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Excerpt from Winning Methods of the Market Wizards

  
  Education
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Chapter 2: Hard Work

I am sure that the theme of this chapter comes as no surprise to you. We all know, (or at least most of us do) that to get anywhere in this life, no matter what your field may be, it is going to require some hard work along the way. There can’t be a harvest if you haven’t worked in the fields. And no where is this concept of hard work more evident than in the professional traders I have come to know over the years.

What is striking to me about this group of super-traders, the Market Wizards, is how almost every single one of them is a genuine workaholic. For these people, the level of commitment and dedication to trading is absolutely amazing, and it has engendered in them a performance level so intense and so consistent, it almost boggles the mind. When you look at these individuals, you find the kind of hard work that is almost inconceivable for most people to maintain even for one day, never mind as a lifestyle. But it is this difference in personality and commitment that makes the Market Wizards who they are, and accounts for much of their high levels of achievement.

In order for you to get a real sense of the kind of hard work we are talking about here, I think I should describe for you a couple of individuals and how they work. This will give you a good idea as to how intensely passionate they are about their pursuits.

 

David Shaw

David is a private, almost secretive individual, who has been running a very successful hedge fund for many years now. Basically, his fund is a very sophisticated form of arbitrage. Over the years, it has posted excellent results. (more…)

BETTER TRADING

  
  Education
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“Any thought put into your mind and nourished regularly, will produce results in your life.” John Kehoe

An affirmation is a statement made in the present about the future as if it had already occurred in the past. Let me say it more simply. An affirmation is a simple statement about what you want to become true in your life. You state it in the present tense as if it were already true. You repeat your hopes and dreams. You declare the opposite of your fears. For example, the fear that you could lose all your money becomes: “I grow my capital through consistently applying my winning methods.”

Be careful to word the affirmation in the present tense. Statements made in the future stay in the future. “Next month I’ll turn my trading around.” stays out there in the future. Now is when you need to turn the trading around.

Affirmations can be repeated to yourself silently or aloud. You can incant them with feeling or whisper them to yourself. You can record them and play them, or write them and read them. A good time to assert them is just as you’re falling asleep or waking up, or any other time of the day. You can say them while you drive or wait in a bank line or as you watch the market or manage a trade.

And here is a little miracle. You don’t have to believe the truth of the affirmation in order for it to have an effect. Of course, it’s better if you imagine it to be true or becoming true.

Sometimes it’s more believable if it’s a process statement. “I am slender” can change to “I am becoming slender.” “I am consistently profitable” changes to “I am becoming more consistently profitable.” There are times when the process is more credible than the reality.

You can also turn the statement into a question. “In what ways am I becoming a better trader?” “How am I becoming a more professional trader each year?” The mind accepts the truth of the question and searches for evidence. (more…)

Secret to trading success: U

  
Analysis, Education

“You are the weakest part of your system”. That is a defeatist statement and completely untrue. It makes your expectation to fail easier to accomplish and more importantly it makes failure easier to handle. It shifts the pressure away from you and unto fate.

Would you fly on an airline if their motto was “Our pilots are the weakest part.” I do not think so. You are your system. Even if your system is automated you added the inputs, parameters.

Taking responsibility for your action is not easy. Taking control of the outcomes of trading or life is a huge responsibility. You will have moments of weakness, but you are not weak. The market does not go straight up and either does the road to success.

No Patience on Entry

  
  Education
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Anticipating a signal that never comes is common for traders monitoring the market closely and eager to get some money working. For example, a good buying opportunity arises when a stock breaks from an ascending triangle. Jumping in ahead of the breakout is not an ideal situation because the probability of success buying an ascending triangle is not as good as buying a breakout from one. What causes this mistake? I think a fear of missing out on the maximum amount of profit or the fear of too much risk in buying a stock are the two most common mistakes. Essentially, the two guiding forces of the stock market are at work here; fear and greed. By buying early, we can realize a greater profit when the stock does breakout since we will have a lower average cost. Or, by buying early we can reduce risk since a breakout followed by a pull back through our stop will result in a smaller loss as we have a lower average cost. What tends to happen, however, is that the stock does not break out when expected and instead pulls back. This either leads to an unnecessary loss or an opportunity cost of the capital being tied up while other opportunities arise.

