Reviving NeoTicker Blog Site and Updates on Other Projects

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Within several weeks, I am optimistic that the NeoTicker blog site will be restored. The site was hacked through exploits in the older version of WordPress which led to massive email spamming coming off the site. I made an agreement with NeoTicker’s company to oversee the restoration project. So far things are progressing slowly but it will be done very soon. After all, many of the articles I wrote on trading are posted there. It is a valuable resource for not just NeoTicker users but the whole trading community.

After very long deliberation with my team working on the real time trading signals for Emini and Forex, a surprise decision is made. Against my personal prejudice, I will delivery the trading performance reports in Tradestation format. In other words, at least some of my trading models will be backtested and tracked with Tradestation. People who know me probably know why NeoTicker existed in the first place and it was not based on a good experience with using Tradestation.

This also implies that I will offer my indicators and trading code in Tradestation format, in addition to the other ones already supported.

For the ebook Art of Chart Reading, I am waiting for the edited version on the remaining chapters. From there I will have a lot of reading to do to finalize the project. This is going to make my busy schedule even more busy.

For many of you waiting for so long for my forex research and courses, they are progressing slowly. Unlike the web articles, this time they are done in a very different fashion. As I mentioned before, it is now time for me to produce the much more sophisticated materials.

The amount of time and effort necessary to produce a book length course on trading models is exponentially longer than having each chapter being independent article like the ones I wrote for daytradingbias. On this aspect, I totally underestimated the commitment necessary hence slowing everything down so much. Luckily, I am not those people who give up easily. I can see light at the end of the tunnel at this point.

Enough babbling. Back to work.

Belated Happy Easter!

My Journey to Fully Automate My Trading: Understanding Discretionary Trading

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There are two main approaches to trading for decades. One is discretionary trading and the other is mechanical trading since the rise of the personal computer era. Retail traders are often molded into one of the two camps and led to believe that one is superior to the other. This naive belief causes so much misery among the retail trading communities that it deserves a much better narrative to explain the subject.

Trading is a Trap to Lose Money for Majority of People

I have explained in so many writings including several series of articles for beginners to understand what it takes to learn to trade successfully from scratch. In short, majority of people attempting to learn to trade discretionarily will fail, either right from the beginning or eventually, because they have not corrected their internal belief system to handle trading from the proper perspective. There are many courses out there teaching people how to correct their belief system but it only works on those who are willing and determined to change themselves for greater success.

This leads to the appeal of mechanical trading for anyone who understand the obstacles with discretionary trading. After all, a mechanical system with the right edges should generate profits automatically, isn’t it?

It turns out trading with mechanical models takes the same type of belief system in the first place to achieve success consistently. It is just a different approach to the same pursuit for those who are more scientifically minded with personalities more open minded to accepting automation.

Basic Success in Discretionary Trading

In other words, knowledge is secondary in terms of achieving basic success in trading. What I mean is that if one is seeking for consistency in making money from trading for the long term, the best approach is to fix themselves first. Getting oneself ready for trading, or simply any other business or venture, is the same. Any basic concept in approaching the market with just a little edge will give the trader consistent profit over time, given the people has the right attitude and beliefs in life. Whether the trader is willing to accept what the market is offering based on specific approach to that market is a completely different question.

One thing we have to understand though, is that discretionary traders do not acquire exactly the same set of knowledge for a trading strategy as mechanical traders.

For example, a beginner learning to trade discretionarily is taught to buy pullback in an up trend. If the beginner is willing to focus on this one and only one idea, with full attention to figure out all the details of this single trading setup, mastery of this single technique will happen and consistent profit will follow. But some people just do not hold the belief that pullback setup works and until they change their attitude and embraces the concept 100%, they will never be able to trade the strategy with 100% consistency. It has nothing to do with vagueness.

Look at the skill of riding a bike to see why vagueness does not matter.

When you ride a bike, do you know at any moment exactly how much force you need to apply to each individual leg to get the bike moving?

