Archives of “January 2019” month

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Major Points on Schwager’s Market Wizards Interview with Michael Marcus

  
  Education
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MUST READMETHODOLOGY

Ride Your Winners – Never Get Out Unless the Trend Changed

  • One time, [Ed Seykota] was short silver and the market just kept eking down, a half penny a day, a penny a day. Everyone else seemed to be bullish, talking about why silver had to go up because it was so cheap, but Ed just stayed short. Ed said, “The trend is down, and I’m going to stay short until the trend changes.” I learned patience from him in the way he followed the trend.
  • During the great soybean bull market, the one that went from $3.25 to nearly $12, I impulsively took my profits and got out of everything. I was trying to be fancy instead of staying with the trend. Ed Seykota never would get out of anything unless the trend changed. So Ed was in, while I was out, and I watched in agony as soybeans went limit-up for twelve consecutive days. I was real competitive and every day I would come into the office knowing he was in and I was out. I dreaded going to work, because I knew soybeans would be bid limit again and I couldn’t get in.
  • If you don’t stay with your winners, you are not going to be able to pay for the losers.

Get Out When the Volatility and Momentum Become Absolutely Insane

  • One way I had of measuring that was with limit days. In those days, we used to have a lot of situations when a market would go limit-up for a number of consecutive days. On the third straight limit-up day, I would begin to be very, very cautious. I would almost always get out on the fourth limit-up day. And, if I  had somehow survived with any part of my position that long, I had a mandatory rule to get out on the fifth limit-up day. I just forced myself out of the market on that kind of volatility.

Take Note of Intraday Chart Points

  • I learned the importance of intraday chart points, such as earlier daily highs. At key intraday chart points, I could take much larger positions than I could afford to hold, and if it didn’t work immediately, I would get out quickly. For example, at a critical intraday point, I would take a twenty-contract position, instead of the three to five contracts I could afford to hold, using an extremely close stop. The market either took off and ran, or I was out. Sometimes I would make 300, 400 points or more, with only a 10-point risk.
  • Although that approach worked real well then, I don’t think it would work as well in today’s market. In those days, if the market reached an intraday chart point, it might penetrate that point, take off, and never look back. Now it often comes back. (more…)

HOPE

  
  Education
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While it may sound innocent enough, hope can be the great profit-killer for traders and investors alike. Hope is a dangerous emotion because it can cause irrational thinking. Hope is the reason some traders add to losing positions — because they are convinced they are correct and hope the market will eventually vindicate them. Unfortunately, the market does not operate under these rules. When you’re trading a stock based on technical analysis, the market is always right.

Before every trade you make, you must make a pact with yourself to sell the stock if it fails to do what you anticipated. If hope sneaks into the picture, prepare yourself for larger losses.

A Venerable Technique of Jesse Livermore

  
  Education
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One of intelligent honest things that Livermore did was to get out of one market by selling a related market, inducing the other traders to think that there was weakness in one market which would carry over to the related market. The art of indirection and letting people use their own intelligence and inferences to come to their own conclusion. for example if he wanted to get out of cotton, he’d sell some coffee. If he wanted to get out of a common, he’s sell the preferred or a related company that owned a big chunk of it, like sell Christiana which owned general motors et al. This technique one wonders how often is it used today. When it happens, is it artful indirection or chance? How to quantify and what predictions to be made? Would the robots be smart enough to do this?

10 Market Mysteries

  
  Education

Now – After Reading these 10 Points  :Watch BLUE CHANNELS  for an hour and check off how many of these ‘red flags’ you hear…

For years I had a pet theory about how your abilities improve over time in any given vocation.  My thought was that every year you work, you learn one critical aspect of the job. Over the first few years, the percentage improvement in your knowledge is quite impressive: 50% in the second year, 33% in the third, and so on as you pick up new and important insights.  And while years 15-20 might offer up slower growth, you also have less competition from your more junior peers.  They’ve figured out fewer points, after all.

A few examples of these critical lessons from my 20+ years analyzing stocks, markets, and the economy on both the buy side and sell side:

 
 

Rule #1: The marginal buyer and seller set prices for everything.  You may have point of view on value, but the actors setting the price don’t care about your opinion.  Seriously – they don’t.
 
