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The Timeless Wisdom Of Jesse Livermore

  
  Education
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Why is stock investing hard?

Take a step back to think, and you realize that stock trading is the intersection of many realms of knowledge. Business. The economy. Finance. Innovation and technology. Government policy. The market. And don’t forget psychology.

The more an investor knows about each of these fields, the more likely he or she will excel in the task of buying and selling stocks properly.

In the field of psychology alone, you have multiple topics to ponder. The psychology of the herd is important. So is the psychology of the self.

Jesse Livermore, whose life spanned the 19th and 20th centuries, didn’t get a master’s degree in macroeconomics or a Ph.D. in cognitive behavior. But his experience, hard work, failures and successes across many bull and bear cycles make him one of the most respected stock and futures traders of all time. (more…)

Confidence

  
  Education
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“Success is not to be pursued; it is to be attracted by the person you become.”

Confidence-Posters

 Trading success requires confidence. But confidence does not just come from knowing how to identify and act on good trading opportunities. It also comes from learning how to deal with adversity. It comes from facing a slump and working through the challenge to overcome it.

 So, when you find yourself in a slump, embrace the opportunity. This is your chance for personal growth. It’s an opportunity to become a better trader. It’s an opportunity to establish a winning feeling, not a false one based on hope, but one with substance in which you know that whatever comes in the future, you’re ready for it and you can deal with it.

 Enjoy the challenge.

Portuguese Bank Borrowings From ECB More Than Double In May, Hit All Time Record of €35.8 Billion

  
Analysis, Economy, Education, Forex
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Alas, the deteriorating funding environment in Portugal is not a fluke – according to the Bank of Portugal, bank borrowings from the ECB surged in the past month, and doubled from €17.7 billion to €35.8 billion in May. As Steven Major from HSBC said, quoted by the FT: “These yields are approaching that magic number of 5 per cent that is likely to be charged by the European stability fund. If the yields keep going up at this rate, then they will be paying much more than 5 per cent next month, which is arguably unsustainable.” And confirming the non rose-colored glasses reality was another banker who said: “These yields are not sustainable. Portugal will have to access the emergency stability fund if they continue to rise at this rate.” Elsewhere, Greece continue to be bankrupt.

The chart below shows total borrowings from the ECB by Portuguese banks…

Markets Will Be Markets

  
  Education
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The stock market is bipolar creature, driven by sentiment and irrational expectations. One day, it is an ingenious forward-looking mechanism that anticipates and discounts future events beautifully. Another day, it is a stubborn schizophrenic that can’t see further than its nose.

Markets constantly overreact to both, identified risks and opportunities. It is in the nature of financial markets to exaggerate, to magnify. This is why they are not always discounting the future. Sometimes, they are correcting previously incorrect view. Sometimes, they just go bonkers and send prices to levels that cannot possibly be justified by any future scenario. Boys will be boys. Markets will be markets. They’ll fluctuate violently, up and down and to levels that will seem incomprehensible to many. Indexing, robo-advising and social media won’t change that. The Internet might have made people smarter; but it hasn’t made financial markets more efficient. You could complain and whine about financial markets’ irrationality or you could find a way to take advantage of it. Or don’t. It’s your choice.

If you understand people’s incentives, you are very likely to predict correctly their future behavior and sometimes even influence it. Most incentives have expiration date. What is important today, might not be as important tomorrow. This applies perfectly to life, but not always in financial markets that live in their own world. Incentives require the existence of rationality. We have already made the point that more often than not, markets are not rational, but emotional, at least in a short-term perspective. As Howard Marks eloquently puts it: (more…)

Maintaining Awareness During Trading

  
  Education

Whenever I make mistakes in trading (i.e. did not follow my trading plan), I like to deep dive to figure exactly why that happened, why did I take a certain action?

  • What was I thinking?
    • Why was I thinking that way?
    • Was what I was thinking correct?
    • Should my thinking be changed?
    • How should I think about it the next time?
    • How do I effect the change in thinking?
  • What was I feeling?
    • Why was I feeling that way?
    • Should I be feeling that way? Is it driven by false beliefs or irrational beliefs with respect to how a market functions?
    • How should that emotion response be modified for the next time I see the same scenario? How can that be effected?

To answer all the questions above so as to effect positive change, you need to monitor your thoughts and feelings as you are trading, you need to have awareness of what is going on inside your mind.

Whenever you think that you have made a bad trade (based on process, not P/L), quickly jot down what you were thinking and feeling that led to you taking the action. You can then use that during your trade review process to figure out needs to be done to improve your trading moving forward.

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