"I can only trade in accordance with the experience of many years" – Reminiscences of a Stock Operator
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rssPaul Tudor Jones Trend Following Wisdom
Paul Tudor Jones was featured in Market Wizards and is one of the successful trend followers. In the Market Wizards book there are some interesting quotes & trading tips that are important for all stock traders & trend followers.
Quoting Paul Tudor Jones
“I become quicker and more defensive. I am always thinking about losing money as opposed to making money.”
“Risk control is the most important thing in trading.”
“Don’t be a hero”.
“Don’t have an ego.”
“Always question yourself and your ability”.
“I am more scared now that I was at any point since I began trading, because I recognize how ephemeral success can be in this business. I know that to be successful, I have to be frightened. My biggest hits have always come after I have had a great period and I started to think that I knew something.”
“One of my strengths is that I view anything that has happened up to the present point in time as history. I really don’t care about the mistake I made three seconds ago in the market. What I care about is what I am going to do from the next moment on. I try to avoid any emotional attachment to a market.”
“I never apologize to anybody, because I don’t get paid unless I win.”
“When you get a range expansion, the market is sending you a very loud, clear signal that the market is getting ready to move in the direction of that expansion.”
“Advice: don’t focus on making money; focus on protecting what you have.”
“Trading gives you an incredibly intense feeling of what life is all about.”
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts, commodity options or forex can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results. You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.
20 Principles That Make Market Wizards Successful
- They have the resilience to come back from early losses and account blow ups.
- They focus on what really matters in trading success.
- They have developed a trading method that fits their own personality.
- They trade with an edge.
- The harder they work at trading the luckier they get.
- They do the homework to develop a methodology through researching ideas.
- The principles they use in their trading models are simple.
- They have mental and emotional control is key while winning or losing.
- They manage the risk to avoid failure and pain.
- They have the discipline to follow their trading plan.
- Market wizards have confidence and independence in themselves as traders
- They are patient with winning trades and impatient with losing trades.
- Emotions are dangerous masters to the trader; they know how to manage their own emotions.
- Market wizards evolve as a trader to avoid eventually failing in a method that has lost its edge over time.
- It is not the news but how the market reacts to that news is what they watch for.
- The fully understand the right way to position size for their goals of returns and drawdowns based on their risk/reward and winning percentage.
- Market wizards understand comfortable trades are usually losing trades while the more uncomfortable trades are usually the winners.
- They are good losers. Cutting losses when proven wrong and even reversing the direction of their trades when the price action dictates it.
- The best traders are always learning through their own mistakes.
- Passion for trading was the fuel for their eventual success.
Nassim Taleb’s Risk Management Rules of Thumb
Rule No. 1- Do not venture in markets and products you do not understand. You will be a sitting duck.
Rule No. 2- The large hit you will take next will not resemble the one you took last. Do not listen to the consensus as to where the risks are (that is, risks shown by VAR). What will hurt you is what you expect the least.
Rule No. 3- Believe half of what you read, none of what you hear. Never study a theory before doing your own observation and thinking. Read every piece of theoretical research you can-but stay a trader. An unguarded study of lower quantitative methods will rob you of your insight.
Rule No. 4- Beware of the nonmarket-making traders who make a steady income-they tend to blow up. Traders with frequent losses might hurt you, but they are not likely to blow you up. Long volatility traders lose money most days of the week. (more…)
Managing Emotions
The hardest thing about trading is not the math, the method, or picking the right stock, currency, commodity, or futures contract. The most difficult thing about trading is dealing with the emotions that arise with trading itself. From the stress of actually entering a trade, to the fear of losing the paper profits that you are holding in a winning trade, and most importantly dealing with the emotional lows of a string of losses or the highs of many consecutive wins the bottom line is how you deal with those emotions will determine your long term success in trading more than any other one thing.
To manage your emotions first of all you must trade a robust trading methodology that is profitable and you have to know that it will be a winner in the long term if you stay disciplined. You also must trade your method with proper position sizing and risk management to keep the volume down on your emotions and ego. If you have that the next step is the management of your emotions.
You must understand that every trade is not going to be a winner and not blame yourself for equity drawdowns if you are trading with discipline.
