Livermores Seven Trading Lessons

Lesson Number One: Cut your losses quickly.

As soon as a trade is contemplated, a trader must know at what point in time he’ll be proven wrong and exit a position. If a trader doesn’t know his exit before he takes the entry, he might as well go to the racetrack or casino where at least the odds can be quantified.

Lesson Number Two: Confirm your judgment before going all in.

Livermore was famous for throwing out a small position and waiting for his thesis to be confirmed. Once the stock was traveling in the direction he desired, Livermore would pile on rapidly to maximize the returns.

There are several ways to buy more in a winning position — pyramiding up, buying in thirds at predetermined prices, being 100% in no more than 5% above the initial entry — but the take home is to buy in the direction of your winning trade –  never when it goes against you.

Lesson Number Three: Watch leading stocks for the best action.

Livermore knew that trending issues were where the big money would be made, and to fight this reality was a loser’s game.

Lesson Number Four: Let profits ride until price action dictates otherwise. Continue reading »

European Bank Stress Test – Full List of Banks to be Examined

Details of what the much talked about stress test of European banks will examine is out. A total of 91 European banks will be involved in the stress tests (full list of banks being tested are shown below). The test which is being overseen by the Committee of European Banking Supervisors (CEBS) states:

The objective of the extended stress test exercise is to assess the overall resilience of the EU banking sector and the banks’ ability to absorb further possible shocks on credit and market risks, including sovereign risks, and to assess the current dependence on public support measures.

The exercise is being conducted on a bank-by-bank basis using commonly agreed macro-economic scenarios (baseline and adverse) for 2010 and 2011, developed in close cooperation with the ECB and the European Commission.

The macro-economic scenarios include a set of key macro-economic variables (e.g. the evolution of GDP, of unemployment and of the consumer price index), differentiated for EU Member States, the rest of the EEA countries and the US. The exercise also envisages adverse conditions in financial markets and a shock on interest rates to capture an increase in risk premia linked to a deterioration in the EU government bond markets.

On aggregate, the adverse scenario assumes a 3 percentage point deviation of GDP for the EU compared to the European Commission’s forecasts over the two-year time horizon. The sovereign risk shock in the EU represents a deterioration of market conditions as compared to the situation observed in early May 2010.

The scope of the stress testing exercise has been extended to include not only the major EU cross-border banking groups but also key domestic credit institutions in Europe. {…}

The results of the stress test will be disclosed, both on an aggregated and on a bank-by-bank basis, on 23 July 2010.

It should be noted that a stress testing exercise does not provide forecasts of expected outcomes, but rather a what-if analysis aimed at supporting the supervisory assessment of the adequacy of capital of European banks. {…}

We all remember the stress test that was applied to American financial institutions in early 2009. It took months for the Federal Reserve to decide how to conduct the testing and then how to release the results so as not to upset anyone. Will the Europeans tell it like it is, or will they follow Tim Geithner’s past action of ‘just don’t say much’ ?

The full list of European banks that will undergo stress testing:

 

Austria

  • ERSTE GROUP BANK AG
  • RAIFFEISEN ZENTRALBANK OESTERRREICH AG (RZB)

Belgium

  • KBC GROUP
  • DEXIA

Cyprus

  • MARFIN POPULAR BANK PUBLIC CO LTD
  • BANK OF CYPRUS PUBLIC CO LTD

Denmark

  • DANSKE BANK
  • JYSKE BANK A/S
  • SYDBANK A/S

Finland

  • OP-POHJOLA GROUP

France

  • BNP PARIBAS
  • CREDIT AGRICOLE
  • BPCE
  • SOCIETE GENERALE

Germany

  • DEUTSCHE BANK AG
  • COMMERZBANK AG
  • HYPO REAL ESTATE HOLDING AG
  • LANDESBANK BADEN-WÜRTTEMBERG
  • BAYERISCHE LANDESBANK
  • DZ BANK AG DT. ZENTRAL-GENOSSENSCHAFTSBANK
  • NORDDEUTSCHE LANDESBANK -GZ-
  • DEUTSCHE POSTBANK AG
  • WESTLB AG
  • HSH NORDBANK AG
  • LANDESBANK HESSEN-THÜRINGEN GZ
  • LANDESBANK BERLIN AG
  • DEKABANK DEUTSCHE GIROZENTRALE
  • WGZ BANK AG WESTDT. GENO. ZENTRALBK

Greece

  • NATIONAL BANK OF GREECE
  • EFG EUROBANK ERGASIAS S.A.
  • ALPHA BANK
  • PIRAEUS BANK GROUP
  • AGRICULTURAL BANK OF GREECE S.A. (ATEbank)
  • TT HELLENIC POSTBANK S.A.

