Archives of “January 2019” month

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The Probability of Self-awareness

  
  Education
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With 20 years of trying different things and hearing from others I made an important discovery that has shaped me as a trader and a coach.  What I found is that more people will improve using an approach to change that emphasizes expanding self-awareness and emotional intelligence.

(With so many different approaches advertised as a ‘change process’, I think its important to share what I’ve found to work. That’s really what we have to do, right?  Doing more of what works and less of what doesn’t.)

Very briefly, what I mean by expanded self-awareness is:

1) the recognition that our thinking and our emotions are intertwined and both influence our perception and judgment that leads to our decisions and actions (this view also happens to be consistent what the leading brain scientists are now saying)

2) much of our motivation – the intertwined thinking/emotion that drives our behavior – is actually subconscious, e.g. we assume we are trading the market but on other levels we are also trading our P&L and our feelings about our P&L  (and what our P&L represents to us) is just one example. (more…)

Richard Rhodes' Trading Rules

  
  Education
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If I’ve learned anything in my decades of trading, I’ve learned that the simple methods work best. Those who need to rely upon complex stochastics, linear weighted moving averages, smoothing techniques, Fibonacci numbers etc., usually find that they have so many things rolling around in their heads that they cannot make a rational decision. One technique says buy; another says sell. Another says sit tight while another says add to the trade. It sounds like a cliche, but simple methods work best.

  1. The first and most important rule is – in bull markets, one is supposed to be long. This may sound obvious, but how many of us have sold the first rally in every bull market, saying that the market has moved too far, too fast. I have before, and I suspect I’ll do it again at some point in the future. Thus, we’ve not enjoyed the profits that should have accrued to us for our initial bullish outlook, but have actually lost money while being short. In a bull market, one can only be long or on the sidelines. Remember, not having a position is a position.
  2. Buy that which is showing strength – sell that which is showing weakness. The public continues to buy when prices have fallen. The professional buys because prices have rallied. This difference may not sound logical, but buying strength works. The rule of survival is not to “buy low, sell high”, but to “buy higher and sell higher”. Furthermore, when comparing various stocks within a group, buy only the strongest and sell the weakest.
  3. When putting on a trade, enter it as if it has the potential to be the biggest trade of the year. Don’t enter a trade until it has been well thought out, a campaign has been devised for adding to the trade, and contingency plans set for exiting the trade.
  4. On minor corrections against the major trend, add to trades. In bull markets, add to the trade on minor corrections back into support levels. In bear markets, add on corrections into resistance. Use the 33-50% corrections level of the previous movement or the proper moving average as a first point in which to add.
  5. Be patient. If a trade is missed, wait for a correction to occur before putting the trade on. (more…)

10 Favorite Quotes from Reminiscences of a Stock Operator

  
  Education
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  • There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.
  • The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among professionals.
  • I never lose my temper over the stock market. I never argue the tape. Getting sore at the market doesn’t get you anywhere.
  • They say you can never go poor taking profits. No, you don’t. But neither do you grow rich taking a four-point profit in a bull market. Where I should have made twenty thousand I made two thousand. That was what my conservatism did for me.
  • Remember that stocks are never too high for you to begin buying or too low to begin selling.
  • A man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street…nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.
  • After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was the sitting. Got that? My sitting tight!
  • Losing money is the least of my troubles. A loss never bothers me after I take it…But being wrong—not taking the loss—that is what does the damage to the pocketbook and to the soul.
  • Prices, like everything else, move along the line of least resistance. They will do whatever comes easiest.
  • The speculator’s chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you hope that every day will be the last day—and you lose more than you should had you not listened to hope—the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and you get out—too soon. Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts…Instead of hoping he must fear; instead of fearing he must hope.

 

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