Archives of “bets” tag
rssMy notes on Reminiscences of a Stock Operator
Of course there is always a reason for fluctuations, but the tape does not concern itself with the why and wherefore.
My plan of trading was sound enough and won oftener than it lost. If I had stuck to it I’d have been right perhaps as often as seven out of ten times.
What beat me was not having brains enough to stick to my own game.
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.
It takes a man a long time to learn all the lessons of all his mistakes. They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side. It took me longer to get that general principle fixed firmly in my mind than it did most of the more technical phases of the game of stock speculation.
My losses have taught me that I must not begin to advance until I am sure I shall not have to retreat. But if I cannot advance I do not move at all. I do not mean by this that a man should not limit his losses when he is wrong. He should. But that should not breed indecision.
I was still ignoring general principles; and as long as I did that I could not spot the exact trouble with my game. (more…)
Trading rules – something new to think about
Trading hours and decision making
You should make your overall (long or intermediate term) decisions before the trading hours and you should not change your general overview of the market during trading hours. Look at the bigger picture.
Breaks & presents
Take breaks from trading, don’t trade every day – after couple of weeks, make presents to yourself if you have been successful, go abroad or something like that. If you haven’t made profit, just take a couple of days off.
Crowd is wrong
Don’t follow the crowd, historically the public tends to be wrong. If everyone are buying, it might be good idea to start thinking of going short. If 85% of the market analysts are bullish, the market is most likely overbought, if less than 25% are bullish, it’s probably oversold.
Bets are bad
Don’t make bets. You don’t have to make trades multiple times a day or even every
day. Make trades only when you have a good reason to go into the trade. Wait for
an opportunity. If in doubt about the trade you have done, reduce the size or get out
of the trade.
Quotes from Larry Hite – Trend Following Legend
Larry Hite is a famous Trend follower. Lawrence Hite co-founded Mint Investments in 1981. By 1990, Mint had become the largest Commodity Trading Advisor in the world in terms of assets under management.
I suggest strongly you enter the ideas below into your trading psyche.
No matter what information you have, no matter what you are doing, you can be wrong.
One of the great things about the market is, the markets don’t care about you. The market doesn’t care what color you are. The markets don’t care if you are short or tall. They don’t care about anything. They don’t care whether you leave or stay.
The beautiful thing about the markets, they don’t like you, they don’t dislike you, they just don’t care. They are there everyday. You want to play, you can play. You don’t want to play, don’t play.
We approach markets backwards. The first thing we ask is not what can we make, but how much can we lose. We play a defensive game.
There are just four kinds of bets. There are good bets, bad bets, bets that you win, and bets that you lose. Winning a bad bet can be the most dangerous outcome of all, because a success of that kind can encourage you to take more bad bets in the future, when the odds will be running against you. You can also lose a good bet, no matter how sound the underlying proposition, but if you keep placing good bets, over time, the law of averages will be working for you.
The Psychology Of Speculation – The Disconcerting Effect Of Sudden Losses And Gains
Henry Howard Harper: ‘The Psychology of Speculation – The Human Element in Stock Market Transactions’
The Disconcerting Effect of Sudden Losses and Gains, page 17 – 19
There are but few things more unbalancing to the mind than the act of suddenly winning or losing large sums of money. A few years ago at Monte Carlo I was in company with a friend, a well known man of affairs who while there played at roulette nearly every day, merely as pastime. He was of mature age, naturally methodical, conservative, temperate and cool-headed. He made it an unalterable rule to limit his losses to $200 at any one sitting, and on losing his amount he always stopped playing. His bets were usually limited to two dollars on the numbers, and never doubled except for one turn of the wheel when his number won. He generally played three numbers at a time; never more than four. For ten consecutive sittings luck was against him and each time he had lost his stake of $200. I saw him get up and leave the room, apparently in a state of disgust. An hour or so later I discovered him at a roulette table in another room stacking his chips in piles on a dozen or more numbers. (more…)
Betting as seeing by stock operator
There is a story I heard long time ago
“A man comes to the race track and bets $10 on a horse.He wins, and bet entire amount again.He wins, and bet entire amount again.He wins, and …you know the drill by now.
So winning he keeps and finally has huge amount …and he bets it again And he loses, loses obscene amount of money.When he walks toward the exit of race track his friend stops him and asks: How did you do today?
Man answers: Not bad, I only lost $10.
The moral of the story (beside of always setting aside part of your winnings ) is that you can only lose your initial stake and you have to be able to stay with the working trade.
You Are Having Trading Skill or You are Lucky ?
Traders with skill have large gains after 100 trades and are relatively quiet, traders that were lucky have huge gains after a few trades and are very loud, then very quiet for the next few trades that usually bring their account to zero.
Traders with skill risk 1% to 2% of their trading capital per trade and win in the long term, traders that are just lucky risk the majority of their account for a few big wins in the short term but lose in the long term when their luck runs out.
Traders with skill use a successful method with many stocks in different markets, traders with just luck are only successful with one stock and when its up trend ends their winning streak ends.
Traders with skill have winning track records over many years, traders with only luck only have winning track records measured in months.
