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Are You A Successful Speculator ?

  
  Education
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If you never trade, can you be a successful speculator?

If you  cost average, and are disciplined, are you a successful speculator?

If you compound at 50% per year for 10 years, and then lose everything in an afternoon, are you a successful speculator?

If you lose everything in an afternoon, and then learn from your mistake, and then compound at 50% for the next 10 years, are you a successful speculator?

If you compound at 6% per year for 10 years, and never have a meaningful drawdown, are you a successful speculator?

If the risk free rate is 6%, and you are making 12%, are you a more successful speculator then if the risk-free rate is 0% and you are making 6%?

If you think you are a successful speculator, can you really be a successful speculator?

If you think you are not a successful speculator, can you be a successful speculator?

Who are the most successful speculators of the past 100 years? Who are the least successful speculators of the past 100 years? 

Trading vs investing

  
  Education
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But let’s use a couple of examples:
– trading: I buy a basket of stocks this morning with the intention of reselling before the close
– investing: I build a portfolio of stocks with the intention to keep it a relatively long time, because I think that these stocks value will increase due to whatever reason, growth, value, the economy…

I also like the following classification, which I believe comes from Minsky:
– Profits on the position neither depend on price variation of the asset, nor on cost of carry: I am investing.
– Profits do not depend on price variation, but only on positive carry: I am trading.
– Profit depend on price variation of the asset: I am speculating.

The example and the definition are not equivalent, but they give a rough idea of what trading is and what investing is. The border between both activities can be blurry. But if you invest, you do not need a market. You can buy a bond with the intention of holding it to maturity. If you trade, you need a market to close the trades.

Focus on Trading Solutions

  
  Education
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* How can I trade with discipline?
* How can I find the right places to enter trades?
* How can I manage risk better?
* How can I trade with confidence?
* How can I stick with my winning trades?
* How can I best prepare for the trading day?
* How can I decide the best stocks to be trading?
* How can I decide when I shouldn’t be trading?

Let’s turn those problem-focused questions into solution-focused ones:
* When have I been trading with good discipline? What do I do differently at those times?
* When have I executed trades well? What helped me find good prices for my entries?
* When have I done a good job managing the risk of a particular trade or a particular trading day? What did I draw upon to implement good risk management? (more…)

Trading quotes

  
Analysis, Education

And the great sea with its friends and its enemies. And bed, he thought. Bed is my friend. Just bed, he thought. Bed will be a great thing. It is easy when you are beaten, he thought. I never knew how easy it was. And what beat you, he thought. ‘Nothing’, he said aloud. ‘I went out too far.’
– Hemingway, The Old Man and the Sea
‘At that point I ought to have gone away, but a strange sensation rose up in me, a sort of defiance of fate, a desire to challenge it, to put out my tongue at it. I laid down the largest stake allowed – four thousand gulden – and lost it. Then, getting hot, I pulled out all I had left, staked it on the same number, and lost again, after which I walked away from the table as though I were stunned. I could not even grasp what had happened to me.’
– The Gambler, by Fyodor Dostoevsky
If you must play, decide upon three things at the start: the rules of the game, the stakes, and the quitting time.
– Chinese Proverb
Luck never gives; it only lends.
– Swedish Proverb
Depend on the rabbit’s foot if you will, but remember it didn’t work for the rabbit.
– R.E. Shay

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