1. The secret to losing money in the market is to know why. “The losers “were ‘playing the market’, not using it intelligently. The fellow at the other end of the deal, who was using it intelligently, not ‘playing the market’, is the one who got the money.” 2. “It is an undeniable fact that indiscriminate trading in a hectic market will send one to financial oblivion quicker than any other known process.” 3. “The most careful preparation-a systematic plan-is one of the essentials of success.” 4. “Market action is not complex but surprisingly simple. Yet it is often made to appear complex by newspaper forecasters and market letter writers.” 5. “Market action is human nature in action.” 6. All market movements are based on “two deep-seated and entirely natural emotions: the desire for gain and the fear of loss.” 7. “So anxious are people to find some talisman, some magic wand, that will help them secure the hidden riches of the market, that they will try anything from coin-flipping to crystal gazing to secure the desired assistance.” 8. “What marvelous results could be attained in the business of making money if those who buy stocks would take a little time to learn a few simple facts about the market in which they are blindly reposing their faith.” 9. “Market students are continually diverted from making true evaluations of securities and commodities because they study the statistics made by prices instead of the psychology of prices.” 10. “Adopt one system of trading and stick to it, just as you employ and stick to one physician in whom you learn to have confidence.” 11. “One of the most important points in your market education is to learn as early as possible that the customary and supposedly weighty market news is of very small importance. The news only looks important.” 12. “Don’t trade just because you can afford to lose.” 13. “Practice makes perfect is an old copybook adage that works well in the market place.” 14. “If a trade fails to come out right, the error will be found in the operator-not the market.” 15. “Trading is simple another form of business. Treat it as such.” 16. “Trend to the investor is like the vein of gold to the miner, who must follow the vein faithfully if he expects to get the yellow metal.” 17. “Stocks are made to buy and sell…not to be bought and held.” 18. No matter what a thing costs, stocks or otherwise, “it is worth only what you can somebody to pay for it.” 19. People will always be prone to be extravagantly optimistic or dolefully in the slumps and “in this action is unlimited wealth for the men who realize this fact and will use it with confidence and decision.” 20. “Success is the most desirable thing in the world, but it is an eliminating contest. It may trample the thoughtless trader into the dust, but it will pour large treasure into the laps of those who work in sincere harmony with its laws.” |
Archives of “psychology” tag
rssIllusion
If you have the feeling that the market has a split personality, one day out to shower you with peace and blessings and the other to punish mercilessly, it can only mean that on some level you are still taking it personally. Think of it this way – there are too many players with too many conflicting ideas about market direction for it to ever form one cohesive personality. The only exception I have witnessed to this rule is when fear clearly dominates the scene, and ironically these are times that are the easiest to trade. The highest attainment for a traders developing psychology is to achieve what has been called “intellectual purity” – that is the state free from emotional reactiveness to market behavior; the ability to accept both reward and punishment with equanimity and understanding. That said, we know that big players perform ‘market sweeps’ to take out stops at sitting duck levels, so we can at least attempt to protect against that. The main point though is to struggle against any dimly forming impression of the market being a single entity with a personality. That is an illusion.
4 Pillars of Trading
I “see” the market through the lens of four primary metrics: fundamentals, technical, structural and psychology.
When viewed in isolation, each of those approaches has inherent flaws.
1. Fundamentals are best at the top and worst near a low.
2. Technical indicators often trigger buy signals higher, on breakouts, and sell signals lower, after a stock has broken down.
3. Structural factors — debt, derivatives and currency effects — can self-sustain in a cumulative manner until such time they overwhelm the system.
4. Psychology, such social mood and risk appetites, can gain momentum until they snap under the weight of the herd mentality.
Ed Seykota – “Everybody Gets What They Want From The Markets”
When Jack Schwagger interviewed legendary trend following trader Ed Seykota for his book “Market Wizards” in 1989, it’s clear he was not ready for the answers that Ed Seykota gave. Not many people are.
But by far the greatest and most provocative answer that Ed gave was that of “Everybody gets what they want out of the market”. Not only did it incite an almost angry response from Schwagger, it has confused and enlightened an entire generation of traders since.
The Famous Ed Seykota Interview
Jack Schwagger asks his interviewee: “Don’t all traders want to win?”
And Ed replies with: “Win or lose, everybody gets what they want out of the market.
“I know one trader who seems to get in near the start of every substantial bull move and works his $10 thousand up to about a quarter of a million in a couple of months. Then he changes his personality and loses it all back again. This process repeats like clockwork. Once I traded with him, but got out when his personality changed. I doubled my money, while he got wiped out as usual. I told him what I was doing, and even paid him a management fee. He just couldn’t help himself. I don’t think he can do it any differently. He wouldn’t want to.
- “He gets a lot of excitement, he gets to be a martyr, he gets sympathy from his friends, and he gets to be the centre of attention. Also, possibly, he may be more comfortable relating to people if he is on their financial plane.
