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Trading Wisdom – Andrew Gordon

  
  Education
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Legendary stock trader Jesse Livermore had it right: The big money is in the big moves … and the trick to making the big money is knowing how to sit tight and ride the trend for all it’s worth. As obvious as that may seem, many investors have trouble doing it.

They are, as cognitive psychologists like Daniel Kahneman and Amos Tversky would say, “risk-averse.” The pain they experience in losing money is far greater than the pleasure they experience in making it. As a result, these investors typically sell their investments too soon for fear of incurring a real or even a paper loss.

To profit the most from an investment, you need to be able to wait long enough for it to achieve its full potential. So if you’re “risk-averse” by nature, it might be a good idea for you to avoid paying too much attention to the news. If you’re watching television and the nightly business report comes on, change the channel. Set aside the business section of the paper to read on a rainy day. Ignore cocktail chatter about investing. That way, you’re more likely to stick to your trading plan instead of letting your emotions overpower your better judgment. 

12 Insightful Thoughts from “The Most Important Thing” by Howard Marks

  
Education, Life
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1. People usually expect the future to be like the past and underestimate the potential for change.

2. When everyone believes something is risky, their unwillingness to buy usually reduces its price to the point where it’s not risky at all. Broadly negative opinion can make it the least risky thing, since all optimism has been driven out of its price.

3. In investing, as in life, there are very few sure things. Values can evaporate, estimates can be wrong, circumstances can change and “sure things” can fail. However, there are two concepts we can hold to with confidence: • Rule number one: most things will prove to be cyclical. • Rule number two: some of the greatest opportunities for gain and loss come when other people forget rule number one.

4. Very early in my career, a veteran investor told me about the three stages of a bull market. Now I’ll share them with you. • The first, when a few forward-looking people begin to believe things will get better • The second, when most investors realize improvement is actually taking place • The third, when everyone concludes things will get better forever

5. Investors hold to their convictions as long as they can, but when the economic and psychological pressures become irresistible, they surrender and jump on the bandwagon.

6. Even when an excess does develop, it’s important to remember that “overpriced” is incredibly different from “going down tomorrow.” • Markets can be over- or underpriced and stay that way—or become more so—for years.

7. If everyone likes it, it’s probably because it has been doing well. Most people seem to think outstanding performance to date presages outstanding future performance. Actually, it’s more likely that outstanding performance to date has borrowed from the future and thus presages subpar performance from here on out. (more…)

Marc Faber: Euro Oversold, If S&P Above 1150 Could See 20% Correction

  
Analysis, Education, US Market, Video
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Market: “I’m not so sure that we’ll make new highs but if we make a new high above 1,150, I don’t think it will be that far above the 1,150 level, maybe 1,200, and that thereafter we have a bigger kind of correction on the downside.  I think if we make a new high then I wouldn’t rule out a correction of at least around 20% and don’t forget many shares in America and globally have already corrected 20%, so for them to make a new high isn’t going to be all that easy in the first place. So what we could see is a new high in the S&P and the Dow Jones that is not confirmed by the new high list. In other words you will make a new high with fewer stocks making a new high than in January.”

Currencies:  Euro: “Now the Euro is very oversold and the news has been horrible. Everything you’ve read has been a disaster for the Eurozone and I think the Euro now can rebound to around 1.40 before it goes lower. I think there’s nothing good about the US Dollar, but I don’t think there is much good about the Euro either…”

US Dollar: “When investors realize that the fiscal deficits aren’t going to come down, that they’ll stay very high. When they also see that one state after another is essentially bust like California and Illinois. And when they see that monetization will become inevitable in the long run, I think at that point the Dollar will be weak. But don’t forget it may not necessarily have to be weak against the Euro.  Both currencies are sick and so both could go down and then ultimately you just have one or two sound currencies, notably precious metals and I think the Asian currencies will then probably also appreciate against the Euro and the US Dollar but notably precious metals will then be strong”.

Asset Class Right Now:  “Right now as of today I would probably go long the Euro and probably be long US Treasury Bonds but only as a trade for the next say 5-10 days and then we’ll have to see further.  In general, I would say better be in stocks than in bonds because we’ll get more inflation in due course”.

