“I absolutely believe that price movement patterns are being repeated; they are recurring patterns that appear over and over. This is because the stocks were being driven by humans- and human nature never changes”. -Richard Dennis (Turned 400 dollars into a fortune of at least 200 million dollars by using his remarkable trading skills). |
Archives of “fortunes” tag
rssAddictiveness
Trading is also highly addictive. When behavioral psychologists have compared the relative addictiveness of various reinforcement schedules, they found that intermittent reinforcement – positive and negative dispensed randomly (for example, the rat doesn’t know whether it will get pleasure or pain when it hits the bar) – is the most addictive alternative of all, more addictive than positive reinforcement only. Intermittent reinforcement describes the experience of the compulsive gambler as well as the future trader. The difference is that, just perhaps, the trader can make money.” However, as with most affective aspects of trading, its addictiveness constantly threatens ruin. Addictiveness is the reason why so many players who make fortunes leave the game broke.”
Adictiveness
“Trading is also highly addictive. When behavioral psychologists have compared the relative addictiveness of various reinforcement schedules, they found that intermittent reinforcement – positive and negative dispensed randomly (for example, the rat doesn’t know whether it will get pleasure or pain when it hits the bar) – is the most addictive alternative of all, more addictive than positive reinforcement only. Intermittent reinforcement describes the experience of the compulsive gambler as well as the future trader. The difference is that, just perhaps, the trader can make money.” However, as with most affective aspects of trading, its addictiveness constantly threatens ruin. Addictiveness is the reason why so many players who make fortunes leave the game broke.”
Lessons of the Legendary Traders
What do the worlds best Trading masters differently than the average investor? Can the average investor learn from the Player Legends success stories and their techniques used? What do the most famous Players have in common that can be applied by the average talented trader?
Before we should give some insights on those questions lets have a look at some of the most successful Trade jockey Legends:
Nicolas Darvas turned an $ 36000 account into $ 2000000 in 18 months!!!
Ed Seykota, a Turtle Financier, turned $ 5’000 into $ 15’000’000 in 12 years!!!
Jesse Livermore made several multi-million USD fortunes in the early 1900’s
Richard Dennis, another Turtle Player, made between $ 100 and $ 200 000.000
George Soros is believed to be one of the greatest Trade jockey of all time!!!
The results are quite impressive and some different amazing Financiers should be added easily to the list above. Why do these guys have such tremendous results?
There are common factors, that can be observed through most of the successful Pitbull Legends:
They have a Strategy that they strictly follow.
Most of them have a trend-following average trading style.
Most of them have a mid- to long-term approach. Some of them burned their fingers over the preceding 3 years and some even lost a fortune. Here are some examples of observed behaviour patterns:
Losses are not slice early enough.
Investment with a short-term horizon become long-term horizon in hope of raising asking prices.
People listen to the advise of their invested $ Trade facilitators and Analysts.
People risk coin in hot issues recommended by colleagues of their colleagues.
People have no plan for their investments.
Money Management is not considered at all.
Greed and fear is omnipresent.
What can average talented trading insiders learn from the above and how can the mistakes listed above be avoided? The after key notches can be learned from some of the most successful Trading expert Legends:
Each investor has its own personality. Some of the investor have a very aggressive paper trading style and are stockmarket trading very frequently. Some prefer shares as different are increased risk oriented and speculate in contracts. Other players want only spend a minimum of effort. An investor need to reflect on his outline and choose a note trading approach that fits his personality.
A trade needs to be completely planned in advance. g. when they go on holiday, when they move house etc. But do they have a plan when they invest? An investor needs to have a method that helps him to be prepared for all scenarios of a exchange. One needs to know in advance when to buy, how much to buy, when to exit. Once a buy / sell is executed the bottom line of the instrument (stock, promise note, fixed interest paper etc.
The most important component of a stock trading method is Cash Management? Surprised? Lots of pitbulls and super traders spend most of their time developing a very advanced trade entry strategy. But the entry methodology contributes only approximately 15% to the success of a Note trading Method based on academic studies.
The most important question of a Paper trading Technique is how much to risk bucks and how many deals to trade at the same time.
A can do attitude is required to buy / sell successfully. Why? Because with phrases like it should be great, but I cant or one day perhaps I should succeed in the lottery, but until then I must work hard they have already lost.
Suggestions to Speculators
Be a Cynic When Reading the Tape
We must be cynics when reading the tape. I do not mean that we should be pessimists, because we must have open minds always, without preconceived opinions. An inveterate bull, or bear, cannot hope to trade successfully. The long-pull investor may never be anything but a bull, and, if he hangs on long enough, will probably come out all right. But a trader should be a cynic. Doubt all before you believe anything. Realize that you are playing the coldest, bitterest game in the world.
