Reminiscences of a Stock Operator is one of them, I think. I have come cross that book several times in many reading list, but somehow, I skipped it. Until last month. Finally i decided to give a go to that book. And i regret that i have not read it before. I am amazed with its style and frankness and still contemporary, relevant content, after almost a century. It is a book, it deserves to be read more than once and if not, some parts must be noted down to go through time to time. Therefore, i extracted some quote from the book, for future references.1
There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.
There is always a reason for fluctuations, but the tape does not concern itself with the why and wherefore. It doesn’t go into explanations. I didn’t ask the tape why when I was fourteen, and I don’t ask it today, at forty. The reason for what a certain stock does today may not be known for two or three days,or weeks, or months. But what the dickens does that matter? Your business with the tape is now — not tomorrow. The reason can wait.
2
I always made money when I was sure I was right before I began. What beat me was not having brains enough to stick to my own game — that is, to play the market only when I was satisfied that precedents favored my play. There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying or selling stocks daily or sufficient knowledge to make his. play an intelligent play.
The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages. I was only a kid, remember. I did not know then what I learned later, what made me fifteen years later, wait two long weeks and see a stock on which I was very bullish go up thirty points before I felt that it was safe to buy it.
A stock operator has to fight a lot of expensive enemies within himself.
I don’t know whether I make myself plain, but I never lose my temper over the stock market. I never argue with the tape. Getting sore at the market doesn’t get you anywhere.
3
1. Plan your trade. Trade under the plan.
Many, many times traders are quite conscientious and self-controlled in most areas of their lives, but experience lapses of discipline specific to trading. When this happens, it’s often the case that the trading itself–*how* they’re trading–is artificially creating the failure to follow trading rules. A key culprit in all this is market volatility. Volatility changes from day to day and week to week. It also varies as a function of time of day. Frequently, traders trade a fixed size and set fixed targets and stops, heedless of the underlying market volatility. In a low volatility environment, they fail to hit their targets and get stopped out, criticizing themselves for leaving money on the table. In an environment of enhanced volatility, the market will blow through their stops or exceed their targets, leaving them feeling that they did not trade well. This is especially true when traders find themselves unable to take what is normal heat in an environment of raised volatility. In such cases, it really isn’t a lapse of discipline causing the problem. Rather, the trader is not adapting to market conditions. Adhering to fixed rules in a variable environment is not necessarily a virtue. Changing markets can prevent us from enacting those fixed rules.
There are just four kinds of bets. There are good bets, bad bets, bets that you win, and bets that you lose.
“Emotion is the enemy when trading”: Trading is ruled by fear and greed. Those two sinners thrive on a lack of enough information or trade expectations. The Odds Maker readout collars these guys by revealing a strategy’s odds of success (%) as well as average winners and losers and net gains or losses.
Alas, this is the wrong question.