Cryptocurrencies, Bitcoin, and the Psychology Driving Global Currency Values

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

~ John Maynard Keynes, “The Economic Consequences of the Peace” (1919).

In 2008 MarketPsych’s CTO Thomas Hartman worked on a secretive software project in Panama.  The goal of that project was to disrupt and supplant the global banking system.  The fruits of such efforts are emerging in the increasing importance and acceptance of cryptocurrencies.

Last week Eurogroup chief Jeroen Dijsselbloem revealed that the Cypriot bank bailout package is a template for future euro rescues.  European bank depositors can expect seizures of uninsured deposits if their bank becomes insolvent.  In Cyprus today bank account holders, including accounts of a Russian MarketPsych team member living in Cyprus, are effectively frozen, limited to withdrawals of 300 Euro daily.

The freeze of Euro-denominated bank accounts in Cyprus corresponded with a spike in the price of gold and a massive bull run in the value of cryptocurrencies such as Bitcoin, LiteCoin, and Namecoin.  As the realization dawns that similar seizures could happen in Portugal, Spain, and Italy, capital will continue searching for a haven away from the sticky fingers of banking and government officials.

Cryptocurrencies are currencies without a government sponsor, composed of unique cryptographic codes (solutions to complex mathematics problems), and consensus legitimacy.  Their conversion value to national currencies depends entirely on supply, demand, security, confidence, and the whims of the investing crowd and businesses who accept them.  The most secure and popular cryptocurrency is Bitcoin.  Bitcoin was released in 2009 as the financial crisis smoldered, and there is now over $1 billion of Bitcoin in circulation today and hundreds of legitimate (and many sketchy) businesses who accept it.  In the first three months of 2013 Bitcoin has appreciated 6-fold versus the U.S. Dollar.  Cryptocurrencies are benefitting from the loss of public trust in fiat currencies issued by currency war-prone governments.

We are in a unique position to comment on cryptocurrencies and the psychology of currency valuations.

For one, our software team includes early crypto-currency speculators and Thomas – an evangelist in the development of Ripple – an early player in the alternate currency space whose assets were recently bought by investors with BitCoin-derived wealth.

Secondly, our psychological data is the world’s largest database of currency-related sentiment, and we have been mining that data for currency predictive models.

And thirdly, and unfortunately, one of our team members is a Russian living in Cyprus who is frozen out of his Cypriot bank account.  Needless to say, this week’s newsletter strikes close to home.

This week we’ll take a look at the amazing rise of the world’s first viable cryptocurrencies.  Then we examine the psychological and macroeconomic drivers of currency valuation and touch on a future where currencies are no longer solely under the control of governmental and banking officials.

Subverting the Banking System

When our CTO Thomas went to Panama, he was on a mission to help productize ripplepay.com, an alternative currency money transfer scheme that aimed to disrupt our current banking system with a decentralized web of trust.  Ripplepay had communitarian roots and, some critics claimed, unrealistic utopian goals. With Ripplepay, anyone could back a new currency, or issue IOUs in existing currencies, and IOUs could be chained.  The Ripple platform was transparent and open by design.

While in Panama the Ripplepay developers became acquainted with many projects, and players, in the “alternative economy” space, including schemes that differed radically from theirs.  Of note they met developers from a software team working to replace global fiat currency – the BitGold team.  The BitGold team were libertarian and perhaps justifiably paranoid.  The below photo is Thomas in Panama.

The effort to productize Ripplepay ended in late 2008, but the development team stayed in touch and continued to follow developments in the alternative economy space. When Bitcoin, an offshoot of BitGold, entered the alternative currency scene in 2009, it created a stir.  It used new algorithms to defeat the problems that had plagued and sunk prior cryptocurrencies. When a pizza was sold for 10,000 Bitcoin in 2010, this was a significant milestone, and when Bitcoin started trading against the US dollar Thomas bought some –  despite the uncomfortable feeling that a paranoid technology had won against the communitarian ideals his Ripplepay team held dear.

In contrast to Ripplepay and BitGold, Bitcoin had users: lots of them.  Additionally, Bitcoin had solved a problem that BitGold had not.  Bitcoin used an ingenious feedback mechanism that raised and lowered the difficulty of “mining” depending on how many CPU cycles were aimed at the hard cryptographic problems whose solutions yielded the coinage (the Bitcoin miners).   In short, Bitcoin was a significant step forward.