Almost anything is fair in stock trading. The whole idea is to outsmart the other fellow. It is a game of checkers with the big fellows playing against the public. Many a false move is engineered to catch our kings. The operators have the advantage in that the public is generally wrong.
They are at a disadvantage in that they must put up the capital; they risk fortunes on their judgment of conditions. We, on the other hand, who buy and sell in small lots, must learn to tag along with the insiders while they are accumulating and running up their stocks; but we must get out quickly when they do. We cannot hope to be successful unless we are willing to study and practice—and take losses!
But you will find so much in Part Three of this book about taking losses, about limiting losses and allowing profits to run, that I shall not take up your thought with the matter now.
So, say I, let us be hard-boiled cynics, believing nothing but what the action of the market tells us. If we can determine the supply and demand which exists for stocks, we need not know anything else.
If you had 10,000 shares of some stock to sell, you would adopt tactics, maneuver false moves, throw out information, and act in a manner to indicate that you wanted to buy, rather than sell; would you not? Put yourself in the position of the other fellow. Think what you would do if you were in his position. If you are contemplating a purchase, stop to think whether, if you act contrary to your inclination, you would not be doing the wiser thing, remembering that the public is usually wrong.
Peter Lynch Quotes
“You can’t see the future through a rear view mirror.” – Peter Lynch
“The best stock to buy may be the one you already own.” – Peter Lynch
“You should not buy a stock because it’s cheap but because you know a lot about it.” – Peter Lynch
“An investment is simply a gamble in which you’ve managed to tilt the odds in your favor.” – Peter Lynch (more…)
10 Common Trading Errors
What are the common errors, the improprieties, the lack of attention to proper mores, the p’s and q of trading that cause so much havoc and could be rectified with a proper formal approach? Here are a few that cost one fortunes over time.
1. Placing a limit order in and then leaving the screen and not canceling the limit when you wouldn’t want it to be filled later or some news might come out and get you elected when the real prices is a fortune worse for you
2. Not getting up or being in front of screen at the time when you’re supposed to trade.
3. Taking a phone call from an agitating personage, be it romantic or the service or whatever that gets you so discombobulated that you go on tilt.
4. Talking to people during the trading day when you need to watch the ticks to put your order in.
5. Not having in front of you what the market did on the corresponding day of the week or month or hour so that you’re trading for a repeat of some hopeful exuberant event which never happens twice when you want it to happen.
6. Any thoughts or actual romance during the trading day. It will make you too enervated or too ready to pull the trigger depending on what the outcome was.
7. Leaving for lunch during the day or having a heavy lunch.
8. Kibbitsing from people in the office who have noticed something that should be brought to your attention.
9. Trying to get even when you have a loss by increasing your size and risk.
10. Not having adequate capital to meet any margin calls that mite occur during the day, thereby allowing your broker to close out your position at a stop while he takes the opposite side. What others do you come up with?
Magical thinking
Magical thinking describes subjective speculation about how markets will act. It is difficult to know for sure how significant a role intuition about the likelihood that investments will do well or poorly plays in peoples? decisions to invest. We are trying to assess innermost thoughts about money and self worth which most people feel they do not have to explain or justify to anyone. However, we can label these patterns of thought as magical thinking. Most investors have occasional feelings or intuitions that certain trading actions will bring them luck even if they know logically the actions can have no effect on their fortunes. Playing a hunch just because it feels right seldom makes traders rich. Yet proof that it’s human nature to indulge in magical thinking abounds:
It has been shown that people will place larger bets on a coin that has not yet been tossed than on a coin that has already been tossed, but the outcome of the toss has yet to be revealed.
If asked how much money they would demand to part with a lottery ticket they already hold, most ticket holders give a figure over four times greater than if they themselves chose the lottery number on the ticket. Apparently, at some magical level people think that they can influence a coin that has not yet been tossed and influence the likelihood of winning the lottery by choosing the number.
People are capable of thinking, at least on some intuitive level, If I buy a stock, then it will go up afterwards or If I buy a stock, then others will probably want to buy the stock, too, because they are like me or I have a hot hand lately; my luck is with me. Such magical thinking is likely, in a subtle way, to contribute to the overconfidence that may help the propagation of speculative bubbles.
Suggestions to Speculators
Chapter 14
Suggestions to Speculators
Be a Cynic When Reading the Tape
We must be cynics when reading the tape. I do not mean that we should be pessimists, because we must have open minds always, without preconceived opinions. An inveterate bull, or bear, cannot hope to trade successfully. The long-pull investor may never be anything but a bull, and, if he hangs on long enough, will probably come out all right. But a trader should be a cynic. Doubt all before you believe anything. Realize that you are playing the coldest, bitterest game in the world.
Almost anything is fair in stock trading. The whole idea is to outsmart the other fellow. It is a game of checkers with the big fellows playing against the public. Many a false move is engineered to catch our kings. The operators have the advantage in that the public is generally wrong.
