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THE IMPORTANCE OF SITTING

  
  Education
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Patience is important not only in waiting for the right trades, but also in staying with trades that are working. The failure to adequately profit from correct trades is a key profit-limiting factor. Quoting again from Lefevre in Reminiscences, “It never was my thinking that made big money for me. It was always my sitting. Got that? My sitting tight!” Also, recall Eckhardt’s comment on the subject: “One common adage … that is completely wrongheaded is: You can’t go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits.”

SOMETIMES I JUST SITS

  
Analysis, Education

Sitting is ok when the markets are not set up for your trading edge…if you have one.  If you do have a trading edge experience has taught you that there are certain times when it works, and works well, and other times when it doesn’t.  The quicker you recognize the difference and make the necessary adjustments to suit market conditions, the quicker you can limit losses, thus leading to greater gains.

And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level, which should show the greatest profit. And their experience invariably matched mine –that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.

Jesse Livermore,  Reminiscences of a Stock Operator

It’s never too late to innovate

  
  Education
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Buffett’s having fun with his new partnership-purchase of Heinz. The structure of the deal: Both Berkshire and a Brazilian private equity firm bought the company’s common stock, and then Berkshire, as the financing partner, bought a preferred stock paying 9% interest with the ability to exchange it for even more common shares later. Early results of the takeover have been encouraging and Buffett seems tickled by the creativity of the transaction. “With the Heinz purchase, moreover, we created a partnership template that may be used by Berkshire in future acquisitions of size.” Including Heinz, Berkshire now owns 8 1/2 companies that would be included in the Fortune 500 if they were standalone entities, we are told. One could envision Berkshire doing a Heinz-like transaction once a year!

True False Questions

  
  Education
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True or False

  1. The big money in trading is made when one can get long at lows after a big downtrend.
  2. It’s good to average down when buying.
  3. After a long trend, the market requires more consolidation before another trend starts.
  4. It’s important to know what to do if trading in commodities doesn’t succeed.
  5. It is not helpful to watch every quote in the markets one trades.
  6. It is a good idea to put on or take off a position all at once.
  7. Diversification is better than always being in 1 or 2 markets.
  8. If a day’s profit or loss makes a significant difference to your net worth, you are overtrading.
  9. A trader learns more from his losses than his profits.
  10. Except for commission and brokerage fees, execution costs for entering orders are minimal over the course of a year.
  11. It’s easier to trade well than to trade poorly.
  12. It’s important to know what success in trading will do for you later in life.
  13. Uptrends end when everyone gets bearish.
  14. The more bullish news you hear the less likely a market is to break out on the upside.
  15. For an off-floor trader, a long-term trade ought to last 3 or 4 weeks or less.
  16. Other’s opinions of the market are good to follow.
  17. Volume and open interest are as important as price action.
  18. Daily strength and weakness is a good guide for liquidating long term positions with big profits.
  19. Off-floor traders should spread different markets of different market groups.
  20. The more people are going long the less likely an uptrend is to continue in the beginning of a trend.
  21. Off-floor traders should not spread different delivery months of the same commodity.
  22. Buying dips and selling rallies is a good strategy.
  23. It’s important to take a profit most of the time.
  24. Of 3 types of orders (market, stop, and resting), market orders cost the least skid.
  25. The more bullish news you hear and the more people are going long the less likely the uptrend is to continue after a substantial uptrend.
  26. The majority of traders are always wrong.
  27. Trading bigger is an overall handicap to one’s trading performance.
  28. Larger traders can muscle markets to their advantage.
  29. Vacations are important for traders to keep the proper perspective.
  30. Undertrading is almost never a problem.
  31. Ideally, average profits should be about 3 or 4 times average losses.
  32. A trader should be willing to let profits turn into losses.
  33. A very high percentage of trades should be profits.
  34. A trader should like to take losses.
  35. It is especially relevant when the market is higher than it’s been in 4 and 13 weeks.
  36. Needing and wanting money are good motivators to good trading.
  37. One’s natural inclinations are good guides to decision making in trading.
  38. Luck is an ingredient in successful trading over the long run.
  39. When you’re long, limit up is a good place to take a profit.
  40. It takes money to make money.
  41. It’s good to follow hunches in trading.
  42. There are players in each market one should not trade against.
  43. All speculators die broke
  44. The market can be understood better through social psychology than through economics.
  45. Taking a loss should be a difficult decision for traders.
  46. After a big profit, the next trend following trade is more likely to be a loss.
  47. Trends are not likely to persist.
  48. Almost all information about a market is at least a little useful in helping make decisions.
  49. It’s better to be an expert in 1-2 markets rather than try to trade 10 or more markets.
  50. In a winning streak, total risk should rise dramatically.
  51. Trading stocks is similar to trading commodities.
  52. It’s a good idea to know how much you are ahead or behind during a trading session.
  53. A losing month is an indication of doing something wrong.
  54. A losing week is an indication of doing something wrong.
  55. One should favor being long or being short – whichever one is comfortable with.
  56. On initiation one should know precisely at what price to liquidate if a profit occurs.
  57. One should trade the same number of contracts in all markets.
  58. If one has $10000 to risk, one ought to risk $2500 on every trade.
  59. On initiation one should know precisely where to liquidate if a loss occurs.
  60. You can never go broke taking profits.
  61. It helps to have the fundamentals in your favor before you initiate.
  62. A gap up is a good place to initiate if an uptrend has started.
  63. If you anticipate buy stops in the market, wait until they are finished and buy a little higher than that.
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