In 2013, the Ripplepay intellectual property was bought by a consortium of bitcoin millionaries, and a true commercial variant of Ripplepay was launched: Ripple.com.  The prospects for Bitcoin are bright, and we are observing the situation with the new Ripple and the other cryptocurrencies closely.

Bitcoin

In response to chronic debasement of currencies by governments, cryptocurrencies that live entirely in HEX codes and magnetic memory were pioneered over the past decade.  None of those cryptocurrencies had legs until now.  Yet following a massive recent bull run, some are holding virtual currencies worth in excess of $100 million (e.g., Butterfly Labs, a manufacturer of mining equipment).  This New Yorker article explores the murky origins of Bitcoin, which is also summarized on Wikipedia and in many online chat rooms.  The amazing appreciation of the value of Bitcoin versus the USD has continued up to today.  Below is a price chart of the past 1 year of Bitcoin value versus the USD, obtained from MtGox, the major currency exchange:

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Do I Own Bitcoin?  Unfortunately Not

Really good investment opportunities contain what Nassim Taleb calls “Optionality” – enormous upside multiples and limited downside.  Given a few bubble-ready characteristics of cryptocurrencies (limited issuance, steadily increasing publicity, declining trust in the banking system), I knew the conditions were right for a massive Bitcoin bubble, and since early 2011 I wanted in.

Terrific investing insights cross my mind occasionally, and in my opinion I’ve honed a keen intuition for identifying the really good ones.  The problem is, I often don’t act on these golden insights.  But maybe once every two years an insight is so monumental that I tell my wife to hound me until I make a specific investment.  Bitcoin in 2011?  Yup, I knew it was set up to be a classic bubble.

Now to be clear, when I see the above price charts I feel the pain disappointment.  You see, I don’t own any Bitcoin.  I’ve watched Bitcoin bounce through $2 twice.  When it last was under $3 I asked my wife to PLEASE NAG ME to buy some.  I realize that most men don’t ask their wives to nag them.  But I’m a lucky man – my wife doesn’t nag – so if she were to nag, the logic went, I would be sure to pay attention.  But this wasn’t a foolproof strategy.

As I had requested, my wife did nag me at the appointed times, “Rich, buy Bitcoin.  Rich, did you buy Bitcoin yet?”  But somehow I stored her reminders in that empty space in my brain where most men seem to file non- emergent, quickly forgotten, and later regretted wifely reminders like: “Rich, please take out the garbage, the kitchen is getting stinky,” “Rich, please buy gas for the generator, another big snowstorm is coming,” and “Rich, don’t forget to brush your wild-man-just-rolled-out-of-bed hair before you present at that important meeting.”

But getting into cryptocurrencies isn’t so easy.  Back then it required wiring money to Japan, and trading on an exchange (MtGox) that was a frequent target of hacking attacks (true story:  the login and password of my first Bitcoin trading account at MtGox are displayed on the internet for the world to see).   In fact, I even bought a Bitcoin-derived domain name.  Ultimately, due to inertia, lack of urgency, and general busy distraction, I didn’t get around to buying any Bitcoin itself.   (But a disclaimer, I do own other cryptocurrency).

What drives currency values?

Given that Bitcoin has appreciated 40x over the past 12 months, I’m keen to know how much longer this rally might continue.  Now the first warning sign that a short-term bubble top is near is the excited tone of this newsletter itself.  Also, bank research reports will no doubt be issued on cryptocurrencies in the next month or so.  That doesn’t mean the top is here today, but it does mean that the recent surge of attention, largely based on the amazing price appreciation, is probably overdone and a retreat will happen at some point… (don’t ask me when).

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In our investigations of the psychological forces that drive currency valuations, we performed yearly and weekly studies on our Thomson Reuters MarketPsych Indices (TRMI).  As you may know, the TRMI contain 15 currency and 35 country-specific sentiments derived from social media and news from 1998 to the present.  The list of currency TRMI is below.  Each of these is extracted in references to the currency through a process of text analytics.  You’ll see how this is relevant to cryptocurrencies below.

Of the 15 TRMI, using the past 12-months TRMI average and the next 12-months currency return, 5 are correlated with future currency price direction with high confidence (p-value < 0.01).  Significantly for our newsletter today, Trust in a currency expressed in news is inversely correlated with future currency price direction.  When the news media expresses high trust in a given currency, you’d be better served moving to a currency with less expressed confidence.  Keep in mind we’re looking at the top ten global currencies based on past year’s Buzz in the News, so known unstable currencies such as the Zimbabwe Dollar are not included.

