Lecture Notes on Trading Strategies

Introduction

• Speaker has an extensive background in engineering, metallurgy, and mathematics.
• Objective: to share a mental framework for consistent income from markets.
• Seminar typically takes three days, now condensed into a 40-minute presentation.
• Personal anecdote about the founder of Funport, Vusi.

Background

• Former officer in the Royal Marines, emphasizing discipline and confidence.
• Regret about not pursuing professional rugby due to injury.

Key Concepts

Edge in Trading

• Importance of combining fundamental and technical analysis.
• Fundamental Analysis: Finding the true value of a share.
• Technical Analysis: Studying trends and turning points.

Trading Rules

• Stick to a simple set of trading rules.
• Essential to have a consistent methodology for managing money and oneself.

Trading Methodology

The Three M's

1. Methodology: Develop a systematic approach.
2. Money Management: Protect capital.
3. Self-Management: Control emotions and decision-making processes.

Understanding Randomness

• The randomness of markets is significant; predictions can be uncertain.
• Example of a coin toss to illustrate potential outcomes and randomness in trading.

Hit Rate and Risk Management

• Hit rate refers to the number of successful trades.
• Four common trading fears:
  1. Being wrong
  2. Losing money
  3. Missing out
  4. Leaving money on the table
• Emphasizing the importance of balancing hit rate and risk-to-reward ratio.

Position Sizing

• Limit risk to 1-2% of total capital on any one trade.
• Avoid overleveraging and manage risk appropriately.

Emotional Control

• Emotional responses can lead to irrational decision-making.
• Euphoria from winning trades can lead to excessive risk-taking.

Finding an Edge

Pattern Recognition

• Use technical patterns like head and shoulders, triangles, and moving averages to identify entry points.
• Importance of having fundamentals that support the trade.

Consistency and Discipline

• Building discipline through repetition of a trading plan.
• Focus on executing trades according to the plan over time.
• Emphasis on perfect execution and the process of trading.

Conclusion

• Trading is about finding a balance between risk and reward, managing emotions, and sticking to a defined trading plan.
• The speaker encourages participants to develop their trading strategy and stick to it.

Recommended Reading

• "How to Make Money in Stocks" by William O'Neill for strategies on finding an edge in the market.