Lesson Number One: Cut your losses quickly.
As soon as a trade is contemplated, a trader must know at what point in time he’ll be proven wrong and exit a position. If a trader doesn’t know his exit before he takes the entry, he might as well go to the racetrack or casino where at least the odds can be quantified.
Lesson Number Two: Confirm your judgment before going all in.
Livermore was famous for throwing out a small position and waiting for his thesis to be confirmed. Once the stock was traveling in the direction he desired, Livermore would pile on rapidly to maximize the returns.
There are several ways to buy more in a winning position — pyramiding up, buying in thirds at predetermined prices, being 100% in no more than 5% above the initial entry — but the take home is to buy in the direction of your winning trade – never when it goes against you.
Lesson Number Three: Watch leading stocks for the best action.
Livermore knew that trending issues were where the big money would be made, and to fight this reality was a loser’s game.
Lesson Number Four: Let profits ride until price action dictates otherwise.
“It never was my thinking that made the big money for me. It always was my sitting.”
One method that satisfies the desire for profit and subdues the fear of a losing trade is to take one half of your profit off at a predetermined level, put a stop at breakeven on the rest, and let it play out without micromanaging the position. (more…)
Archives of “lows” tag
rss7 Trading Rules of Jesse Livermore’s
Lesson Number One: Cut your losses quickly.
As soon as a trade is contemplated, a trader must know at what point in time he’ll be proven wrong and exit a position. If a trader doesn’t know his exit before he takes the entry, he might as well go to the racetrack or casino where at least the odds can be quantified.
Lesson Number Two: Confirm your judgment before going all in.
Livermore was famous for throwing out a small position and waiting for his thesis to be confirmed. Once the stock was traveling in the direction he desired, Livermore would pile on rapidly to maximize the returns.
There are several ways to buy more in a winning position — pyramiding up, buying in thirds at predetermined prices, being 100% in no more than 5% above the initial entry — but the take home is to buy in the direction of your winning trade – never when it goes against you.
Lesson Number Three: Watch leading stocks for the best action.
Livermore knew that trending issues were where the big money would be made, and to fight this reality was a loser’s game. (more…)
4 Stages ..
Stan Weinstein’s concept of stage analysis as outlined in his excellent book entitled Secrets For Profiting In Bull and Bear Markets. I decided to read Mr Weinstein’s book and find out what these stages are. Here is what I discovered:
STAGE 1: This is the basing area where a stock is losing downside momentum. Buyers and sellers are starting to move in equilibrium and although the stock is not taking off it is not selling off either. The buyers are not asking for a discount of the price but are buying what the holders no longer want. This stage could last weeks to months so there is no need to jump in just yet.
STAGE 2: The advancing stage begins when the stock in question starts to break higher from the basing area. This stage usually has a retest to the break-out area before the real move starts. There begins here a pattern of higher lows best described as two steps forward and one step back. These pullbacks provide a good risk/reward opportunity for the astute trader.
STAGE 3: The top area is stage 3 where the good trending stock finds its eventual end. The upward advance loses momentum and consolidation sets in. The mirror image of stage 1 starts to take shape once again. There are sharp moves and high volume in this stage and it is best to refrain from trading here as the reward/risk ratio is stacked against you.
STAGE 4: The declining phase is the fourth and final phase as the factor’s that maintained the stock’s previous momentum are no longer present and the sellers step in. The trader is advised to never go long in this stage or hold on to any winning positions. It is time to exit. If a downtend begins then you can start to look at shorting the stock for the same reasons you went long: trend and momentum.
The market is really very simple in its design and structure; it is the trader who makes it difficult. Although not all markets and stocks are text book examples of the four stages, the disciplined trader would be wise to consider whether or not the stages may be playing out in a current position or one being considered. There may just be a very good reason why both Shannon and Weinstein have best selling books on the same subject.
Livermores Seven Trading Lessons
Lesson Number One: Cut your losses quickly.
As soon as a trade is contemplated, a trader must know at what point in time he’ll be proven wrong and exit a position. If a trader doesn’t know his exit before he takes the entry, he might as well go to the racetrack or casino where at least the odds can be quantified.
Lesson Number Two: Confirm your judgment before going all in.
Livermore was famous for throwing out a small position and waiting for his thesis to be confirmed. Once the stock was traveling in the direction he desired, Livermore would pile on rapidly to maximize the returns.
There are several ways to buy more in a winning position — pyramiding up, buying in thirds at predetermined prices, being 100% in no more than 5% above the initial entry — but the take home is to buy in the direction of your winning trade – never when it goes against you.
Lesson Number Three: Watch leading stocks for the best action.
Livermore knew that trending issues were where the big money would be made, and to fight this reality was a loser’s game.
Lesson Number Four: Let profits ride until price action dictates otherwise.
“It never was my thinking that made the big money for me. It always was my sitting.”
One method that satisfies the desire for profit and subdues the fear of a losing trade is to take one half of your profit off at a predetermined level, put a stop at breakeven on the rest, and let it play out without micromanaging the position.