After the simple regression, we decided to look at the results of a long-short arbitrage.  The below is an equity curve of extremity arbitrage, 12-month holding period, in which we selected the 10 currencies over the past 12-months with the most Buzz, then bought the 4 with the lowest Trust and shorted the 4 with the highest Trust expressed.  As you can see, trading against what everyone else trusts is generally profitable.

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Similarly, PriceMomentum (direction of price trend) reported in news is inversely correlatedwith future return direction. So when you read that a currency is trending strongly in one direction, it is likely to be nearing a reversal.

What does this mean for cryptocurrencies?  Given that Trust in cryptocurrencies is low and Uncertainty is high while fundamentals are strong, we have a positive set up.  But there are some short-term headwinds coming from the recent strong uptrend.

Currency Trading Recommendations

Using our currency research, we pulled the best TRMI into a final model.  We see a fairly good distribution of currencies selected by the strategy.  The annual currency forecast of this model as of March 1, 2013 is below.  Long Australian, Singaporean, and Canadian dollars and the Japanese Yen.  Short South Korean, Israeli, Egyptian, and South African currencies.

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We also developed a weekly currency trading model with more than double the returns of the annual model (assuming no transaction costs).  I’ll write more about our weekly currency trading model in a subsequent newsletter.  We have a new website hosting our annual and weekly currency forecasts with strategy construction explanations.  Please email me for more information or access.

Buying Cryptocurrency

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency.” 

~ John Maynard Keynes, “The Economic Consequences of the Peace” (1919).

Cryptocurrencies based on digital bits are emerging as a real phenomenon, used for actual transactions, beyond the pale of government regulations.  Cryptocurrencies have the potential to upend banking systems and central banks.  If you think banks are OK as is, then consider that most wouldn’t have survived 2008 without TARP.  And take a look at the 720,000 Euros in “Blocked Funds” in this guy’s bank account in Cyprus.

Cryptocurrencies have their problems of course.  The transaction history of each unit of currency is becoming quite long, leading to delayed transaction times as each unit of coin is reconciled.  Additionally, there may be disputes along the “Blockchain,” leading to forked transaction histories and multiple species of the same currency (although this has not happened yet).  And of course, some day, with enough computing power and ingenuity, additional vulnerabilities may be discovered and exploited.  With Bitcoin’s market cap now $1 billion, the incentive to find and exploit vulnerabilities is present.  Yet one could say something similar about physical currencies – they are inconvenient for large purchases, can be counterfeited, and are subject to devaluation.  Of course, with physical currencies there is physical punishment (prison) for those who counterfeit or sabotage.  Not so with cryptocurrencies.

The takeaway from this newsletter is to make a psychological shift to treating the ongoing cryptocurrency revolution as real and not something that can be ignored indefinitely.

If you want to buy cryptocurrencies, it’s important to get cash in place to buy even if you don’t plan to so do for months.  The cash placement problem is one of the deterrents that kept me out of Bitcoin early on.  If you’re a busy person, find someone you trust who is technically sophisticated and understands cryptocurrencies.  Keep in mind that most people feel inertia around this, and even with nagging, we often wait to make the obvious investment after it has been proven valuable (and we are too late in entering).

I’m personally waiting for a major sell-off on bad news.  But that’s what I’ve been doing since Bitcoin was $10 (now it’s around $90).  The past year has been notably absent of bad news such as hacking attacks and trading problems, hence the rally.  But with Bitcoin over $1 billion in market cap, the incentives for crytocurrency crime (counterfeiting, hacking accounts, etc…) have increased as rapidly as the value.

The future of banking is likely to look far different than it does today.  If Bitcoin is in fact the first secure and accepted cryptocurrency, then it is likely to appreciate much further and destabilize national currencies that are debauched in the service of debt payment (i.e., through inflation).  Bitcoin may not be the ultimate cryptocurrency – for example it has major delays such as transactions requiring at least 10 minutes to be verified and the price is very volatile – but it is certainly a huge step in the direction of currency outside of governmental control and the various complexities such a world will introduce.

This article was reproduced from the November MarketPsych newsletter

Invest in Yourself…

I have had the pleasure of assisting many many people how improve their trading results, and one of the unfortunately common issues I often come across is beginners trying to work it all out themselves.

It’s mostly the guys (sorry fellas), and I guess it’s similar to the old “I don’t need the instruction manual!” routine that even I suffer from. But I only have to look back to yesterday, building a flat packed piece of furniture, only to mess it up and have to take it apart to start again. If I had just looked at the manual I would have saved a lot of time.

