Archives of “February 12, 2019” day

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POSITION ENTRY

  
  Education
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Why not buy at the bottom of the cup? The Risk is Higher

  • The objective is not to buy at the cheapest price when the probability of the stock having a huge move may be only so-so.
  • The objective is to buy at exactly the right time — the time when the chances are greatest that the stock will succeed and move up significantly.
  • I found through our detailed historical studies that a stock purchased at this correct “pivot point,” if all the other fundamental and technical factors of stock selection are in place, will simply not go down 8% (your protective sell rule), and has the greatest chance of moving substantially higher. So ironically, if done correctly, this is your point of least risk.
  • On the day the stock breaks out, its trading volume should increase at least 50% above its average daily trading volume.

Pyramid your initial buy

  • After your initial purchase (50% of your full position), identify a price area at which you will add a small amount as a follow-up buy if it continues to perform well.
  • I usually add more once a stock is up 2.5% to 3% from my first buy (32.5% of your full position).
  • If the stock advances 2% or 3% more, you may complete your position (17.5% of your full position).
  • Then stop buying that stock. You’ve got your basic position in the stock during its first 5% advance. Sit back and give it some time and room to grow.

WILLIAM SHAKESPEARE THE STOCK TRADER

  
Analysis, Education

If William Shakespeare were a stock trader:
 
All the market’s a chart
And all the men and women merely traders;
They each have their exits and their entrances.
And each trader at some time or another plays one of seven parts.
There is the newbie, oftentimes crying and puking at the market’s ways.
Then the student, whining and creeping like a snail, unwilling to learn from the lessons taught by the headmaster, the market.
And then the lover, sighing and with a woefully ignored ballad for the stock to please stay, is spurned again and again.
Then the soldier, full of pious quotes and axioms, acting like a pard
Seeking to bring honor to his jealous self, sudden and quick to anger
Desirous of a quick, undeserved reputation by taking foolish risks.
And then the justice, full of well earned knowledge
His eyes sharp, his countenance etched with a trader’s experiences.
Full of wise sayings and modern instances;
And so he also plays his part in due time.
The sixth part shifts into leanness and relaxed dress.
His vision impaired; his honor held closely by his side.
The world too wide; the childish things too obvious.
He whistles as he watches the childlike newbies play.
Last scene of all, that ends this strange eventful history
Is second childishness and mere oblivion,
Sans chart, sans vision, sans desire, sans everything.

Confidence in trading

  
  Education
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The Oxford English Dictionary gives the definition of confidence as “The feeling or belief that one can have faith in or rely on someone or something”.

In relation to trading, confidence therefore is having:

  • the belief in your ability to succeed as a trader;
  • the belief that whatever method you use for selecting entries and exits will help generate a positive expectancy;
  • the patience to wait for the right opportunities to present themselves;
  • the discipline to follow your rules;
  • the ability to keep taking suitable signals, when your criteria is met, even when suffering a run of losses.

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5 Trading Wisdom Quotes

  
  Education
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The market can do anything at any moment because every person who trades is a market variable.  That means you will never learn enough to anticipate every possible way that the market can make you wrong or cause you to lose money.  

 Learn to accept the risk.  When you accept the risk, you won’t perceive anything that the market can do as threatening.  

People , expressing their beliefs and expectations about the future, make prices move- not models.  The fact that a model makes a logical and reasonable projection based on all the relevant variables is not of much value if the traders who are responsible for most of the trading volume aren’t aware of the model or don’t believe in it.  In other words, people who trade don’t always act in a rational manner.

 If you have to win, if you have to be right, if you can’t lose or can’t be wrong, you will cause yourself to define and perceive categories of market information as painful.  In other words, you will view as painful any information the market generates that is in opposition to what will make you happy.

 Intelligence and good market analysis can certainly contribute to success, but they aren’t the defining factors that separate the consistent winners from everyone else.

Controlled vs Uncontrolled Defaults

  
Analysis, Economy, Education
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If I borrow £1,000 from you and then, because of spectacular bad luck cannot pay it back, but I come to you and say, “here is £750, can we call it quits?” – that is a controlled default.

If I borrow £1,000 from you and you ring me up and you get directory inquiries in the Dominican Republic – that is an uncontrolled default.

Right now, Greece’s fate hangs in the balance somewhere between these two. 

Jesse Livermore’s Money Management Rules

  
  Education
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If you haven’t read this book “Reminiscences of a Stock Operator” written in 1923, read it! It is purpordetly the unofficial biography of one of the greates traders ever; Jesse Livermore.  The rules Jesse followed back at the turn of the last century are still very much applicable today.

1) Don’t lose money. Don’t lose your stake. A speculator without cash is like a store-owner with no inventory. Cash is your inventory, your lifeline, and your best friend. Without cash, you are out of business. Don’t lose your line. There is no place in speculating for hoping, for guessing, for fear, for greed, for emotions. The tape tells the truth.

2) Always establish a stop. A successful speculator must set a firm stop before making a trade and must never sustain a loss of more than 10 percent of invested capital. I have also learned that when your broker calls you and tells you he needs more money for a margin requirement on a stock that is declining; tell him to sell out the position. When you buy a stock at 50 and it goes to 45, do not buy more in order to average out your price. The stock has not done what you predicted; that is enough of an indication that your judgment was wrong. Take sour losses quickly and get out. Remember, never meet a margin call, and never average losses. Many times I would close out a position before suffering a 10 percent loss. I did this simply because the stock was not acting right from the start. Often my instincts would whisper to me: “J.L., this stock has a malaise, it is a lagging dullard. It just does not feel right,” and I would sell out of my position in the blink of an eye. I absolutely believe that price movement patterns are repeated and appear over and over with slight variations. This is because humans drive the stocks, and human nature never changes. Take your losses quickly. Easy to say, but hard to do. (more…)

Improving Your Decision Making Skills

  
  Education
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One of my all-around favorite quotes on trading is actually about poker.
It comes from cash game pro Tommy Angelo, who says, “The best way to get better at poker is to get better at everything and let poker rise with the tide.”
An intimidating thought for some. To REALLY up your game (be it poker, trading, or something else entirely) you have to improve as a competitor. As a human. As a thinking, acting, decision-making machine.
For others, though, this thought is not intimidating but inspiring. “Raising the game,” i.e. getting better at everything, is part of the attraction in the first place.
To that end, trading is all about making decisions.
And making good decisions is not just an art, but a skill set — an area of focus where you can learn and practice and improve. (more…)

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