Fortune Favours The Big
Archives of “January 6, 2019” day
rssJesse Livermore / "How to trade stocks"
–“All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical (technical) formations and patterns recur on a constant basis.”
–“The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.”
–Don’t take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don’t be an impatient trader.
–“It is foolhardy to make a second trade, if your first trade shows you a loss. Never average losses. Let this thought be written indelibly upon your mind.”
–“Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes.”
–“When a margin call reaches you, close your account. Never meet a margin call. You are on the wrong side of a market. Why send good money after bad? Keep that good money for another day.”
–“Successful traders always follow the line of least resistance. Follow the trend. The trend is your friend.”
–A prudent speculator never argues with the tape. Markets are never wrong–opinions often are.
–Few people succeed in the market because they have no patience. They have a strong desire to get rich quickly.
–“I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humans–and human nature never changes.”
–When you make a trade, “you should have a clear target where to sell if the market moves against you. And you must obey your rules! Never sustain a loss of more than 10% of your capital. Losses are twice as expensive to make up. I always established a stop before making a trade.”
–“I am fully aware that of the millions of people who speculate in the markets, few people spend full time involved in the art of speculation. Yet, as far as I’m concerned it is a full-time job–perhaps even more than a job. Perhaps it is a vocation, where many are called but few are singled out for success.”
–“The big money is made by the sittin’ and the waitin’–not the thinking. Wait until all the factors are in your favor before making the trade.”
Trust Your Gut
Throughout my years trading, I’ve learned many things. In fact, it’s rare that a day goes by without learning something new. Which brings me to my first point; If anyone ever tells you they know everything there is to know about trading stocks, run away from that person as fast as you can!
OK, now that I got that out of the way let’s get back to the purpose of this post. One very important rule I have learned as a Trader is to trust your gut. Now, this rule only applies in specific circumstances. There are times when I have tried to convince myself that my gut wants me to do something. That’s no good! If you have to convince yourself that your gut agrees with a move you want to make in the market, it’s bogus.
The same applies if you have to ask yourself if your gut is telling you to make a move. Seeing a good trade idea and then sitting back and asking yourself if your gut agrees is not the way to go about applying the “trust your gut” rule.
Based on my experience, the only time to truly listen is when a “gut feeling” comes out of nowhere. It just happens…there’s no real explanation. You know it when it occurs, and I highly suggest you don’t ignore it.
That said, please do not add “what does my gut say?” to your pre-trade entry checklist. Also, please do not try to force a gut feeling. Let it come naturally! My objective here is to heighten your senses and hopefully make you more confident in acting those gut feelings when they come.
40 Rules for Traders
| 1. Trading is simple, but it is not easy. 2. When you get into a trade watch for the signs that you might be wrong. 3. Trading should be boring. 4. Amateur traders turn into professional traders once they stop looking for the “next great indicator.” 5. You are trading other traders, not stocks or futures contracts. 6. Be very aware of your own emotions. 7. Watch yourself for too much excitement. 8. Don’t overtrade. 9. If you come into trading with the idea of making big money you are doomed. 10. Don’t focus on the money. 11. Do not impose your will on the market. 12. The best way to minimize risk is to not trade when it is not time to trade. 13. There is no need to trade five days a week. 14. Refuse to damage your capital. 15. Stay relaxed. 16. Never let a day trade turn into an overnight trade.17. Keep winners as long as they are moving your way. 18. Don’t overweight your trades. 19. There is no logical reason to hesitate in taking a stop. 20. Professional traders take losses because they trust themselves to do what is right. 21. Once you take a loss, forget about it and move on. 22. Find out what loss parameters work best for your setup and adjust them accordingly. 23. Get a feel for market direction by “drilling down” (looking at multiple time frames). 24. Develop confidence by knowing and executing your trade setups the same way every time. 25. Don’t be ridiculous and stupid by adding to losers. 26. Try to enter a full size position right away. 27. Ring the register and scale out of your position. 28. Adrenaline is a sign that your ego and your emotions have reached a point where they are clouding your judgment. 29. You want to own the stock before it breaks out and sell when amateurs are getting in after the move. 30. Embracing your opinion leads to financial ruin. 31. Discipline is not learned until you wipe out a trading account. 32. Siphon off your trading profits each month and stick them in a money market account. 33. Professional traders risk a small amount of money on their equity on one trade. 34. Professional traders focus on limiting risk and protecting capital. 35. In the financial markets heroes get crushed. 36. Stick to your trading rules and you will never blow up your trading account. 37. The market can reinforce bad habits. 38. Take personal responsibility for each trade. 39. Amateur traders think about how much money they can make on each trade. Professional traders think about how much money they can lose. 40. At some point all traders realize that no one can tell them exactly what is going to happen next in the market. |
A Few Notes on Trading from Your Gut
Must Read……….