Dear Traders ,Just see ..What I had forecasted/Written about S&P 500 on 19th ,28th Jan’10 and on 3rd Feb’10

Technically Yours

To Be Happy

  
Education, Life
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be-happyIf you are after specific investment advice, stop reading now. We seek to explore one of Adam Smith’s obsessions: what it means to be happy. We also discuss why that’s important to investors, and how we can seek to improve our own levels of happiness. The list below shows our top ten suggestions for improving happiness.

  • Don’t equate happiness with money. People adapt to income shifts relatively quickly, the long lasting benefits are essentially zero.
  • Exercise regularly. Taking regular exercise generates further energy, and stimulates the mind and the body.
  • Have sex (preferably with someone you love). Sex is consistently rated as amongst the highest generators of happiness. So what are you waiting for?
  • Devote time and effort to close relationships. Close relationships require work and effort, but pay vast rewards in terms of happiness.
  • Pause for reflection, meditate on the good things in life. Simple reflection on the good aspects of life helps prevent hedonic adaptation.
  • Seek work that engages your skills, look to enjoy your job. It makes sense to do something you enjoy. This in turn is likely to allow you to flourish at your job, creating a pleasant feedback loop.
  • Give your body the sleep it needs.
  • Don’t pursue happiness for its own sake, enjoy the moment. Faulty perceptions of what makes you happy, may lead to the wrong pursuits. Additionally, activities may become a means to an end, rather than something to be enjoyed, defeating the purpose in the first place.
  • Take control of your life, set yourself achievable goals.
  • Remember to follow all the rules.

The Confident Trader

  
  Education
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Confidence overcomes fear. Confidence also overcomes greed because a component of greed is an underlying sense of scarcity. To be confident doesn’t mean that every trade or trading day will be profitable. What it does mean is that when you look to where you want to go, you know that you can figure out a strategy that will get you there. And you know you can execute that strategy in a consistent manner. A successful strategy doesn’t mean anything if you don’t or can’t or won’t employ it.

Theoretically we should be as successful at trading and investing as our trading and investing strategies. Unfortunately the vast majority of traders and investors fall far short of the results of their strategies. They trip over themselves again and again on the way to employing their methods. My work as a trading coach is to enable traders around the world to become as good as their methods.

Confidence need not waver when you have dips and troughs and plateaus in your trading. Confidence is developed when you realize you can correct mistakes and learn from failures. You don’t persist in failing. You learn and move on. You don’t fear repeating the failure either, you simply anticipate correcting it.

Self esteem is basically the sum total of all the thoughts we have about ourselves. This is quite important because we do tend to become what we think about ourselves. The noted philosopher and psychologist, William James, said, “People, in general, become what they think of themselves.” Not only did he say this but he added that this was the essence of all we had learned in psychology in the prior 100 years. (more…)

Traders’ Discipline

  
  Education
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disciplinetraderTop daytraders have the discipline to follow their daytrading system rigorously, because they know that only the trades that are signaled by their system have a greater rate of success. Matching a method of trading with your personality is the only way you will ever feel comfortable in the markets. Some websites have sought to profit from day traders by offering them hot tips and stock picks for a fee.

Day trading is an investment tactic with a relatively short investment. You need to position yourself so that you can endure long strings of losses, and maintain your day trading system. (more…)

R.W. Schabacker, the financial editor of Forbes magazine, penned the following advice (warning) in 1934

  
  Education
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No trader can ever expect to be correct in every one of his market transactions. No individual, however well he may be grounded, no matter how much experience he has had in practical market operation, can expect to be infallible. There will always be mistakes, some unwise judgments, some erroneous moves, some losses. The extent to which such losses materialize, to which they are allowed to become serious, will almost invariably determine whether the individual is to be successful in his long-range investing activities or whether such accumulated losses are finally to wreck him on the shoals of mental despair and financial tragedy.