Across my emails and sometimes in conversation I often see things like  “I’m trying to build my own system….but”.

That’s a very common line unfortunately. I purposefully use the word unfortunately, because this is always a mistake.

Personally speaking, when I began to learn to trade my initial thought was….”who are the experts?” “who can teach me this stuff?”.

There’s a lot of ego in thinking you can simply walk into this arena, and become one of the 10% who win just by working it all out yourself. I think it’s insanity.

The world has been around for a long time. A long time before me and you entered it. Huge generations of people who lived before us and have experienced things. Learned lessons. Become wiser before their death than you and I will probably ever be.

Many of these people left behind what they learned. Often through books.

Now, the financial markets have only been around for a couple of hundred years, but guess what? In that time, many people have made fortunes and shared with us how they did it.

It then begs the question for me, why wouldn’t you seek out that information and learn how they did it, before trying to then build your own trading system?

When people tell me they have never traded but are trying to build their own system and trade using their (real) money I feel like screaming!

Its frustrating for me because I know you will do much much better learning a successful established system that makes money, understanding why it makes money, and THEN building your own system afterwards. Otherwise, you’re simply trying to re-invent the wheel. You are trying to invent someone new, when it’s not needed.

If someone came up to you and said “I know televisions already exist, and that I could just buy one, and I know nothing about building them, but i’m going to try and build my own one from scratch”  you’d think they were a nut job and send them away to the funny farm.

So why are people taking that same approach when it comes to trading?

People are so risk averse with their money, yet do the strangest things like try and work things out the hard way when there’s a much easier path right in front of them.

My advice? Invest in yourself by learning from other peoples mistakes so you don’t have to make them yourself.

If you won’t invest in training, to save yourself £1000 in losses, you’re nuts! Anyway, Happy Friday & have a great weekend all!

 

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EU Says Rift Over British Payments To EU Still Key In Talks

The European Union says not enough progress has been made in Brexit discussions with Britain, particularly over what London has to pay as part of its departure, to allow discussions to move onto future trade arrangements.

EU Commission President Jean-Claude Juncker told a session at the European parliament that more needs to be done on the withdrawal issues for EU nations to agree moving to the next phase of future relations later this month.

Financial issues appear to be a key stumbling block to an orderly British withdrawal from the EU.

Juncker said “the taxpayers in the EU 27 should not pay for the British decision” to leave while the bloc’s chief negotiator Michel Barnier said “serious differences remain.”

If it ain’t broke…

Stay in Queue

…don’t fix it.

Just a quick post and one of our favorite discussion points here at STG – market psychology. I will save you the usual buzzwords and phases describing the topic, thousands of articles have been written on the subject.

However, one item does always standout – “if it ain’t broke… don’t fix it” and by that I am referring to your system. Your plan. Your rules. Whether that be entries, exits and risk allocation. You have one, and sticking to it will likely be the make or break of your trading account and subsequent success.

This short video shows where (in our) opinion traders go wrong. Say 5x trades are winners, 3x are small losses they go and modify their system. We say don’t. If you are taking 3x small losses, yet the 5x other trades are winners and pay off the small losses (and more)  you have a great system and will do incredibly well. As we say, if it ain’t broke don’t fix it… Enjoy and have a great week!

VanEck calls bitcoin a ‘fad,’ then files for bitcoin ETF

Money management firm VanEck is both skeptical of bitcoin and planning to sell a related investment product, illustrating a rising perception that the surge of interest in the digital currency creates a high-risk opportunity that may be too big to miss.

Last Thursday, Joe Foster, the portfolio manager and strategist for VanEck’s flagship International Investors Gold Fund (INIVX) said in a manager commentary piece for July that bitcoin will likely never “replicate or replace” gold’s place as a safe-haven asset due to fundamental differences between the two.

“Bitcoin and other digital currencies are a fad that has attracted the attention of programmers, speculators, and early adaptors,” Foster said. “It is my opinion that governments will not allow digital currencies to reach the critical mass needed to challenge the utility of fiat currencies” such as the U.S. dollar.

“At best, digital currencies may eventually occupy some middle ground as a niche product,” he said. “At worst, they become a failed experiment that ends in tears.”

One day later, VanEck filed with the U.S. Securities and Exchange Commission for a VanEck Vectors Bitcoin Strategy exchange-traded fund that would initially invest in bitcoin futures contracts and trade on the Nasdaq.

