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The Difference Between a Speculator and a Gambler

What is the real difference between gambling and speculation (if you take drinking out of the equation)? Is it having a theory about the odds being better than even and avoiding ruin along the way?

One possible definition might be “a gambler chases fast fixed returns based on luck, while a speculator has time on his side to let the market decide how much his edge is worth.”

Perhaps the true Speculator — one who is on the front lines day after day — knows that to win big for his backers, he HAS to gamble. His only advantage is that he can choose when to play. 

A speculator strives to be professional, honorable, intellectual, serious, analytical, calm, selective and focused.

Whereas the gambler is corrupt, distracted, moody, impulsive, excitable, desperate and superstitious.

“gamblers are willing losers who occasionally win”

That is, gamblers risk their capital on propositions where the odds are either: (more…)

23 Trading Lessons

1. All successful traders use methods that suit their
personality; You are neither Waren Buffett nor George Soros nor Jesse Livermore; Don’t assume you can trade like them.
2. What the market does is beyond your control; Your reaction to the market, however, is not beyond your control. Indeed, its the ONLY thing you can control.
3. To be a winner, you have to be willing to
take a loss; 
4. HOPE is not a word in the winning Trader’s vocabulary;
5. When you are on a
losing streak — and you will eventually find yourself on one — reduce your position size;
6. Don’t underestimate the time it
takes to succeed as a trader — it takes 10 years to become very good at anything;  
7. Trading is a vocation — not a
hobby
8. Have a business/trading plan; 
9. Identify your greatest weakness, Be honest — and DEAL with it (more…)

Learn From Napoleon's Mistakes

Napoleon was unquestionably a great strategist and imposing historical figure. His leadership style had many flaws, which eventually led to his downfall.

In the vein of learning from others mistakes, here are five lessons today’s leaders can pull from Napoleon:

1. Never stop innovating.
Napoleon introduced many tactical innovations to warfare and statecraft. He believed in lightning military attacks when most European generals were slow, incompetent or incapable of making on-the-ground decisions without higher orders. He struck fear in the hearts of his opponents by bombarding them with canon and grapeshot believing, correctly, that loud noises shook the nerve of his opponents. And he was one of the first leaders to wield propaganda to bolster his position at home and abroad.

But Napoleon never improved on his basic innovations. He never cared to learn about naval weapons, steam power, observation balloons, railroads, bridging materials, troop ships and general advances in canon ammunition. Napoleon never bothered to think about France’s large land holding in America. He feared crossing the Atlantic and instead of finding a use for the vast territory, he sold it.

Paul Johnson in his biography of Napoleon, writes, “He thought the improvements introduced in his youth were quite enough, and though he fiddled with the standard equipment, he never changed it substantially.”

Napoleon’s failure to adapt eventually hurt his military and political campaigns in the long run. By failing to build a navy and look to alternative innovations and business deals he lost his ability to outmaneuver his opponents and with it his edge.

Lesson for leaders: Old tricks may work over and over again, but never overlook new technologies. Overtime they will become crucial.

2. Learn to delegate.
Napoleon’s subordinates could pull off miracles, but only when under strict, careful instruction. Those high in Napoleon’s favor were those who obeyed orders precisely. Promotions weren’t given to those who had independent ideas. The result: when Napoleon’s generals had to think on their own or perform without Napoleon’s instruction, they were often nervous, fumbling and counterproductive.

Lesson for leaders: Leaders shouldn’t simply promote those who can follow orders. Empower employees to think for themselves and they’ll do better under pressure, even without orders.

3. Have a little patience. 
There are many battles Napoleon could have won if he had been more patient. He might have also attained more power if he had grown more organically, rather than rushing, impulsively into Spain and Russia.

“Bonaparte lacked the temperament to fight a defensive battle, let alone a defensive campaign,” writes Johnson. “Had he been able to do so, he might well have fought the Sixth Coalition to a peace of exhaustion, without a single one of its soldiers setting foot on French soil proper.”

Lesson for leaders: Focusing all your energy on forward movement might seem like the right thing to do, especially if it’s what has led to your success before. However, every leader needs to be expert in controlling active periods as well as calm ones.

4. Take training seriously.
Napoleon selected 50,000 men to serve in his elite, Old Guard. They were tall, strong, standout soldiers who wore menacing bearskin uniforms. During battle they would sit behind the main forces and their presence would give the regular troops confidence.

