BC TRADING
Saved by @Shubham51ngh

Have you ever had 4-5 profitable trades in a row, and you bet all your profits on your next trade feeling "in the zone" only to lose it all?

That's called as "hot-hand fallacy" bias.

I ran a poll recently to outline two classic biases we have as humans.

Thread below 👇👇

 1/ *Hot-Hand Fallacy* first had its origin in the game of basketball.

If a player shoots few baskets in a row, people generally predict that the next shot will also be a basket.

This is ignoring the fact that each shot is independent of the ones that came prior.
2/ In this poll, 41.1% people voted that the batsman who hit 4 sixes in a row, will hit a sixer in the 5th ball also.

This is classic hot-hand fallacy.

Each ball's outcome is independent.

The probability is not 50% FYI (number of outcomes is not 2).
These 148 people who voted that the next ball will also be a sixer, did so because they believe that the batsman is on a hot streak, and that his streak would continue.

This is an emotional bias and is usually attached to human performance related events only.
3/ 45.3% (162) people voted that the 5th ball would be a dot ball, meaning the batsman wouldn't score anything.

These people displayed the classic "negative-recency" bias, which is also called the "Gambler's Fallacy".
When someone displays gambler's fallacy, they typically predict that the opposite of the previous outcome would happen.

This is more pronounced if the previous few outcomes are the same.

This is like predicting a tail in the next toss if the last few
coin tosses were heads.
4/ Generally people do not believe that inanimate objects can become "hot".

This is why they display the traits of gambler's fallacy with objects and games that are typically not attached to human performance (ex: roulette).
5/ Also, human performance is typically not perceived as random.

People tend to believe that a streak is likely to continue when a person is on a hot successful streak.
6/ This is exactly why you see VCs funding entrepreneurs who recently sold/listed a business successfully. Classic hot-hand fallacy doing its work.

From @kunalb11 to the Bansals, there are many beneficiaries of this fallacy.
7/ What do these two fallacies mean for your trading/investing?

Generally when a trader has had 4 or 5 successful trades in a row, they get a bit more brash, and over-bet on their 6th trade

even though the 6th trade is completely independent of the previous trade outcomes.
For such traders, the 6th trade that they overbet on, turn out to be a loser, taking most of their profits away.

8/ There are other types of traders who when they have had 4-5 successful trades, think the next is most likely to be a losing trade, and avoid that trade.
What could happen is that the next trade goes on to be a banger of a winning trade.

Those who avoided that trade thinking it would end up being a loser, generally turn out to be the suckers.
9/ Typically what you should do to avoid these two fallacies?

Follow a well tested system for betting with whatever strategy you trade. Position sizing is of paramount importance, and dynamic betting is far more complex in trading, and more often than not fails.
10/ Dynamic betting in casinos is usually betting more when a win is highly probable, and less when a loss is highly probable.

It may sound appealing on paper, but determining whether a win or a loss is highly probable in the next trade is not an easy task.
11/ Trading is a game where you stand alongside the law of large numbers and let the system do its work over a large number of trades.

Dynamically breaching the tested betting system because you "feel" or "instinctively know" the potential outcome of the next trade is bad.
12/ The first or second time you do the discretionary breaching, may end up favoring you.

The third time, you'll have the hot-hand fallacy playing within the fallacy. You'll be further emboldened to risk more, and it usually ends up disastrous.
13/ When you let these biases creep in, you expose yourself to the *risk of ruin* - where you either blow your account, or blow just enough to bring the capital to an un-tradeable level.
14/ One may think that long term investors are immune to these.

But they are not.

In fact, since they take 100x fewer bets than regular traders do, they are the ones most exposed to the risks associated with these two fallacies.
15/ For ex:

Some day sooner or later, someone looking at bitcoin doing all this crazy bull run is going to ditch most of his portfolio and put the proceeds into bitcoin.

And bitcoin is going to bomb.

And this particular investor is going to lose everything.
16/ This isn't applicable to experienced investors who limit their bet size to 1/10th or 1/20th of their total available capital per bet.

This is more applicable to newbies and experienced players who let irrationality creep in once (and that one time turns out disastrous).
17/ Have you experienced something similar in your trading/investing?

Share your story in the comments below.

If you want to read more threads like this, click the follow button on my profile.

Going to be doing more of these in 2021.

More from Shravan Venkataraman 🔥🚀💰

Shravan Venkataraman \U0001f525\U0001f680\U0001f4b0
Shravan Venkataraman 🔥...
@theBuoyantMan
When you break down the lives of extremely successful people, you find that their success didn't come from an earth shattering break-through.

Rather, it came from obsessing about a simple idea, fanatically.

