Fear: fearful of profit and one acts too soon.
Hope: hope for a change in the forces against one.
Lack of confidence in ones own judgment.
Never cease to do your own thinking.
A man must not swear eternal allegiance to either the bear or bull side.
The individual fails to stick to facts!
People believe what it pleases them to believe.
Archives of “human nature” tag
rssQuotes on Psychology
The most important single factor in shaping security markets is public psychology. – Gerald Loeb
Wall Street never changes. The pockets change, the suckers change, the stocks change, but Wall Street never changes because human nature never changes. – Jesse Livermore
There is nothing more important than your emotional balance. – Jesse Livermore
There are styles in securities as there are in clothes. A security may be undervalued, but if it is also out of style it is of little interest to the speculator. He is, therefore, compelled to study the psychology of the stock market as well as the elements of real value. – Phil Carret
When events have thinking participants, the subject matter is no longer confined to facts but also includes the participants’ perceptions. The chain of causation does not lead directly from fact to fact but from fact to perception and from perception to fact. – George Soros
Jesse Livermore’s Money Management Rules
If you haven’t read this book “Reminiscences of a Stock Operator” written in 1923, read it! It is purpordetly the unofficial biography of one of the greates traders ever; Jesse Livermore. The rules Jesse followed back at the turn of the last century are still very much applicable today.
1) Don’t lose money. Don’t lose your stake. A speculator without cash is like a store-owner with no inventory. Cash is your inventory, your lifeline, and your best friend. Without cash, you are out of business. Don’t lose your line. There is no place in speculating for hoping, for guessing, for fear, for greed, for emotions. The tape tells the truth.
2) Always establish a stop. A successful speculator must set a firm stop before making a trade and must never sustain a loss of more than 10 percent of invested capital. I have also learned that when your broker calls you and tells you he needs more money for a margin requirement on a stock that is declining; tell him to sell out the position. When you buy a stock at 50 and it goes to 45, do not buy more in order to average out your price. The stock has not done what you predicted; that is enough of an indication that your judgment was wrong. Take sour losses quickly and get out. Remember, never meet a margin call, and never average losses. Many times I would close out a position before suffering a 10 percent loss. I did this simply because the stock was not acting right from the start. Often my instincts would whisper to me: “J.L., this stock has a malaise, it is a lagging dullard. It just does not feel right,” and I would sell out of my position in the blink of an eye. I absolutely believe that price movement patterns are repeated and appear over and over with slight variations. This is because humans drive the stocks, and human nature never changes. Take your losses quickly. Easy to say, but hard to do. (more…)
Day Trading Methodology
I have been reading the latest book from Van Tharp, Super Trader and I want to highlight this passage about daytrading methodologies:
“For example, if you are a daytrader, open up a position and either take a small loss or get out at the end of the day. When you do that, you are not tied to the market all day, and you may find that you take small losses and get huge profits. Simplify your entry technique and concentrate on exits”
Now, lets cross this with Jesse Livermore remarks on the speculative line of least resistance:
“It sounds very easy to say that all you have to do is to watch the tape, establish your resistance points and be ready to trade along the line of least resistance as soon as you have determined it.”
So, we have a powerful daytrading methodology in these two market generalizations. But JL added, “But in actual practice a man has to guard against many things, and most of all against himself – that is, against human nature.”
Rings a bell? Maybe we should all print this post and have it by the trading desk.
Movie Titles Entirely Appropriate For This Market Moment
Movie Titles Entirely Appropriate For This Market Moment:
Outrageous Fortune
Bubble Boy
Flight of the Phoenix
Against All Odds
Miracle
The Bank Job
The Quick and the Dead
The Comebacks
The Perfect Score
Wild Hogs
The Big Squeeze
The China Syndrome
As Good As It Gets
Wag The Dog
The Fast & The Furious
Fearless
Proof Of Life
Human Nature
Leap Of Faith
Sexy Beast
The Road To Perdition
Unbreakable
Analyze This
Great Nuggets from the Book-A Better Way to Make Money.
