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Cut your losses short, no questions asked

  
  Education
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The majority of unskilled investors stubbornly hold onto their losses when the losses are small and reasonable. They could get out cheaply, but being emotionally involved and human, they keep waiting and hoping until their loss gets much bigger and costs them dearly.”

William O’Neil

The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliche, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short.”

Victor Sperandeo

Some people say, “I can’t sell that stock because I’d be taking a loss.” If the stock is below the price you paid for it, selling doesn’t give you a loss; you already have it.

William O’Neil

When I became a winner I went from ‘I figured it out, therefore it can’t be wrong’ to ‘I figured it out, but if I’m wrong, I’m getting the hell out, because I want to save my money and go on to the next trade.’”

Marty Schwartz

Trading Book Review Of the Week: The Three Skills of Top Trading

  
  Education
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This book is written about how three mutually reinforcing skills make a complete trader.

1). Pattern Recognition and Discretionary Trading.

Using the Wyckoff method you will see chart representations of how hot growth stocks are accumulated in bases for long periods of time. They eventually have pull backs then break out to new highs and trend. You will also see how they eventually have exhaustion tops on high volume that fail to rally and they begin to break down in distribution with lower lows and lower highs. The author encourages discretionary trading through experience by being able to identify market action through the models from past stocks. This work ties in nicely with the school of thought from legendary traders William J. O’Neil, Jesse Livermore, and Nicolas Darvas.

2). Behavioral finance and systems building.

The book teaches that readers must be flexible in their trading. We are merely a ship on a sea of market participant opinions. Follow the prevailing sentiment during the middle of the the trend, and go contrary to it at the extreme tops and bottoms. Hope, fear, and greed are the dangers and the movers of the market that cause support and resistance,  trends, and chart patterns. The action of the stock market is nothing more than a manifestation of mass crowd psychology in action. The Pruden model shows a chart of how accumulation, mark-up, distribution, and markdown works in the market tied to price, volume, sentiment, and time. It truly explains how the price pattern and charts in growth stocks generally play out historically. (more…)

An Interview with a Modern Day Nicolas Darvas

  
Education, Video
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Don’t Miss to Watch 3 VIDEO’s

Who is Dan Zanger?

Dan Zanger is the modern day version of Nicolas Darvas.

His mother Elaine loved the stock market and Dan would often watch the business channel with her. One day in 1978 Dan saw a stock explode across the ticker tape at the bottom of the screen hitting $1. He made his first purchase and sold the stock a few weeks later at over $3. From that sale on, he was hooked on the action of the market tape, usually carrying a quotetrek with him to stay up on stock prices on his  jobs  in Beverly Hills as an independent contractor building swimming pools. (more…)

20 BOOKS EVERY TRADER SHOULD KNOW ABOUT.

  
  Education
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As with every list, there will be disagreements.  ”Why is that book on the list?”  ”Whyisn’t that book on the list?”  I picked 20 books that stood out for me as a trader, that were a #valueadd (or a #valueloss) for one reason or another.  That doesn’t even have to mean that they are about trading.  For example, the “General Interest” section is made up of books that I think appeal to a trader’s mindset.

With that in mind, feel free to add your picks to the “comments” section, along with a sentence or two as to why you liked (or hated) them.

By the way, I was too lazy to link all the books, but you can find them all at Amazon.

Old School:  

The Market Wizards Series – Jack Schwager:  Chances are you will find these books on the shelf of any serious trader.  They are without a doubt the most comprehensive collection of interviews with superstar traders ever published.  However, their dirty little secret is that although they capture perfectly a moment in time, they are extremely dated and will give you almost no insight into today’s markets or how to trade them. Their value now is in showing how even the greatest traders initially struggled and often blew up (repeatedly) before becoming successful.

Stan Weinstein’s Secrets For Profiting in Bull and Bear Markets – Stan Weinstein: This book was the first to quantify one of the most important concepts in trading; the four stages in which stocks move, which are the basing, advancing, topping, and declining stages.  Despite the fact that the cover of this book has not been updated since it was published in 1988, stage analysis is still relevant today.

How to Make Money In Stocks – O’Neil:  As an unnamed trader friend of mine recently said, all you need to do is review the charts in the first 150 pages of this book and you will be good to go.    These charts along with O’Neil’s annotations, give you a great foundation to understand the patterns stocks form before they go on massive runs. (more…)

