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Nicolas Darvas has inspired traders for many generations. His book, “How I Made 2,000,000 in the Stock Market” is one that you’ll find on many recommended reading lists including my own. While some have argued that much of Darvas’ success had to do with lucky timing, his books are still widely read and for good reason.
A lot of traders can identify easily with Darvas because he went through the process of learning how to trade much like most people do today. Darvas began by first looking for the “secret” to the market. And, just like all of us have found, after finding no success from trading on the stock tips of others including brokers and expensive newsletters, Darvas figured out that he ultimately had to develop a trading system on his own. He accomplished that feat by committing himself to years of study of the market and from learning from his own mistakes. His determination, perseverance, and constant self-evaluation offers an excellent model for all traders to follow.
In continuing a series of posts where I share my notes I’ve taken (and refer to from time to time) after reading the books and methods of others, here are some things you may find of interest about Nicolas Darvas and his approach:
Trading Lessons From Nicolas Darvas:
- There are no good or bad stocks. There are only stocks that rise in price and stocks that decline in price, and that price is based on the laws of supply and demand in the marketplace
- “You can never go broke taking a profit” is bad advice that will result in overtrading and cutting winners short. Selling winners and holding losers is to be avoided at all times (more…)
The stock market is a wonderful reallocation machine:
A Personality Questionnaire for Traders
The following questionnaire asks you to assess your emotional experience during your trading. Specifically, you’ll be rating how often you’ve experienced the following feelings over the past two weeks. Below, I’ll explain how to score the questionnaire; please complete the items before looking at the scoring. My next post will explain how to interpret your results.
Please use the following scale for your responses:
1 = rarely
2 = occasionally
3 = sometimes
4 = often
5 = most of the time
1) I feel happy when I’m trading _____
2) I feel stressed when I’m trading _____
3) I feel alert and energetic when I’m trading _____
4) I feel discouraged when I’m trading _____
5) I feel capable of succeeding at my trading _____
6) I blame myself when my trading doesn’t work out _____
7) I feel satisfied with my trading results _____
8) I feel edgy and frustrated when I’m trading _____
9) I feel in control of what happens in my trading _____
10) I make impulsive decisions when I’m trading _____
SCORING
Add the scores for the odd items. That is your positive emotional experience score: _____
Add the scores for the even items. That is your negative emotional experience score: ____
The ratio of your positive to negative experience is one of the most important psychological contributors to your trading performance.
Create WEALTHY MINDSET
This is pretty amazing
Kseniya Simonova’s Amazing Sand Drawing
George Soros- “The Master of Speculation”
Soros: “The Myth”
Soros’ “The Alchemy of Finance” is a seminal investment book… it should be read, underlined, and thought out page-by-page, concept-by-idea. He’s the best pure investor ever… probably the finest analyst of the world in our time.”
-Barton Biggs
Soros: “The Reality”
“My father will sit down and give you theories to explain why he does this or that. But I remember seeing it as a kid and thinking, Jesus Christ, at least half of this is B.S., I mean, you know the reason he changes his position in the market or whatever is because his back starts killing him. It has nothing to do with reason. He literally goes into a spasm, and it’s his early warning sign.”
-George Soros’ son, Robert
George Soros on Himself
“My approach works not by making valid predictions but by allowing me to correct false ones.”
-George Soros
Soros and Exits
“When George is wrong, he gets the hell out. He doesn’t say, ‘I’m right, they’re wrong.’ He says, ‘I’m wrong,’ and he gets out, because if you have a bad position on, it eats you away. All you do is think about it — at night, at your home. It consumes you. Your eye is off the ball completely. This is a tough business. If it were easy, meter maids would be doing it.”
– Alan Raphael (Ex-Soros CIO)
During and After the Trade- 16 POINTS
1. What’s your game plan if it goes against you and threatens your survival?
2. Will you be able to get out? Did you take that into account in your workout?
3. More typically, what will you do if it goes way against you and then meanders back to give you a breakeven? Or if it immediately goes for you or aginst you?
4. Would you be willing to take a ½% profit if you get it in the first 10 minutes?
5. Did you test whether taking small opportunistic profits turns a winning system into a bad one?
6. How will unexpected cardinal events affect you like the “regrettably,” or the pre-annnouncement of something you expected for the next open? And what happens if you’re trading an individual stock and the market goes up or down a few percent during the day, or what’s the impact of a related move in oil or interest rates?
7. Are you sure that you have to monitor the trade during the day? If you’re using stops, then you probably don’t have to but then your position size would have to be reduced so much that your chances of a reasonable profit taking account of vig are close to zero. If you’re using 10% of your capital on a trade, they you’ll have to monitor it for survival. But, but, but. Are you sure you won’t be called away by phone calls, or the others?
8. Are you at equilibrium in your personal life? You’re not as talented as Tiger Woods, and you probably won’t be able to handle distressed calls for money or leaks on the home front. Are you sure that if you’re losing you won’t get hit on the head with a 7-iron, or berated until you have to give up at the worst possible time? (more…)
7 Lessons for Traders
1. You always have to have cash, especially when no one else has it. (John Burbank of Passport Capital has said the same: “Cash is most valuable when others don’t have it.”)
2. No free lunch- it’s not free, or it’s not lunch.
3. You can’t change people! You can change yourself, but not others.
4. You only see reality under extreme stress- you want to get to know someone, you need to see them under extreme stress.
5. Volatility is not risk!
6. Always assume you will have bad luck.
7. Few variables to win. Once you have to think about more than 3 variables, your odds of winning are low.
Most people overestimate what they can do in one year and underestimate what they can do in ten years. ―Bill Gates
