Great excerpt from Isaacson's Benjamin Franklin. A story of he and Adams sharing a bed one night.
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rssThe Flow Of Money Explained
Money and investment capital are very picky things. They are constantly flowing from those who know how to manage it, to those who do not. Money is not static, it is in constant flux. This is why a person that starts out poor in America can end up wealthy, and also why generational wealth can dissolve in one generation due to bad management. The flow of money is why a lottery winner that wins a jackpot and does not know how to manage it can quickly find themselves in bankruptcy. No amount of money will overcome consistently bad decisions. In a free market, capitalistic system, money flows continually to those that create value and away from those who do not.
- Money leaves those who risk it’s loss too many times, and ends up with those that protect it and make it grow.
- Money flows from consumers of goods and services to the owners of the businesses that provide the right products.
- Money flows to entrepreneurs when they create desirable goods and services. Money flows away from consumers that do not have self control.
- Money flows to employees that develop skills that employers will pay a premium for. Little money flows to employees that lack skills, or the work ethic to attain them.
- Money flows from customers to businesses.
- Money flows to innovators and away from outdated, stagnant businesses.
- Money flows to well managed businesses and away from mismanaged ones.
- Money flows from bad traders to good traders.
Psychology Vs. Adaptation
The biggest question I have here is when do you ‘adapt’ and when do you stick with your trading strategy.
We do not know whether our strategies truly work… how do we know if we have just been ‘lucky’ verses by ‘smart’. (more…)
The silence of the night
A Sufi master and his disciple were walking in an African desert. When the night fell, both of them built a tent and prepared to rest.
“What a silence,” observed the disciple.
“Never say ‘what a silence’,” answered the master. “Always say: I am not being able to listen to nature.”
10 Trading Quotes
“Good investing is a peculiar balance between the conviction to follow your ideas and the flexibility to recognize when you have made a mistake.“ –Michael Steinhardt
Do not stay bullish or bearish go with the current flow of the market>
“There is only one side of the market and it is not the bull side or the bear side, but the right side.”-Jesse Livermore
Putting it all together, it is more than just numbers>
“Successful trading depends on the 3M`s – Mind, Method and Money. Beginners focus on analysis, but professionals operate in a three dimensional space. They are aware of trading psychology their own feelings and the mass psychology of the markets. Each trader needs to have a method for choosing specific stocks, options or futures as well as firm rules for pulling the trigger – deciding when to buy and sell. Money refers to how you manage your trading capital.” – Alexander Elder
The money is in the primary market trend, not jumping in and out>
“I think it was a long step forward in my trading education when I realised at last that when old Mr. Partridge kept on telling other customers, “Well, you know this is a bull market!” he really meant to tell them that the big money was not in the individual fluctuations but in the main movements-that is, not in reading the tape but in sizing up the entire market and its trend.” – Jesse Livermore
This is one of the best ways i Know to measure short term trends, and be on the right side of the primary moves>
“The 10 day exponential moving average (EMA) is my favourite indicator to determine the major trend. I call this “red light, green light” because it is imperative in trading to remain on the correct side of moving average to give yourself the best probability of sucess. When you are trading above the 10 day, you have the green light, the market is in positive mode and you should be thinking buy. Conversely, trading below the average is a red light. The market is in a negative mode and you should be thinking sell.” – Marty Schwartz
Why it is so important to let your winners run and cut your losers short>
“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you‘re wrong.” -George Soros
Eliminating the risk of ruin in one easy step>
By risking 1%, I am indifferent to any individual trade. Keeping your risk small and constant is absolutely critical.” Larry Hite.
Never add to a losing position becasue you are fighting the trend>
“Losers average losers.” this was posted in Paul Tudor Jones’ Office
This is successful stock trading summarized>
“My basic philosophy is: Expose your portfolio to the best stocks that the market has to offer and cut your losses very quickly when you’re wrong. That one sentence essentially describes my strategy.” – Mark Minervini
Trend Trading in a nut shell>
“It is always the best discretion to let the market show us where it is going and just simply follow (this would be prudent), rather than predict where the market is going and place a position (this would be gambling).” -Anne-Marie Baiynd
Every day, even when not productive learn or experience something new that can expand your mind and skills.
Politicians & Prostitutes
Math people problems.
3 Types of Traders & 4 Questions
An egotistical trader is more likely to argue with the markets, potentially leading to huge losing days or possible account blow-outs. You don’t need to win on every trade, or even every trading day, or every trading week.
A humble trader is able to admit that his trading is creating nothing but losses that day, and stop trading until the markets are better suited to his/her style. A humble trader is less likely to double-up into excessively risky trades, in order to ‘get back even’ on the trade or on the day. A humble trader has nothing to prove, to anyone, and can freely admit mistakes to themself and others, enabling them to quickly and easily react to what the market is telling them, with little regard for it’s contradiction to what he/she may have expected only minutes earlier.
Conversely, and egotistical trader might confidently tell his friends ‘what is going to happen’ and is unwilling or unable to subsequently change his mind when the market tells him otherwise. Once he’s made a public proclamation, he can’t go back on his ‘call’ or he might appear to be wrong.
The successful trader can’t tie up their self image or self worth on a single trade, or a single trading day. Keeping your attitude humble enables you to simply treat each and every trade as individually irrelevant, and allows you to focus on doing what’s right, and not being right.”
I’ll close with the questions I ask myself about each trade at the end of the day:
1. Was it a valid setup?
2. Did I wait for confirmation of the setup and follow my rules for entry?
3. Did I implement my risk management plan?
4. Did I manage the trade according to my rules, taking profits at or beyond the initial target, never earlier unless a valid stop-and-reverse signal appeared?“A successful trader is humble, not egotistical. The trader that knows it all, will typically quickly be proven wrong by the market. The humble attitude leads a trader to be willing to admit mistakes quickly, close out losing trades, and move on without loss of confidence.
25 Points -Before the Trade
1. Do you know the name and numbers of all your counterparts, especially if your equipment breaks down?
2. When does your market close, especially on holidays?
3. Do you have all the equipment you’ll need to make the trade, including pens, computers, notebooks, order slips, in the normal course and in the event of a breakdown?
4. Did you write down your trade and check it to see for example that you didn’t enter 400 contracts instead of the four that you meant to trade?
5. Why did you get into the trade?
6. Did you do a workout?
7. Was it statistically significant taking into account multiple comparisons and lookbacks?
8. Is there a prospective relation between statistical significance and predictivity?
9. Did you consider everchanging cycles?
10. And if you deigned to do a workout the way all turf handicappers do, did you take into account the within-day variability of prices, especially how this might affect your margin and being stopped out by your broker? (more…)