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It is the way a man looks at things-Reminiscences of a Stock Operator

“It is the way a man looks at things that makes or loses money for him in the speculative markets”, states Livermore. It is the habitual attitude that sets the experienced professional apart from the beginner. The ego driven thought patterns, not unlike the thinking of crowds, tends to be shallow and superficial.

Three different examples of successful large-scale trading campaigns are given to illustrate the thinking and the attitudes behind the trade. The first case study relates the correlation between activity in different ag markets. The second is an example where Addison Cammack uses the information from a tipster as a means of playing for position in the general market. The third campaign centers around a repeating theme: the opportunity needed to liquidate a large, profitable position. Often, the large trader must liquidate when the market is there to absorb a large line. Days of high liquidity and high volume are opportunities that must be watched for and acted upon quickly. In each example, the thinking of the crowd (and that of the tipster) is contrasted by the correct assessment of the large trader – this is one of the most important themes that is repeated in every chapter.

It occurred to me that Larry always has a reference to where he learned his lessons. That is, he always has a story or an example of the actions of other traders to support the rational of his actions. I only just realized that he must have done the very same thing I am doing now… researching and learning all he could from others.

The Agoraphobic Trader

http://en.wikipedia.org/wiki/Agoraphobia

The market is risky.  There is nothing about it that isn’t risky.  Risk never changes, your understanding and ability to make decisions based on what you are likely to achieve does change.  

One of the most important things about risk is liquidity. Agoraphobia is a “Panic disorder with agoraphobia is an anxiety disorder in which a person has attacks of intense fear and anxiety. There is also a fear of being in places where it is hard to escape, or where help might not be available.” –A.D.A.M Medical Encyclopedia

This plays out in two ways:

  • Physical limitations: The ability to get out of a position because there are ample orders on the other side of your trade.   We have seen many positions get too big to win.  Amaranth Nat Gas trade, CDS, and most recently the London Whale Trade.  For most of us we will never have the ability to get into a position that size but if you trade penny stocks you might find yourself in trouble and with some serious momentum trades.
  • Mental limitations:  As it is often said “second trade first”, meaning have your exit in mind before you get into a position. We have all been there before.  Not getting out of a trade where we should have.  Now we are down money or gave back open profits.  We are essentially trapped.  The trade begins to own us.  We have created an extra branch on the decision tree that does not need to be there.  

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