PMKing Trading LLC - Trading Weblog Archive

PMKing Trading LLC

January 2006 and Older Trading Blog Archive

January 2996 and Older Trading Blog Archive

Click here for the RSS feed of this Blog or add it to your Yahoo using

If you find this Blog useful and informative then please make a donation so I know I should continue to publish it.

(I might even send you an eBook or Article ;-)

Purchase the complete blog archive in pdf format for only $9.95

These Older Blog Entries have been truncated.

Please purchase the Blog Archive for full details.

_______________________________________________________________________________________

Accurate Prediction is not a Prerequisite of Successful Trading

Paul King, January 23rd 2006

A lot of emphasis seems to be put on finding an entry signal that is ‘right’ a lot, but I believe that the entry signal is the least significant part of the whole trading system, and the one that accounts for the smallest contribution to your overall success. An example may explain...

_______________________________________________________________________________________

Trading Logic

Paul King, January 23rd 2006

Whether trading is art or science, and whether one can use logic to make money trading is an interesting subject. My own views are that trading is part-art part-science and that conventional common-sense logic can get you into a lot of trouble (or at least cost you a lot or time or cash)...

_______________________________________________________________________________________

Should You Trade Your Own Equity Curve?

Paul King, January 20th 2006

Occasionally I ask myself whether I should develop some method to ‘trade my own equity curve’ and increase or decrease position-sizing (or suspend trading all together) because I have ‘made too much’ in the recent past and my trading is surely going to go through a poor period in the future...

_______________________________________________________________________________________

The Discretionary Versus Systematic Continuum

Paul King, January 13th 2006

Most people agree that traders are mainly systematic or discretionary, but what is it exactly that differs in their approaches, and which one is best? An analogy may make things clearer. Consider the differences between a chess computer and a chess Grandmaster. Both follow exactly the same rules of the game but their approaches are significantly different...

_______________________________________________________________________________________

The Components of an ATR Trailing Stop

Paul King, January 9th 2006

A volatility trailing stop based on the Average True Range (ATR) may seem like a simple concept, but it actually has quite a few decisions that must be made before it can be implemented (and tested)...

_______________________________________________________________________________________

The 4 Steps to Opening a Position

Paul King, January 5^th 2006

Often traders think exclusively about getting into a trade as quickly as possible; anticipating all the money they will make and ignoring the 4 distinct steps that should be taken in order to open a position. These are...

_______________________________________________________________________________________

The St. Petersburg Paradox

Paul King, December 29th 2005

Imagine a simple coin-tossing game where you get paid $1 if you toss heads on the first toss, $2 if you get heads on the second toss, $4 on the third toss etc. The mathematical expectancy of this game is...

_______________________________________________________________________________________

Is the End of the Calendar Year Relevant to Trading?

Paul King, December 19th 2005

As we approach the end of 2005, it is always a good idea to take time for a ‘year-end review’ and contemplate and analyze our trading for the past year. Although the only one who really cares about trading performance over the last 12 months is the tax authorities, it is useful to put the year’s performance into perspective and think about trading as more than simply losses or gains over an arbitrary time period...

_______________________________________________________________________________________

Individual Trades are Just Noise

Paul King, December 15th 2005

Have you ever watched a particular trade really closely, getting excited at every tick in your direction and fearful at each one in the opposite direction? If you have then there are a few things you need to think about...

_______________________________________________________________________________________

How to Avoid Blowing Up

Paul King, December 12th 2005

One of a trader’s biggest fears is ’blowing up’. This generally means losing all (or more than all if you use leverage) of your own, or your client’s cash. Blowing up is dependent on how much risk you are actually taking in comparison to your available capital. You can only lose what you risk, so in order to lose all your cash you must be risking it all...

_______________________________________________________________________________________

What is a Complete Trading System?

Paul King, December 8th 2005

Many people think they have a trading system, but what they really have is an entry signal and not much more. A complete trading system has at least the following components...

_______________________________________________________________________________________

Book Review: Fortune’s Formula by William Poundstone

Paul King, December 3rd 2005

If you have ever heard of the Kelly Criteria for position-sizing, or wondered if Optimal F is a good way to manage risk, this book is for you. In a narrative, story-telling style that is much easier reading than a mathematical, economic, or statistical textbook, the author covers a whole range of interesting and informative theories that are relevant to trading and investing...

_______________________________________________________________________________________

Finding a Trading Mentor

Paul King, November 30th 2005

I estimate that I could have saved about $25000 in avoidable trading losses if I had found a mentor when I began to learn to be a trader. Additionally I think my time-to-profitable-trader would have been reduced considerably (it took me over 18 months). Therefore, I recommend anyone thinking about learning to trade to seriously consider searching for a mentor. As with any 'difficult to learn' subject, having an interactive, experienced tutor-student relationship is much more effective than trying to learn on one's own from books or courses...

_______________________________________________________________________________________

Double the Risk Double the Reward?

Paul King, November 28th 2005

If you have a profitable trading system or method that risks, say, 2% of capital per trade based on your entry price and stop loss and makes 30% per year, then why not double this risk level and make twice as much return per year? This seems like a good idea until you think about the fact that doubling the risk does not necessarily mean you will double the return. Why? Here are a couple of things to consider..