The Solution

The simple and obvious solution is to wait for the entry signal, but there are also some things you can do to help yourself stay disciplined. Rather than watch potentially good stocks tick by tick, use an alarm feature to alert you to when they actually make the break. Watching stocks constantly is somewhat hypnotic, and I think the charts can talk you in to making a trade. However, letting the computer watch the stock may help you avoid the stock’s evil trance. Another good solution is to focus on different thoughts when considering a stock. Don’t think about potential profits, don’t think about minimizing losses. Instead, focus in on the desire to execute high probability trades. It takes time to reprogram yourself, so persevere.

External and Internal rules for Traders

  
  Education
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Assuming you use rules in your trading, here’s an exercise that can bring new insight into analyzing your trade metrics. The next time you review your trade history (you do review it, right?) focus on the rules of the trade. Specifically, ask yourself how you responded to the rules.

For this exercise we will use two types of rules—external and internal. An example of an external rule would be one generated from your trading system. Let’s use a simple moving average cross as a buy order. An example of an internal rule would be discretionary in nature. Usually we can find these in statements like “I told myself that I’d trade smaller ahead of my vacation so I wouldn’t have to worry about positions and truly relax.”

Take a piece of paper and divide it into two columns; one for external and one for internal. Now process your prior trades to see which types of rule you followed and didn’t follow. Take it a step further to see which type of rule had larger profits or losses over time. See if there’s a correlation between length of trade and type of rule. Perhaps there’s a common thread between losing trades and not following your internal rules. If so, this would suggest a lack of discipline on your part which can be fixed by creating an external rule to avoid or lessen losses in the future. Have fun with the exercise but approach it with the intent to improve your trading. (more…)

3 Dos and Don’ts Most Traders Learn the Hard Way from Market Wizard Mark Minervini

  
  Education
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The following article is an excerpt from Trade Like a Stock Market Wizard: How to Achieve Super Performance in Stocks in Any Market by Mark Minervini with permission from McGraw Hill Publishing.

How to Handle a Losing Streak

A losing streak usually means it’s time for an assessment. If you find yourself getting stopped out of your positions over and over, there can only be two things wrong:

1. Your stock selection criteria are flawed.

2. The general market environment is hostile.

Broad losses across your portfolio after a winning record could signal an approaching correction in a bull market or the advent of a bear market. Leading stocks often break down before the general market declines. If you’re using sound criteria with regard to fundamentals and timing, your stock picks should work for you, but if the market is entering a correction or a bear market, even good selection criteria can show poor results. It’s not time to buy; it’s time to sell or even possibly go short. Keep yourself in tune with your portfolio, and when you start experiencing abnormal behavior, watch out. Jesse Livermore said, “I’m never afraid of normal behavior but abnormal behavior.” (more…)

Trading Wisdom

  
  Education
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Traders who are eternal optimists get absolutely killed because they have a habit of staying in long after the trade has turned into a loser. – Dan Zanger
Good trading is not about being right, it’s about trading right. If you want to be successful, you need to think of the long run and ignore the outcomes of individual trades. – Curtis Faith
Human beings are risk seekers when faced with negative outcomes and risk averse when faced with positive outcomes.
If you can’t wait for good setups, you will be ready for them with less cash to trade. – Dan Zanger

10 KEYS TO SUCCESS

  
  Education
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1.  How you think is everything – always be positive.  Think success, not failure.  Beware of a negative environment.

2.  Decide upon your true dreams and goals.  Write down your specific goals and develop a plan to reach them.

3.  Take action.  Goals are nothing without action.  Don’t be afraid to get started.  Just do it.

4. Never stop learning.  Go back to school or read books.  Get training and acquire skills.

5.  Be persistent and work hard.  Success is a marathon, not a sprint.  Never give up.

6. Learn to analyze details.  Get all the facts, all the input.  Learn from your mistakes.

7. Focus your time and money.  Don’t let other people or things distract you.

8.  Don’t be afraid to innovate.  Be different.  Following the herd is a sure way to mediocrity.

9.  Deal and communicate with people effectively.  No person is an islan.  Learn to understand and motivate others.

10.  Be honest and dependable.  Take responsibility.  Otherwise, nos. 1-9 won’t matter.

The 12 Steps and Counting

  
  Education
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I admitted I was powerless over my affliction to taking small profits.

I made a decision to turn myself over to the care of those who affably might help me as God has helped others.

I made a searching inventory of all the losses I have taken.

I admitted to other human beings especially the spec list the nature of my wrongs.

I am ready and willing, but perhaps not able, to remove these defects.

I humbly ask all my supporters and friends to help me remove them. (more…)

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