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DbPhoenix

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A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself. That’s the kind of thing winning traders do.

 

-- Ed Seykota

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I'm always amazed at how people seem to think that selling is an irreversible decision and that they can't repurchase a stock that they just sold. At times it can make very good sense to repurchase at a price higher than what you just sold at. Emotionally, however, it is very tough to do so since you are at some level admitting you made a mistake by selling in the first place. It's very difficult not to have an emotional reaction to repurchasing a stock at a higher price, but the best thing you can do is forget your prior actions and continue to follow a set methodology.

 

I was reading an article on something called "the endowment effect" which seems relevant here. A professor gave half his class coffee mugs. He asked the half of the class that received the mugs to name a price they would be willing to sell the mugs for to the other half of the class. He asked the other half of the class that did not get a mug to name a price they would be willing to pay. The average price that those who received a mug would be willing to sell for was consistently about twice what those that didn't receive a mug were

willing to pay.

 

The conclusion is that once someone owns an object, be it a mug or a stock, they have a vested interest in it and tend to place a higher value on it than they would if they didn't own it in the first place. This helps explain why so many buy-and-holders have a death grip on their stocks. Once you own something, human nature is to convince yourself that you did the right thing by buying it and, therefore, its perceived value becomes greater than it was when it was owned by someone else.

 

-- David Barney

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RULE #19: Arrive with a system.... It is not enough to rely on luck or hope to carry us past the weak parts of our game. These parts must be attended to. The system must be whole and complete.... The weak parts must be corrected, or disaster will appear.

It is important for me to trade a few setups with proper filters to minimize their failure (no setup will work for all market conditions). The rest of the game is to recognize when not to trade. (William)

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RULE #20: Learn from your mistakes.... When we factor past lessons in for future play, losses are not losses, but rather stepping-stones toward future correct play. Failure, by its nature, moves us in another direction, away from failure. We need to treat these lessons neutrally. Simply learn from them. Don't take them too much to heart or put too much emotion into them.

One must also understand that not all losing trades are mistakes - the market is simply a game of odds. (William)

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RULE #22: Don't get overconfident, egotistical, arrogant. The reason: The Big Comeuppance (the Big Meltdown, the Sky Falling In, Your Worst Nightmare) can always be lurking around the next corner...

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RULE #23: Learn how to avoid a losing streak... First, watch for any clues that you might be getting cold... One answer is: You weren't there until you were there. And then it was too late.

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RULE #24: When things start going right for other players and wrong for you, back off... Looking back at the end of the night, however, at how a losing streak was put together, certain things stand out, and this is one of them: we should have caught on a little sooner. It is important that we notice these situations earlier and react accordingly.

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RULE #25: Develop a true indifference to the game. George Leonard writes in Mastery that mastery's true face is often "relaxed and serene, sometimes faintly smiling." You sometimes see this with good poker players - a kind of smiling, ironic indifference to the vicissitudes of fate and the outcome of hands.

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RULE #26: Don't take the game personally. The poker gods are not out to destroy you personally (although it may sometimes seem that way). The game itself is as neutral and mechanical as a roulette wheel, a church raffle, or a lottery ball drawing... To repeat: players often think that elaborate steps are needed - great straining, striving steps, complex steps. The ordinary way of Zen dispels this. In modern life, as in poker, we often find ourselves tangled in frantic activity, trying to force events to our will, to make them happen. The actual answer is much simpler and involves a more natural approach. This sort of simplicity has been described in Zen literature in the following way: "When hungry, eat, when tired, sleep..." The ordinary way is the way.

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RULE #27 : Nonattachment. The idea of attachment, in Buddhistic terms, means the linking of our emotions with something that we want - some desired object or outcome. The stronger this connection, the more discontent when we fail to achieve our ends (as well as desperate steps taken trying to achieve them)... Emotions have no place in poker... To play in an ego-less state means simply to not let the ego and emotions get involved.

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RULE #28: When you take your emotions out of the game, other players' emotions become visible. When we are focused exclusively on our own emotions (as we often are), the emotions of others tend to be obscured. When we make ourselves neutral, however, we find that the canvas suddenly becomes blank and the emotions of others begin to appear.

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RULE #29: Play "within yourself." Like an Olympic runner who learns to run "within himself," you will eventually become comfortable inside your knowledge of the game. You will cease striving; the clouds will disperse, the sun comes out... But your goal as a player is to reach the point where a great many things will have to go wrong for you to lose badly...

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RULE #30: Be wary of pushing forward aggressively when encountering resistance.

 

Don't fight the situation. Why does one press it? Because one wants perfection. One has to let go of one's agenda and listen to the market. A "natural" trader is the best trader and in order to be a "natural" trader, one CANNOT be the "perfect" trader.

 

For all beginner traders, if one truly truly thinks it through and gets this point, it will stop the bleeding. The number of trades (including marginal trades) will go straight down significantly and the whole profit/loss equation will turn around. Only then does one have a fighting chance. (William)

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RULE #31: Learn to play up and down the ladder. Don't just downscale your bets when you get cold, downscale the actual way you play the game. Back off within your method of play, alternately loosening up your game when things are going well and tightening back up when they are not. Mathematicians tell us that each hand takes place independently of all others. This is good advice to ignore...

 

Back off and stay off the market when you get out-of-sync with the market rhythm. Profits are not important at that point. Scratch the trade when things don't look right or you don't like the rhythm. Press the gas when the odds are stacking on your side. Use real leverage at the right time and go for the big kill. (William)

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RULE #32: Include Failure in the System... Correctly played, poker is really a process of two steps forward and step back. Footnote: There is some evidence that this two steps forward and one step back is more than just a figure of speech: pro players report that on average they expect to have two winning sessions out of every three.

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RULE #33: Make sure you know when you're on a cold streak... "He is not aware of his condition. He is not stepping back from it and seeing it -- and, more important, not acting on this information. As a result, as cold as he is, you often see him right back in there on the next hand, fighting struggling, betting..."

 

You need to be two people-- one is the guy who is doing it, and the second is the guy who steps back and watches the other guy from a slight distance and evaluates whether the first guy is too tired, too upset, too unfocused, too much on tilt, etc, to be sitting at the poker table, trading, or whatever. Most important, this second guy must have the AUTHORITY to pull the first guy out of the chair, if he doesn't like what he sees. (Larry Phillips)

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Ultimately, the effort to win is sustained by a desire to know. Excellent traders are always keeping score: they want to know what they’ve done right or wrong, and what’s making and losing them money. They are always working on themselves and their trading. I’ve met far too many “breakeven” traders who, upon inspection, have been losing money consistently. It’s not that they’re lying; they simply don’t want to know the truth. Thus, they avoid it. It is simply too painful to look at the money and opportunities lost.

 

BS

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