1. The secret to losing money in the market is to know why. “The losers “were ‘playing the market’, not using it intelligently. The fellow at the other end of the deal, who was using it intelligently, not ‘playing the market’, is the one who got the money.” 2. “It is an undeniable fact that indiscriminate trading in a hectic market will send one to financial oblivion quicker than any other known process.” 3. “The most careful preparation-a systematic plan-is one of the essentials of success.” 4. “Market action is not complex but surprisingly simple. Yet it is often made to appear complex by newspaper forecasters and market letter writers.” 5. “Market action is human nature in action.” 6. All market movements are based on “two deep-seated and entirely natural emotions: the desire for gain and the fear of loss.” 7. “So anxious are people to find some talisman, some magic wand, that will help them secure the hidden riches of the market, that they will try anything from coin-flipping to crystal gazing to secure the desired assistance.” 8. “What marvelous results could be attained in the business of making money if those who buy stocks would take a little time to learn a few simple facts about the market in which they are blindly reposing their faith.” 9. “Market students are continually diverted from making true evaluations of securities and commodities because they study the statistics made by prices instead of the psychology of prices.” 10. “Adopt one system of trading and stick to it, just as you employ and stick to one physician in whom you learn to have confidence.” 11. “One of the most important points in your market education is to learn as early as possible that the customary and supposedly weighty market news is of very small importance. The news only looks important.” 12. “Don’t trade just because you can afford to lose.” 13. “Practice makes perfect is an old copybook adage that works well in the market place.” 14. “If a trade fails to come out right, the error will be found in the operator-not the market.” 15. “Trading is simple another form of business. Treat it as such.” 16. “Trend to the investor is like the vein of gold to the miner, who must follow the vein faithfully if he expects to get the yellow metal.” 17. “Stocks are made to buy and sell…not to be bought and held.” 18. No matter what a thing costs, stocks or otherwise, “it is worth only what you can somebody to pay for it.” 19. People will always be prone to be extravagantly optimistic or dolefully in the slumps and “in this action is unlimited wealth for the men who realize this fact and will use it with confidence and decision.” 20. “Success is the most desirable thing in the world, but it is an eliminating contest. It may trample the thoughtless trader into the dust, but it will pour large treasure into the laps of those who work in sincere harmony with its laws.” |
Wisdom from Legendary Traders
“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). |
5 Great Quotes From Jesse Livermore
1. The only leading indicator that matters
Watch the market leaders, the stocks that have led the charge upward in a bull market. That is where the action is and where the money is to be made. As the leaders go, so goes the entire market. If you cannot make money in the leaders, you are not going to make money in the stock market. Watching the leaders keeps your universe of stocks limited, focused, and more easily controlled.
2. Patterns repeat because human nature hasn’t changed for thousand of years
There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly build into human nature, that always gets in the way of human intelligence. Of this I am sure.
All through time, people have basically acted the same way in the market as a result of greed, fear, ignorance, and hope. This is why the numerical formations and patterns recur on a constant basis.
I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humans — and human nature never changes.
3. Your first loss is your best loss. (more…)
William Eckhardt-Quotes
I take the point of view that missing an important trade is a much more serious error than making a bad trade.
Buying on retracement is psychologically seductive because you feel you’re getting a bargain versus the price you saw a while ago. However, I feel that approach contains more than a drop of poison.
You shouldn’t plan to risk more than 2 percent on a trade. Although, of course, you could still lose more if the market gaps beyond your intended point of exit.
I haven’t seen much correlation between good trading and intelligence. Some outstanding traders are quite intelligent, but a few aren’t. Many outstanding intelligent people are horrible traders. Average intelligence is enough. Beyond that, emotional makeup is more important.
The answer to the question of whether trading can be taught has to be an unqualified yes. Anyone with average intelligence can learn to trade. This is not rocket science.
If you bring normal human habits and tendencies to trading, you’ll gravitate toward the majority and inevitably lose. (more…)
Three Blind Men And The Markets
A Hindu folktale tells of three blind men encountering an elephant. “It’s a tree,” says one, stroking a leg. “No, no, it’s a snake,” says another, feeling the trunk. “No, this must be a house,” insists a third, spreading his arms against the bulk of the elephant’s body.
All three had a different perception of the elephant based on the part they examined, and all three conclusions were wrong. The elephant was larger and more complex than any of the men realized.
A similar tale is told everyday in the market. Each market participant has different needs, agendas, histories, perceptions, and sees the market completely differently. As with the three blind men examining the elephant: (more…)