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Trade with Discipline

1. never EVER add to a losing position. EVER! If it’s not working, why add good money to bad? At this point, you are in damage control mode. It’s another thing if you are trying to pyramid into a position. For example: You go into a trade with 1/3 size, add another 1/3 and add the final 1/3 in an attempt to build a full position in a stock you feel strongly about. I do not mind that. But adding money to a full position which is not working is a BIG NO in my book! You never want any ONE trade to ruin your entire week or month folks. DISCIPLINE!

2. NEVER ever compromise your stop loss. I know a nice ran away bull market makes everyone think that’s okay to remove the stop loss or lower the stop loss to much lower levels because eventually the stock will bottom and rebound. BE EXTREMELY CAREFUL guys! This is absolutely NOT what we are trying to do as traders. This is basically turning your trades into investments just because you cannot handle the pain of a small loss. It is much easier to dig yourself back form a 2-3% loss than a 10-15% loss. Hindsight is always 20-20 and most of you will say “gosh, i shoulda stuck to the original stop”. Trust me, life will be much less stressful taking occasional small stop losses along the way then being stuck in “hold and hope” mode.

Six Rules for Traders & Investors

  1. Make all your mistakes early in life. He says the more tough lessons you learn early on, the fewer errors you make later. A common mistake of all young investors is to be too trusting with brokers, analysts, and newsletters who are trying to sell you bad stocks.

  2. Always make your living doing something you enjoy. This way, you devote your full intensity to it which is required for success over the long-term.

  3. Be intellectually competitive. This involves doing constant research on subjects that make you money. The trick, he says, in plowing through such data is to be able to sense a major change coming in a situation before anyone else.

  4. Make good decisions even with incomplete information. In the real world, he argues, investors never have all the data they need before they put their money at risk. You will never have all the information you need. What matters is what you do with the information you have. Do your homework and focus on the facts that matter most in any investing situation.

  5. Always trust your intuition. For him, intuition is more than just a hunch. He says intuition resembles a hidden supercomputer in the mind that you’re not even aware is there. It can help you do the right thing at the right time if you give it a chance. In fact, over time your own trading experience will help develop your intuition so that major pitfalls can be avoided.

  6. Don’t make small investments. You only have so much time and energy so when you put your money in play. So, if you’re going to put money at risk, make sure the reward is high enough to justify it.

Wisdom Thoughts for Traders & Investors

1. Make all your mistakes early in life: The more tough lessons you learn early on, the fewer (bigger) errors you make later. A common mistake of all young investors is to be too trusting with brokers, analysts, and newsletters who are trying to sell you something.

2. Always make your living doing something you enjoy: Devote your full intensity for success over the long-term.

3. Be intellectually competitive: Do constant research on subjects that make you money. Plow through the data so as to be able to sense a major change coming in the macro situation.

4. Make good decisions even with incomplete information: Investors never have all the data they need before they put their money at risk. Investing is all about decision-making with imperfect information. You will never have all the info you need. What matters is what you do with the information you have. Do your homework and focus on the facts that matter most in any investing situation.

5. Always trust your intuition: Intuition is more than just a hunch — it resembles a hidden supercomputer in the mind that you’re not even aware is there. It can help you do the right thing at the right time if you give it a chance. Over time, your own trading experience will help develop your intuition so that major pitfalls can be avoided.

6. Don’t make small investments: You only have so much time and energy so when you put your money in play. So, if you’re going to put money at risk, make sure the reward is high enough to justify it.

LOSING MONEY WITH METAPHORS

Freud’s psychiatric conclusions have largely been discredited but he rightly maintains praise for understanding the central role of metaphor and narrative in human thought. Professor Cowen HERE, is only the latest to build on this theme although importantly, he concentrates on the negative, blinding aspects of the tendency. Nowhere is this more clear than in the “stories” that surround investments.

Choosing a metaphor presupposes a conclusion. For instance, there’s no way to hear “the Chinese economy is a bubble” without unconsciously associating the country’s outlook with fragility and inevitable disappearance of a soap bubble. If we describe China’s GDP as similar to a hot air balloon on the other hand, our subconscious will immediately become more suceptible to the argument that upcoming government stimulus will right the economic ship. (You see what I did there – the use of the word “ship” is insidious.)

Good metaphors are a double-edged sword and their ubiquity in stock pitches suggests investors remain on their guard, never accepting one outright no matter how successfully it seems to communicates the situation.