Do you need to know the exact theory and details behind the fact that you can balance on the bike while it is moving?

You just know how to ride a bike because your brain is trained to handle the details for you by taking all the sensory inputs into account but only if you let go of the belief that it is impossible to ride a bike and believe 100% that you can do it too. Once you learned to ride a bike, even after years of not doing it, you can pick it up quickly again because your brain is wired to believe that you can do it already.

In short, you are programmed to react properly. This also explains why some people are better at discretionary trading. They are more adapted to learning from all their sensory inputs to form the basis of their acquired knowledge.

Basic Success in Mechanical Trading is Different

In a similar situation, when a beginner trader is taught to look for mechanical setup to trade a pullback, they have to look for things that are quantifiable that can be converted into rules that a computer can understand. Since a beginner trader has limited knowledge about the market, their research on how to quantify the pullback strategy will be limited by whatever knowledge they start with.

This approach works well with those who believe 100% that the rules they have discovered will deliver consistent profit over time. In other words, it is acceptance of the discovery and its past performance, disregarding how they come from or why they work, that is necessary to make the mechanical trader consistently profitable. It is hard to do, especial for those people who are actually more suitable with mechanical trading, because people who are more evidence driven and scientific minded are those who likely prefer high probability winning although what really matters is that the strategy discovered is consistently profitable with controlled risk.

Due to lack of complete sensory input like learning to trade discretionarily, mechanical trading strategies discovered by many traders are likely to have lower winning probability since they do not have access to better depth of trading knowledge. Being able to accept this lower probability of winning, is key to basic success in mechanical trading. In this aspect, the hurdle to trading success is very different for discretionary trader from mechanical trader.

Good Discretionary Trading Takes Only a Combination of Consistent Trading Strategies

To become a good discretionary trader, one has to learn to add trading strategies to their trading arsenal one at a time. Once the trader has master several trading strategies to complement each other in different market environment, the trader will perform many times better than a trader who mastered just one trading strategy. Many discretionary traders believe that it is their trading skills improved that leads to the exponential growth in performance . What really happened is that they are benefiting from the Law of Large Numbers.

By looking at a good discretionary trader from mechanical trading point of view, the performance of a good discretionary trader is a combination of several high probability winning strategies. Due to the increased frequency in trading and that the strategies are likely complementary to each other as the trader is adding strategies to handle different market environments, less drawdown is expected and so is consistency in profitability on, say, monthly basis.

In other words, it is not an overall improvement in trading skill per se. It is proper parallel combination of applying these individually profitable strategies that leads to better performance. Traders failing to realize this will suffer eventually as their egos take over their minds and ruin their futures as they hit the eventual obstacle of performance block.

The combination of multiple strategies does not require the trader to understand them from a higher level of clarity. Just like being able to ride a bike and eventually learned how to ride it to do difficult tricks, one does not need to understand exactly how the tricks work in terms of physics. Eventually, there will be tricks that no matter how hard one tries to do them, it seems like they are impossible to do. That’s the performance ceiling. One will not be able to overcome until after playing catch up to learn the science behind riding a bike so that one knows exactly what is required to accomplish the more complex bike tricks.

From this perspective, mechanical trading of multiple uncorrelated trading strategies can offer the trader much better consistency in performance because the mechanical trader does not have the burden of not knowing how to handle the potential conflicts among multiple strategies. All the mechanical trader has to do is to let all the trading models do their own thing. As long as the trading strategies are followed, the aggregated result in performance should be close to the expectations.

Thus good traders will have to eventually accept the fact that they can only do as much in terms of extracting profits from the market if their trading strategies are just a combination of techniques that they do not have deep understanding of. Relearn everything about the markets they trade is a risky business decision that everyone has to evaluate carefully.

Great Discretionary Trading Requires a Coherent Framework

Great discretionary traders are different from the good ones because they have a completely coherent framework in mind. All their trading strategies are derived from the framework hence there is no internal conflict whatsoever when they engage the market. In the minds of these great traders, everything is happening as they are supposed to be. Observing these traders trading, it feels like these traders know what will happen next in the market before things actually happen.

