Relative advantage, strategy, discipline, fund management
First learn a trick (relative advantage), then solidify this trick, you will be a successful speculator. Also solidify your trading patterns, trading strategy, trading variety and your trading cycle, as well as trading opening and closing position, trading position, trading position strategy of addition and subtraction.
The relative advantage is necessary for an investor. Without it, the investor is doomed to failure. After that, strategy, discipline, and fund management are needed, but the opposite is not working.
The only purpose of speculation is to make money. If this goal is not clear, it will be difficult to become a successful speculator. The four steps of a successful speculator:
First, there must be a 'relative advantage';
Second, turn this relative advantage into a positive expectation trading system;
Third, implement this model with discipline;
Fourth, effective fund management.
Successful speculation
1. Relative advantage
The most basic and important thing is to find a relative advantage. Some people may find it in a few months while some others may need a few years, or may not find it in a lifetime. This requires a lot of efforts, study and observation. Without this advantage, it would be impossible to win this game of speculation. That is why 5% of people can win 95% of them regularly and permanently. This has nothing to do with IQ, education, experience and age. How to find this relative advantage? Here are some of the indicators that have been popular:
Put Options/rate of Call Option
Contrarian indicator. According to this, if many others buy Put Options, the market will rise. If they buy Call Option, the market will fall.
Use the rise and fall of US Treasury bond price to predict the rise and fall of the Dow
Open interest
Discover the advantage of winning from the law of operation: Larry Williams, a famous speculator, used $10,000 in commodity speculation in the 1970s and earned $1 million a year. He found the 'relative advantage' in the observation of market, using open interest as an indicator. He observed that only the big one sell a lot positions, the number of open positions increased greatly (the information was underdeveloped at that time, very small speculators first sold short) And the big one has an advantage, so Williams followed up immediately. If the open position begins to fall, he will close the position immediately. It was a simple observation, thinking and experiment, and it brought 1 million.
The advantages of these ‘one-of-a-kind’ have given the discoverers a long-term and impressive return. But when many speculators followed, there was no ‘relative advantage’ and no lasting success. They need to find another “relative advantage”. To win money constantly, you must constantly strive and find new ideas.
I believe that any speculator will have his own discovery. For example, a unique graphic or indicator can often bring profits. This graphic may only appear once a day, or only once in a few weeks. If you can cooperate with the patience, act only when the graphics or indicators appear, isn’t that your own 'relative advantage'? It will beat a lot of opponents. I believe that all speculators can do it. The key is to operate with patience and discipline. Of course, it’s better when this kind of graphs or indicators appear more. Being patient and disciplined to do everything is an important factor in success, not just in speculation.
2. Strategy
Turn this relative advantage into a positive expectation trading system. After finding the advantage, it should be transformed into a sustainable mode that can be operated. Then, try it many times in real speculation till the winning rate is above 80% (the winning rate of more than 80% is my requirement). There are a lot of ready-made models available in the market that only achieve a winning rate of 55%, but the actual operation may not be able to reach their promise. You can try it in historical data first, and then try it in the actual speculation until your satisfaction; then try to improve the mode continuously, simplify it, and the simpler the better. As Einstein said, ‘Don’t make things simple, make it simpler’.
A model that can be used and wins money is a good model; on the contrary, one model packaged in high-tech or complicated but cannot win is not a good model. The market geeks described in the book of The Market Wizards written by Jack D. Schwager, which one of them bought a software model for $1,000 and it’s successful? The answer is none.
Whether the speculative model should be mechanized is a long-standing issue. The advantage of mechanization is to minimize human error and psychological barriers; the harm is that the operator will not constantly thinking and improving. Look at the 90% of day traders in US market, all with full mechanical operation. But 95% of them are losers. I believe that it is best to combine 80% of mechanical mode and 20% of the operator's observations and ideas, such a semi-automatic mode should be the best match. The complete 100% mechanical model, lacking the adaptability to the changing market, is doomed to fail. Is the model bought in the market available? There is no unearned income.
Discipline
Adherence to discipline is the way to success. When you succeed in creating this model after failure, learning, and hard work, you must perform with discipline, or the time, money, and effort you pay will be wasted. Once you understand the purpose of speculation is to make money, your discipline will be improved. If the purpose is only for entertainment, the discipline will be relatively reduced. So the purpose must be clear - making money.
Fund management
The purpose of fund management is to help speculators get the best profit. If your mode of operation can't bring profits, even the best money management in the world will not be useful to you. The best money management in the world can't replace the “relative advantage”.
The best fund management is based on individual circumstances, depending on each person's capital, winning rate, risk tolerance, return requirements and time constraints. Therefore, we only need to refer to other people's methods to develop a fund management method in line with our own situation. The four speculative processes, each step, can be explained in details with a book. I only make a brief introduction, hoping to make the readers have a clearer mind, reduce the time to success and don't get lost.
The four steps are the only way to go, and generally take ten years. Ten years is the time that several famous speculators I know are spending. I have been speculating for more than a decade and have not been successful. So is there a shortcut? There are no shortcuts, but you can shorten the road to success--finding a mentor. why? If you have a successful mentor, you can greatly shorten your study time and process without traveling a tortuous road. But finding a successful speculator as a mentor is not easy, only a few lucky ones can find one. The world's chief golfer ‘Tiger Wood’ also has coach, which makes it very clear.