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Richard Dennis – Market Wizard (Must Read )

  
  Education
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On the right psychological mindset:

For a lot of traders, it doesn’t matter so much whether their first big trade is successful or not, but whether their first big profit is on the long or short side. Those people tend to be perennial bulls or bears, and that is very bad. Both sides have to be equally OK. There can’t be anything psychologically more satisfying about one than the other. If there is, your trading is going to go askew.

On taking losses:

Since then, I have learned that when you have a destabilizing loss, get out, go home, take a nap, do something, but put a little time between that and your next decision. When you are getting beat to death, get your head out of the mixer. Looking back, I realized that if I had had a trading rule about losses, I wouldn’t have had that traumatic experience.

 

You mentioned that before you developed a mechanical trading system, you paid close attention to the trading process. Did you keep a log of what you did right and wrong, or was it a matter of memory?

Yes, I would write down observations and think about them. I thought about everything I was doing.

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The Crash of 1929 -Video

  
Education, Video
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Here is a link to the transcript of this documentary.

Narrator: At sea and on land, everyone seemed to be making money. It was a stampede of buying. And major speculators like John Jacob Rascob whipped up the frenzy. He told readers of The Ladies’ Home Journal that now everyone could be rich. September 2nd, Labor Day. It was the hottest day of the year. The markets were closed and people were at the beach. A reporter checked in with astrologer Evangeline to ask about the future of stock prices. Her answer: the Dow Jones could climb to heaven. The very next day, September 3rd, the stock market hit its all-time high.

Ben Karol, Former Newspaper Delivery Boy: My father and I had an ongoing discussion about the stock market. And I used to say, “Pop, everybody’s getting rich but you. You know, you work so hard and you’re never going to make a nickel. All you do is you keep delivering these newspapers and that’s about it. The guy who’s shining shoes is in the stock market, the grocery clerk is in the stock market, the school teacher’s in the stock market. The teller at the bank is in the stock market. Everybody’s in the stock market. You’re the only one that’s not in the stock market.” And he used to sit and laugh and say, “You’ll see. You’ll see. You’ll see.”

Narrator: On September 5th, economist Roger Babson gave a speech to a group of businessmen. “Sooner or later, a crash is coming and it may be terrific.” He’d been saying the same thing for two years, but now, for some reason, investors were listening. The market took a severe dip. They called it the “Babson Break.” The next day, prices stabilized, but several days later, they began to drift lower. Though investors had no way of knowing it, the collapse had already begun

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Don't Think-Just Do It : 15 Points

  
  Education
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1. You have to NEED to make it.

Wanting to make it is not enough. It must be your one true calling. If you’re willing to be broke, with no direction home, you might possibly make it. Sacrifice is the key element. If you’re not willing to sacrifice your home, your relationship, forgo children and sleep on the floor when you’re forty, don’t expect to make it in music, certainly don’t expect to sustain.

2. You have to be great.

Good is not good enough. You’ve got to blow our minds.

3. You can’t do it alone.

That’s an Internet fiction, from a decade past, that if you just posted something online it could cut through the noise. You need a team:

a. A lawyer

b. A manager

c. An agent.

A lawyer to make sure you don’t sign bad deals that hobble you forever.

A manager to play interference, he who sells himself and makes his own deals is destined to piss people off.

And an agent to get you gigs.

An agent is hardest to get. A manager is never easy. But no act ever made it without a manager. (more…)

“This is my Hard Earned money. I can’t afford to be out of the market anymore!”-Traders Mindset

  
  Education
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“This is my   Hard Earned  money. I can’t afford to be out of the market anymore!”

“I don’t care about the price, just Get Me In!!”

“It’s a healthy correction”

“See, it’s already coming back, better buy more before the new highs”

“Alright, a retest. Add to the position – buy the dip”

“What a great move! Am I a genius or what?” (more…)

Market losses are simply the cost of doing business

  
  Education
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When I put on a trade, all I expect is that something will happen. Regardless of how good I think my edge is, I expect nothing more than for the market to move or to express itself in some way. However, there are some things that I do know for sure. I know that based on the markets past behavior, the odds of it moving in the direction of my trade are good or acceptable, at least in relationship to how much I am willing to spend to find out if it does. I also know before getting into a trade how much I am willing to let the market move against my position. There is always a point at which the odds of success are greatly diminished in relation to the profit potential. At that point, it’s not worth spending any more money to find out if the trade is going to work. If the market reaches that point, I know without any doubt, hesitation, or internal conflict that I will exit the trade.

The loss doesn’t create any emotional damage, because I don’t interpret the experience negatively. To me, losses are simply the cost of doing business or the amount of money I need to spend to make myself available for the winning trades. If, on the other hand, the trade turns out to be a winner, in most cases I know for sure at what point I am going to take my profits. (If I don’t know for sure, I certainly have a very good idea.) The best traders are in the “now moment” because there’s no stress. There’s no stress because there’s nothing at risk other than the amount of money they are willing to spend on a trade. They are not trying to be right or trying to avoid being wrong; neither are they trying to prove anything. If and when the market tells them that their edges aren’t working or that it’s time to take profits, their minds do nothing to block this information. They completely accept what the market is offering them, and they wait for the next edge.

Source: “Trading in the zone”

Understanding what you do and do not know

  
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There’s a lot of things I don’t know:
1. How many people will be unemployed next month.
2. How much cash Apple had as of yesterday.
3. Whether Don Draper dies at the end of Mad Men.
4. Which sector will be leading next week.
5. How many tweets I’ll read today with the words “honey badger.”
6. Which will be the next big M&A deal.
7. Whether my last trade was impacted by high frequency traders.

But there are some things I do know:
1. The S&P is making higher highs as the up trend is still intact.
2. Stock participation, while still weak by some measures, has improved over the last couple of weeks.
3. Current seasonality and presidential cycle is bearish right now but has yet to be deemed important by the market.
4. Defensive sectors have been leading all year.
5. There’s someone in New Jersey getting a spray tan right now.
6. Traders still appear to be showing a preference for U.S. stocks over international.
7. There’s a high degree of complacency in the market right now but it won’t matter until it does.

Understanding and recognizing what you do know and what you don’t know can provide a great deal of clarity. So what do you know?

Trading Should Be Effortless

  
  Education
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  • Money comes in bunches.

That one says it all. You can’t force trades. You can’t simply work harder in order to be ‘in sync’. Sometimes you are, sometimes you are not. You simply have to accept that as being part of the trading business. What you can do, is to closely monitor if your performance is in sync with the market’s performance. If the markets make new highs and your overall portfolio is going down something is wrong. You need to address that issue. Fast. The best way is to step aside and drastically reduce exposure and risk. That’s what I did.

  • Trading should be effortless.

A true piece of wisdom. In my experience when I trade well it is like shooting fish in a barrel. Almost everything works. I don’t need to be overly patient with positions. The money comes in very fast. That’s exactly how trading should be. The exact opposite was the case during the first 2 months of this year. So I did what I had to do. I recognized the situation for what it was and admitted my efforts were not leading my portfolio anywhere. It was like folding when you are dealt a bad hand in poker. So I folded. Now I am waiting for the next hand. If it is a bad one I fold again. If a series of trades start to really go my way I push it hard and increase exposure and trade aggressively. (more…)

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