Dr. Doug Blog

While Bernie clearly Made-Off with thousands of people’s hard earned money and is now going to be spending the next 150 years in jail (not sure how that works), I think there are some important things to consider.

Brace yourself because what I am about to say may not be so popular to hear (especially for the victims)…but here it goes. We should thank Bernie for reminding us of some key life lessons.

In order to even get our heads around that, people should start by spending less time operating out of anger about Bernie and instead focus their energy on what lessons we have all learned from Bernie so we can transform this horrible event into a positive experience. We cannot change the past…so no point in living in it.

 Thank you Bernie for Reminding Us of These Life Lessons

1) Never put all your eggs in one basket

2) If it sounds too good to be true, then it probably is

3) If someone makes their product or what they do sound like it is reserved for the elite only – and that makes you want it more, then be skeptical as there is more to the story

4) People are way too trusting and way too easy to be manipulated – P.T. Barnum told us that a long time ago (there is a sucker born every minute)

5) Always, always, ask questions especially when things are going well

6) Do your own research (don’t just blindly trust a friends opinion or recommendation – what if they didn’t do their homework either)

7) Take responsibility for all of your personal and financial decisions

Think Better…Live Better,

Dr. Doug

Market coach Doug Hirschhorn discusses the four reasons why investors should expect a slow summer. Watch the video online.

1)      Professionals are Risk Averse

a.       Major players in market are still licking wounds from last years losses. They have made back substantial amounts to get closer to their high water mark and now are starting to see redemptions slow down and even some positive cash flow into the funds. So last thing they want to do is press when the markets are hitting a range and risk giving back some of those profits from Q1 and Q2.

2)      Government Mish Mosh

a.       Lots of meetings, lots of talks on rebuilding, lots of unanswered questions….leads to too much uncertainty for professionals to build an investment theme based on significant catalysts.

3)      The Risk/Reward Profile Stinks

a.       Violent, but low liquidity moves are likely. When fewer players are in the mix, that means less buyers and sellers. This can cause sharp drops in prices on little or no news. For the professional this means that the risk/reward profile for his trades is not favorable and as a result, the best trade is to take a vacation and sit on the sidelines for now.

4)      The Markets are Created by People

a.       People have lives and families. Summer is typical vacation time for many or long weekend trips to summer homes. After the roller coaster ride this market has given us, many people are just exhausted and need some solid Rest and Recuperation time to charge up for the remainder of the year. When less people are trading the markets, then less volume is injected into the markets. Less volume means fewer trades/transactions.

Think Better and Trade Better,

Dr Doug

Range Bound markets can make your portfolio bleed cash. And with all the unanswered questions looming about what’s next for the economy, it looks like we could be stuck in a range for a while.

Here are 3 reasons I think your best trade is to just sit and wait:

1.) Everybody wants in. The masses are looking for reasons to buy and get in. When the herd gets involved, what seems like the right decision in the short term often ends up the wrong decision for the long term. Bottom line, herds just create more turds.

2.) The rules keep changing. The government keeps modifying the rules of the game. They’re trying hard to make sure Wall Street does not revert to its old bad habits.

3.) It’s not clear where the best investments are. It is unclear where the best place is to put your money. Do you go with equities, stay in fixed income and commodities, or take a chance on emerging markets. Fight your fear of missing out and wait.

Never Say Never. If the past year and half has taught us anything, it’s that the markets are emotionally charged and can be unpredictable. I’m not saying you should never get back in the market, I’m just saying right now may not be the best time. Watch the video online at my blog.

Think Better and Trade Better

Dr Doug

Pointing to signs of a turnaround, with Diane Garnick, Invesco; Arthur Hogan, Jefferies; Doug Hirschhorn, trading coach; and CNBC’s Dennis Kneale. View the video online at my blog.

Losing patience can cost you a lot of money.

It’s true, the Market can be frustrating, especially when there is a lot of uncertainty. And that can lead traders to lose patience, which is a classic portfolio killer and often leads to (watch the video online now):

1. Over trading Making way too many trades
2. Making sloppy trades with no edge No edge, no trade
3. Poorly-timed trades at bad levels Trading less efficiently than you should

Fortunately, for traders, patience is a skill that can be learned. But first, you have to know the three reasons traders lose patience:

1. Fear of Missing Out You hear about others making money and have a compelling fear inside that if you don’t participate now, you’ll miss out on an opportunity to make money.
2. Boredom You get tired of sitting on the sidelines, watching things happen for others. As a trader, you want to participate and getting involved is an easy thing to do.
3. Trying to make up for previous losses We’ve all come through a time recently where we’ve lost a lot of money in our portfolios. We’re frustrated and want to make it back as quickly as we lost it.