Rule #2: If you don’t know what to do or say, don’t do or say anything.  Boredom is investor’s greatest enemy.  Thrashing around is for mosh pits and three year olds.
 
Rule #3: If you can’t explain your competitive advantage in three sentences, you don’t have one.  That’s true for analysts, portfolio managers, company executives, startup companies, writers, etc.
 
Rule #4: It is OK to be wrong.  Just don’t lie to yourself or anyone else about being wrong.

The second part of my imaginary rule set was that there were 20 questions that mattered to any job, so two decades of experience should get you to the end of the journey.  I can tell you that, with 22 years in the business of analyzing financial assets, this part is wrong.  And in keeping with Rule #4, I am fessing up.  The true count is probably more like 100, which is why only vampires have a shot of figuring everything out. Zombies would have a shot, too, if it weren’t for the whole mindless existence thing.

To be fair, part of the problem of harvesting those elusive 20 – 100 points from the sea of capital markets aphorisms and rules is that there are so many false leads.  At first they look useful, but like a poorly made tool they eventually shatter under heavy use.  Since I am prone to list-making, I have also kept a short collection of these false gods. (more…)

Major Market Index Fails Key Test

  
Analysis, Education

The blue chip Major Market Index failed to recapture a key breakdown level.

This post is about 2 weeks late, but still very pertinent in its message. We’ve written about the Major Market Index (XMI) on a couple occasions. Not widely followed, the XMI is an index of 20 of some of the largest blue chip industrial stocks in the U.S. market. While not a very broad index, it is influential, in terms of its constituents’ “name” recognition as well as their “weighty” impact on many of the averages.

The last time we posted something on the XMI was in June, taking note of a couple not-so-constructive developments on its chart. These would, of course, be a precursor to much greater weakness in the August-September decline. One of the key junctures during that period was the index’s early-August breakdown below its post-2009 UP trendline. That breakdown opened the gates to the steep losses later in the month.

Recently, amid the sharp post-September rally, the XMI returned to “kiss” the underside of the broken trendline. This was no happy reunion, however, as the result was a clear and precise rejection of price by the trendline.

image (more…)

Beliefs of Unsuccessful Traders

  
  Education
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Beliefs1. I must be trading something all the time.

2. If I lose on a trade, I feel angry, frustrated, sad, or sick. If I win on a trade, I’m a happy camper.

3. If I don’t get on board with the hot tip of the day, I’ll miss out

. 4. The markets are out to get me.

5. I’m unwilling to take the stop-out, so I’m turning this trade into an investment.

6. If I just keep studying, looking, and reading, I’ll find the magical formula/indicator/guru to lead me to riches.

. Everything has to be perfect for me to get into a trade

8. If I win, I was skillful. If I lose, I was unlucky.

It’s only through daily assessment of convictions — and with radical honesty — that a trader grows, develops, and thrives. Diligent examination of beliefs and the courage to change them is an ongoing challenge that must be conquered if the trader is to move to higher levels of success.

Buddha says:

“Believe nothing just because a so-called wise person said it. Believe nothing just because a belief is generally held. Believe nothing just because it’s said in ancient books. Believe nothing just because it’s said to be of divine origin. Believe nothing just because someone else believes it.”

1+ 24 Rules For Trading Discipline

  
  Education
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  1. The market pays you to be disciplined.
  2. Be disciplined every day, in every trade, and the market will reward you. But don’t claim to be disciplined if you are not 100 percent of the time.
  3. Always lower your trade size when you’re trading poorly.
  4. Never turn a winner into a loser.
  5. Your biggest loser can?t exceed your biggest winner.
  6. Develop a methodology and stick with it. don?t change methodologies from day to day.
  7. Be yourself. Don?t try to be someone else.
  8. You always want to be able to come back and play the next day. Once you reach the daily downside limit, you must turn your PC off and call it a day. You can always come back tomorrow.
  9. Earn the right to trade bigger. Remember: if you are trading poorly with two lots you must lower your trade size down to a one lot.
  10. Get out of your losers.
  11. The first loss is the best loss.
  12. Don?t hope and pray. If you do, you will lose.
  13. don?t worry about news. it?s history.
  14. Don?t speculate. if you do, you will lose. (more…)
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