One fascinating realization I have come across during my years as a trader, private trading coach, author, and now Vice President of Education for Online Trading Academy, is how different female and male traders can approach, analyze and trade the markets. Without offering outrageous generalizations, it has been my experience that women possess a particularly logical mindset that can give them a substantial advantage in market speculating.
Simply, the trading method I developed and use quantifies the supply/demand and human behavior relationship that ultimately determines price in any market. It is based on a very objective and mechanical set of criteria. In other words, the goal is to learn the strategy and then simply follow the rules.
The female mind has a much easier time doing this than the male mind. Here is an example of how this works. I recommended a trading idea to buy a stock at a certain price based on anticipatory analysis with the strategy. One of my female students took the trade and did well with it, while a male saw the trade, but did not enter it.
I had discussions with the two of them and the conversations were truly fascinating – how could two human sets of eyes look at the exact same chart, be told exactly the same thing to do, and yet, treat the trading opportunity so very differently? For privacy purposes, we'll call them Lucy Logic and Eddy Emotion.
So, here's the scenario:
The stock had been declining to an area of support (demand) from where it had recently rallied. Eddy quickly asked me what I thought of the opportunity, and Lucy did not. Eddy then asked if I thought the support (demand) level would hold and produce a reversal, or would prices decline through it?
Lucy would never consider asking that question with any trading opportunity because she knows it's a waste of time. Eddy doesn't feel the same way. But let's face it – no one on earth knows for sure if the demand will hold for certain (just like a bet in Vegas). All we can do is properly assess the odds and risk (just like Vegas does). If the odds are stacked in our favor and the risk is acceptable, we take the trade (this is how Vegas makes a fortune). When the trade was nearing our entry level, Eddy abandoned the strategy rules and gave in to emotions that still control his decision-making process today. Lucy remained logical and objective.
Instead of worrying about what may or may not happen at demand, she explained to me why a high odds/low risk trading opportunity was at hand. She said that sellers were now selling after a multi-day decline and into an area of support (demand), exactly where the consistently profitable trader would be buying, not selling. When her entry price was reached, she took the trade with a low risk stop in place and an objective target identified. She ended up profiting nicely on the trade and Eddy never entered the position!
How can we all benefit from this information? It is clear to me that females, in general, don't worry all that much about things that are not in their control, and this allows them to naturally focus on the objective information (what is real), which is key in successful trading.
In trading, it is the objective and logical mindset that gets paid from the subjective emotional mindset. I have found that the difference between mindsets is most evident at a specific time. When a trading opportunity arises and it is time to take action, the female mindset tends naturally to execute the trade that has been planned out.
At the same precise time, the male mindset tends to drift to subjective and emotional thought, which can lead to trouble. It appears that, again generally, the female mind has the naturally logical mindset needed to understand the material quickly, whereas the male mindset has difficulty keeping things simple, naturally trying to complicate the process.
An example would be to constantly add subjective indicators and oscillators that can lead to trouble for any trader. What validated my thoughts on this topic are what my female students and other successful male traders out there have in common. Each of them share two common traits. First, they realize the power of human emotion and that a trading plan absolutely must be followed. Second, the successful male students I have worked with have the ability to not let subjective information enter into their brains. It is almost as if they have a special filtering process going on when they read trading books, take seminars and courses. In other words, successful male traders succeed with tools a female brain naturally possesses.
From my experience, men tend to be focused on trying to predict the future whereas a woman uses simple logic to consistently make the correct choice. They have the natural ability to keep things objective, simple and logical.
The man tends to have trouble in these areas, which can make trading for him more difficult than it has to be. This is no different than how men and women make choices in other parts of life outside of trading. Though trading is still a career dominated by men, I would expect this to change in the near future for a few reasons. First, the barrier to entry is not what it was years ago. Second, from my experience, the female mindset is likely to last longer in a trading career than a male mindset, as a woman's mindset is much more suited for the challenging task of consistently profitable trading.
samedi 21 janvier 2012
Agences de notation...comment si retrouver ?