I am not saying these traders really can tell what will happen next in the markets. What really happens is that they know what is more likely to happen next with their deep understanding of the market anchored by their framework on how a market is supposed to function. There are quite a number of market theories that can help traders to think logically and interpret the information in a structured way. Notice that not all of these theories are functional and it is up to the trader to figure out which one actually works. Assuming a trader picking the right theoretical framework to learn from, it still takes the trader to commit fully to the framework and rewire the brain to think and analyze every aspect of the markets using such framework in order to benefit from this approach.

Great discretionary traders are often not the best performer when they just start out trading with their approach. That’s reasonable as a framework driven approach is never optimized to what is happening currently in the market. But eventually, as these traders are gaining experience in trading, they are the ones who will eventually perform better than the others because they do not suffer from being overloaded by trading strategies that have conflicting principles behind.

Great Discretionary Traders Are More Than Super Mechanical Trading Models

If a good discretionary trader is simply a combination of several well defined trading strategies, a great discretionary trader is a super trading model that is built on top of a complete price discovery framework. Using the phrase super trading model is really an understatement considering a discretionary trader has to develop the discipline to manage every trade with straight risk management, let alone handling the psychological challenges like emotional interference from losing and winning streaks. Above all, great discretionary traders also act as control of their trading models. When these great discretionary traders notice a change of market behaviour, they can formulate theories on what caused the changes based on their frameworks to adjust their trading strategies to work better in the changing environment.

Hence it is not that difficult to emulate a good trader using mechanical models provided that we figure out all the facts that are considered by the trader in making the trading decisions. However, to emulate a great trader, one has to resolve the issue of modelling at least part of the price discovery framework employed by the trader. This can be very difficult as the logic used by the trader can be more complex than some very complicated strategy games like go that are well known difficult computation problems.

As a summary, I do not see discretionary trading being all that different from mechanical trading. Overall, there are many similarities among successful traders in both camps as they have to overcome their egos to follow straight trading rules so that consistencies in performance can be achieved. On the other hand, the distinct requirements for each camp take a very different set of personalities to deal with the issues unique to those trading approaches in order to succeed. To the best of my knowledge, mechanical trading models at the present state are still not as good as the great discretionary traders of our time. By giving the mechanical traders ten more years, they may eventually develop trading models that can surpass the performance of the best discretionary traders in the world.

It’s Never Too Late to Learn to Trade

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One of the themes I came across meeting people all around the world is that they think that it can be too late for them to learn to trade. Coming from that point of view, they ask for shortcuts to get trading success quickly. Thus their enormous interest in trading courses promising instant success and guarantee income from secret trading systems showing consistent performance, say certain amount of money every month. Is it really true that it can be too late to learn to trade properly?

It is Never Too Late to Learn to Trade

I have met people from all walks of life from all age groups who managed to get trading success. I know several traders who started to trade by the age of 60 years old and they managed to do pretty well in trading after several years of committed learning. In fact, it is usually a bad idea for young adults to go straight for a career in trading after graduating from school because they lack the normal work experience needed to develop good working habits like discipline and perseverance.

Given the modern age life span, it is not a surprise that we will live to 80 or 90 years old. Hence learning to trade properly and gaining success in trading by committing several years to acquire the knowledge and develop the necessary skills is a great investment. Yes, by 70 years old, it may not worth our time to take on this challenge. But if you are younger than that, the benefit of having the proper trading skill set in place will pay off handsomely for many years.

There is really no excuse for people at their 30s, 40s and 50s to avoid learning to trade. Yet, people keep saying it’s too late for them and they need a quick fix. I think the issue here is a combination of cultural misconception and psychological weaknesses.

