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Larry Hite-Trend Following Legend Who Respects the Risks

  
  Education
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Larry Hite was featured in Market Wizards. Market Wizards is a must read for all trend followers. On one level you will learn various trading tips however on the other hand, do not be think that your trading will be so easy. Trend following as easy as it is, is very difficult.

Try to internalize some of Larry Hite’s trading tips for trend followers:

I have noticed that everyone who has ever told me that the markets are efficient is poor.

People develop systems and people will make mistakes. Some will alter their system or jump from system to system as each one has a losing period. Others will be unable to resist second-guessing the trading signals. People don’t change.

The very first rule we live by at Mint is: Never risk more than 1% of total equity on any trade. Secondly, we always follow the trends and we never deviate from our methods. In fact, we have a written agreement that none of us can ever countermand our system. Thirdly, diversify in two ways. A. we trade more markets worldwide than any other money manager. B. we use lots of different systems ranging from short term to long term.

Over-rated indicators: Overbought/oversold indicators.

Two basic rules: (1) if you don’t bet, you can’t win. (2) If you lose all your chips, you can’t bet.

Never trade counter to the market trend.

35 Things Will Destroy Your Trading Capital

  
  Education
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“What was the cause of the biggest draw downs in your trading accounts?”

  1. Having no exit strategy
  2. Being certain of your opinion on the direction of an asset
  3. Arrogance that you know how the trade will turn out
  4. Thinking that you are invincible
  5. Over-trading
  6. Believing that the market must go down based on a guru’s prediction
  7. Letting a guru convince you that you shouldn’t place a hard stop, but to wait for a reversal
  8. Incorrect position sizing
  9. Greed that causes you to trade too big and risk too much
  10. Margin
  11. No Hedges
  12. Not understanding that a Bull Market has ended
  13. Poor risk management
  14. Not knowing that earnings were about to come out on your stock
  15. Your ego takes over your trade
  16. You decide not to take your initial stop loss
  17. Believing a losing trade just has to reverse
  18. Buying a stock because it is a ‘value’ that drops another 50% from your entry
  19. Trading without a positive expectancy model
  20. Trading options without understanding how to place stops or use proper position sizing
  21. Thinking it “Has To Come Back”
  22. Buying and hoping
  23. Trading with no plan
  24. Not having trading rules for your system
  25. Not following your trading rules
  26. Averaging down
  27. Trading without an edge
  28. Keying error on the trade
  29. Not placing a stop
  30. Trying to out-guess the market
  31. Trading illiquid options
  32. Fighting the trend in your time frame
  33. Not fighting the natural impulses of greed and fear
  34. Using emotions for trading signals
  35. Using greed for position sizing

Observation and Analysis

  
  Education
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“Do not believe in anything simply because you have heard it. Do not believe in anything simply because it is spoken and rumored by many. Do not believe in anything simply because it is found written in your religious books. Do not believe in anything merely on the authority of your teachers and elders. Do not believe in traditions because they have been handed down for many generations. But after observation and analysis, when you find that anything agrees with reason, and is conducive to the good and benefit of one and all, then accept it and live up to it.”

– Siddhārtha Gautama (Buddha)

A commitment to reason, observation and analysis (of the self-reliant empirical variety) has been a winning trade for thousands of years.

Why don’t more people practice this, in markets and in life?

Laws of Speculation

  
  Education
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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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