Hungary

  • OTP BANK NYRT.
  • JELZÁLOGBANK NYILVÁNOSAN M?KÖD? RT.

Ireland

  • BANK OF IRELAND
  • ALLIED IRISH BANKS PLC

Italy

  • UNICREDIT
  • INTESA SANPAOLO
  • MONTE DEI PASCHI DI SIENA
  • BANCO POPOLARE – S.C.
  • UNIONE DI BANCHE ITALIANE SCPA (UBI BANCA)

Luxembourg

  • BANQUE ET CAISSE D’EPARGNE DE L’ETAT
  • BANQUE RAIFFEISEN

Malta

  • BANK OF VALLETTA (BOV)

?Netherlands

  • ING Bank
  • RABOBANK GROUP
  • ABN/ FORTIS BANK NEDERLAND (HOLDING) N.V
  • SNS BANK

Poland

  • POWSZECHNA KASA OSZCZ?DNO?CI BANK POLSKI S.A. (PKO BANK POLSKI)

Portugal

  • CAIXA GERAL DE DEPÓSITOS
  • BANCO COMERCIAL PORTUGUÊS BANCO COMERCIAL PORTUGUÊSS.A. (BCP OR MILLENNIUM BCP)
  • ESPÍRITO SANTO FINANCIAL GROUP S.A. (ESFG)
  • BANCO BPI

Slovenia

  • NOVA LJUBLJANSKA BANKA (NLB)

Spain

  • BANCO SANTANDER S.A.
  • BANCO BILBAO VIZCAYA ARGENTARIA S.A. (BBVA)
  • JUPITER –  CAJA DE AHORROS Y MONTE DE PIEDAD DE MADRID (CAJA MADRID); CAJA DE AHORROS DE VALENCIA, CASTELLÓN Y ALICANTE (BANCAJA); CAIXA DÉSTALVIS LAIETANA; CAJA INSULAR DE AHORROS DE CANARIAS; CAJA DE AHORROS Y MONTE DE PIEDAD DE AVILA; CAJA DE AHORROS Y MONTE DE PIEDAD DE SEGOVIA; CAJA DE AHORROS DE LA RIOJA.
  • CAIXA-  CAJA DE AHORROS Y PENSIONES DE BARCELONA (LA CAIXA); CAIXA DÉSTALVIS DE GIRONA.
  • CAM –  CAJA DE AHORROS DEL MEDITERRÁNEO (CAM); CAJA DE AHORROS DE ASTURIAS; CAJA DE AHORROS DE SANTANDER Y CANTABRIA; CAJA DE AHORROSY MONTE DE PIEDAD DE EXTREMADURA.
  • BANCO POPULAR ESPAÑOL, S.A.
  • BANCO DE SABADELL, S.A.
  • DIADA –  CAIXA DÉSTALVIS DE CATALUNYA; CAIXA DÉSTALVIS DE TARRAGONA: CAIXA DÉSTALVIS DE MANRESA.
  • BREOGAN – CAJA DE AHORROS DE GALICIA; CAIXA DE AFORROS DE VIGO, OURENSE E PONTEVEDRA (CAIXANOVA).
  • MARE NOSTRUM –  CAJA DE AHORROS DE MURCIA; CAIXA DÉSTALVIS DEL PENEDES; CAJA DE AHORROS Y MONTE DE PIEDAD DE LAS BALEARES (SA NOSTRA); CAJA GENERAL DE AHORROS DE GRANADA.
  • BANKINTER, S.A.
  • ESPIGA – CAJA DE AHORROS DE SALAMANCA Y SORIA (CAJA DUERO); CAJA DE ESPAÑA DEINVERSIONES CAJA DE AHORROS Y MONTE DE PIEDAD (CAJA ESPAÑA).
  • BANCA CIVICA, S.A.
  • CAJA DE AHORROS Y M.P. DE ZARAGOZA, ARAGON Y RIOJA
  • ANTEQUERA Y JAEN (UNICAJA)
  • BANCO PASTOR, S.A.
  • CAJA SOL –  MONTE DE PIEDAD Y CAJA DE AHORROS SAN FERNANDO DE HUELVA, JEREZ Y SEVILLA (CAJA SOL); CAJA DE AHORRO PROVINCIAL DE GUADALAJARA.
  • BILBAO BIZKAIA KUTXA,AURREZKI KUTXA ETA BAHITETXEA
  • UNNIM – CAIXA DÉSTALVIS DE SABADELL; CAIXA DÉSTALVIS DE TERRASSA; CAIXA DÉSTALVIS COMARCAL DE MANLLEU.
  • CAJA DE AHORROS Y M.P. DE GIPUZKOA Y SAN SEBASTIAN
  • CAI –  CAJA DE AHORROS Y MONTE DE PIEDAD DEL CÍRCULO CATÓLICO DE OBREOS DEBURGOS (CAJA CÍRCULO); MONTE DE PIEDAD Y CAJA GENERAL DE AHORROS DE BADAJOZ; CAJA DE AHORROS DE LA INMACULADA DE ARAGÓN.
  • CAJA DE AHORROS Y M.P. DE CORDOBA
  • BANCA MARCH, S.A.
  • BANCO GUIPUZCOANO, S.A.
  • CAJA DE AHORROS DE VITORIA Y ALAVA
  • CAJA DE AHORROS Y M.P. DE ONTINYENT
  • COLONYA – CAIXA D’ESTALVIS DE POLLENSA