Modern Day Career Path Has a Completely Different Time Schedule

Our world view of career path is shaped by the beliefs coming from our parents and grandparents. Those people at the age of 50s and 60s were taught to believe that they have to be established by the time they are at their 30s and by 40s they should be on track to a great career path or they will be stuck in life. And then retirement is near as their age approaches 60s. This mindset is completely messed up.

First, by taking good care of yourself, given the modern understanding of the human body, there is really no reason why we cannot live healthily by 80 years old with our body staying fit like we are 40s. The whole concept of retiring by the time we are at 60s was just part of the historical past. Planning your life around that concept nowadays will seriously side track your ability to live a meaningful life as all your attention is wasted on a finishing line that was drawn arbitrarily.

Second, the society we live in now do not bound people to one single career anymore. In different stage in life, many people switch career or even industry at their 30s and 40s with great success. Trading does not have to be a replacement path of the main career you are pursuing either. It can be complimentary as managing one’s wealth is no longer a task that we can put our trust in the financial industry.

Conquer Our Fear of Failure

When we have a reasonably established career path, it is difficult to take on trading knowing that it is a very difficult to master with very low chance of success. After all, just casual research on the internet will tell you that 90% of retail traders will fail. This psychological problem of not willing to deal with failures affects majority of people who are looking to improve their lives in all areas from health to financial success, not just with trading.

The fact is, many people were taught to think of failing to do something is the equivalent of themselves being failures. This thinking is plain wrong. Yet, we are often misled to think this way when we were young as we do not have proper guidance to separate our ego and our abilities. When we fail at doing or learning something, it is just that, nothing more.

For example, I may not be talented at drawing and that even though I tried very hard to learn to draw better, I know I will not be a great artist. The learning process to draw better is full of obstacles with failures all the way. This does not define me being a failure. It is just one area that I am not good at. Without trying, however, I will never be knowledgeable about drawing nor able to appreciate paintings at a higher level. I learn a lot about myself during the process of learning to draw. My drawings produced along the way are not good quality by any standard. But that does not define me being a bad person, or a failure, a very ambiguous term people often use when they cannot find something in their lives that they can be proud of.

Success in any field is the result of accumulating many failures. The most successful people in any field are likely the ones who encountered more failures than their peers. Only by being not fearful of failure and mentally prepared to handle failure as part of the process, will you be able to pick yourself up quickly after every fall. This better mentality in dealing with failures also help us master any craft faster with less emotional torment.

Accepting Our Ignorance

One interesting behaviour I often observed is the underestimation of the difficulties in learning something new. In trading, I have seen many people with success in their own fields often look at trading as something simple. Their perception mislead them into learning this supposedly completely new skill with the wrong approach. In short, they try to adapt the information on trading they are given, no matter how detail or complicated the materials are, into concepts they already have in mind, based on their past experiences in other fields.

This approach to learning only works if you are learning something that has a lot of similarities to something you have deep knowledge of. For example, if you already know a European language like Spanish, then learning German is not as hard. For those people whose background is in Asian language only, it will be much more difficult to learn German quickly even though both are languages for general communication.

But how do we know if we already have deep knowledge in something similar to what we are going to learn?

We don’t.

People in general assume they know because their brains tricked them into thinking that they have some ideas what they are learning. For many simple skills, you can be slightly better than average and you would already be able to utilize that proficiently to solve 90% of the problems requiring the particular skill set. Majority of the skills we acquire in life belongs to this category.

However, trading is one of those fields that in order to be successful you have to be part of the top 5%. This means taking it seriously and accepting our ignorance about trading is very important. This correct mindset will steer us in the right direction, making us willing to learn more carefully like we once were when learning to write while we are young. Being able to take extra care in learning everything in details helps us to build the proper foundation. In turn, it ensures us a better chance of success in trading.

Financial Freedom is a Reasonable Goal

As I explained in my more technical writing about trading, it is not striking it big quickly that matters in trading. It is all about consistencies and having a proper game plan. Once you become more consistent, your performance is just a function of the compound growth rate as you get to increase your trading size over time.