However, Napoleon rarely had to call on the Old Guard’s services since he usually won battles quickly and with skill.

But his success would eventually backfire. When Napoleon finally needed to call on the Old Guard during the battle of Waterloo they were weak, unused to fighting and underprepared.

Lesson for leaders: Don’t set aside high-potential employees and keep them above the fray. Leaders need to ensure their teams are well trained in all tasks and don’t lose their relevance.

5. Don’t lose your temper.
Napoleon had a bad temper. Sometimes he’d fly off the handle over small matters and sometimes he’d plan a fit hoping that his dramatics would inspire his subordinates to action. He used his loud outbursts to inspire fear and respect in the ranks, but they rarely won him points in diplomatic circles.

When Napoleon met with the British ambassador Lord Whitworth, he threw a fit then stalked out of the room so quickly that the doormen hadn’t time to open the doors. Napoleon had to wait, seething, until the doors were opened. Such hysterics made Napoleon look uncertain, weak and hotheaded.

Lesson for leaders: Control your temper. Outbursts have very limited mileage and, more often than not, make you look foolish.

The “BUZZ WORDS” for 2013

In this global “LOW-GROWTH” macro-economic environment, I would use the following “BUZZ WORDS” to define World Central Bank and global market activity for 2013, as I see it at present.

*(I may update this list as the year progresses, as various scenarios become clearer, and as new events unfold.)

“MONEY PRINTING” and “EASY MONEY”

  • the Fed (and other Central Bankers around the world) provides low interest-rate loans to Banks
  • Banks are supposed to make this money available to companies and individuals at low rates that they deem appropriate (however, as demand for loans picks up, no doubt the Banks will raise interest rates, even though the Fed may not…a risk that will have to be factored into a company’s costs)
  • the Fed’s goal is to produce a “WEALTH EFFECT” (precisely who will benefit remains to be seen)
“INFLATE”
  • wholesale and retail prices of goods and services
  • price of stocks, commodities, etc.
  • taxes (more…)

Learn To Lose

Unfortunately, it is the sad reality that the majority of people reading this are not profitable traders. If I could single out the most common culprit for sabotaging your trading it would have to be not being able to take a loss. This is especially prevalent amongst new traders, but I’ve seen this single trading mistake cripple even more experienced traders. In fact, I’ve run across countless traders that are generally successful if not for a few outsized losses. The problem is that these outsized losses are what cripple your account and push you into the negative column. You will never be a successful trader, EVER, until you learn how to take a loss.

Checklist for Sucess in Trading

1. My trading objectives are perfectly clear, and I truly believe I will achieve these goals. If you have the belief that you will win, you increase your chances of trading to win.  In order to have this level of conviction, you must have a thoroughly-tested plan.  You also must have a clear vision of how you will proceed with your plan to reach your goal.  The more detailed you can visualize your goals being achieved, the more you will strengthen your internal belief and confidence that you will reach your goals.

2. I have created a plan to achieve my trading goals. I’m sure you’ve heard the saying “I didn’t plan to fail; I failed to plan.”  Without a plan, your results will tend to be mixed and uninspiring.  Commit to writing down your trading plan, and make sure you can answer the questions found in a recent TrendWatch on creating your trading plan.

3. I prepare my plan before the trading day starts. If you don’t have a plan of action once the trading bell rings, you are moving from the proactive mentality into a reactive approach.  I contend that the more reactive you become, the more you will get in late to market moves and dramatically diminish your reward-to-risk ratio. I prepare after the close for the next day’s trading, seeking to stay proactive and a step ahead of the rest of the crowd.

4. I regularly monitor my trading results to measure my progress toward my goals. Trading results tend to follow a zig-zag approach similar to how a plane is guided to its destination.  At periodic steps along the way, if a pilot is off course, they will set a new course towards the target.  This is called course correction.   Once you have defined your trading target, your periodic evaluation should lead you to assess what is taking you off course and encourage you to make the necessary corrections to get you back on target.

5. I quickly discard negative emotions that can hurt my trading results. When you lose, you want to learn from the experience, then put it behind you. You cannot afford to dwell on a loss once the trade is complete. You have to have total focus on the new moment and forget about the past, save for the time you allocate to evaluating past trades (which should be done outside market hours).

6. I am focused on the market during the trading day, and not easily distracted by non-market activities during trading hours. This can be a tough one for many traders who have many responsibilities.  If this is the case, define the time you will be focused on the market and make arrangements not to be interrupted.

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