“Performance of the Fund is determined by the price‎ movement of the underlying digital asset (i.e., Bitcoin), the rate of change and the change in volatility,” the filing said.

The fund will be an actively managed ETF that seeks to “provide total return” without tracking the performance of a specific index. Derivatives like futures allow investors to bet on potential gains or losses in bitcoin’s price without buying the digital currency itself.

“Joe Foster makes a great case for gold relative to bitcoin as a currency and store of value,” VanEck told CNBC in an emailed statement. “VanEck believes that the technology underlying digital assets, known as distributed ledger technology, has tremendous potential to revolutionize finance and trade. Digital assets are an investable asset class in their own right and continue to be integrated into the broader economy.”

The SEC declined to comment on the filing.

Many digital currency enthusiasts have called bitcoin “digital gold” and predict that a small percentage of gold’s roughly $7.5 trillion market value will flow into bitcoin, sending the digital currency’s price many multiples higher. Bitcoin has more than quadrupled this year, hitting Monday a record high above $4,300 — triple the price of an ounce of gold.

Despite the many risks of the young digital currency world, analysts like Standpoint Research founder Ronnie Moas said cryptocurrencies’ rapid gains are not something he “could keep [his] hands off of.”

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Stocks Move Higher, Sending Dow Industrials Closer To 22,000

U.S. stocks are rising Tuesday, sending the Dow Jones industrial average closer to 22,000 points. Banks are posting some of the biggest gains, and payment processors and other technology companies are also rising. Under Armour is tumbling after the athletic apparel company lowered its revenue projections and said it will cut jobs and expenses. Oil prices turned lower after a long rally.

KEEPING SCORE: The Standard & Poor’s 500 index rose 6 points, or 0.2 percent, to 2,476 as of 1:50 p.m. Eastern time. The Dow Jones industrial average climbed 86 points, or 0.4 percent, to 21,977. The Nasdaq composite added 12 points, or 0.2 percent, to 6,360. The Russell 2000 index of smaller-company stocks remained at 1,425.

GETTING PAID: Citigroup picked up 92 cents, or 1.3 percent, to $69.37 and Goldman Sachs added $2.11 to $227.44.

Among technology companies, payments processor Visa rose $1.35, or 1.4 percent, to $100.916. Mastercard, which processes debit and credit card payments, rose $1.85, or 1.4 percent, to $129.65.

Intel rose as its deal for Mobileye moved closer to completion following approval from regulators in South Korea. Mobileye makes software that processes information from cameras and other car sensors to decide where an autonomous car should steer, and Intel agreed to buy it for $15 billion in March. Intel gained 78 cents, or 2.2 percent, to $36.25 and Mobileye rose 17 cents to $63.47.

Xerox reported solid quarterly results and jumped $1.38, or 4.5 percent, to $32.05.

SMOOTH SEAS: Cruise line operator Royal Caribbean beat analysts’ forecasts and raised its estimates for the year. It climbed $4.43, or 3.9 percent, to $117.50 and competitor Carnival also advanced 71 cents, or 1.1 percent, to $67.49.

SPRINT SPRINGS: Sprint climbed Tuesday after it said it’s open to combining with another phone company or a cable company. CEO Marcelo Claure said Sprint can survive on its own, but it will be in a better position if it strikes the right deal. The fourth-larger U.S. wireless carrier also reported its first quarterly profit in three years as it cut cost and added wireless subscribers.

Sprint was on pace for its biggest gain of the year as it rose 81 cents, or 10.1 percent, to $8.79. Elsewhere, T-Mobile USA climbed $1.29, or 2.1 percent, to $62.95 and Verizon Communications gained 84 cents, or 1.7 percent, to $49.24.

POWERING DOWN: Utility company Scana continued to rise. On Monday the company said it plans to end construction of two nuclear reactors that customers have already paid billions to build. It will brief regulators Tuesday on its plans. Scana’s South Carolina Electric & Gas unit and state-owned Santee Cooper say they have already spent $10 billion on the project and that it could cost $20 billion to finish. The project has been shrouded in doubt since Westinghouse, the primary contractor, filed for bankruptcy protection earlier this year.

Scana rose $2.71, or 4.2 percent, to $67.08 following a 5 percent gain on Monday.

SLIMMING DOWN: Under Armour cut its annual revenue forecast as sharp discounts continue to affect its business in North America. The Baltimore company said it will eliminate 280 jobs and is aiming to reduce $110 million to $130 million in annual spending through a restructuring plan. Under Armour sank $1.71, or 8.6 percent, to $18.31, and it’s down by more than half over the last 12 months. Rival Nike added 50 cents to $59.55.