THE TRUE TEST

It is easy enough to manage those commitments which progress smoothly and successfully to one’s anticipated goal. The true test of market success comes when the future movement is not in line with anticipated developments, when the trader is just plain wrong in his calculations, and when his investment begins to show a loss instead of a profit. If such situations are not properly handled, if one or two losing positions are allowed to get out of control, then they can wipe out a score of successful profits and leave the individual with a huge loss on balance. It is just as important-nay, even more important-to know when to dessert a bad bargain, take one’s loss and count it a day, as it is to know when to close out a successful transaction which has brought profit.

LIMITS ARE A MUST

The staggering catastrophes which ruin investors, mentally, morally, and financially, are not contingent upon the difference between a 5 percent loss limit and a 20 percent loss limit. They stem from not having established any limit at all on the possible loss. Any experienced market operator can tell you that his greatest losses have been taken by those, probably rare, instances when he substituted stubbornness for loss limitation, when he bought more of a stock which was going down, instead of selling some of it to lighten his risk, when he allowed pride of personal opinion to replace conservative faith in the cold judgment of the market place. (more…)

Cutting losses

  
  Education
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cuttingloss

There is one big difference between traders, who make money and traders who don’t. It is called risk management. Even if you blindly pick your stocks, in the long-term you will make money as long as you cut your losses short. Add to risk management a proper equity selection model and then you are in top 5% in the world. The 5% that actually make money, consistently. This is the biggest secret of successful traders – cutting losses short. It saves capital and it saves your piece of mind.

If you browse on the internet, you will find thousands of articles that preach that losses should be cut short. It is well known fact and yet you’ll be surprised how few people actually utilize it, even those who write about it. Words are free. You can say whatever you want. Many people don’t practice what they preach and this is why the biggest edge someone could have is called discipline.

There are two types of traders: the ones that cut losses short and the ones that lose everything and go out of business. If you can’t define your risk in advance and most importantly if you can’t accept it, you should not be trading at all. Reading about cutting losses short will never be enough. It is human to believe that you are different and that you know better and that it will never happen to you. You have to experience it to realize it. It is part of the learning curve. I knew about this rule long before I committed serious money to trading and yet I didn’t practice it until I had my portion of outsized losses. Today, the thought of how and where I’ll exit a trade, is the most important.

I know that there are many people who preach that they don’t use stop losses and yet they are successful. Well, if they are successful doing that, then they are not really traders. They are investors and they limit their risk by hedging, which is a whole new chapter.

Thoughts About Traders and Trading

  
  Education
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* Risk Management – If you lose 10% of your trading account, you need to make 11.1% on the remaining capital to get back to even. If you lose 20% of your account, you need to make 25% on the remaining capital to return to breakeven. At a 30% loss, you have to make 37.5% to become whole; at 40% loss, you have to make 67% to return to even. Once you’ve lost half your trading capital, you need to double the remainder to replenish your account. Much of trading success is limiting losses and avoiding those fat tails of risk.
* What is a Trader? – If you ask a trader what is a good market, he will tell you that it’s a market that has good volatility; a good market is one that moves. If you ask an investor what is a good market, he will tell you that it’s a rising market. Lots of people try to succeed as traders with the mindset of investors. It doesn’t work.
* Refutation – The story goes that Samuel Johnson, upon hearing Bishop Berkeley’s theory that objects existed in mind only, kicked a rock in front of him, announcing, “Thus I refute Berkeley!” The incident came to mind when I met with a trader today who trades very actively every day, has made money on more than 80% of days this year, and has made several million dollars this year. His performance was clearly documented by his firm and the firm’s risk manager. Thus he refutes efficient market theory. 
* Success – When I see traders like the one above (quite a few at his firm are up more than a million dollars this year), it’s an inspiring reminder that success *is* possible to those who work diligently at trading as a career. The support of a superior firm doesn’t hurt, either.

India is not a place for investors, but it’s a fabulous country for tourists-Jim Rogers

  
Analysis, Education
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Rogers is not as optimistic on the other Asian giant, India. He believes the country needs to open up its retail market and make its currency convertible.  He argues that politicians need to address the nation’s problems now instead of pushing them into the future:

 “India has a horrible economic system. Indian politicians are of course now talking the right concepts and are trying to implement them, but a lot goes wrong when they are put into practice and run up against the country’s thoroughly anti-capitalist bureaucracy.”

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