One cannot rush the learning process in trading. The mental development of a person in trading is as important as acquiring more knowledge about trading. There is no shortcut. Just better ways to focus your learning while not wasting time on misleading information.

From my experience working with many traders, once they “clicked”, it takes only 2 to 3 years to get them to produce decent profits putting them at par to top 10% income in their countries, provided that they are trading fulltime. For those who choose to keep trading as their side business of managing their savings, it takes about 3 to 5 years for them to produce enough profits to exceed their main income. Of course, everyone will follow their own pace so my observation can only act as a reference. So we are looking at doubling one’s income being a reasonable short term goal and gaining financial freedom as an achievable long term goal.

In summary, acquiring or mastering trading skill is not as remote as many people think. It often takes too long because people tend to approach it wrong as I pointed out the psychological challenges earlier in this article. If you look at trading serious enough and are willing to commit yourself to the learning process, I am sure it will be one of the best things you have ever invested your time and energy on.

My Journey to Fully Automate My Trading: The Commitment

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I talked about fully automating my trading for many years yet I could not stop myself from staying in front of the screen most of the time. This year, my new year resolution is to commit to the process of converting whatever I am doing in trading to a fully automated process. I know it is going to be a challenge for a discretionary trader who has been trading for better half of my life. I also know that the process itself can be a very rewarding experience. After all, I have not taken on a challenge this big for a long time.

A Bit About Myself and My Trading

In case you are not my long term readers or members of my website daytradingbias.com, it can be very confusing of what I am talking about. Here is a proper introduction of myself.

I have been trading for more than two decades (getting close to three now) professionally. I started out trading as a floor trader in a stock exchange trading stocks and stock options. I moved on to trading commodities and index futures. I manage other people’s money and also act as advisor to very affluent families on their high-risk portion of their funds. There were good times and bad times with my trading over my long trading career. Overall I manage to do pretty well and it has been a life enriching experience.

Over the years, my trading style has changed a lot. Although I started out trading 100% discretionarily, my current trading is a mix of mechanical trading on certain markets while engaging the other markets I have very specific routines and rules I follow strictly. Hence I am no newbie in mechanical trading. I just do not want to automate my main markets, the index futures, probably because of psychological reasons.

What Pushed Me to Take on this Challenge

I have a tough ride in my personal life over the past few years. Time became a very precious resource as I have to strike a balance between taking care of my loved one and my professional obligations of managing my clients’ money. During that time, I researched and refined my trading style so that it is more streamline and robust such that my emotion component would play a much lesser row in affecting my performance.

It turns out, my effort in reducing my time in front of the screen did not reduce my trading performance. It actually improved my trading performance significantly. I would not say the outcome is a result of those clichés like “less is more” bullshit. I think it was the process of objective reflection and evaluation of what I did that gave me clarity in reducing the clutters in both the actual rules of engagement in my trading plan and the beliefs I held for years about the markets which I never questioned until then.

So here I am, equipped with everything I have got, including time to spare at this point. I have no excuse not to complete the journey. The experience and knowledge gained from the process alone worth giving this a shot with everything I got. If the goal of fully automating my trading is partially successful, I gain even more time to take on even more important tasks in the future. There is really no downside to this challenge.

In other words, I have no excuse not to make it happen, now.

What’s Next

There are many things to get done in preparation phase for this project. It takes time to get these tasks completed before I can move onto the next phase of the project. Since I am not in a rush to make this happens overnight, I will take my time to complete these tasks carefully.

Throughout this project, I will document what I do so that all of you will learn something about the process of converting a discretionary trading method into fully automated trading. I am documenting my journey also for the purpose of holding myself accountable. This is my way to push myself to commit to the project no matter what the outcome is.

Life is worth living if it is a meaningful one. Finding new challenges to overcome is one way to make life more fulfilling. I find a serious challenge this time and I am very excited.

