I like a legal department that has a sense of humor. This is the standard disclaimer that Contango Oil & Gas Company (MCF) includes with their quarterly earnings reports:
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rssHappy Diwali
Happy Diwali & Happy New Year Dear Subscribers & Our Readers, We wish U great Diwali & Great Coming New Year.
- Quit letting trades go through your original stop loss, you were wrong, get out. When you start hoping and stop managing your stops you are losing money.
- Quit over trading, only take the very best entries and trade the very best stocks in your system.
- Quit making up stories about why you decided to hold your position instead of taking your stop when it was hit. trade your plan.
- Stop trading your opinions and start trading what the price action is saying.
- Stop following people in social media that cause you to trade badly and lose money.
- Stop looking at BLUE Channels for trading and investing advice.
- Stop trading so big that you emotions are more involved in your trades than your mind.
- Disconnect your ego from your trading. You determine your risk size and entry the market chooses whether you win or lose.
- Quit riding an emotional roller coaster, your emotions should stay level when winning and losing. If not trade smaller.
- Quit buying falling knives and shorting rocket stocks, wait for confirmation and reversal before entering.
Technically Your’s
AnirudhSethiReport-Team/Baroda/India
How to Treat Delusional Disorder
This market is delusional! I’ve heard it several times, but I am still unsure exactly what this means. Given what I’ve seen and heard on this trading desk over the past several weeks I can begin to hypothesize about the true nature of this ubiquitous exclamation. First, strength and weakness in the market has not necessarily translate to strength and weakness in individual names. Dean’s portfolio has been the best barometer of this divergence. His long cash book has felt the slings and arrows of a declining market while under performing on up days; the perfect shitstorm. Strong balance sheets and superior management have failed to translate into upward price action. On the other side of the coin, Moskowitz’s technical strategy has also struggled in the face of this “delusional” market. Daily levels of support and resistance, moving averages, and pivot points have been broken, traversed, and forsaken. Familiar setups have failed to produce familiar results. Finally, after reviewing the charts of Schwartz’s portfolio, we came to the conclusion that the tenets of relative strength and relative weakness have been all but abandoned. Names have shown massive intraday reversals that suck away P&L without warning.
Given the “delusional” nature of the market, there is only one strategy that guarantees success; get small. The fact that strategies have lacked their usual effectiveness does not imply they are obsolete; however, given the unusual action we have witnessed lately, it is advisable to limit one’s exposure to the bizarre action. Eventually the market will begin to look like its old self and when that time comes, the heavens will open and the money gods will reappear. In the meantime, remember the old axiom: “The market can remain delusional longer than you can remain solvent.”
Trading Wisdom – Tom Willis and Bob Jenkins
Years back Tom Willis (a friend of Richard Dennis’) and Bob Jenkins, running a hedge fund, offered answers about “price” during an interview. An excerpt:
Bob Jenkins: “Everything known is reflected in the price. It makes inherent sense. I could never hope to compete with Cargill that has soybean agents scouring the globe knowing everything there is to know about soybeans and funneling the information up to Lake Minnetonka, their trading headquarters. Unless I have a friend at Cargill, I can only get this information one way: I can infer it technically. We have friends who have made millions trading fundamentally, but their problems are (a) they can rarely know as much as the commercials [i.e. Cargill]; and (b) they are limited to trading their [one market] specialty. They don’t know anything about bonds; they don’t know anything about the currencies. I don’t either, but I’ve made a lot of money trading them. Every picture’s worth a thousand words.”
Tom Willis: “They’re just numbers. Corn is a little different than bonds, but not different enough that I’d have to trade them differently-not different enough that I would have to have a different system.”
Bob Jenkins: “Some of these guys I read about have a different system for each [market]. That’s absurd. We’re trading mob psychology. We’re trading numbers. We’re not trading corn, soybeans or S&Ps.”
I hope everyone catches the nuance of Bob Jenkins’ last statement? Some great succinct language about what “it” takes. Taken from an interview 20 years ago…
20 Habits of Great Traders
1) Patient with winners and impatient with losers
2) Making money is more important than being right
3) View Tech Analysis as a picture of where traders are lining up to buy and sell
4) Before they enter every trade they will know profit target or stop exit
5) Approach trade no.5 with the same conviction as the previous 4 losing trades
6) Use naked charts
a) As we mature we begin peeling off indicators
b) Prices action is key (more…)
Gratitude
Wanna thank you, Wanna thank you
Freedom in stride, love, peace of mind
We just wanna give Gratitude – Earth Wind & Fire
Thank you, Lord, for what you’ve done for me
Thank you, Lord, for what you’re doing now
Thank you, Lord, for ev’ry little thing
Thank you, Lord, for you made me sing – Bob Marley
“He is a wise man who does not grieve for the things which he has not, but rejoices for those which he has” – Epictetus
If you book 10 points on the day are you the type of trader that is mad about the 15 pts left on the table or grateful about the 10 you pocketed? A consistently profitable trader is a continuously grateful trader. When you are grateful for what you have you operate out of a state of abundance. How many times have you become upset about missing a trade you were waiting for, or about how many points you left on the table, or about getting stopped at the extreme of a move only to see the trade reverse in your favor? It happens to all of us and we all do it. It is normal to think we should have booked more profits or done better – that is a characteristic of most traders – we are never satisfied and always think we can improve on our performance. The key is to be thankful and grateful for what we do get. By maintaining a thankful and grateful mindset it opens the way for abundance and blessings to come into your life.