STUCK IN NEUTRAL: Engine maker Cummins reported a weaker-than-expected profit due to higher warranty costs, and its stock lost $11.14, or 6.6 percent, to $156.76. Power management company Eaton disclosed a smaller-than-expected profit and fell $5.38, or 6.9 percent, to $72.87.

On Monday Cummins and Eaton started a joint venture that will make automated transmissions for heavy-duty and medium-duty commercial vehicles. They announced that plan in April.

AUTO FAILS: General Motors and Ford declined as auto makers were expected to report their seventh consecutive month of lower sales. GM’s sales fell 15 percent in July and Ford’s decreased 7.5 percent. U.S. new vehicle sales reached a record of 17.55 million in 2016, and Ford’s U.S. sales chief Mark LaNeve said at their current pace, sales will be around 17 million this year.

GM fell $1.30, or 3.6 percent, to $34.67 and Ford declined 27 cents, or 2.4 percent, to $10.95.

ENERGY: Oil prices plunged after a six-day rally. U.S. crude shed $1.40, or 2.8 percent, to $48.77 a barrel in New York. Brent crude, the international standard, dropped $1.37, or 2.6 percent, to $51.3 a barrel in London.

BONDS: Bond prices moved higher. The yield on the 10-year Treasury note dipped to 2.26 percent from 2.30 percent.

METALS: Gold added $6 to $1,279.40 an ounce. Silver lost 2 cents to $16.76 an ounce. Copper dipped 1 cent to $2.88 a pound.

CURRENCIES: The dollar dipped to 110.21 yen from 110.24 yen. The euro slid to $1.1823 from $1.1831.

OVERSEAS: The DAX in Germany DAX rose 1.1 percent. Britain’s FTSE 100 and the French CAC 40 both rose 0.7 percent. Japan’s benchmark Nikkei 225 index added 0.3 percent while South Korea’s Kospi climbed 0.8 percent. In Hong Kong, the Hang Seng gained 0.8 percent.

Why have a trading system if you’re not going to stick to it?

It’s a perfectly reasonable question. And makes perfect sense. Why bother back testing it, learning it and trading it, if in a few days’ time you’ll trade ‘off system’?

Here are 3 common ways many traders trade ‘off system’. There are plenty more, but we’ll stick with 3 today.

  1. They take extra trades they shouldn’t.

There’s a couple of reasons for this. They assume they are missing out on something big and want to trade everything so not to miss it.

Secondly, many traders crave action. They look at their portfolio and want instant results.

  1. They exceed their position sizing

This is often caused by laziness and not being bothered to do the math’s properly, but can also be because the trader has shoe-horned the trade into their portfolio. They’ve exceeded their max risk just this once. Only the odds are 60-80% that it’ll be a losing trade, so all you are doing is allowing your losers to be bigger than they need to be. Guess what the outcome of that is going to be?

  1. They hear something about a stock/market and execute upon it

We’ve all done this before. Reading Twitter, the news and certain traders I respected and followed at the time would tweet about how Gold was destined for a crash. Only I was LONG. My trade was in profit too. Now not only am I having to cope with the normal inclination to want to bank my profits, but that’s just been exacerbated by reading that news. Now I definitely want to bank it. Only I’m trading what I think, not what I see. I’m allowing outside predictions on an unpredictable market influence my decisions. Which is insane. Fear controls everyone. We are so scared of what “MIGHT” happen.

Of course, you don’t need to be a rocket scientist to understand that in order to be a better and more disciplined trader you need to do the opposite to the above.

  • Accept that other markets you are not trading will trend and do well. You can’t trade everything. Be content with missing out. Its part of the game. But it also means that there’s a lot of opportunities. Lots of chances to pick a winning trade on your next pick.
  • Never exceed position sizing. This is paramount. Never put more risk on one trade. The odds are against you if most of your trades are losers. Be smart.
  • Don’t listen to outside opinion. They might be trading 10 min charts for all you know. Or approaching the market in an entirely different way. They also cannot read the future. No one can. Best way to deal with this outside noise is not to see it in the first place. Cut yourself off, and read “How I Made $2 Million on the Stockmarket” by Nick Darvas for inspiration on this.

Alternatively you could opt for a fully automated system which removes all of the above, trades 24×5 – no emotion, risk and opportunity taken care of. Acorn underlines this approach with verified results, month on month. Join us to start increasing your profits with minimal risk.