Time for a thread about one such idea. 👇👇👇

1/ During world war II, a eleven year old kid checks out a book from the nearest library. The book's title was "1000 ways to make 1000 dollars".

After he reads that book, he makes a statement that by the time he was 35 years old, he'd be a millionaire.


2/ By the age of 35, his net worth was roughly 7-8 million dollars. The library was Omaha public library. That kid was Warren Buffett.

How he got there is an interesting story.

As soon as he reads that book, he decides he should have 1000 dollars before he finishes school.


3/ While looking for business ideas, he goes to his friend Dan's house one day.

He watches Dan fix an old pinball machine (that he bought for $15) in two hours.

Warren asks him if he can fix more.

Dan says yes.

4/ Warren and Dan set up a company (of course no incorporation and all that legal jazz).

They call the firm "Wilson Coin Operated Company".

They go to local barbers and pitch the barbers an ingenious business plan.
CULTURE
Shravan Venkataraman \U0001f525\U0001f680\U0001f4b0
Shravan Venkataraman 🔥...
@theBuoyantMan
A market wizard named Michael Marcus converted a $30,000 initial stake to $80 Million dollars over a period of 10 years.

Here are 28 lessons he considers very important for anyone venturing into trading, from his experience.


1/ The importance of not giving up:

In Fiddler on the Roof, there is a scene where the lead looks up and talks to God.

I'd look up and say, "Am I really that stupid?"

And I seemed to hear a clear answer saying, "No, you're not stupid. You just have to keep at it."

So I did.

2/ On key price levels:

There are key price levels like

- previous day/week/month highs or lows
- round number levels

where you can have 1:5 or more worth RR of trades if you place yourself right.

The key is to hit the crest of the wave, just at the right moment.

If it doesn't work out, you have to get out.

Doing this, you can make several hundred points, risking 1/3rd to 1/5th of what you make.

3/ The secret to getting efficient at trading:

Cut down the number of trades you make.

The best trades are those in which all 3 things check out:

- Fundamentals
- Technicals
- Market Tone
TRADING GUIDES
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Shravan Venkataraman \U0001f525\U0001f680\U0001f4b0
Shravan Venkataraman 🔥...
@theBuoyantMan
Are you planning on handing over your money to an algo trading platform?

Maybe you want to subscribe to a strategy or two and make insane returns.

Here's why you shouldn't do it, and save your money instead.

1/ Maybe you want to have a strategy development company deploy such algorithms on your account with respective brokers.

Or the service itself has strategies that you just subscribe to and authorize your trading account with, and it will automatically trade your money.

2/ When it comes to @Tradetron1 there are a slew of issues.

Let's keep aside the lack of transparency and the total regulatory non-compliance for a moment.

First off, with most of the strategies, the backtests are BOGUS.

3/ Any systematic trader with even a little bit of experience will look at the strategies and tell you which ones are baloney.

Most of them are.

Don't take my word for it. Do your own due diligence.

And, those backtests aren't even for 10+ yrs. Some were done only for months.

4/ Secondly, SEBI has put rules in place on parameters like

- minimum net worth of the company
- qualifications of the fund manager
- minimum number of clients
- minimum amount to start with

and so on, for qualifying people who want to manage other people's money.
TRADING
Shravan Venkataraman \U0001f525\U0001f680\U0001f4b0
Shravan Venkataraman 🔥...
@theBuoyantMan
Breakout-retest-breakout

this pattern is among the high probability setups one can trade.

60-70% of breakouts fail.

If the breakout sustains the reversal pressure and manages to break above the breakout candle high,

there will be travel.

You can then take the trade in either of the two places.

1) When price is pulling back to the point of breakout - take trade at the breakout point.

If it closes inside the pre-breakout zone, get out.

2) When price pulls back, then breaks out of breakout candle high.

(1) is lower probability than (2) but higher probability than just taking the trade when price breaks out first.

It also comes with lower risk.

(2) is the highest probability trade (probably with relatively higher risk).

That said

If the breakout is from a multi-week or multi-month compression zone

do not expect pullbacks to happen immediately.

If they do happen, more often than not, it's a breakout failure.
SCREENERS
Shravan Venkataraman \U0001f525\U0001f680\U0001f4b0
Shravan Venkataraman 🔥...
@theBuoyantMan
It looks like every symptom on Google search leads to cancer.

So, when you have a symptom that Google screams CANCER, should you be afraid?

Before I answer that for you, let's talk about Occam's Razor and how you can use it to simplify your life.

Let's dive in. 👇👇👇

1/ In the early 1900s, two physicists studied space and time and arrived at a similar conclusion: things tend to go a little bonkers within the space-time continuum.

