5 irrational beliefs that can lead traders astray.

  1. What goes up must come down and vice versa.  That’s Newton’s law, not the law of trading. And even if the market does eventually self-correct, you have no idea when it will happen. In short, there’s no point blowing up your account fighting the tape.
  2. You have to be smart to make money.  No, what you have to be is disciplined. If you want to be smart, write a book or teach at a university. If you want to make money, listen to what the market is telling you and trade to make money — not to be “right.”
  3. Making money is hard.  Nope. Sorry. Making money is actually easy. Statistically, you’re going to do it about half the time. Keeping it, now that’s the hard part.
  4. I have to have a high winning percentage to be profitable.  Not true. How often you are right on a trade is only half of the equation. The other half is how much do you make when you’re right and how much you lose when you’re wrong.  You can remember that with this formula: Probability (odds of it going up or down) x Magnitude (how much it goes up or down) = Profitability.
  5. To be successful, I have to trade without emotions. That is both wrong and impossible. You are human so you have emotions. Emotions can be a powerful motivator to your trading.

It isn’t a Lehman Moment if . . .

It isn’t a Lehman Moment . . .

• If people are calling it one.

• Unless somewhere in Germany there is a Landesbank up to its neck in trouble.

• If the endangered firm has a friend in its hour of need.

• if the CEO isn’t issuing denials and reassurances, or blaming speculators.

• if it doesn’t contaminate an entire industry.

He concludes that “So far, Lehman is still in a class of its own” — and I agree.

Go read the entire column here.  

Niccolò Machiavelli – Adapting To Change

The market environment has somewhat changed over the past few days. Former leaders are not acting as well as they used to and the jury is still out if we are headed towards a meaningful correction or if we are in the process of further constructive rotation. Further sector rotation would allow for the market to grind even higher and while doing so provide a new set of leading stocks. If you want to thrive as a trader you absolutely have to monitor changes in the market. Then you adapt and adjust your trading approach accordingly.

As I just finished reading Niccolò Machiavelli ‘The Prince’ a few  days ago I was struck by the following passage. The quote is obviously related to trading insofar as this is great insight and also a universal rule for success. You keep doing what you always did when things change – you get crushed. You adapt your approach when the environment you operate in changes – you succeed and prosper. Enjoy the quote.

This must suffice as regards opposition to fortune in general. But limiting myself more to particular cases, I would point out how one sees a certain prince today fortunate and tomorrow ruined, without seeing that he has changed in character or otherwise. I believe this arises in the first place from the causes that we have already discussed at length; that is to say, because the prince who bases himself entirely on fortune is ruined when fortune varies. I also believe that he is happy whose mode of proceeding accords with the needs of the times, and similarly he is unfortunate whose mode of proceeding is opposed to the times. For one sees that men in those things which lead them to the aim that each one has in view, namely, glory and riches, proceed in various ways; one with circumspection, another with impetuosity, one by violence, another by cunning, one with patience, another with the reverse; and each by these diverse ways may arrive at his aim. One sees also two cautious men, one of whom succeeds in his designs, and the other not, and in the same way two men succeed equally by different methods, one being cautious, the other impetuous, which arises only from the nature of the times, which does or does not conform to their method of proceeding. From this results, as I have said, that two men, acting differently, attain the same effect, and of two others acting in the same way, one arrives at his good and not the other. From this depend also the changes in fortune, for if it happens that time and circumstances are favourable to one who acts with caution and prudence he will be successful, but if time and circumstances change he will be ruined, because he does not change his mode of proceeding. No man is found able to adapt himself to this, either because he cannot deviate from that to which his nature disposes him, or else because having always prospered by walking in one path, he cannot persuade himself that it is well to leave it; and therefore the cautious man, when it is time to act suddenly, does not know how to do so and is consequently ruined; for if one could change one’s nature with time and circumstances, fortune would never change.

Intraday Update :Nifty Future-Bank Nifty

In Morning ,I had written to watch 5029-5038 level.Just kissed 5045 & started falling.

-Now ,While updating its trading at 5008 level.

What to expect ?

Thirsty Traders :Just see if not able to cross Today’s high till end session and trades below 5029 level.

Then expect slide upto 4980-4964 level.

If by chance breaks 4964 level with volumes then it will create panic and allround selling may start.

-Unexpected level of 4915-4899….Not ruled out.

Above 5038 level if trades with volumes /closes above this level then will see rally upto 5082-5097—5110-5137 level.

If not Today ,Then latest by Monday first session rally will fizzle out.Trade with levels ………….nothing else.Use eye and brain while u trade instead of watching Blue channel ,Movies.

Rally from 8815 to 9284 …..Without any Logic.

Again Today kissed Neckline and crashed.

Students of Technical Analysis watch chart instead of watching Blue channels babes.

Now ,While updating trading at 9152 level.

Below 9167 level ,Bears will  have upperhand.Suppose breaks 9138 with volumes then watch panic upto 9051-9022 level.

I will update more to our SUBSCRIBERS………!!

CINEVISTAAS :From morning till this time ,recieved more then 85 e-mail about this stock.

-Again telling and writing ,if u dont have patience…dont trade ,dont Invest.Last monthe in April we recommended HENKEL @ 28….and in one month it went upto 60 level.

-Mumbai people ….go and see yourself…..what is the story of this land.Technically mind blowing.The day some South Mumbai …Bull will see this story then sky will be limit.

Updated at 13:01/28th May/Baroda

Mr.Warren Buffett :Buy and Hold -Failed

From the wires today:

“OMAHA, Neb. (AP) — Warren Buffett’s company reported a 40 percent drop in second-quarter profit Friday because the improvement at Berkshire Hathaway Inc.’s operating companies couldn’t overcome $1.4 billion in paper losses on derivative contracts. Berkshire’s strong performances from its railroad, insurance and manufacturing businesses was overshadowed by the plummeting value of the Omaha company’s derivatives — many of which are tied to the value of four major stock markets.”

From Buffett himself in 2002:

“The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts. In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”

From Bloomberg recently:

“Buffett’s well known for his criticism of derivatives. Yet Berkshire in recent years has become a big player, with some $60 billion in derivatives contracts. Under any new derivatives regulation, Berkshire would be likely to have to produce collateral for new derivatives contracts it writes. This would limit the attractiveness of new derivatives deals for Buffett, who has boasted that Berkshire rarely does a deal that calls for it to produce collateral. But that’s not why Buffett has been pushing back against the financial reform bill in the Senate. Instead, Buffett says he’s concerned that the legislation would impose collateral requirements on existing contracts — which he says would be illegal. Sen. Ben Nelson, D-Neb., made the same case this week as he defected from the Democrats backing the financial reform bill. Whatever his logic, pushing back on derivatives reform has the interesting side effect of aligning Buffett, with his sterling reputation, with the widely derided Wall Street banks.”

Buy and hold? Buying strong businesses? Derivatives are weapons of mass destruction? Bailouts of many of the components of BRKA? Does anyone have the cajones to criticize Buffett? There has to be at least one emasculated weenie out there who will come on here and tell me that I can’t criticize America’s wealthiest just because he is rich. Right?

The Buffett myth is just that — a myth. If not for the fall 2008 bailouts, he would be on the senior circuit revising history along with Greenspan. Why my stark view on this lovely sunny morning in beautiful Southern California? Cause no matter how many books populate Amazon, all preaching about how you can become the next Buffett, they are all disingenuous fairy tales.