Every day, every trade requires 100% discipline.
Discipline = Emotional Mastery, A Formula Of Confidence/Caution + Humility.
Confident but no caution = Arrogance. Cautious but not Confident = a lack of Conviction, Weakness.
A Super Trader = A Disciplined Trader. In Discipline, No Weakness Can Exist.
…to be right or wrong in a trade is NOT a decision. It is what happens. To STAY right or wrong IS a decision..we all trade what we believe happens next. Since NOBODY knows what happens next, we learn to think purely in probabilities. Does not matter what happens next. It is what you DO when you find out what happens next that separates winning traders from losing traders. —it is a marathon, not a sprint. Your job ONE as a trader is to protect trading equity. Most traders look at what they can make in a trade. NOT what they could lose. —Trade markets on YOUR terms…as the saying goes…much rather be in cash wishing I was in the market than being in the market wishing I was in cash. |
Many people come up to me, the most recent being a superior Greek Trader, Mr. Lambis, telling me that their two favorite books are Reminiscences of a Stock Operator and Edspec. I tell them they are cruel by being kind. Here’s why.
“History Lessons for Investors: An annotated reissue of Edwin LeFevre’s
Reminiscences of a Stock Operator is reviewed by hedge-fund manager and
author Victor Niederhoffer.”
IMAGINE THAT MASTER NOVELIST and chess
aficionado Vladimir Nabokov wrote a fictional memoir about
Capablanca—the 1920s world champion who never made a mistake on the
board—and that Bobby Fisher then published an updated and annotated
version, incorporating all of the important developments of modern
chess strategy, along with a foreword by Anatoly Karpov.A similar multilayered feast on investment is now available, with minor differences. Edwin Lefevre’s Reminiscences of a Stock Operator
is a novel told in the first person by a character inspired by
legendary trader Jesse Livermore. This classic is now graced with
extensive annotations by investment advisor Jon Markman and a foreword
by hedge-fund manager Paul Tudor Jones.The result is big and beautiful, cutting across two centuries of
booms and busts and market and economic history, with a myriad of
vintage historical photos and instructive historical charts throughout.One of Lefevre’s favorite adages is that there’s nothing new on Wall
Street. The similarity between the financial panic of 2008 and the 1907
panic recounted in the book is a prime example.The numerous squeezes, manipulations,
insider trading, government hauling in of scapegoats and frauds settled
for pennies on the dollar that Lefevre and Markman recount are horses
that are found as well in the modern stable.
This book, Priceless: The Myth of Fair Value (and How to Take Advantage of It), covers rationality in decision making, and how markets and marketers take advantage of the deficiencies in rationality in average people.
There are many in the investment community that admire behavioral finance, and many who say that it might be true, but where are the big profits to be made from it?
This book doesn’t cover behavioral finance per se, but it does cover its analogue in pricing and marketing. In a negotiation, the first person to put a price on the table tends to push the final price agreed to closer to his price. Leaving aside no-haggle dealerships, why do car dealers post high prices for vehicles? Because only a minority does the research to understand what the minimum price is that a dealer will accept. The rest pay more, often a lot more. Personally, I do a lot of research before I buy a car, and it helps me spot dealer errors in pricing.
The book is replete with examples of how there is no “fair” way to price things out. What are the proper damages for a jury settlement? The attorney for the plaintiff is incented to come up with the highest believable amount for the jury, because they will render a verdict less than that. Make the ceiling as high as possible, and the plaintiff will get more.
We call placing the first price on the table “anchoring,” because it pulls the final result toward itself. The book is filled with experiments dealing with anchoring.
The book also spends a lot of time on the “ultimatum game,” where a person gets $10, and must offer some of it to a second person, but if the second person turns him down, the first person gets nothing. The main lesson here is that pride is stronger than greed. Yes, it can be construed as a question of fairness, but when someone gives up money to deny money to someone else, it is not fairness but envy. Why pay to make someone else worse off? To teach him a lesson? What an expensive lesson.
Much of this book was a walk down memory lane for me. I discovered Kahneman and Tversky in the Fall of 1982, and I found their ideas to be more cogent than much of the “individuals maximize utility” cant that was commonly heard from most professors teaching microeconomics. People are far more complex than homo oeconomicus. Small surprise that most tests of microeconomics as a system are not confirmed by the data.
Kahneman and Tversky showed via a wide array of examples that the decisions people make are affected by the way they are presented to them. People can be manipulated in limited ways in order to affect the decisions that they make. (more…)
Are trading losses often followed by further trading losses? Do you end up losing money in ‘revenge trading’ just to regain money lost? Do you finish trading prematurely when you’re up money, failing to exploit a good day?
Do you cut winning trades short because, deep inside, you don’t think you’ll be able to make large profits? Do you become stubborn in positions, turning small losers into large ones?
Is trading making you happy, proud, fulfilled, and content, or does it more often leave you feeling unhappy, guilty, frustrated, and dissatisfied? Are you having fun trading even when it’s hard work?
Are you making trades because the market is giving you opportunity, or are you placing trades to fulfill needs — for excitement, self-esteem, recognition, etc. — that are not being met in the rest of your life?
I recommend this video [see video below] about LTCM. Very interesting. (related to risk management and black swan events).
Are trading losses often followed by further trading losses? Do you end up losing money in ‘revenge trading’ just to regain money lost? Do you finish trading prematurely when you’re up money, failing to exploit a good day?