Traders with skill have risk management as a top priority, traders with only luck do not understand why risk management is important, yet.
Traders with skill are trading like it is a business, traders operating with luck are trading like they are a gambler in a casino.
Traders with skill use a trading plan and back tested method, traders with luck make guesses and are sometimes right.
Traders with skill have done their homework, traders with luck think they are naturally smarter than the market.
Traders with skill are disciplined and stick to their system, traders with luck make bets based on opinions.
Would you rather be lucky for a few trades or skillful for a few years? Lucky traders give back their profits when their luck runs out. Skillful traders are eventually financially interdependent due to their long term capital growth.
DOUG HIRSCHHORN’S 8 WAYS TO GREAT
I just completed reading a book 8 WAYS TO GREAT. It is short (114 pages) but packed with great insight on what makes great people great. I read it in a few hours and as is the case in all the books I read I highlight major points and make margin notes about what strikes me as important enough to share with others. What follows are the eight principles or “ways to great” and the quotes I found worth passing along.
First Principle: Find Your “Why?”
“The reason most people go through life with big dreams but fail to achieve them is because they ask themselves “how” before they know their “why”(9).
Second Principle: Get To Know Yourself
“The perfect trader-if such a person exists-is methodical and careful about making decisions, extremely disciplined, resilient to setbacks, with a high degree of internal confidence. He holds strong opinions but is also able to admit quickly when he is wrong, not take it personally, and view it as a learning opportunity rather than a failure. He understands the value of leaving his ego at the door. He’s willing and able to trust his gut and place big bets when the opportunity presents itself. In fact, that pretty well describes the ideal blend of characteristics of any successful person, no matter what he is doing professionally or personally” (18-19).
Third Principle: Learn To Love The Process
“The best traders don’t think about how many millions they need to make each year. They focus on making the best trading decision they can with each trade they make. And if there isn’t a good trading opportunity right now, they have the discipline to do nothing and just wait. Concentrating on one trade at a time is their process” (38).
Fourth Principle: Sharpen Your Edge
“Gaining a competitive advantage is like having a two-edged sword, and you need to keep both of them sharp. On edge is internal-knowing what unique skills you bring to the table. The other is external and comes from gathering knowledge that makes it more likely you’ll succeed” (45).
Fifth Principle: Be All That You Can Be
“The takeaway lesson for everyone wanting to optimize their own performance without regard for what others are doing is fourfold: 1) know your edge; 2) act only when you have the edge; 3) avoid taking the outcome personally because it involves factors that are beyond your control; 4) measure your success in terms of how well you performed and not only the outcome” (70).
Sixth Principle: Keep Your Cool
“Deciding when to cut your losses is one of the toughest decisions for anyone to make, but traders at the top of their game know that they always have to make the decisions they need to make, which may or may not be the ones they want to make” (77).
Seventh Principle: Get Comfortable With Being Uncomfortable
“In the trading world, you will either make money or lose money on any given trade. All that matters in the end is making more money when you’re right than you lose when you’re wrong. Knowing this, traders have learned to accept failure as part of the game, but they also use the information they acquire from their mistakes as a learning tool. Frequently, what they learn from losing money is more valuable than what they learn when they make money” (90).
Eighth Principle: Make Yourself Accountable
“Commitment, perseverance, and discipline are the characteristics that move people beyond desire to action, that differentiate mediocrity from greatness, and that separate greatness from superstardom” (95).
And to sum up: “True success begins with a state of mind. But it takes specific actions and behaviors to move from intentions into action and get results” (2)
Always Remember
One must always remember Slansky’s admonition which is that you have to take account of whether you’re a winner or loser, and what your average rate of win is relative to the distribution of losses. If you’re a good player, never accept a bet with a small edge if it might subject you too close to gambler’s ruin, or getting stopped out of you position even if you have an edge. Many a good player doesn’t call bets in one’s favor if it has too high a variability relative to his bank roll. Many a t-grade should not be taken when the variables like an announcement put the normal tit and tat into jeopardy. I hate to force a weaker player, (assuming I might ever have that luxury again) into making a good shot. Board players are the same way. They can sometimes create a crisis, a tension where if the weaker player makes the rite move, he might pull out a draw or victory. Much better to grind the poor sinner or market into oblivion.
Insightful quotes from Trading legend, Larry Hite
No matter what information you have, no matter what you are doing, you can be wrong.
One of the great things about the market is, the markets don’t care about you. The market doesn’t care what color you are. The markets don’t care if you are short or tall. They don’t care about anything. They don’t care whether you leave or stay.
… the beautiful thing about the markets, they don’t like you, they don’t dislike you, they just don’t care. They are there everyday. You want to play, you can play. You don’t want to play, don’t play.
We approach markets backwards. The first thing we ask is not what can we make, but how much can we lose. We play a defensive game.
There are just four kinds of bets. There are good bets, bad bets, bets that you win, and bets that you lose. Winning a bad bet can be the most dangerous outcome of all, because a success of that kind can encourage you to take more bad bets in the future, when the odds will be running against you. You can also lose a good bet, no matter how sound the underlying proposition, but if you keep placing good bets, over time, the law of averages will be working for you.