There are four simple ways traders can learn the skill of patience:

1. Use “feelers,” small positions to help you find the direction. Like a golfer throwing blades of grass in the air to find out which way the wind is blowing, traders can use small positions to find out which way the market’s going.
2. Scale slowly into or out of positions. This allows you to express more patience with your portfolio and your trades, and will help you build the right positions at the right time.
3. Document what triggers you to lose patience. Once you recognize those triggers, you can do something about those behaviors.
4. Have a build rather than a make mentality. Trading is a game of processes. You want to build days to make weeks, build weeks to make months, and build months to make years.

Over time, having patience will allow you to be successful and your portfolio to grow.

Let’s be honest, trading is not rocket science. In fact, trading success has little to do with how smart you are. Rather, it’s more about your mental process. Successful traders generally do many of the same things, regardless of which market or product they trade. Here are five steps to successful trading (watch the video online):

1) Establish a game plan and follow it. Many traders make the mistake of trading without a game plan. And some who have a game plan fail to execute. You must have a game plan and follow through with it.

2) Only trade when you have EDGE. Just like a hitter waits for his pitch, you have to wait for the right trade — and make sure you have an edge.

3) Use solid risk management. You must have stops in place and, more importantly, you have to stick to those stops. When the market goes down and you hit that number, you have to say to yourself. ‘I put the stop there for a reason, and just because I’m losing money is not a reason to ignore a stop.’ Have the stop in place, use solid risk management, take the stop and move on to the next trade.

4) Be Resilient. You have to be able to deal with setbacks. Statistically, you’re going to lose money about half the time and make money half the time in trading. In short, you’ll have to deal with failure on a regular basis. And when it happens, you have to have a ’so what’ attitude. That doesn’t mean you don’t care, you just have to realize it’s not the end of the world. There’s always another trade, another opportunity, around the corner.

5) Keep it Simple. The market can only go up, down or sideways at any given time. Many traders try to out think the market, but at the end of the day, you have to keep it a simple game. Keeping it simple will help you improve your trading success.

The #1 reason is because they have a Fear of Re-Injury

I devoted an entire Chapter in my book “The Trading Athlete” to this exact concept.

Traders (and athletes) are so afraid of getting hurt again, that they become paralyzed in their decision making process or they wait for over confirmation on things and miss out on good investments right now. This is very similar to when athlete gets injured – even after they are physically healthy they are afraid to get back in the game (because they don’t want to go through it again. Several popular movies have shown this phenomena (see Top Gun or Days of Thunder)

Here is what you can do to get past your Fear of Re-Injury

Go Small in Your First Few Trades. This helps you rebuild confidence. This is similar to when a hitter is in a slump, the best way to get out of the slump is to just bunt the ball a few times – put the bat on the ball. Keep the process simple until you get some momentum.

Think in Terms of Probabilities. Ask yourself, “What are the odds of a once in a lifetime event happening twice in my life time?” Is it possible? Of course..anything is…but is it PROBABLE (highly likely)? Not it is not and successful investors bet on that.

Live in the Present. The past is the past, so leave it there. Avoid operating out of fear and live in the here and now of the world.

Keep Life in Perspective. People place too much value on their investments – they correlate it with their self esteem. They need to keep it in perspective, it is JUST the market and money… yes, it is important but it is NOT your life or your health.

Trade Well,

Dr Doug

The S&P has been stuck in a 300-point range, from 700 to 1,000, since last October. There are seven reasons traders fail to make money in range-bound markets.

1.) They forget to look at bigger picture and adjust style as markets adjust. Some traders think using the same investment approach for trending markets and range-bound markets is being “consistent.” But in range-bound markets, you have to be more mindful of when things are at the top of that range or falling towards the bottom.

2.) Overcomplicate things rather than just keeping it simple. In short, dummy it up a bit. Accept the fact that trading is really a game of up, down, and sideways and you can inprove your trading profits.

3.) Fear of missing out on that home-run trade. Trading is really about making small money on a lot of trades rather than hitting that $1 million trade. All traders miss out on a great trade somewhere in the world. In fact, the home run trade could actually turn out to be a whiff. Remember, sometimes the best trade is the one you don’t make.

4.) Think “I have to be right on a lot of trades to make money.” Wrong! Some of the best traders in the world have winning percentages lower than 50 percent. Success in trading really is about how much you make when you’re right, and how much you lose when you’re wrong. Keep that spread wide, and you’re on your way to success.

5.) Believe they have to trade without emotions. First of all, it’s impossible because all humans have emotions. What you need to do is learn how to control or compartmentalize them so they don’t end up making decisions for you. Keep your emotions in a bottle and you’re on your way to success.

6.) If I lose money, I stink. Sometimes, you make money on bad trades and lose money on good trades. More important is the caliber of your trades. Do they have edge? Are they high-caliber trades? Judge your success based on that information, rather than your P&L.

7.) They take losses “personal.” The market is not out to get you or anyone else. We’re just operating within its context. If you treat it like a business, you’re much more likely to have success in range-bound markets.