Archives of “February 2019” month

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Questions after the hit

  
  Education
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When you take a hit, you have got to think your way through it logically.

Questions to ask yourself when you have taken a hit.

What is the lesson here???

What did I learn????

How can I avoid this next time????

What is my strategy the next time I encounter this situation????

Did I remember to pat myself on the back for the good trades this month?????

Did I remind myself that I have had many more successes this month??????

Did I remind myself that this is just an opportunity to do it better next time?????

Did I use proper discipline????????

Did I wait for a proper trade set-up??????

Did I follow my trading rules????????

How long am I going to wallow here???????

Did I remind myself that the market is very generous and will always give me plenty of opportunities for profit???????

Do I have more money now than I did at the beginning of the month???? (more…)

Livermore on patience

  
Analysis, Education
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In a narrow market,when prices are not getting anywhere to speak of but move within a narrow range, there is no sense in trying to anticipate what the next big movement is going to be up or down. The thing to do is to watch the market, read the tape to determine the limits of the get-nowhere prices, and make up your mind that you will not take an interest until the price breaks through the limit in either direction. A speculator must concern himself with making money out of the market and not with insisting that the tape must agree with him. Never argue with it or ask it for reasons or explanations. Stock-market post-mortems don’t pay dividends.

Do you wish to gamble blindly in the hope of getting a great big profit or do you wish to speculate intelligently and get a smaller but much more probable profit?

Three Motivations for Traders

  
  Education
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There are three motivations behind taking a trade: monetary reward, educational reward, and/or psychological reward. The first pays the bills, the second will pay the bills, and the last will prevent you from paying the bills.

Whenever I feel the pull of psychological reward, I have the voice saying “do you want to be a trader?” Letting go of the psychological need to take a trade or be right, is hard. Our brain does not know what money is. It listens in terms of chemical releases. Letting go of psychological reward is not easy. It is the most instantaneous form of reward.

The best way I know to give psychological power to money is to make a habit of seeing money as opportunity. Opportunity for financial freedom and opportunity to make another trade. The brain understands opportunity. This needs to be in balance as well.

If you are feeling the psychological pull, take a few seconds and answer the following.

Do I want to be a trader?
Did my last trade affect the thought process in an irrational way for this trade? (Need to be right, need to make my money back, I am invincible, etc.)
Can I get a better price or is this my best opportunity?
Am I seeing the whole picture?
As always, am I willing to accept the consequences of my action or inaction?

Dickson G. Watts ‘Speculation As A Fine Art’ – A Speculator’s Essential Qualities

  
  Education
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His list of ‘Essential Qualities of the Speculator’ and ‘Laws Absolute” show the timeless value of his insight:

1. Self-Reliance. A man must think for himself,must follow his own convictions. George MacDonald says: “A man cannot have another man’s ideas any more than he can another man’s soul or another man’s body.” Self-trust is the foundation of successful effort.

2. Judgment. That equipoise, that nice adjustment of the faculties one to the other,which is called good judgment, is an essential to the speculator.

3. Courage. That is, confidence to act on the  decisions of the mind. In speculation there is value in Mirabeau’s dictum: “Be bold, still be bold; always be bold.”

4. Prudence. The power of measuring the danger, together with a certain alertness and watchfulness, is very important. There should be a balance of these two, Prudence and Courage;Prudence in  contemplation, Courage in execution.
Lord Bacon says: “In meditation all dangers should be seen; in execution one, unless very formidable.”
Connected with these qualities,properly an outgrowth of them, is a third, viz:
promptness. The mind convinced, the act should follow. In the words of Macbeth; “Henceforth the
very firstlings of my heart shall be the firstlings of my hand.” Think, act, promptly.

5. Pliability. The ability to change an opinion,the power of revision. “He who observes,”says Emerson, “and observes again, is always formidable.”

The qualifications named are necessary to the makeup of a speculator, but they must be in well-balanced
combination. A deficiency or an overplus of one quality will destroy the effectiveness of all. The possession of such faculties, in a proper adjustment is, of course, uncommon. In speculation, as in life, few succeed,many fail.

These are his ‘Laws Absolute’:

1. Never Overtrade. To take an interest larger than the capital justifies is to invite disaster. With such an
interest a fluctuation in the market unnerves the operator, and his judgment becomes worthless.

2. Never “Double Up”; that is, never completely and at once reverse a position. Being “long,” for instance,do not “sell out” and go as much “short.” This may occasionally succeed, but is very hazardous, for should the market begin again to advance, the mind reverts to its original opinion and the speculator “covers up”and “goes long” again. Should this last change be wrong, complete demoralization ensues. The change in the original position should have been made moderately,cautiously, thus keeping the judgment clear and preserving the balance of the mind.

3. “Run Quickly,” or not at all; that is to say, act promptly at the first approach of danger, but failing
to do this until others see the danger, hold on or close out part of the “interest.”

4. Another rule is, when doubtful, reduce the amount of the interest; for either the mind is not satisfied with the position taken, or the interest is too large for safety. One man told another that he could not sleep on account of his position in the market; his friend judiciously and laconically replied: “Sell down to a sleeping point.”

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