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My notes on Reminiscences of a Stock Operator

  
  Education
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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…)

Traders needs High level of Catecholamines, acetylcholine, and vasopressin

  
  Education
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Catecholamines, acetylcholine, and vasopressin, are three [among many] of the beneficial hormones and other helpful neuropeptides that are produced in specific brain frequencies. Studies have shown that acetylcholine is vital for long term memory. They have also found that when acetylcholine production [in the brain] is high, we experience boosts in our long-term memory. Individuals who have lower levels of acetylcholine usually struggle with tasks involving learning and memory. At the end of your day listening to Traders Mindset produces the neuropeptide vasopressin – a neuropeptide which improves reaction time, ability to learn, and ability to remember. 
It is not only our production of neuropeptides that allows us to learn more effectively we experience decreased blood pressure, heart rate, and our entire body feels relaxed. This boosts the overall oxygen level in our brains and maximizes blood flow to our cortex. This naturally boosts our attention span and level of alertness. Boosted attention and alertness makes it much easier to memorize and learn new things.

3 Mistakes that will kill your trading success

  
  Education
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Not having a plan. Get a plan, who cares if it is bad, start with something. You can build off of it and refine it. You have to be willing to spend the time to make the plan yours. You do not start anything without some level of planning. Trading is hard; your brain spends a lot of time in fast forward, affecting your memory. You can slow it down by having a plan and increase your brains ability to remember.

Thinking trading is easy. It is not, there are times when it can be slightly less difficult after a lot of time, patience, and hard work. When I think to myself “this is easy” I lose my sharpness. My focus is adverted from my goal. I will lose. It may not be on that trade but maybe the next.

Thinking you have finished. There is only one thing that every trade is guaranteed to give me: a chance to learn about myself, the market, and the interaction between the two. You have to be willing to be relentless in your learning. It will enable you to learn the cheapest. 

Clip from -Robert D. Edwards and John Magee, Technical Analysis of Stock Trends, first published in 1948.

  
  Education
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“Few human activities have been exhaustively studied during the past fifty years, from so many angles and by so many different sorts of people, as has the buying and selling of corporate securities.  The rewards which the stock market holds out to those who read it right are enormous; the penalties it exacts from careless, dozing, or “unlucky” investors are calamitous-no wonder it has attracted some of the world’s most astute accountants, analysts, and researchers, along with a motley crew of eccentrics, mystics and “hunch players,” and a multitude of just ordinary hopeful citizens.

Able brains have sought, and continue constantly to seek, for safe and sure methods of appraising the state and trend of the market, of discovering the right stock to buy and the right time to buy it.  This intensive research has not been fruitless-far from it.  There are a great may successful investors and speculators (using the word in its true sense which is without opprobrium) who, by one road or another, have acquired the necessary insight into the forces with which they deal and the judgment, the forethought and the all-important self-discipline to deal with them profitably.”

Think Less & Keep It Simple

  
  Education
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“One of the most difficult things to get investors and traders to understand is that no matter how much they investigate an investment, they will probably do better if they did less. This is certainly counter-intuitive, but the way that our brains function almost guarantees that this will happen. This kind of failure also happens to those investors frequently regarded as the smartest. In essence, the more information that investors have, the more opportunity that they have to choose the misinformation that suits their emotional purposes.

 Speculation is observation, pure and experiential. Thinking isn’t necessary and often just gets in the way. Yet everywhere we turn, we read and hear opinion after opinion and explanation on top of explanation which claim to connect the dots between economic cause and market effect. Most of the marketplace is long on rationale and explanation and short on methods.

A series of experiments to examine the mental processes of doctors who were diagnosing illnesses found little relationship between the thoroughness of data collection and accuracy of the resulting diagnosis. Another study was done with psychologists and patient information and diagnosis. Again, increasing knowledge yielded no better results but did significantly increase confidence, something which the smartest among us are most prone to have in abundance. Unfortunately, in the markets, only the humble survive.

The inference is clear and important. Experienced analysts have an imperfect understanding of what information they actually use in making judgments. They are unaware of the extent to which their judgments are determined by just a few dominant factors, rather than by the systematic integration of all of their available information. Analysts use much less available information than they think they do.

Think Less & Keep It Simple

  
  Education
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“One of the most difficult things to get investors and traders to understand is that no matter how much they investigate an investment, they will probably do better if they did less. This is certainly counter-intuitive, but the way that our brains function almost guarantees that this will happen. This kind of failure also happens to those investors frequently regarded as the smartest. In essence, the more information that investors have, the more opportunity that they have to choose the misinformation that suits their emotional purposes.

 Speculation is observation, pure and experiential. Thinking isn’t necessary and often just gets in the way. Yet everywhere we turn, we read and hear opinion after opinion and explanation on top of explanation which claim to connect the dots between economic cause and market effect. Most of the marketplace is long on rationale and explanation and short on methods.