Ex: The closer we get to moving at the speed of light, the more we slow down.

2/ Both the scientists arrived at the same results through their equations & derivations. But both had different explanations.

One suggested that the phenomenon was due to the changes that took place within "the ether". Another didn't refer to the ether at all.

3/ The latter won the Nobel prize and the world reveres him as a genius.

The former was the physicist named Lorentz.

The latter was Einstein.

This was the Einstein-Lorentz Relativity priority dispute that we are talking about.

4/ Lorentz's explanation wasn't given preference because according to science, the ether doesn't exist. When that's introduced into the equation, it makes things complicated.

Einstein used no references to the ether, and his simpler explanation rooted in scientific method won.
TRADING

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So we had discussed a few pointers in the previous thread about options,its time now we discuss further implications and applicability in this thread which will help you in NEW YEAR.
Let’s go and dive into the world of options trading.

-The amount of decay can be measured by theta. This is why you can be right on stock price direction and still lose money. The time decay portion of the option price overpowers the directional move in the underlying stock price.

-During result days due to the heightened uncertainty, there is opportunity for options sellers because of the expensive premium. When entering into an earnings trade, it is optimal to initiate the trade as close in time to the event as possible.

-Keep some cash on sidelines. This would help in adjustments,margin expansion,face losses and also during new opportunities which suddenly arise. A lot of people do the mistake of going all in and regretting later.

-Everything in trading has a trade off.

Unlimited profit comes at the expense of low probability of profit. Give up some profit potential, and you gain a higher probability of profit.
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“In search of the holy grail”

A thread-


Holy grail- A strategy Which can make money all the time.

After going through two phases of a traders journey, the initial success phase, and Only why do i get loss phase, Traders enter the third phase -

THE SEARCH FOR THE HOLY GRAIL PHASE.

This phase has no limits, It can end in 1 month and it may not end till lifetime.

What exactly is this phase?

When a trader covers all the basics, they know how to lower their losses, they know the power of risk management.

And few of them may even develop their edges and systems over time.

But after some time, they feel that they are doing something wrong and there is more to trading than what they know.


THEN COMES THE HOLY GRAIL PART-

Few of them start to Read more books about trading,finding articles about “How to win 100% of the time” and listening to Youtube videos of few big traders who make big in trading.
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Circle of Competence 101

Warren Buffett and Charlie Munger often reference the importance of knowing the boundaries of your circle of competence.

But what is a Circle of Competence and how does it work?

Here's Circle of Competence 101!


1/ First, a few definitions.

A Circle of Competence is the set of topic areas that align with a person's expertise.

If the entire world of information were to be expressed in a circle, an individual's Circle of Competence is the small sub-circle that represents their expertise.


2/ The idea surfaced in the 1996 BH annual letter.

"You don’t have to be an expert on every company...you only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital."


3/ A Circle of Competence is built over time.

It is built through experience, reading, dedicated study, and effort.

It is dynamic, not static.

It can expand as you deepen your knowledge in new areas. It can contract if you fail to nurture your existing areas of expertise.

4/ To engage this mental model in your life, there are two key processes to go through:

(1) Identify what falls within your circle
(2) Identify the boundaries of your circle

(1) is all about figuring out what you know, while (2) is about humbly admitting what you don’t.
TRADING
Nikita Poojary
Nikita Poojary
@niki_poojary
We have shared a lot of threads exclusively on Subasish Pani in the past year.

As this year comes to an end, here are the 11 most powerful threads on Subasish Pani exclusively compiled for you all.

Collborated with @AdityaTodmal

1/ Important concepts from Power of Stocks - Subasish


2/ Important concepts with video links of Subasish


3/ The 5 EMA


4/ The Bollinger Band set-
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Vikrant
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@Trading0secrets
Full chart learning course 🎓
In single thread 🧵

Process of trading through
price action ✨👇

1⃣Time frame - always start looking chart 📊 with higher time frame (weekly/monthly) then after go for lower one .

Positional trader - weekly/monthly

Swing trader - daily /3hours

Intraday trader - 15/30min

2⃣ demand /supply zone - then draw major/minor demand & supply zone .।।।

Ex : #SIS


3️⃣ Trading style -

⚡If you are positional trader then focus on major demand & supply zone.

⚡If you are swing trader then focus on minor demand & supply zone.

Wait for price to come on it then, 👇

4⃣find consolidation -

⚡Positional trader - consolidation should be above 1/2years.

⚡ swing trader - consolidation should be below 1/2 years

⚡Intraday trader - consolidation should above 5/10 days.

Ex - #galxo / #triveni / #vimta
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You’re not going to get rich renting out your time. You must own equity - a piece of a business - to gain your financial freedom.
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