When should traders be in or out of the market?
There are times when traders should NOT be in the market. There are other times when the market is rocking and traders should get aggressive. How can you tell the difference? Here are 5 helpful tips.
1) Accumulation and Distribution Days: When should traders go to cash? Follow the big boys! The big institutions control the market, so pay attention to their actions by tracking accumulation anddistribution days. When institutional selling builds up over a short period of time (2-4 weeks) AND leading stocks start to break down, that is a great sign to start raising cash. Why? Because 4 out of 5 stocks move in the general direction of the market. I don’t care how good the company is, when the market’s in a downtrend, you don’t want to fight it.
2) Uptrends and Downtrends: Don’t get caught up with the terms Bull and Bear market. Just recognize if we are in an uptrend or a downtrend. For example, use the 50-day moving average on the NASDAQ Composite as a general indicator to be in or out of the market. Above the line usually means we’re in an uptrend and it’s a green light to be in stocks…below the line, downtrend and red light.
3) Scale In: When conditions start to improve, SLOWLY scale back in. There’s no reason to rush. Take a few positions and test the waters. If the rally is for real, there will be PLENTY OF TIME to make money. If you are wrong, at least you can get out quick with minimal damage and protect your portfolio. Think Defense First!
4) Buy the Strongest Earnings & Sales Growth: When markets are in a confirmed uptrend, what stocks should you buy? Be in the best! Don’t settle for low rate stocks. Look for companies that have strong earnings and sales growth. Why be in dead-money stocks with little growth potential? We’re in this to make money, right? So be in stocks that have a higher probability of moving up!
5) Fundamentals AND Technicals: Why does it only have to be one or the other? Why not USE BOTH! We want as many factors as possible in our favor when trading the market. Therefore, start with strong fundamental companies AND combine the proper technical timing to identify ideal entry points to effect your best risk vs reward trades. (more…)
Books on short-selling
1) How to Make Money Selling Stocks Short by William O’Neil (Wiley, 2005) – [Technical, Swing & Position Trading]
2) Sell & Sell Short by Dr. Alexander Elder (Wiley, 2008) – [Technical, Day Trading]
3) The Art of Short Selling by Kathryn Staley (Wiley, 1997) – [Fundamental]
4) Sold Short by Manuel Asensio (Wiley, 2001) – [Fundamental]
5) Sell Short: A Simpler, Safer Way to Profit When Stocks Go Down by Michael Shulman (Wiley 2009) – [Macro]
The best way to become an effective short seller is by making it a habit of studying hundreds and even thousands of charts every week. Train your eye to see the setups, the accompanying volume, how the MA’s line up, etc. The only way to do this is with practice. Short-selling can become very profitable due to the simple fact that stocks drop faster than they rise (in most cases) and for me, it typically only takes about 1-3 days to make a decent profit of 10% or more.
Trade only the best setups to increase your odds. I do recommend the use of stop losses above key resistance areas due to the fact that losing short positions can cause serious damage if left unattended.
Marc Faber's 2010 Investment Outlook: Bullish Sentiment Too High For His Liking
Always the contrarian, Marc Faber’s investing advice for 2010 is this — listen to the experts, and then do the opposite. Faber, the editor of The Gloom Boom & Doom Report, wrote in his most recent January newsletter that he was bullish on U.S. stocks.
Nothing lasts forever, though.
He’s changed his mind after participating in this week’s Barron’s round-table discussion. “Everybody was looking for further gains in stocks,” he tells Henry in this clip. That opinion is also reflected by Bloomberg’s latest investor survey, which registered its highest level of bullish sentiment since the survey began in 2007.
That overwhelming consensus worries Faber. He now thinks a correction in U.S. stocks could come much sooner than most predict. Momentum players who are driving the market could “pull the trigger relatively quickly,” he says. He also observes that the charts of stocks favored by momentum investors, like Google, RIM, Apple and Amazon, look to be flattening out.
Overall, 2010 will not be one for the record books, as 2009 was. He’s looking at a more normal 5%-10% rate of return for global investors.
3 Types of Confidence
I see three types of confidence among traders:
First, is what I call ‘false confidence’ That’s the person who talks big and poses like a big shot. This type of person often takes big risks in an effort to either impress others or to assuage their own discomfort, and the results can be terrible.
Next, there is temporary confidence, which is conditional on recent performance. This is the person whose self-esteem is tied to their account equity or P&L. When on a good run, they feel confident and take larger risks (often the prelude to giving it all back). And when performance is lousy they start grasping at anything, maybe exiting winners prematurely or taking on excessive risk to get their money back.
Finally, we have true confidence. This is confidence that does not depend on recent results. It is based on a deep sense of inner trust. This is the person who has a history of doing the right thing, regardless of the outcome. Doing the right thing in the sense that they act in their own best interest and trust and understand that doing such over time has a positive impact on results. The trust runs deep enough to provide resilience in the face of disappointment. This is true self-confidence, the kind you want in trading and in life.
Almost everyone says that discipline is a requirement to succeed in trading. But most people never talk about what really underlies that type of discipline. The answer……true self-confidence.