person can do with
their clothes on. Trouble is, you cannot feel excited and make money
at the same time. Think of a casino, where amateurs celebrate over free
drinks, while professional card-counters coldly play game after game,
folding most of the time, and pressing their advantage when the card
count gives them a slight edge over the house. To be a successful trader,
you have to develop iron discipline (Mind), acquire an edge over the
markets (Method), and control risks in your trading account (Money).
Courtsey : Rish Trader