New Direction for My Trading and Services Offered at DaytradingBias.com

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I found someone to take care of my website revision last week. If all goes well can put the project back on track. Not quite what I planned for but then it may be better this way since going forward I will likely offload more site duties to these professionals.

After serious brainstorming and consideration, I will try to roll out several real-time trading signals of my core trading systems. Some of them are designed to work with Forex while the others are mainly for Emini S&P and NQ. I am also in the process of setting up trading accounts to track these systems with real money.

Main obstacle right now is choosing the right brokerage and platform for the automation. This process is way more tedious than I thought. Some brokerages that are my preferred choices do not support open platforms working on many brokerages. I need to find a middle ground for which I can trust both the financial stability of the firm and also the technology. Anyhow, the  process itself will be worth documenting along the way because these models are also (almost) the same systems I will trade in my fund.

What I hope for is that in a few months time, definitely within this year, I will automate all my trading, including my usual day trading of the Eminis. I have mentioned this before of my intention to go all mechanical one day for various reasons. This means that I will give myself more time in pursuit of other things.

Big changes coming. I will keep everyone posted.

Thoughts on this US Presidential Inauguration Day

Today is the inauguration of the 45th US president. Donald Trump will become the US president for the coming 4 years. Interesting, however, is that the focus in the mainstream media is not about this event. Instead, the top stories are flooded with negative comments, both on Donald Trump himself and how bad his presidency will become, coming from famous people who messed up the world very badly over the past decade.

First I saw on the news, the US congressmen, the infamous bad actors, are “grilling” the nominees of White House important positions. I thought the US Presidential Election already told us what the people of US are thinking. Why are these crowns allowed to have a second say on Donald Trump’s choices? Definitely an interesting way to make sure Donald Trump cannot run the country according to his vision.

Second, the name George Soros went to the top on multiple financial news outlets. Well, Soros being an “activist” and exposed for his “work” in funding all kinds of “unusual” activities worldwide to create chaos, told the press that Donald Trump will fail. Why is Soros so doomy? In my not so humble opinion, I think he is talking his book again. Maybe he is very short and need a outlier-sized pullback in the markets to get out of his troubled positions …

Third, the famous actors and actresses, teamed up with famous Hollywood figures, protested against Donald Trump in front of his Trump International Hotel in New York City. I remember some of these figures said they would emigrant to Canada (or other places). Why are they still there?

Here is a fun comparison of the importance of various things over time according to Google Trends.

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Obviously, Obama is not wanted since 4 years ago (that tiny blip in Nov 2012). On the other hand, Trump is so famous that we did not see a major surge in searching for his name unlike 8 years ago, when Obama was relatively unknown and being elected as POTUS for the first time. But both of them are not important, after all, as people searching on gold consistently beats them both.

And of course, jobs have always been in the mind of the normal people.

But none of the above matters when porn is added to the comparison. I guess it is fair to say sex being a primary human need is far more important than politics or work …

One thing I know for sure – the name Donald Trump will be a front page stable for the coming years whether you like it or not.

The Awkward Real Estate Dynamics in China

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Unlike any other country, China has experienced a prolonged growth in its real estate markets for a very long time. In fact, much longer than any other ones we have seen in the other countries in the past. Is it something sustainable? Well, I am going to discuss about this from a slightly different angle instead of the more traditional evaluation approach. Namely, I will look at the whole situation from the study of the participants in this interesting market.

The Rising Tide Lifts Everyone on Board

Over the past thirty years, China has been undergoing huge reform in its real estate market. The efforts to modernize the major cities and the relaxation of regulations to ownership of realty created the biggest boom in real estate markets across the country. Many people were assigned title ownership to various real estate and related resources as the laws changed. This alone created massive amount of wealth into the hands of the people who had the right connection or status at the time.

Let’s ignore the issue of fairness and whatever moral value you uphold for the moment, as this article is not about that at all.

What is important, however, is that this wealth effect has profound impact on the psychology of the people in China.

