Archives of “January 4, 2019” day

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Wisdom of Market Wizards

  
  Education
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“Perhaps the most important rule is to hold on to your winners and cut your losers. Both are equally important. If you don’t stay with your winners, you are not going to be able to pay for the losers.” – Michael Marcus

“The more a price pattern is observed by speculators, the more prone you are to have false signals. The more a market is the product of nonspeculative activity, the greater the significance of technical breakouts.” –Bruce Kovner

My take – Most commons are pennants and flags. And most obvious failed outbreaks are candles ended with the close below the intended trendline.

“The most important rule is to play great defense, not great offense. Everyday I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum drawdown. Hopefully, I spend the rest of the day enjoying positions that are going in my direction. If they are going against me, then I have a game plan for getting out.”
“… I believe the very best money is to be made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all the money by catching the trends in the middle. Well, for twelve years, I have often been missing the meat in the middle, but I have caught a lot of bottoms and tops. If you are a trend follower trying to catch the profits in the middle of a move, you have to use very wide stops. I’m not comfortable doing that. Also, markets trend only about 15% of the time; the rest of the time they move sideways.”
“Don’t focus on making money; focus on protecting what you have.”
–Paul Tudor Jones (Big Big Big Fund Manager)

“The most important is discipline – I am sure everyone tells you that. Second, you have to have patience; if you have a good trade on, you have to be able to stay with it. Third, you need courafe to go into the market, and courage comes from adequate capitalization. Fifth, you need a strong desire to win.”
“You should have the attitude that if a trade loses, you can handle it without any problem and come back to do the next trade. You can’t let a losing trade get to you emotionally.” – 
Gary Bielfeldt

Tharp, Trading Beyond the Matrix

  
  Education
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MATRIXVan K. Tharp came up with a terrific title for his latest book—Trading Beyond the Matrix: The Red Pill for Traders and Investors (Wiley, 2013). The reference, of course, is to the film The Matrix. “We live in a world of illusion shaped by our programming. And at some level, we seem to know that, and we seem to know that there is something better. At this point, you have a choice. You can take the blue pill and go back into a comfortable sleep where nothing changes. … Or you take the red pill and, as Morpheus says in the movie, ‘see how deep the rabbit hole goes.’” (pp. xxiv-xxv) (more…)

Bloodsport teaches trading

  
  Education
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In my all time favourite Jean Claude Van Damme film, Bloodsport, JCVD travels to Hong Kong to fight in the Kumite, a legendary, underground fighting tournament that takes place once every four years.

This piece of cheesy dialogue is highly relevant to trading:

Journalist: Why is it that no one will talk about the Kumite? What is this air of mystery? (pause) Why are you fighting in it?

JCVD: It’s personal.

Journalist: You want to prove your manhood to the world?

JCVD: The Kumite is for the fighters, not for the people who read the newspapers.

Lesson: Always remember your motive.

In this clip, JCVD is through to the the final, where he fights Kumite champion Chong Li. Note that Bolo Yeung (the actor who played Chong Li), was 49 years old when Bloodsport was filmed.

R.W. Schabacker, the financial editor of Forbes magazine, penned the following advice (warning) in 1934

  
  Education
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No trader can ever expect to be correct in every one of his market transactions. No individual, however well he may be grounded, no matter how much experience he has had in practical market operation, can expect to be infallible. There will always be mistakes, some unwise judgments, some erroneous moves, some losses. The extent to which such losses materialize, to which they are allowed to become serious, will almost invariably determine whether the individual is to be successful in his long-range investing activities or whether such accumulated losses are finally to wreck him on the shoals of mental despair and financial tragedy.

THE TRUE TEST

It is easy enough to manage those commitments which progress smoothly and successfully to one’s anticipated goal. The true test of market success comes when the future movement is not in line with anticipated developments, when the trader is just plain wrong in his calculations, and when his investment begins to show a loss instead of a profit. If such situations are not properly handled, if one or two losing positions are allowed to get out of control, then they can wipe out a score of successful profits and leave the individual with a huge loss on balance. It is just as important-nay, even more important-to know when to dessert a bad bargain, take one’s loss and count it a day, as it is to know when to close out a successful transaction which has brought profit.

LIMITS ARE A MUST

The staggering catastrophes which ruin investors, mentally, morally, and financially, are not contingent upon the difference between a 5 percent loss limit and a 20 percent loss limit. They stem from not having established any limit at all on the possible loss. Any experienced market operator can tell you that his greatest losses have been taken by those, probably rare, instances when he substituted stubbornness for loss limitation, when he bought more of a stock which was going down, instead of selling some of it to lighten his risk, when he allowed pride of personal opinion to replace conservative faith in the cold judgment of the market place. (more…)

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