Sweden

  • NORDEA BANK
  • SKANDINAVISKA ENSKILDA BANKEN AB (SEB)
  • SVENSKA HANDELSBANKEN
  • SWEDBANK

?United Kingdom

  • ROYAL BANK OF SCOTLAND (RBS)
  • HSBC HOLDINGS PLC
  • BARCLAYS
  • LLOYDS BANKING GROUP

Clever take on how fraudulent the banking system and Wall Street was and still is 15 Lessons from the Movie The Big Short

Embedded image permalink15 Trading Lessons from the The Big Short

  1. It’s possible to be right about a market move, but your timing can be too early.
  2. If you trade too big, you can lose all your capital before you have the time to be proven right.
  3. AAA agency ratings are more to make their clients who sell bonds happy than to protect investors.
  4. In markets that are not liquid, you can get in trouble by being right but your assets not reflecting it with a big move.
  5. When there is no risk of ruin to bankers and mortgage brokers they will risk the ruin of their companies and the world economy in pursuit of quick and easy money.
  6. When there is little ‘skin in the game’ bankers and mortgage brokers take risks that they are not held accountable for.
  7. Macro traders have to be able to take a lot of heat and losses on their positions before they are right.
  8. Hedge fund investors want consistent returns on their money and not drawdowns. They are quick to pull their money out during a losing streak.
  9. You want to have a large risk/reward ratio on your trades. Betting $1 for a chance to make $20 is a good trade.
  10. There is a lot of fraud in the financial world.
  11. Financial fraud is almost never prosecuted in the banking world.
  12. The SEC has little oversight in the banking industry.
  13. Bailouts can cause you to lose on a trade you would have made money on.
  14. You have to take your profits off the table while they are available.
  15. “Whenever you find yourself on the side of the majority, it is time to pause and reflect.” – Mark Twain

PESSIMISM-OPTIMISM

glass-half-fullPESSIMISM

Pessimism is defined as a tendency to stress the negative or unfavorable or take the gloomiest possible view.  Obviously, the successful trader is not pessimistic. If so, then he would never trade in the first place or if he did, he would only trade short; a “permabear” if you will.  A purely pessimistic trader would also doubt his edge, doubt any market direction, only trade after the move has happened, cut his winners short while allowing his losers to run, overtrade, under invest, etc etc.  In other words, a purely pessimistic trader would break all the rules.

OPTIMISM

Optimism is defined as the inclination to anticipate the best possible outcome while believing that most situations work out in the end for the best.  The unsuccessful trader, especially the beginning trader, is optimistic about getting rich in the stock market.  No matter what every trade will eventually make money he reasons.  The optimistic trader also loads up on a “sure thing”, seeks to justify every trade via confirmation bias, adds to losers, brags about winners while hiding losers, refuses to develop as a trader, etc etc. Just as with pessimism, the optimistic trader breaks the rules.

So can we find a happy medium? I believe so but only when we put the words and their meanings together.