Do not bet your entire account on any one trade, in fact risking only 1% of your total capital on any one trade is the best thing you can do for your stress levels and to bring your risk of ruin to virtually zero. (more…)
The best pieces of trading advice
Here is some great trading advice I have gathered around the web. These were either answers from real traders to the question “What is the best trading advice you ever received?” Or it was advice given be successful traders when asked “What one piece of advice would you give to traders?” There are some gems in here.
Don’t treat trades like their actual cash, separate the thought of money lost and focus on the next gain.
Always use stop losses.
Don’t trade with funds you can’t afford to lose.
Don’t be obsessed by indicators .
Always, always, put in a trailing stop and take your profit.
Decide what kind of trader you wish to be. Do you want to be a day-trader, a short term trader, or a longer term trader?
The Holy Grail of investing/trading is risk management. If you don’t have an exit strategy or proper position sizing, you are gambling. I recommend all traders spend 90% of their time perfecting risk management, and success will come with time. -Damien Hoffman
Cut losses, cut losses, cut losses. If I followed my own advice, my email would be unlisted or a Hawaii address. -Howard Lindzon (more…)
TEN WAYS TO BE A TRADER NOT A GAMBLER
- Trade based on the probabilities NOT the potential profits.
- Trade small position sizes based on your account NEVER put your whole account at risk of ruin.
- Trade a plan NOT emotions.
- Always enter a trade with an edge that can be defined DO NOT trade with entries that are only opinions.
- Trade based on quantifiable facts NOT opinions.
- Trade after extensive research on what works and what does not. Don’t trade in ignorance.
- Trade with the correct position sizing since risk management is your number one priority and profits are secondary concern.
- Trade in a way that eliminates any chance of financial ruin NOT to get rich quick.
- Trade with discipline and focus DO NOT change the way you trade suddenly due to winning or losing streaks.
- Trade in the present moment and DO NOT get biased due to old wins or losses.
Speculation has always been a part of the market and always will be.
It was the spring of 1976. Investors were still licking their wounds from the severe bear market of 1973-74. Donaldson, Lufkin & Jenrette, an investment bank, was hosting a conference that matched two investing legends onstage at the same time — Ben Graham and Charles Ellis.
Ellis, moderating a Q&A, asked Graham why the mid-1970s were such a disaster in the stock market for most investors. Graham replied that, “most investment professionals, although possessing above average intelligence, lacked an overall understanding of common stocks.”
As told by Robert Hagstrom in his book Latticework: The New Investing, here’s where Ellis and Graham picked up after the conference:
After the seminar, Graham and Ellis spent some time together, and the conversation continued. The problem with our industry, Graham insisted, is not speculation per se; speculation has always been a part of the market and always will be. Our failure as professionals, he went on, is our continuing inability to distinguish between investment and speculation. If professionals can’t make that distinction, how can individuals investors? The greatest danger investors face, Graham warned, is acquiring speculative habits without realizing they have done so. Then they will end up with a speculator’s return — not a wise move for someone’s life savings. (more…)
12 Truths-Traders Should Know
1. Stock prices run in cycles. Periods of re-pricing are usually quick and powerful and then they are followed by trendless consolidation.
2. Stocks are very highly correlated during drastic selloffs and during the initial stage of the recovery. In general, correlation is high during bear markets.
3. Bull markets are markets of stocks, where there are both winners and losers. When the market averages consolidate, there are stocks that will break out or down, revealing the intentions of institutional buyers.
4. In the first and last stage of a new bull market, the best performers are small cap, low float, low-priced stocks.
5. Try to trade in the direction of the trend. It is not only the path of least resistance, but also provides the best profit opportunities. Have a simple method to define the direction of the trend.
6. Traders’ attention (and market volume) is attracted by unusual price moves. Sudden price range expansion from a consolidaiton is often the beginning of a powerful new trend.
7. Opportunity cost matters a lot. Be in stocks that move. Stocks in a range are dead money. (more…)
In Trading If You are Losing Money Then You Are Doing….
- You consistently trade huge position sizes in volatile trading vehicles.
- You enter a trade with no exit strategy.
- You care more about being right than making money.
- Your emotions fluctuate wildly with your trading capital equity curve.
- You are trading your opinions instead of a robust trading method.
- Your ego is tied to your trading results. (more…)