“On some level, I think he is really getting what he wants.”
Does This Sound Like Someone You Know? Maybe Someone You Know… Intimately?
Even back then, Ed Seykota had a fantastic grasp on the dangerous psychology pitfalls that almost every trader has to work through before they become a success in the markets.
So you need to ask yourself: (more…)
The realization that you are alone
At some point in time the realization strikes that you are alone in the market – there is only you. The illusion that the market can ‘do’ anything to you falls away and it becomes obvious that you are 100% responsible for everything that happens to your account. You either give yourself money, or else you give your money away – there is nothing else.
The market is one of the few arenas where there are no external constraints, except in the case of a margin call. It never forces you to take a position, long or short, or tells you to get out of your position. It does not say how long to stay in a position or what time to exit, how much profit or loss is enough. There are no external constraints at all, and as such people run riot. You are relying on yourself 100% and there is only ever you to blame.
The above is a core part of a winning trading psychology, yet its difficult to adopt. Shifting the blame is a basic way we defend our ego every single day of the week – yet in the market this practice is absolutely unsupported by price action. How can any other market participant be doing something to you if he is totally unaware of your existence or what position you hold?
Its necessary to really ponder this until the truth of it shines out:
You are alone…
The Ten Best Things Ed Seykota Ever Said.
Arguably one of the greatest traders of all time with his trend following system.
Charles Faulkner tells a story about Seykota’s finely honed intuition when it comes to trading: I am reminded of an experience that Ed Seykota shared with a group. He said that when he looks at a market, that everyone else thinks has exhausted its up trend, that is often when he likes to get in. When I asked him how he made this determination, he said he just puts the chart on the other side of the room and if it looked like it was going up, then he would buy it… Of course this trade was seen through the eyes of someone with deep insight into the market behavior
The Ten Best Things Ed Seykota Ever Said:
Psychology
“To avoid whipsaw losses, stop trading.”
“It can be very expensive to try to convince the markets you are right.”
“A fish at one with the water sees nothing between himself and his prey. A trader at one with his feelings feels nothing between himself and executing his method.”
Risk Management
“The elements of good trading are cutting losses, cutting losses, and cutting losses.”
“Here’s the essence of risk management: Risk no more than you can afford to lose, and also risk enough so that a win is meaningful. If there is no such amount, don’t play.”
“In your recipe for success, don’t forget commitment – and a deep belief in the inevitability of your success.”
Trading System
“The trend is your friend except at the end when it bends.”
“If you want to know everything about the market, go to the beach. Push and pull your hands with the waves. Some are bigger waves, some are smaller. But if you try to push the wave out when it’s coming in, it’ll never happen. The market is always right.”
“Systems don’t need to be changed. The trick is for a trader to develop a system with which he is compatible.”
“I don’t predict a nonexisting future.”
Ed Seykota is a legend in the trend following community and has returns that would make Bernie Madoff jealous, because his are real. If you can fully grasp what Ed is saying in these quotes it will improve your trading dramatically.
5 Great Quotes From Jesse Livermore
1. The only leading indicator that matters
Watch the market leaders, the stocks that have led the charge upward in a bull market. That is where the action is and where the money is to be made. As the leaders go, so goes the entire market. If you cannot make money in the leaders, you are not going to make money in the stock market. Watching the leaders keeps your universe of stocks limited, focused, and more easily controlled.
2. Patterns repeat because human nature hasn’t changed for thousand of years
There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly build into human nature, that always gets in the way of human intelligence. Of this I am sure.
All through time, people have basically acted the same way in the market as a result of greed, fear, ignorance, and hope. This is why the numerical formations and patterns recur on a constant basis.
I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humans — and human nature never changes.
3. Your first loss is your best loss. (more…)
A Dozen Observations on Life and Markets
Trading is the most difficult of sports: nowhere else does one begin a career by opposing the world’s most accomplished professionals.
Extreme trading size produces extreme emotional outcomes, leaving traders with certain trauma or addiction.
A universal trade setup: Hope, then despair.
Fidelity to purpose: the mark of good trades and great traders.
Mentors cannot achieve more for you than they have accomplished for themselves. (more…)
28 questions that every trader should answer honestly…
Do you know your Art of Trading
Do you have a trading plan
Do you think in terms of probabilities
Do you know which time frame fits your psychology
Do you cut your losses
Do you define your Risk
Do you add to your losing Position (more…)
Traits of a Successful Trader
We urge you to use this checklist for your own trading and investing preparation. We truly feel that these traits are very important for you to understand. These trader traits coupled with the proper psychology can make a huge positive difference in your overall trading performance.
• The ability to act on your decisions.
• The ability to accept responsibility for your actions.
• You must have emotional detachment from the markets.
• The ability to accept risk and take losses (you’ll never be right 100% of the time). (more…)