Six Rules of Michael Steinhardt

Michael Steinhardt was one of the most successful hedge fund managers of all time. A dollar invested with Steinhardt Partners LP in 1967 was worth $481 when Steinhardt retired in 1995.

The following six rules were pulled out from a speech he gave:

1. Make all your mistakes early in life: The more tough lessons you learn early on, the fewer (bigger) errors you make later. A common mistake of all young investors is to be too trusting with brokers, analysts, and newsletters who are trying to sell you something.

2. Always make your living doing something you enjoy: Devote your full intensity for success over the long-term.

3. Be intellectually competitive: Do constant research on subjects that make you money. Plow through the data so as to be able to sense a major change coming in the macro situation.

4. Make good decisions even with incomplete information: Investors never have all the data they need before they put their money at risk. Investing is all about decision-making with imperfect information. You will never have all the info you need. What matters is what you do with the information you have. Do your homework and focus on the facts that matter most in any investing situation.

5. Always trust your intuition:  Intuition is more than just a hunch — it resembles a hidden supercomputer in the mind that you’re not even aware is there. It can help you do the right thing at the right time if you give it a chance. Over time, your own trading experience will help develop your intuition so that major pitfalls can be avoided.

6. Don’t make small investments: You only have so much time and energy so when you put your money in play. So, if you’re going to put money at risk, make sure the reward is high enough to justify it.

Investors Poured $19 Billion Into Hedge Funds in August

Hedge-fundHedge funds had nearly $20 billion pour into their coffers last month, as investors flocked back amid revived market optimism.

Hedge funds booked inflows of $19.6 billion in August, according to HedgeFund.net. Total hedge fund assets rose 2.56 percent, or $47.09 billion, to hit $1.886 trillion in August, the report said.

The influx of investments made August the third month in four that inflows outweighed outflows, HedgeFund.net said.

Go to Report from Hedge Fund.net »

The 7 Essential Trading Rules

1)      Begin each trade with the end in mind (have a game plan)

 2)      Always maintain a “P.M.A.” (Positive Mental Attitude)  

3)      Avoid falling in love with investments and positions

 4)      Only invest when you have an “EDGE” 

5)      The market does not know your position or how much you are up or down

 6)      Manage Your Risk: H + W + P = E

(Hoping + Wishing + Praying = Exit the Trade)

 7)      Play the game “One Trade at a Time” 

(The most important investment is the one you have right now – not the one you had in the past or the one you want to do in the future)

Is the China bubble about to burst?

China bubbleAn aggressive and arrogant China is entering 2010 with a bit of uncertainty. Although there was no let-up in its exports in 2009, its internal financial position looks uncertain. China watchers are expecting a bubble that will eventually burst.

In 2009 banks in China lent internally about US$1.4 trillion to businesses, including the real estate industry, with dubious performance records. James Chanos, a successful U.S. stock market dealer, has predicted that China’s financial collapse could be far worse than Dubai’s.

China soothsayers wish to prove Chanos wrong – and they may be right. With US$2.2 trillion in foreign reserves, it would seem China could weather any storm. But the problem is that its cash reserves are uncashable. The United States and Europe are not just waiting to repatriate the money to China. So China could be left to its own devices if it faces a financial storm where markets tumble and poor people with money tied to investments see their savings vanish.

Easy credit, too much money in the economy, excessive foreign direct investment, a completely undervalued currency and rising real estate prices have definitely created a bubble. This bubble could burst with any minor international event. That is the price China would have to pay for designing policies that serve Western consumer markets. (more…)

Bernard Baruch's Ten Rules.

   1. Don’t speculate unless you can make it a full-time job. 

2. Beware of barbers, beauticians, waiters, of anyone, bringing gifts of ‘insider’ information or ‘tips.’ 

3. Before you buy a security, find out everything you can about the company, its management and competitors, its earnings and possibilities for growth. 

4. Don’t try to buy at the bottom and sell at the top. This can’t be done – except by liars. 

5. Learn how to take your losses quickly and cleanly. Don’t expect to be right all the time. If you have made a mistake, cut your losses as quickly as possible.

 6. Don’t buy too many different securities. Better have only a few investments which can be watched.

7. Make a periodic reappraisal of all your investments to see whether changing developments have altered their prospects.

 

8. Study your tax position to know when you can sell to greatest advantage. 

9. Always keep a good part of your capital in a cash reserve. 

10. Don’t try to be a jack of all investments. Stick to the field you know best.