Perfect Quote For Today's Sentiment in Market : NO PRICE IS TOO LOW FOR A BEAR OR TOO HIGH FOR A BULL
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rssDonchian: Forbes Circa 1982
An excerpt from Forbes circa 1982:
The fundamentalists — a decided majority among successful investors — look on chartism somewhat the way physicists look on parapsychology. They are probably correct to regard them so, but there is no rule that does not have an exception. Dick Donchian seems to be that exception. Donchian differs from many a chart watcher: He doesn’t predict price movements, he just follows them. His explanation for his success is simple and as old as the Dow Theory itself: “Trends persist.” He will buy a hog or Treasury bond future after an upswing is under way, and sell it only after the price has begun to tumble. He misses some of the profit, but that’s part of the discipline of his style of investing. “A lot of people say things like: ‘Gold has got to come down. It went up too fast.’ That’s why 85% of commodities investors lose money,” he says. Donchian gained that wisdom the hard way. His Futures Inc., the first publicly offered commodities fund, came out in 1948 at $10 a share. It was before its time — or Donchian’s. “When I started trading I was bearish,” he recalls. “Cocoa seemed too high. So we took a short position at 30 cents, and it went down to 19. We made a lot of money at first; that was the worst thing that could happen. I looked around for another commodity that was overvalued. Coffee was making a new high of 20 cents, so we took a short position, and it went up to $1. I made a rule never to be a price trader. There’s no such thing as too high a price or too low a price.” Futures Inc. went as low as 4 cents a share before finally being dissolved…The essence of trend-following, however, is always this: Buy on a rising price and sell on a falling price. That sounds like buying dear and selling cheap, but it works, if prices move not in random walks but in long strides.
The Dollar Meltdown: Book Review
I had the pleasure of reading a final finished copy of The Dollar Meltdown by Charles Goyette.
Congressman Ron Paul offers an opinion on the front cover to which I certainly concur: “Goyette does a great job explaining why America faces a looming financial crisis and outlines commonsense strategies for individuals to protect themselves and their families. This book truly is a must read.”
Before publication, I read a preliminary copy which explains this quote on the back jacket “The Dollar Meltdown is the definitive guide to where we are, how we got here, and what the best investment opportunities are looking ahead, regardless of one’s personal views on the raging inflation/deflation debate”
Others on the back jacket endorsing the book include Jim Rogers, Lew Rockwell, and Peter Schiff.
Step by step Goyette outlines Where we are, How we got here, and What to do. The book is a nice blend of facts, humor, and practicality. It is easy reading and very difficult to put down. (more…)
"The more you know, the more you know you don't know shit" -Naked Truth
Take Print Out & Keep it on Your Trading Desk
4 Type of Market Cycles
1) Bottoming process – At market lows, we tend to see an elevation of volume and volatility and a high level of market correlation, as stocks are dumped across the board. Selling pressure far exceeds buying pressure and sentiment becomes quite bearish. At important market bottoms, we see price lows that are not confirmed by market breadth, as strong stocks begin to diverge from the pack and attract buying interest. At those bottoms, we also find a rise in buying pressure and a reduction of selling pressure, as fresh market lows fail to attract new selling interest.
2) Market rise – With the drying up of selling, low prices attract buying from longer timeframe participants as well as shorter-term opportunistic ones. The market rises on strong buying pressure and low selling pressure, and the rise generates sufficient thrust to generate a good degree of upside momentum. Volatility and correlation remain relatively high during the initial lift off from the lows and breadth is strong. Dips are bought and the rise is sustained.
3) Topping process – The market hits a momentum peak, often identifiable by a peak in the number of shares registering fresh highs. Selling from this peak generally exceeds the level of selling seen during the market rise, but ultimately attracts buyers. Weak stocks begin to diverge from the pack and fresh price highs typically occur with breadth divergences and lower levels of correlation. New buying lacks the thrust of the earlier move from the lows and volatility wanes. By the time we hit a price peak for the cycle, divergences are clear, volatility is low, both buying pressure and selling pressure are low, and sentiment remains bullish.
4) Market decline – Fresh selling creates a pickup in correlation and volatility, as short-term support levels are violated and selling pressure exceeds buying pressure. Breadth turns negative and the bulk of stocks now move lower.
Castles Made Of Sand
Jimi Hendrix was an extraordinary guitarist, but most people focused just on his guitar playing abilities, not realizing his lyrics were often quite poetic. In one song, he sings “Castles made of sand, fall in the sea, eventually.” This is a great phrase to think about while trading.
There are two good lessons for traders in this simple song lyric. First, just as you should not trade based on a faulty idea, you should not use sand as a building material. Second, you need a solid trading plan as your foundation – without it, you’ll slip into the sea, where 90% of traders reside. Let’s look a bit more at both ideas.
First, you need to trade with a sound concept. This means you can throw all those hot tips out the window, and ignore the talking heads on television. What you need to do is have an idea or strategy that has been properly researched and tested. Then, you need the emotional power to trade the proven idea as is, without fail. Obviously, there are a lot to these two steps, but if you ignore them your trading house might as well be built of sand.
Second, a trading plan is essential to have a solid foundation, BEFORE you enter the markets with real money. What is involved in a trading plan? A good trading plan is written just like a business plan, since if you don’t treat trading as a business, you are destined to fail. So, all the sections that make up a good business plan (Mission, Products, Operation, Strategies, Disaster Plan, Financials, etc) should be in your trading plan. The more time you spend on this plan, the stronger your foundation will Be. (more…)
If Trading is War, Is All Fair?
An article in today’s New York Times focuses on high-frequency traders and the efforts that they are making to avoid regulations that may limit their growing power in the markets.
According to the article, “Critics say traders with access to the fastest machines win at the expense of ordinary investors by seizing on the best deals and turning fast profits before other traders.”
Many attribute last May’s “Flash Crash” to high-frequency trading, although according the article, “Regulators did not blame high-frequency traders for causing the sell-off.”
High-frequency trading firms defend that the technology they utilize to build their business is part of “stock-exchange modernization” and helping to create “a level playing field.”
How do you feel about high-frequency trading? Has its rise affected your own trading? How have you had to change the way you trade to remain competitive?
As one of the comments on the article suggested, would it be foolish to think an average trader can beat an automatic trading professional?
Thought For A Day
The Relationship between happiness and success
