Edwin LeFevre, The Reminiscences of a Stock Operator:

Buy Reminiscences of a Stock Operator Book Online at Low Prices in India |  Reminiscences of a Stock Operator Reviews & Ratings - Amazon.inThe speculator’s chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you you hope that every day will be the last day – and you lose more than you should had you not listened to hope to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and you get out – too soon. Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit. It is absolutely wrong to gamble in stocks the way the average man does.

I came out in fine shape. The newspapers said that Larry Livingston, the Boy Plunger, had made several millions. Well, I was worth over one million after the close of business that day. But my biggest winnings were not in dollars but in the intangibles: I had been right, I had looked ahead and followed a clear cut plan. I had learned what a man must do in order to make big money; I was permanently out of the gambler class; I had at least learned to trade intelligently in a big way. It was a day of days for me. (more…)

Thinking in Probabilities

  • Successful traders put themselves in alignment with the probabilities.
  • If you know a trade has a probability to make money, you’ll go ahead and put it on in a timely manner. Why would you not? It’s probably going to make money.
  • If you know a trade is only probable, you’ll put in a protective stop loss. Since it’s only probable, you’re mindful of other possibilities. It could  be a losing trade. Therefore, you protect yourself.

Taking Controlled Risk

  • Probability is the mathematical center of wise risk. Successful traders risk to win. For the risk taker, this uncertainty between small loss or large profit is where the fun is.
  • If you tend to over trade or over risk, you need to pull in your frame of safety. You need to establish trading guidelines that will protect you. You need to be alert to your propensity to over risk and step back every time you catch yourself over extending.
  • If you tend to avoid risk, you need to expand your frame of safety. You need to slowly add risk to your trading so that you become emotionally inoculated. Decrease your trading size and / or change to a trading vehicle that is less volatile. When this is comfortable, slowly increase size and volatility.

Use Length of Previous Move for Profit Target– #AnirudhSethi

  • The length or extend of any given “leg” within a given price trend (i.e. price move, in the same direction as the trend) will often approximate the length (extent) of the preceding leg, as measured from the extreme of the reaction following the leg.
    • Under the theory of action and reaction there is another rule that should be noted. It is that in an advancing market each stage of advance will tend to be equal to the previous advance, and in a declining market each stage of decline will also tend to be equal to the previous decline.
    • Again in this instance, the rule is not a precise one. In fact, in a normal bull market I would say that the stages of advance should tend to become broader, with the broadest move of all coming during the final phase of the bull market. In a normal bear market the tendency should be just the reverse.
    • On the basis of this rule, the technical market student can frequently accept profits against the trend to a good advantage on trades that are made in harmony with the trend movement.

Trade for Profits, Not for Excitement -#AnirudhSethi

  • I began to devote my resources to developing an unemotional, risk averse quantitative approach to the markets. Price data was subjected to rigorous computer testing to determine if they were recurrent statistical events. If so, then the events were subjected to further testing using strict risk parameters to determine if such a disciplined methodology could be consistently profitable.
  • Essentially, what I did was to take a highly charged, exhilarating profession and turn it into an actuarial process. I de-emotionalized markets and trading and reduced them to a probability study.
  • I discovered that, yes, I could risk a very small part of the farm, and make above-average returns with reasonable consistency. Yes, I could totally avoid any interpretations of chart patterns or underlying supply and demand that impact a particular market and my returns would not suffer. And yes, I could diversify into many markets, remain extremely disciplined, and still show an appealing return on investment.

European indices close mostly lower. UK’s FTSE 100 rises.

The major European stock indices are closing the day mostly lower. The exception is the UK’s FTSE 100 which saw gains on the day, but is all of its highs. The UK FTSE 100 was up 73.98 points at its peak. It is closing with the gain of around 29 points.

A look at the clothing levels it shows:

  • German DAX, -0.46%
  • France’s CAC -0.59%
  • UK’s FTSE 100 +0.39%
  • Spain’s Ibex -0.10%
  • Italy’s FTSE MIB -0.5%

Looking at the hourly chart of the German DAX, the recent rallies have been able to find sellers well ahead of the following 100 hour moving average (blue line in the chart below). Stay below the 100 hour moving average currently at 14074 (with the current price at 13925.59), is more bearish in the short term with more work to do. The low from last week reached reached 13791.52. That is the next target followed by the 38.2% retracement of the move up from the September 29 low. The low comes in at 13602.86.

Learn from Past Trading Mistakes— #AnirudhSethi

Once you’ve realised your error, you’ll be in great position to correct it.
One tragic loss was all it took to send me to my knees. 
Because of the magnitude of the loss, stayed away from trading for close to two years. 
During that time, was able to reflect on my successes and failures as trader and gain valuable insight.
Famous soybean trader Roy Longstreet once said, “Your first mistake educates but your second error kills,” and I’ve always found it to be an inspiring and instructive saying.

Get Your Confidence From Good Trade Management— #AnirudhSethi

Many traders, in my opinion, assume that all they need is run of good luck before they can move forward with confidence. 
Is it possible to maintain composure while on the losing end of trade?
My “confidence” has taken me through many ups and downs, but I’ve now realised that the key to success is not having more winning transactions than losing ones and being able to manage both.
realised that my optimistic outlook on life was directly related to the way dealt with disappointment. 
felt optimistic about my ability to recover from defeat.
If lost more than should have or went over my daily loss limit, felt terrible about myself instantly. 
So stopped doing the things that had been giving me that unpleasant sensation.
While may not be able to influence market conditions, do have complete say over my individual trades, including when and how much enter and exit the market, how many positions hold at once, and how much risk am willing to take.

Learn how to lose

Is learning to lose as important as winning? - PE BlogLivermore (speaking through the fictional character of Larry Livingston) complains how he’s made a series of trading mistakes that cost him a lot of money, although he wasn’t completely wiped out. The losses, he admits, were painful but educational:

“There is nothing like losing all you have in the world for teaching you what not to do,” he says. “And when you know what not to do in order not to lose money, you begin to learn what to do in order to win.”

After going broke three times in less than two years, Livermore has this advice: “Being broke is a very efficient educational agency.” He says that you learn little from your winners because they often take care of themselves. It’s the losers that will teach you lessons to last a lifetime. And as long as you don’t make the same mistake twice, you always have the opportunity to trade another day.

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