They are at a disadvantage in that they must put up the capital; they risk fortunes on their judgment of conditions. We, on the other hand, who buy and sell in small lots, must learn to tag along with the insiders while they are accumulating and running up their stocks; but we must get out quickly when they do. We cannot hope to be successful unless we are willing to study and practice—and take losses!
But you will find so much in Part Three of this book about taking losses, about limiting losses and allowing profits to run, that I shall not take up your thought with the matter now.
So, say I, let us be hard-boiled cynics, believing nothing but what the action of the market tells us. If we can determine the supply and demand which exists for stocks, we need not know anything else.
If you had 10,000 shares of some stock to sell, you would adopt tactics, maneuver false moves, throw out information, and act in a manner to indicate that you wanted to buy, rather than sell; would you not? Put yourself in the position of the other fellow. Think what you would do if you were in his position. If you are contemplating a purchase, stop to think whether, if you act contrary to your inclination, you would not be doing the wiser thing, remembering that the public is usually wrong.
If you wish to “see” market action develop before your eyes, I suggest that you adopt the use of pad and pencil. Many of us find it difficult to concentrate; but I know that I have often missed important action in a stock because I did not concentrate. Try the pad-and-pencil idea; keep track of every transaction in some stock. Write down in a column the various trades and the volume, thus: 3—57½ (meaning 300 shares at $57.50). When strings appear, write them as connected sales so that you may analyze them later. Note particularly the larger blocks. Reflect upon the result of these volume-sales; note where they came.
It is remarkable what this practice will do for one’s perception. I find that it not only increases greatly my power of observation, but, more important still, that it also gives me, somehow, a commanding grasp of the action which I should not otherwise have. Furthermore, I am certain that few persons can, without having had much practice at it, remember accurately where within the action the volume came.
If you cannot spare the time to sit over the tape for this practice, you can arrange with your broker to obtain the daily reports of stock sales of the New York Stock Exchange. They are published for every market day by Francis Emory Fitch, Incorporated, New York City. Each transaction is given, with the number of shares traded and the price. From these sheets you can make charts of every transaction, and study where the volume increased or dried up, and the action which followed.
I know of no better training than to practice forecasting future movements from these charts and then check up to see if you have judged correctly. When you miss, go back over your previous days’ action, and see if the signals were not there but that you misinterpreted them. It is so easy to undervalue some very important action that some such method is necessary. I have found this one to give splendid training, and I use it constantly.
Trade Alone
This counsel may be the most important I can suggest: trade alone. Close your mind to the opinions of others; pay no attention to outside influences. Disregard reports, rumors, and idle boardroom chatter. If you are going to trade actively, and are going to employ your own judgment, then, for heaven’s sake, stand or fall by your own opinions. If you wish to follow someone else, that is all right; in that case, follow him and do not interject your own ideas. He must be free to act as he thinks best; just so must you when trading on your own initiative.
You may see something in the action of a stock that some other chap does not notice. How, then, can he possibly help you if you are making a decision upon some occurrence which you have studied but which he has never observed? You will find hundreds of people ready to give you free advice; they will give it to you without your asking, if you raise your eyebrow or look in their direction. Be a clam, an unpleasant cynic.
Have no public opinions of your own, when asked; and ask for none. If you get into the habit of giving opinions you are inviting an argument at once. You may talk yourself out of a decision which was correct; you will become wishy-washy in your conclusions, because you will be afraid of giving an opinion which may turn out wrong. Soon you will be straddling the fence in your own mind; and you cannot make money in trading unless you can come to a decision. Likewise, you cannot analyze tape action and at the same time listen to 42 people discussing the effects of brokers’ loans, the wheat market, the price of silver in India, and the fact that Mr. Raskob and Mr. Durant are bullish.
Dull markets are puzzling to traders, doubtless because it is difficult to rivet the attention on the tape when it is inactive. If the tape bores you, leave it alone; go out and play parchesi—do anything but join in the idle, unintelligent gossip in a broker’s boardroom.
Use a pad and pencil, as I suggested. It will occupy your mind and concentrate your attention. Try it; you will not be able to chatter and keep track of trades at the same time. (more…)
Russell Sands on What Causes the Market to Move.
Russell Sands was one of the original “turtles” trained by the famous commodity trader Richard Dennis. Dennis believed that commodity traders could be trained, as opposed to a colleague who believed great trading was an innate ablility. To settle a bet, Dennis placed ads in trade magazines and interviewed hundreds of candidates, eventually choosing 32 trainees. The new traders were named turtles, after the turtles Dennis saw being raised on a farm in Singapore.
By the way, if that story line sounds familiar, you may have seen the movie Trading Places, starring Eddie Murphy and Dan Akroyd. And for my only movie review on this site, I give it two thumbs up. Very funny. (more…)