I just completed reading
Trading from Your Gut: How to Use Right Brain Instinct & Left Brain Smarts to Become a Master Trader, author Curtis Faith uses stories and examples to “show how to develop your intuition and confidence in the decisions of your gut instinct so that you can use your whole mind while trading.” He preempts left-brained skeptics as follows: “If you are one of those traders who doesn’t believe that gut instinct or intuition has any place in trading, I invite you to keep an open mind. I, too, once felt as you did. After all, I was trained to take a very systematic and logical approach to trading… I believed that it was important to keep your emotions in check.” Some notable points from the book are:
From Chapter 1, “The Power of the Gut”:
Page 9: “…there is a big difference between trading emotionally and trading from your gut. Trading emotionally means reacting to fear and hope, which can destroy your trading decisions. Trading from your gut is…a way of tapping into the extra power of the right hemisphere of the brain, which can be a powerful, effective, and entirely rational addition to any trader’s repertoire.”
Page 17: “…To become a master trader, to be able to intuitively make good decisions, you must first gain enough of the right kinds of experience. …the most effective training is trading itself…the experiences you encounter while trading train your intuition…”
From Chapter 2, “The Purpose of Gut Intuition”:
Page 26: “The left brain is good at extracting abstract models from patterns and examples, and at establishing and choosing categories. The right brain is skilled at determining whether a given example fits the model that defines a category and is good at recognition. The left brain analyzes and the right brain notices.“
Page 29: “…Traders who use their right brains will be more creative and will develop more novel ideas because of their willingness to act on feelings without an explicit rational reason.”
From Chapter 3, “Wrong-Brain Thinking”: (more…)
The core of authenticity is the courage to be imperfect, vulnerable, and to set boundaries.
Just Destroy EGO in Trading & Life
The emotions behind chart patterns.
Is the U.K. the Next Greece?
A day after the EU has come to terms on a bailout to save Greece, this Bloomberg TV analysis is pretty interesting. First, they point out that the rates Greece got were still pretty punitive, despite the fact that they were below market rates. But even more interesting is the notion that the U.K., not Portugal, Spain, or Ireland, might be the next economy to be forced to the brink because they’re not part of the Euro Zone and don’t have the partners to bail them out.
50 Shades of Warren Buffett
I am about to embark on my 11th annual trip to Warren Buffett’s Omaha. This year I have something unique to share with you: an excerpt from a chapter I contributed to a brand new book, The Warren Buffett Shareholder. Let me tell you a little bit how this chapter came about.
In the early 2000s I taught graduate investment classes at the University of Colorado. As a class assignment I had students do presentations on Warren Buffett’s annual letters to his shareholders. We broke up 30-some years of Buffett letters into six time periods and divided the class into six groups. Each group had to present the most important lessons they learned from Buffett’s letters.
The day of presentations was not my finest moment as a teacher. It started out great, but soon all the presentations started to sound the same. Here is why: Buffett’s letters are full of wisdom, and each letter has a new insight or two. But value investing philosophy rules (just like the Ten Commandments in the Bible) are the same now as they were 50 years ago. Buffett simply adds a new shade of grey onto the same wisdom in each letter. Here is the thing with shades: You see them only as shades next to other shades, not as colors in their own right.
Then I discovered that Lawrence Cunningham had edited Buffett’s letters into a book, 50 Shades of Warren Buffett. Okay, the actual name of the book was The Essays of Warren Buffett. When people ask me for the one book they should read about Warren Buffett, my answer is always The Essays of Warren Buffett – it’s as close to an autobiography of Buffett as you’ll get.
(By the way, if you haven’t read “The Six Commandments of Value Investing” – an excerpt from my next book – you can sign up here to read it. I’ve been asked, why six, not ten? My deeply Talmudic answer is, “Value investing is about quality not quantity.”) (more…)