Le récent tapage médiatique sur la dégradation de la note de l'Etat français de AAA à AA+ par Standard & Poor's ne fait que rendre encore plus inintelligible l'économie et la finance pour le grand public. (D'autres firmes publient ces données : Moody's, Fitch Ratings)
Les limites d'investissement de la plupart des grands investisseurs institutionnels sont souvent des limites par tranches de notation : de AAA à AA-, de A+ à A-, de BBB+ à BBB-, en deçà de BBB, etc...
La note d'un émetteur est associée à sa solvabilité ; la solvabilité se mesure par la probabilité de défaut à horizon un an. En se référant aux historiques de Standard & Poors, la probabilité de défaut d'un AAA ou AA est identique, à savoir quasi-nulle sur un horizon d'un an.
Cette probabilité est de 0,07% pour une signature notée A. Soit pour un statisticien un seuil de confiance confortable de 99,93%... et un risque confortable pour un investisseur, avec sept cas de défaut tous les 10 000 ans!
Cette probabilité devient de 0,23% pour des notations BBB, de 0,81% pour des signatures BB et de 6,27% pour des signatures B.
1) Source : Cumulative average default rates by rating modifier, 1981-2007, Standard and Poor's
(2) Les professionnels du marché obligataire parlent en bp comme basis points ou points de base. 100 bp = 1%
Les limites d'investissement de la plupart des grands investisseurs institutionnels sont souvent des limites par tranches de notation : de AAA à AA-, de A+ à A-, de BBB+ à BBB-, en deçà de BBB, etc...
La note d'un émetteur est associée à sa solvabilité ; la solvabilité se mesure par la probabilité de défaut à horizon un an. En se référant aux historiques de Standard & Poors, la probabilité de défaut d'un AAA ou AA est identique, à savoir quasi-nulle sur un horizon d'un an.
Cette probabilité est de 0,07% pour une signature notée A. Soit pour un statisticien un seuil de confiance confortable de 99,93%... et un risque confortable pour un investisseur, avec sept cas de défaut tous les 10 000 ans!
Cette probabilité devient de 0,23% pour des notations BBB, de 0,81% pour des signatures BB et de 6,27% pour des signatures B.
1) Source : Cumulative average default rates by rating modifier, 1981-2007, Standard and Poor's
(2) Les professionnels du marché obligataire parlent en bp comme basis points ou points de base. 100 bp = 1%
Using Volume has an Indicator
Something like 70% of all volume on the New York Stock Exchange comes from institutional investors (mutual funds, hedge funds, and pensions).
So when volume increases, it means these institutional investors are buying. When volume falls, it means they aren't trading as much.
Investors and analysts put together complicated earnings projections and economic forecasts. But these always reflect that analysts' or investors' pre-conceived notions about how the economy is doing now, and will do in the future.
Some more useful informations :
Let's begin this discussion with a basic definition of Volume, specifically stock volume.
Simply put, volume is the number of trades made on a stock in a specific period of time. To complicate matters just a bit, the NYSE and the Nasdaq historically measure volume differently. For every buyer there is a seller, so for every purchased share there is a sold share. The NYSE would take this equation and count it as one trade with one share of volume. The Nasdaq would count it as two shares of volume, counting both the bought and the sold shares.
Average volume is exactly what it sounds like. It is the number of shares traded per day averaged over a time period. Often the time period is a year (52 week). For liquidity purposes you may look at stocks with over 1 million daily average volume, for example.
There are many volume-related indicators, one of the longest-lasting is On Balance Volume (OBV), which was introduced in 1963 by Joe Granville in his book, Granville's New Key to Stock Market Profits. Granville's indicator was one of the first to measure positive and negative volume. Granville stated that volume precedes price, and OBV adds the volume from the sessions where a stock finishes lower. This sum is then subtracted from the sum of sessions when a stock finished higher. If a stock closed higher today than yesterday, the new OBV is (Yesterday's OBV + Today's volume). If the stock closes lower, the OBV is (Yesterday's OBV – Today's volume). Finally, a close at the same price means yesterday's OBV is today's OBV.
It is believed that changes in the OBV will occur before price changes. Some believe that rising volume indicates the presence of "smart money" flowing into a security. Once the general investing public follows the example, the stock's price should rise.
