“Wall Street people learn nothing and forget everything.” Ben Graham
“ Buy on the cannons, sell on the trumpets.” Old French Proverb
“A stock broker is one who invests other people’s money until its all gone.” Woody Allen
“It is fortunate for Wall Street as an institution that a small minority of people can trade successfully and that many others think they can.” Ben Graham (more…)
#10. Trading and Exchanges: Market Microstructure for Practitioners by Larry Harris
“Trading and Exchanges demystifies the complex world of trading. It is a must for anyone interested in investing in the public markets” –Maria Bartiromo, CNBC News Anchor
“My goodness, if only I had known this, or hadn’t let it happen to me!” or, “never again, the b##tards!” – Victor Niederhoffer
#9. The Art of War by Sun Tzu
The classical Chinese War Manual written 2500 years ago that is a must read at every Military Academy in the world still! Why do we need to understand war? Begin to think in the context of the markets, should I take this trade, should I not the type of conflict present in everyday trading life.
#8. Statistics Without Tears: A Primer for Non-Mathematicians by Derek Rowntree
This primer without any of the mathematical formula and equations uses words and diagrams to help readers understand what statistics is and how think statistically.
#7. Twenty-Eight Years in Wall Street by Henry Clews (more…)
1. Money management
2. Taking losses while small
3. Positive expectancy
4. Importance of time out
5. Market can do anything anytime
6. Recognize your mistakes
7. Never indulge in hope
8. Keep things in perspective
9. Concentration, patience
10. Being humble
11. Ride the trends
12. Define what success is, for you.
13. Do your own research
14. Use sound risk management
15. Lock in your profits when they’re there
16. Accept that you’ll be wrong.
17. Keep it simple you stupid!
18. Sticking to your plan
19. Contrary opinion
20. Always have a good exit strategy
21. Knowing when to stay out of the market
22. Control your emotions
23. Never average down.
24. DISCIPLINE!
25. Pyramiding profitable positions to maximize profits in the trade.
Over trading
Most new traders think that they must always be long or short the market. They lose a lot of money during certain market stages like corrections, high volatility, or bear markets. Sometimes the best position is cash. Sometimes the best trade is no trade. Sometimes their is no signal just chaos. Profitable trading is taking signals for trades that have good odds for success and the right risk/reward ratio for your win rate expectations. Cash is a position in itself. The less I trade the more money I make.
Ignorant of their own ignorance
The more you don’t know, the more sure you are that you know everything. New traders many times do not understand the danger of big losses. They also do not understand the mental and emotional strain of having on trades with real money in real time. A lot of hubris and arrogance is born out of not being humbled by the markets. Looking at historical charts and past history is nothing like holding positions in real time.With skin in the game and not being able to see the hard right edge of the chart as it unfolds is a different experience than theories, back tests, and reading trading books. The real traders I know that have a ton of experience are humble and know that they don’t know the future. (more…)
For a trader to be successful their intellect must defeat their ego.
A trader must use probabilities to overcome their own personal opinions.
A trader has to use risk management to overcome the hope that a losing trade will turn around and just take the original stop loss plan.
A trader must allow the actual price action to overcome any personal directional bias.
A trader has to let a trailing stop overcome their desire to take profits too early early in a trade.
Successful traders use their passion and goals to overcome their tendencies to laziness or procrastination in doing their trading homework.
A profitable trader has learned to allow patience to overcome their desire to trade before they get a real entry signal.
“The obvious rarely happens, the unexpected constantly occurs.” – Jesse Livermore
“A speculator is a man who observes the future, and acts before it occurs.” – Bernard Baruch
“What seems too high and risky to the majority generally goes higher and what seems low and cheap generally goes lower.” – William O’Neil
“Successful speculation implies taking risks when the odds are in your favor.” – Victor Sperandeo
“Stocks are bought not in fear but in hope. They are typically sold out of fear.” – Justin Mamis
“Accepting losses is the most important single investment device to insure safety of capital.” –Gerald M. Loeb
“To me, the “tape” is the final arbiter of any investment decision. I have a cardinal rule: Never fight the tape!” – Martin Zweig
“You have to master your ego & realize that being profitable is more important than being right.” – Martin Schwartz
“Losing a position is aggravating, whereas losing your nerve is devastating.” – Ed Seykota (more…)
Some quick points, to be making money, Profit Factor must be greater than 1.
Re-arranging, we have
Sample numbers showing the minimum R required to break-even (i.e. PF = 1, assuming no transaction costs) for varying win rates.
The style of trading strongly influences the win rate and R (average winner / average loser). For example, (more…)
Bull Markets: Fear of missing out.
Bear Markets: Fear of being in.
Bull Markets: Everything I buy is going up — I’m a genius.
Bear Markets: Everything I buy is going down — I’m an idiot.
Bull Markets: See, fundamentals always win out.
Bear Markets: See, technicals and sentiment rule the markets.
Bull Markets: I knew I should have had more of my portfolio in stocks.
Bear Markets: I knew I should have had more of my portfolio in bonds.
Bull Markets: That guy’s been calling for a crash for years — he’s an idiot.
Bear Markets: That guy just called the crash — he’s a genius.
Bull Markets: I want to be a long-term buy and hold investor.
Bear Markets: I want to be a short-term trader. (more…)
What if you could read the principles for success for some of the world’s greatest traders? Well you can, here is how author Jack Schwager summed up the the similarities of the ‘Market Wizards’ he spent years interviewing in his second book.
The following is an summarized excerpt from Jack D Schwager’s book, The New Market Wizards. I highly recommend this book for all active traders.
Subjective: Based on or influenced by personal feelings, tastes, or opinions.Proceeding from or taking place in a person’s mind rather than the external world.
Subjective traders they are intertwined with their trades.Their signals are generally entering out of greed and exiting based on their own internal fear. The believe in their opinions more than the actually price action. They base trades off of whether they are feeling good or bad about a particular trade. A subjective trade comes out of the imagination of the trader, from their own beliefs, opinions, and what “should” happen in their view. Many times reality is not even cross checked as a reference, and if it is the subjective traders sees what they want to see instead of what is really going on. Their compass is their emotions and they have internal goals other than making money.
Objective: (Of a person or their judgment) not influenced by personal feelings or opinions in considering and representing facts. Having actual existence or reality.
Objective traders have a quantified method, a system, rules, and principles they trade by. They know where they will get in based on facts, and where they will get out based on price action. Objective traders have a written trading plan to guide them. The guides of the objective trader is historical price action, charts, probabilities, risk management, and their edge. They react to what is happening in reality in quantifiable terms that can be measured. They go with the flow of price action not the flow of internal emotions. (more…)