Those Who Won Big Without Knowing Why

Those individuals and their families who got the chance to ride on this boom have no idea why and how they actually become wealthy over such a short period of time. Just like any other people in the world who have similar kind of fortune, majority of people who won this lottery game of real estate attributed the success to themselves being smart, to their country being strong and for some with nostalgic beliefs, that Chinese civilization somehow helped them to get to where they are now.

Of course all of these thoughts are plain wrong. They are put into the right place at the right time. i.e. dumb luck

Well, ignorance is a bliss …

Those Who Have to Park Their Money Somewhere

During this wild west type of economic expansion and discovery process, the must have element of corruption and grey area deals for which money are made unethically, of course, are happening everywhere in China at the same time. These money, however, cannot enter the modern banking system easily because, even China does monitor outlier deposits, after all.

One of the obvious routes to park the money, of course, is with real estate, just like everywhere else in the world.

In fact it is a good example why real estate markets are the number one choice for dirty money. Since these money cannot be taken to the bank to exchange for the banknotes with the highest value, the space the money will take up now matters. Just imagine the actual physical size of the paper money needed to hold the value of a property. With small denomination banknotes, they will occupy more space than the property itself!

The Speculators Who Thought They Know

And then there are those short term speculators who think they know how to profit from this real estate boom in China. Of course there are many people who made a lot of money from this bull run. It is again no difference from speculation of real estate in any other parts of the world. The funny thing is, however, how leveraged these speculators can be.

According to various studies, Chinese speculators are the most leveraged speculators in real estates comparing to any other places in the world. Their voodoo beliefs in real estate markets can never drop drive them doing things that any people with common sense would never do. Yet, those with common sense are the ones who have been left behind in terms of financial well being over the past ten years.

So Who are the Suckers Here

Normal hard working people without special trade skills like a professional designation (i.e. doctor, accountant, etc.) will never see the light to even paying for their down payment for a decent apartment in China. Those young professionals will be able to afford buying their own property at the cost of turning into debt slave for the rest of their lives. Yet, they represent only a very small percentage of the population. Hence the important players in the real estate game in China are those who are already on board, either by dumb luck or out of necessity (e.g. dirty money) and those active speculators who continue to actively buying and selling in the current market environment.

Since the dominating players still playing this game are relying on the Chinese government to support the real estate markets as oppose to having at least one valid reason, I think that everyone in this game are suckers at this point, maybe except the central Chinese government itself. It is just a matter of time the Chinese housing market will collapse significantly.

Feature Image: Stanley Street Market in Hong Kong

What’s Wrong with This Picture on the US Stock Market

Here is the sentiment indicator from stocktwits on SPY, the ETF on S&P500.

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And the sentiment for emini S&P below.

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We seldom get a significant selloff from such bearish sentiment … bears have to be more careful to avoid turning into roadkills during this holiday season.

One Good Idea Turns Into Reality. What’s Next?

lightbulbi15Earlier this week I prototype an idea called Emini S&P500 Battleplan as suggested by many premium members. It has been very well received. The idea is to post what I see from my charts instead of just describing it in the real-time commentaries before market open. Although it is still very simplistic so far, feedbacks from my members is telling me that they love the idea and it is very helpful for them. Very glad I took the plunge and just made it happen first without worrying about how difficult or how time consuming it can be.

Emini S&P Daily Battleplan

This experience has taught me two things.

First, I need to test out new ideas without worrying too much. I hesitated to do this for months just because I worried too much – like it would take up too much time and that my charts could be too messy to show people. Now that I took a leap of faith to start the project first and see if it can work out, the obstacles are not as big as I first thought. The key is to actually doing it first so that I learn from the process on what the actual requirements are.

Second, listen to my members is very important. They may not know exactly what they need for their trading but when many of them telling me something similar the pattern emerges. My role is to find a way to fulfill what they need and paying attention to what they are asking for is key to achieve this goal.

Having a chart or two makes it much easier to explain what I have in mind. Yes it is actually difficult to post the charts because some of the charts I use actually reside in remote servers. It took some coding magic to allow me to take screenshot from them and now it is as easy as working with charts on my desktop computer.