Trading Quotes

  
  Education
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  1. “Time is your friend; impulse is your enemy.” John (Jack) Bogle
  2. “When reward is at its pinnacle, risk is near at hand.” John (Jack) Bogle
  3. “Rule no. 1 is never loose money. Rule no. 2 is never forget rule number one.” Warren Buffett
  4. “Look at market fluctuations as your friend rather than your enemy. Profit from folly rather than participate in it.” Warren Buffett
  5. “I paraphrase Lord Rothschild: The time to buy is when there is blood on the streets.” David Dreman
  6. “It is absurd to think that the general public can ever make money out of market forecasts.” Benjamin Graham
  7. “The whole secret to winning and losing in the stock market is to lose the least amount possible when you are not right.” William J. O Neil
  8. “It is not whether you are right or wrong that is important, but how much money you make when you are right and how much you lose when you are wrong.” George Soros
  9. “If you want to have a better performance than the crowd, you must do things differently from the crowd.” John Templeton
  10. “My first rule is not to lose money. Losing an opportunity is minor in comparison, because there are always new opportunities around the corner.” Burt Dohmen
  11. “Experienced traders control risk, inexperienced traders chase gains.” Alan Farley
  12. “Most traders take a good system and destroy it by trying to make it into a perfect system.”
  13. “Trade what you see, Not what you think”
  14. “A Technician is an Artist and Technical Analysis is the Super Skill of discovering sharp and compact Charts and Patterns depicting Trends and Targets with Precision and Perfection.”
  15. “Identifying the “Rhythmic Flow” of Financial Instruments for skimming the crème, quietly and consistently is the fascinating nature of the Technician’s profession.”
  16. “Like any craft, such as piano playing, perfection may be elusive – I’ll never play a piece perfectly, and I’ll never buy the low and sell the high – but consistency is achievable if you practice day in and day out.”
  17. “You never need to chase a trade. The market has plenty of opportunities. The money runs out before the opportunities do.”
  18. “Good trading is a peculiar balance between the conviction to follow your ideas and the flexibility to recognize when you have made a mistake.”
  19. “Always understand the risk/reward of the trade as it now stands, not as it existed when you put the position on.”
  20. “At all levels of play the secret of success lies not so much in playing well as in not playing badly.”

Know Yourself & Educate Yourself

  
  Education
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Know yourself– Understand what style fits your personality.  Can you hold a position for a few days or only a few hours?  Are you okay with larger draw downs or can you only take small ones? Are you more comfortable trading pullbacks or breakouts? Most importantly, don’t try to use a style that doesn’t “fit” your personality.

Educate yourself – But don’t over educate yourself or fall into the trap of reading to many biographical trading books.  They may be entertaining, but you will learn little about the current state of trading.  Stick to my  ”Holy Trinity” of books “How To Make Money In Stocks” by O’Neil, “The Disciplined Trader” by Mark Douglas, and “The StockTwits Edge” by Howard Lindzon.  The rest you can learn from online trading communities and blogs.

Pride-Fear -Greed-Hope :Video

  
Education, Video
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Some great videos about these emotions by Scott O’Neil. He is President of MarketSmith Incorporated, a stock research tool developed by a team of investment professionals at William O’Neil + Company, a Registered Investment Advisor for Institutional Money Managers providing equity market buy/sell recommendations and independent research. Scott is also a portfolio manager with O’Neil Data Systems, Inc.-Forbes

20 Thoughts from -Richard Love’s “Superperformance Stocks”

  
  Education
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If you read Jesse Livermore’s “How to Trade in Stocks” from 1940, Nicolas Darvas’s ‘How I made 2M in the stock market” from 1960, Richard Love’s “Superperformance Stocks” from 1977, William O’Neil’s early version of “How to make money in stocks” from the 1990s or Howard Lindzon’s “The Wallstrip Edge” from 2008, you will realize that after so many years, the main thing that has changed in the market is the names of the winning stocks. Everything else important – the catalysts, the cyclicality in sentiment, has remained the same.

Here are some incredible insights from Richard Love’s book ‘Superperformance Stocks’. In his eyes, a superperformance stock is one that has at least tripled within a two-year period.

1. The first consideration in buying stock is safety.

Safety is derived more from the good timing of the purchase and less from the financial strength of the company. The stocks of the nation’s largest and strongest corporations have dropped drastically during general stock market declines.

The best time to buy most stocks is when the market looks like a disaster. It is then that the risk is lowest and the potential rewards are highest.

2. All stocks are price-cyclical

For many years certain stocks have been considered to be cyclical; that is, the business of those companies rose and fell with the business cycle. It was also assumed that some industries and certain companies were noncyclical— little affected by the changes in business conditions. The attitude developed among investors that cyclical industries were to be avoided and that others, such as established growth companies, were to be favored. To a  certain extent this artificial division of companies into cyclical and noncyclical has been deceptive because although the earnings of some companies might be little affected by the business cycle the price of the stock is often as cyclical as that of companies strongly affected by the business cycle. Virtually all stocks are price-cyclical. Stocks that are not earnings-cyclical often have higher price/earnings ratios, and thus are susceptible to reactions when the primary trend of the market begins to decline. This can occur even during a period of increasing earnings. (more…)

You might be a bad trader if……….

  
  Education
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There are young people in the market that are really bad traders and there is also old traders that are very good, but there are no old bad traders in the market because they went broke and gave up a long time ago.

You might be a bad trader if……….

…your primary method is to try to call tops and pick bottoms.

“Don’t try to buy at the bottom and sell at the top. It can’t be done except by liars.”  -Bernard Baruch

 You might be a bad trader if……….

…instead of benefiting from the 200 point run in Apple this year you actually lost money by fighting the trend.

“Cardinal Rule #1 is to sell short only during what you believe is a developing bear market, not a bull market.” -William O’Neil (more…)

Cut your losses short, no questions asked

  
  Education
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The majority of unskilled investors stubbornly hold onto their losses when the losses are small and reasonable. They could get out cheaply, but being emotionally involved and human, they keep waiting and hoping until their loss gets much bigger and costs them dearly.”

William O’Neil

The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliche, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short.”

Victor Sperandeo

Some people say, “I can’t sell that stock because I’d be taking a loss.” If the stock is below the price you paid for it, selling doesn’t give you a loss; you already have it.

William O’Neil

When I became a winner I went from ‘I figured it out, therefore it can’t be wrong’ to ‘I figured it out, but if I’m wrong, I’m getting the hell out, because I want to save my money and go on to the next trade.’”

Marty Schwartz

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