Comparing volume to the actual float (# of shares outstanding for trading) can also be useful as an indicator of share ownership changeover.
A Volume Breakout takes place when a stock performs an immediate about face in volume thanks to a news event. More often than not, volume breakouts will follow earnings surprises, revised forecasts, contracts, or potential takeovers. Of course, the news itself doesn't really matter to us; it is what the news means for the company's future and for sentiment & technical analysis.
Should a volume breakout accompany the breach of a major resistance (or support) level, it could be an indication that the stock is readying for a continued run higher (or lower).
New indicators based on various volume readings have been created by Pascal Willain in his book Value In Time: Better Trading Through Effective Volume. Willain has created a variety of techniques based on what he calls "Effective Volume" that appear fairly novel and innovative — worth checking into and researching more in order to find more practical trading applications from them.
In sum, volume can be a very valuable tool for an investor, with a myriad of techniques and methods that can implemented into your trading arsenal. Bottom line is that the amount of shares trading hands in a day can be an important part of figuring out which direction a stock is headed. Some think a move higher on low volume is not usually sustainable, while heavy volume on a down move is significant -- there are a variety of strategies that can be implemented, tested, and incorporated by active traders.
So when volume increases, it means these institutional investors are buying. When volume falls, it means they aren't trading as much.
Investors and analysts put together complicated earnings projections and economic forecasts. But these always reflect that analysts' or investors' pre-conceived notions about how the economy is doing now, and will do in the future.
Some more useful informations :
Let's begin this discussion with a basic definition of Volume, specifically stock volume.
Simply put, volume is the number of trades made on a stock in a specific period of time. To complicate matters just a bit, the NYSE and the Nasdaq historically measure volume differently. For every buyer there is a seller, so for every purchased share there is a sold share. The NYSE would take this equation and count it as one trade with one share of volume. The Nasdaq would count it as two shares of volume, counting both the bought and the sold shares.
Average volume is exactly what it sounds like. It is the number of shares traded per day averaged over a time period. Often the time period is a year (52 week). For liquidity purposes you may look at stocks with over 1 million daily average volume, for example.
There are many volume-related indicators, one of the longest-lasting is On Balance Volume (OBV), which was introduced in 1963 by Joe Granville in his book, Granville's New Key to Stock Market Profits. Granville's indicator was one of the first to measure positive and negative volume. Granville stated that volume precedes price, and OBV adds the volume from the sessions where a stock finishes lower. This sum is then subtracted from the sum of sessions when a stock finished higher. If a stock closed higher today than yesterday, the new OBV is (Yesterday's OBV + Today's volume). If the stock closes lower, the OBV is (Yesterday's OBV – Today's volume). Finally, a close at the same price means yesterday's OBV is today's OBV.
It is believed that changes in the OBV will occur before price changes. Some believe that rising volume indicates the presence of "smart money" flowing into a security. Once the general investing public follows the example, the stock's price should rise.
Comparing volume to the actual float (# of shares outstanding for trading) can also be useful as an indicator of share ownership changeover.
A Volume Breakout takes place when a stock performs an immediate about face in volume thanks to a news event. More often than not, volume breakouts will follow earnings surprises, revised forecasts, contracts, or potential takeovers. Of course, the news itself doesn't really matter to us; it is what the news means for the company's future and for sentiment & technical analysis.
Should a volume breakout accompany the breach of a major resistance (or support) level, it could be an indication that the stock is readying for a continued run higher (or lower).
New indicators based on various volume readings have been created by Pascal Willain in his book Value In Time: Better Trading Through Effective Volume. Willain has created a variety of techniques based on what he calls "Effective Volume" that appear fairly novel and innovative — worth checking into and researching more in order to find more practical trading applications from them.
In sum, volume can be a very valuable tool for an investor, with a myriad of techniques and methods that can implemented into your trading arsenal. Bottom line is that the amount of shares trading hands in a day can be an important part of figuring out which direction a stock is headed. Some think a move higher on low volume is not usually sustainable, while heavy volume on a down move is significant -- there are a variety of strategies that can be implemented, tested, and incorporated by active traders.
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