_______________________________________________________________________________________

Simple is Usually Best

Paul King, November 25th 2005

One common mistake many traders make is to believe that the more complicated a trading system or method, the more effective it will be. In fact, the opposite is usually the case. Each variable, condition, parameter, or filter that you add to a trading system increases complexity, increases the number of different possible instance of the trading system. It also generally reduces the number of trading opportunities since a more complex compound entry condition usually happens less frequently than a simple one...

_______________________________________________________________________________________

I Read the News Today, Oh Boy

Paul King, November 21st 2005

Consider the following three news headlines:

The CEO of Company XYZ has just resigned
The markets were down today due to profit taking
The FED will raise interest rates at the next FOMC meeting.

All of them are typically grouped under the heading ‘news’, but actually only one of them is of any use to a trader. Each of these news items belongs to one of the 3 kinds of financial news. These are..

_______________________________________________________________________________________

Risk and Reward go Hand in Hand

Paul King, November 17th 2005

If someone told you about an investment that had made 100% per year for the last 5 years in a row would you be interested? I wouldn’t, because I know that anything that offers a 100% per year reward is also taking the risk of a 100% per year loss and that would mean a total loss of your investment. At some point in the future this type of trading will ‘blow up’ and you will lose all your initial investment (if not more, depending on how much the investment was leveraged)...

_______________________________________________________________________________________

So You Just Made a New Equity High and You Are a Genius

Paul King, November 14th 2005

Every time your equity curve hits a new high it is easy to fall into the trap of thinking a) I am a genius/expert trader/have this cracked, and b) your equity curve is just going to go to the moon. Both of these thoughts can be damaging financially and psychologically...

_______________________________________________________________________________________

Do Prices Move When the Markets are Closed if No-one is There to See?

Paul King, November 10th 2005

Have you ever wondered what causes gaps at the opening where the price is significantly different than the previous closing price? I know it is due to an opening order imbalance where there are many more buys than sells (or vice versa), but what is really going on...

_______________________________________________________________________________________

Making Money is Not Necessarily About Being Right

Paul King, November 7th 2005

Why does is seem that everybody is obsessed with having a high winning percentage of trades or a large number of winning trades in a row? Sure it feels good to have a winner, but if your primary objective is to make money then win% is only one small piece of the puzzle, so why optimize for win% at the expense of the other (usually more important criteria)..

_______________________________________________________________________________________

Fools Rush In (or Out)

Paul King, November 4th 2005

When I first started trading full-time (about 4 years ago) I though that time was always of the essence, and my biggest fear was being too slow to enter a trade and missing out on that huge winner. Now I believe that being a little more patient on entries and exits pays off in the end...

_______________________________________________________________________________________

Losing is Part of the Game

Paul King, November 1st 2005

So October is finally over and it was the worst losing month since I formed PMKing Trading with a loss of -5.91%. Aside from the unavoidable pain of having a losing month, how do I decide that this performance is ‘normal’ and that nothing is broken, needs fixing, changing, or ceasing altogether..

_______________________________________________________________________________________

Hard on Losers Easy on Winners

Paul King, October 24^th 2005

Of all the things that you should do when trading, cutting losers short and letting winners run is the easiest to say, and the hardest to do. Our natural tendencies want to give losers that little bit of extra time and room to turn around and become winners, and also close winners out before that small profit is wiped away...

_______________________________________________________________________________________

Trading is Easy, It’s the Making Money That’s the Hard Part

Paul King, October 17^th 2005

Actually buying and selling financial instruments is easy; you need a brokerage account, a little starting cash, and (for electronic trading anyway) a computer with an internet connection. That’s it! No other startup business I know has such low barriers to entry. Maybe that’s why so many fail, because so many can easily start a trading business. You probably already have the computer, the internet connection, and a funded brokerage account so why not just ‘become’ a day trader...

_______________________________________________________________________________________

Why Sell the Goose That Lays the Golden Eggs?

Paul King, October 10^th 2005

Before I became a full-time trader I often wondered why anyone would sell a profitable trading system rather keeping it secret and trading it themselves. Now I am a full-time trader I understand why. It is because income from trading, no matter how successful, is not predictable enough to pay the mortgage, and everyone has fixed monthly expenses that are best met by a fixed (relatively) regular income...

_______________________________________________________________________________________

Place Your Bets Please

Paul King, October 3^rd 2005

It never fails to amaze me how much trading takes place right before (or even during) an earnings announcement or conference call. What are these people thinking? Spreads are wider, volatility is not predictable, and there are huge price swings up and down before the price settles down where it wants to be at some sort of (rather choppy) equilibrium...

_______________________________________________________________________________________

If you find this Blog useful and informative then please make a donation so I know I should continue to publish it.

(I might even send you an eBook or Article ;-)

Purchase the complete blog archive in pdf format for only $9.95

Click here for the RSS feed of this Blog or add it to your Yahoo using

Information and thoughts contained in this blog should not be construed as financial advice or a recommendation to enter into any type of securities, futures, or foreign exchange transaction.