1. The secret to losing money in the market is to know why. “The losers “were ‘playing the market’, not using it intelligently. The fellow at the other end of the deal, who was using it intelligently, not ‘playing the market’, is the one who got the money.”
2. “It is an undeniable fact that indiscriminate trading in a hectic market will send one to financial oblivion quicker than any other known process.”
3. “The most careful preparation-a systematic plan-is one of the essentials of success.”
4. “Market action is not complex but surprisingly simple. Yet it is often made to appear complex by newspaper forecasters and market letter writers.”
5. “Market action is human nature in action.”
6. All market movements are based on “two deep-seated and entirely natural emotions: the desire for gain and the fear of loss.”
7. “So anxious are people to find some talisman, some magic wand, that will help them secure the hidden riches of the market, that they will try anything from coin-flipping to crystal gazing to secure the desired assistance.”
8. “What marvelous results could be attained in the business of making money if those who buy stocks would take a little time to learn a few simple facts about the market in which they are blindly reposing their faith.”
9. “Market students are continually diverted from making true evaluations of securities and commodities because they study the statistics made by prices instead of the psychology of prices.”
10. “Adopt one system of trading and stick to it, just as you employ and stick to one physician in whom you learn to have confidence.” (more…)
This is a lesson I keep needing to come back to. I can see that trading for amusement has been my own downfall a thousand times in the last few years, and to just sit at the sidelines can be painful.
I just read a brilliant quote by the trader John Piper.
“Once able to trade, it is very likely that a person will make the emotional decision to do just that when bored. This timing is unlikely to correspond with a low risk trading opportunity.”
I just read Alletzhauser’s House of Nomura (1990, out of print) after an old Japan hand recommended it to me. Highly recommend for anyone who wants to understand the history of Japanese business/markets from the Meiji through Showa eras from the perspective of an outsider turned insider. My summary/review/editorializing of the pre-WW2 era (skip to Four Big Bets section for the more market relevant tidbits).
Since the book released in 1990, the author portrays Nomura as omnipotent and triumphant (it was Japan’s most profitable corporation in 1987) in a reverential tone that would seem absurd today. Of course with the benefit of hindsight, we know that Nomura was both partly lucky and partly a beneficiary of circumstances not just in the 1980’s bubble but also at its very founding.
Perhaps more interesting is the glimpse into the business world of Meiji, Taisho, and Showa before WWII. What’s clear is that Japan had Prussian institutions but an Anglo approach to corporate governance. State capitalism produced large conglomerated oligarchies (zaibatsus) that were run for the interest of shareholders. Behavior typically thought of today as “Anglo-styled capitalism”: hostile takeovers, confrontation, shareholder preeminence, creative destruction, cutthroat competition, mobility etc. was a feature of Japanese corporate life. A few elite families dominated pre-WW2 and financial disparities wholly reflected this reality. (more…)
“Scaling out of a position ensures at least partial profits if move continues while mitigating profitsurrender if mkt reverses”
“You don’t have to get into or out of a position all at once.”
“Traders who are successful over the long run adapt” [O’Shea]
“Traders who fail may have great rules that work, but then stop working.” [O’Shea]
“What we call intuition is the objective synthesis of information based on past experience, unhindered by emotional distortions”
“The trick is to differentiate between what you want to happen and what you know will happen.”
“Whenever you try to get all your losses back at once, you are most often doomed to fail.” [Schwartz]
“Impulsive trades can be dangerous. Trades cited as their most painful by the Market Wizards were usually impulsive ones”
“The market will seldom reward the carelessness of trades born of desperation.”
“The markets are an expensive place to look for excitement.”
“I don’t trade for excitement; I trade to win.” [Hite] (more…)
The most successful traders can talk in detail about the patterns that they perceive in markets and how they have traded those patterns. The patterns make sense to them and represent some manner in which markets are “offsides” and thus offer a favorable reward relative to risk.
The least successful traders talk about catching moves in markets and are not focused on particular patterns or setups. They let market movement define opportunity, rather than allow their definition of opportunity guide their involvement in the market.
Traders will typically approach a large loss in one of two ways. First is the dumb way, and that is to become a petulant whiner and throw a fit. Next is the more-constructive way, and that is to use the loss as a means of developing as a trader and to “quote” — learn from your mistakes. But there is a third way. And that is to view the loss as the cost of information.
I don’t mean the cost of doing business per se. This is not typically associated with large losses. Small losses, yes. Because to make money you have to lose some along the way, as casinos do every day. And not the cost of tuition where the market charges a fee to school us. No, I mean information.
Instead of asking yourself about where you placed your stops and getting all personal about the whole thing, ask yourself what happened. Why did the market move the way it did? If you haven’t suffered a capital depletion, you are not likely to demand an answer and more likely to throw off the question with a wave of the hand and a shrug. “Who knows, who cares. I only play odds.”
Markets are a beast and if you want to play with them, you’ll have to be careful. Wear protective goggles and gloves. If you want to tame them though, you’ll need to wrestle with them. And sometimes you lose some body parts along the way.