A series of experiments to examine the mental processes of doctors who were diagnosing illnesses found little relationship between the thoroughness of data collection and accuracy of the resulting diagnosis. Another study was done with psychologists and patient information and diagnosis. Again, increasing knowledge yielded no better results but did significantly increase confidence, something which the smartest among us are most prone to have in abundance. Unfortunately, in the markets, only the humble survive.

The inference is clear and important. Experienced analysts have an imperfect understanding of what information they actually use in making judgments. They are unaware of the extent to which their judgments are determined by just a few dominant factors, rather than by the systematic integration of all of their available information. Analysts use much less available information than they think they do.

Think Less & Keep It Simple

  
  Education
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Every once in awhile I read something from another trader who I respect that I really wish I wrote myself. Today’s post from Jeff Cooper is a must-read:

“One of the most difficult things to get investors and traders to understand is that no matter how much they investigate an investment, they will probably do better if they did less. This is certainly counter-intuitive, but the way that our brains function almost guarantees that this will happen. This kind of failure also happens to those investors frequently regarded as the smartest. In essence, the more information that investors have, the more opportunity that they have to choose the misinformation that suits their emotional purposes.

 

Speculation is observation, pure and experiential. Thinking isn’t necessary and often just gets in the way. Yet everywhere we turn, we read and hear opinion after opinion and explanation on top of explanation which claim to connect the dots between economic cause and market effect. Most of the marketplace is long on rationale and explanation and short on methods. (more…)

9 Lessons From The Greatest Trader Who Ever Lived

  
  Education
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One of the good guys (for me, at least) has always been Jesse L. Livermore. He’s considered by many of today’s top Wall Street traders to be the greatest trader who ever lived.
Leaving home at age 14 with no more than five bucks in his pocket, Livermore went on to earn millions on Wall Street back in the days when they still literally read the tape.
Long or short, it didn’t matter to Jesse.
Instead, he was happy to take whatever the markets gave him because he knew what every good trader knows: Markets never go straight up or straight down.
In one of Livermore’s more famous moves, he made a massive fortune betting against the markets in 1929, earning $100 million in short-selling profits during the crash. In today’s dollars, that would be a cool $12.6 billion.
That’s part of the reason why an earlier biography of his life, entitled Reminiscences of a Stock Operator, has been a must-read for experienced traders and beginners alike.
A gambler and speculator to the core, his insights into human nature and the markets have been widely quoted ever since.
Here are just a few of his market beating lessons: 

On the school of hard knocks:

The game taught me the game. And it didn’t spare me rod while teaching. It took me five years to learn to play the game intelligently enough to make big money when I was right.

On losing trades:

Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocket book and to the soul.

On trading the trends:

Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the fluctuations. In a bull market the game is to buy and hold until you believe the bull market is near its end. (more…)

3 Habits every trader must avoid.

  
  Education
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Not having a plan. Get a plan, who cares if it is bad, start with something. You can build off of it and refine it. You have to be willing to spend the time to make the plan yours. You do not start anything without some level of planning. Trading is hard; your brain spends a lot of time in fast forward, affecting your memory. You can slow it down by having a plan and increase your brains ability to remember.  A plan makes it possible to improve. Most importantly, a plan gives you a chance at removing emotion.

Forgetting why you are trading.  The purpose of trading is to make money.  Every action should bend to that goal. That does not mean every trade makes money.  It means every trade gets to closer. If you are looking for comfort, get a teddy bear. If you are looking to be right, play trivial pursuit.  If you want excitement, drive fast.

Letting it go. It is really important to separate what happened from how you felt. The more distance between the two the less time it takes to learn from that situation.  Admitting you made a mistake or are wrong are necessary for letting it go.  Unlike life, you get no credit for admitting you are wrong, it is just a part of trading. Neither matter unless you take action.

Secrets of Jesse Livermore

  
  Education
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1. Money Management:
    * “I trade on my own information and follow my own methods.”
    * “The desire for constant action irrespective of underlying conditions is responsible for many losses on 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.”

2. Business of Investing:
    * “I believe that anyone who is intelligent, conscientious, and willing to put in the necessary time can be successful on Wall Street.  As long as they realize the market is a business like any other business, they have a good chance to prosper.”
3. The Investor Self:
    * “My satisfaction always came from beating the market, solving the puzzle.  The money was the reward, but it was not the main reason I loved the market.  The stock market is the greatest, most complex puzzle ever invented – and it pays the biggest jackpot…it was never the money that drove me.  It was the game, solving the puzzle, beating the market that had confused and confounded the greatest minds in history.  For me, that passion, the juice, the exhilaration was in beating the game, a game that was a living dynamic riddle…”
4. Market Analysis:
    * “What beat me was not having the brains enough to stick to my own game – that is, to play the market only when I was satisfied that precedents favored my play.”
    * “It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind.”
5. Routines:
    * “It is what people actually did in the stock market that counted – not what they said they were going to do.”
    * “The game of speculation is the most uniformly fascinating game in the world.  But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer.  They will die poor.” (more…)
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