There are various drawbacks of posting my morning summary before market open in real-time commentaries. For example, people who login after market open may not be able to see my morning summary once many messages have been added.

Now both issues are resolved with the battleplan idea, I have setup a home page for the battleplan posts so that premium members can refer to them when they study the historical charts themselves. This should be very useful in helping traders to understand and develop the thought process in formulating their own plan before the start of a trading day.

Real-Time Custom Market Breadth Chart

Thank you everyone who emailed me to sign up for the alpha testing of the real-time custom market breadth chart. Once it is ready I will email you all with the access information. We are still working out some technical glitches before the alpha release. I will keep you all posted on the progress.

In the meantime, I will write up several articles explaining what these custom market breadth indices can do.

I have already revised the titles to two of my older articles and included them into the Trading with Tick Index series. The two articles, S&P 500 Tick16 and Tick1K and Its Divergence Signals were written long before I started the series hence I never thought of them being part of the series. Now that I am making the custom breadth indices available to our members, it is a good time to add them to the series so that everyone will get a proper introduction on custom tick indices.

Hopefully the real-time custom market breadth chart will be another good idea turning into reality.

Mental and Emotional Maturity

taking_selfieI was talking to several beginner traders at my friend’s trading firm the other day. The topic of high probability trades came up several times as these young traders like to get some trading tips from their boss and me. We both told them high probability setups are overrated. You can guess that our point of view confuses these traders a lot. I promised to write about it this week and here is the explanation why one should not obsess with high probability trading setups.

The Psychological Need of High Probability Trades

The reason why traders and in particular, day traders, having the psychological dependency on high probability trades is that it feels good naturally after winning and feels bad after losing. It is normal to have such feelings. But many people do not realize that the accumulation of such emotions are not in equal weighting.

I have posted a video by Shawn Achor earlier this year on exactly this topic. In short, we need about 5 times of happy or feel good events a day to offset one upsetting event in the same day to keep us in a balanced mood. Now think about the number of trades a day trader may make on a single trading day. Just 3 losses, no matter how small they are, as long as upsetting feeling were triggered, the trader will need 15 feel good events to offset the emotional imbalance.

Hence traders tend to look for high probability setups so that they can feel good with their trading. After reading what I wrote above, it should be clear that usual high probability setups at 70 to 80 percent are just not good enough for anyone to really feel good with their trading. Winning rate above 90% is needed to make a normal person to feel comfortable with their trading.

Mental and Emotional Maturity Matters

Even if you have a very high probability trading setup, it is not going to stay at such high level all the time. What if the winning rate dipped down to 70% for several days a month? The emotional upset resulted from the dip can be disastrous as the trader will easily be lured to trade madly. As we all know, one mismanaged trade can wipe out all the gains and more if the trader fails to exercise proper money management. Higher the dependency on high probability trading setups, the more likely the trader will have these very bad trading days from time to time.

Thus depending on high probability trading setups is not as good as learning to deal with the emotional imbalance caused directly by trading. Having the mental maturity to understand that trading is psychologically challenging in nature, a trader can focus on improving their own emotional maturity so that they are not affected as much by their trading activities. In other words, learning to forget about high probability trading setups all together and focus on the better execution of the complete trading plan only.

Same Principle Is Applicable In Life

Not surprisingly, mental maturity and emotional maturity are strong indicators for people who are successful in life and in fields outside of trading. I choose to use the term mental maturity over mental toughness because it is not just toughness one need to do better. Mental toughness can carry you through difficult times but you also need mental maturity to find solutions to solve various kinds of problems with work and in life.

Emotional maturity gives us the ability to better handle relationships in our social circle. It also entails better mental health in general, allowing us to live relatively stress free. But most important of all, it allows us to maximize our ability to utilize our knowledge and skills. If there is something called destiny, emotional maturity is the key to get a better one.