Lesson Number Five: Buy all-time new highs.
The psychological merits of buying all-time or 52-week highs are immense and shouldn’t be discounted as a part of your overall strategy. (more…)
Livermores Seven Trading Lessons
Lesson Number One: Cut your losses quickly.
As soon as a trade is contemplated, a trader must know at what point in time he’ll be proven wrong and exit a position. If a trader doesn’t know his exit before he takes the entry, he might as well go to the racetrack or casino where at least the odds can be quantified.
Lesson Number Two: Confirm your judgment before going all in.
Livermore was famous for throwing out a small position and waiting for his thesis to be confirmed. Once the stock was traveling in the direction he desired, Livermore would pile on rapidly to maximize the returns.
There are several ways to buy more in a winning position — pyramiding up, buying in thirds at predetermined prices, being 100% in no more than 5% above the initial entry — but the take home is to buy in the direction of your winning trade – never when it goes against you. (more…)
Symptoms of fear- For Traders
- Jumping into unplanned trades because you fear being left out
- Hesitate in pulling the trigger because you fear the prospects of a loss
- Cut winners short in fear of giving prof its back, affected by noise
- Hang on to losing trades because you fear taking the real loss
- Feeling helpless about trading results
- Fear of missing out on trade
- Afraid to pull the trigger on a tradeFeeling paralyzed once in a trade
- Living in denial about results
- Rationalizing poor results
- Chasing big moves only to find you bought top and sold low
- Not taking stops
- Take small gains to “catch up”, market leaves you behind
- Winners turn to losers and then you get out
- Wanting to get back at market
- Experiencing large mood swings; big highs, deep lows, anger and /or depression
Wisdom from Worthy Individuals
“I measure what’s going on, and I adapt to it. I try to get my ego out of the way. The market is smarter than I am so I bend.” – Martin Zweig
“To be a money master, you must first be a self-master” – J. P. Morgan
“Our greatest glory is not in never falling, but in rising every time we fall.” – Confucius
“Buy that which is showing strength – sell that which is showing weakness.” – Richard Rhodes
“The rule of survival is not to “buy low, sell high”, but to “buy higher and sell higher.” – Richard Rhodes
“Be patient. Once a trade is put on, allow it time to develop and give it time to create the profits you expected.” – Richard Rhodes
“Be impatient. As always, small loses and quick losses are the best losses.” – Richard Rhodes (more…)
Not A One Way Train
Words of wisdom from Dave Landry’s new book, The Layman’s Guide To Trading Stocks:
Wall Street Myth 1: The market always goes up longer term
It seems to be universally preached that the market “always goes up longer term.” And, all you have to do is buy a diversified mutual fund or index fund and wait. The problem is that markets do not always go up longer term. Well, I suppose it all depends on what you mean by longer term.
Suppose you bought stocks in 1929 at the market peak. Provided you could have held through a 90% loss, it would then have taken you a quarter of a century just to get back to breakeven.
Let’s say you bought stocks in the mid-1960’s. Your return would have been almost zero until the market finally broke out in 1983, which was 17 years later.
When I began this chapter, I was concerned that there might be a “that was then, this is now” mentality. After all, the benchmark S&P 500 wasn’t far below breakeven from the 2000 peak. I thought I was going to have to make a strong case for not buying and holding. Unfortunately for the buy and hold crowd, the market made my case for me. The bear market that began in late 2007 would turn out to be the worst since 1929. By March 2009, the S&P was at 13-year lows. From these lows, the market will have to rally over 200 percent just to get to breakeven.
At more than one cocktail party, I have had people laugh in my face when I tell them that the market can go 25 years or more without going up. This has made for some heated discussions and awkward social situations. I have since learned from Dale Carnegie and my wife Marcy to just nod my head and enjoy my drink. Do not take my word for it, just look at the charts and grab me a Black and Tan while you are at it!
Characteristics of Successful Trader
- Successful traders have absolute control over their emotions, they never get too elated over a win and too depressed over a loss.
- Successful traders seldom think of prices too high or low.
- Successful traders do not panic, they make adjustments rather than revolutionary changes to their trading style. (more…)
Keep Your EGO out of Trading.
“Of all the traps and pitfalls in life ,self-disesteem is the deadliest ,adnd the hardest to overcome;for it is a pit designed and dug by our owen hands ,summed up in the phrase ,’It’s no use-I can’t do it .'” -Maxwell Maltz
The ego had no place in trading.An unstable ego will attach itself to anything you do.And trading is not exception.You cannot use the trading arena as an area to prove your worth or your capability.It will just bring your trading and your self-esteem to new lows.
If your ego is getting in the way of your trading,you need to build up your self-esteem.One way to do this to begain to appreciate yourself.Pay attention to what you’re doing that’s good.Give yourself recognisation for the little things you do as you go through the day.Make lists of your accomplishments.Make lists of your positive attributes.Each day ask yourself ,”What did I today that I’m proud of ?”Ask yourself ,”In what way an I improving ? “