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The Common Elements Of Success

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Super TraderFrom time to time I have been asked to offer my perspectives on things I have found common in successful traders. I have always struggled with my reply to that question because there are only a few traders of which I have gained enough understanding of what they do every day to achieve their results.

However, in Van Tharp’s latest book “Super Trader,” he provides 10 common characteristics frequently found among the best of the best among the hundreds of traders he’s worked with throughout his career. Like me, I think you may find it of interest!

  1. They all have a tested, positive expectancy system that’s proved to make money for the market type for which it was designed.

  2. They all have systems that fit them and their beliefs. They understand that they make money with their systems because their systems fit them.

  3. They totally understand the concepts they are trading and how those concepts generate low-risk ideas.

  4. They all understand that when they get into a trade, they must have some idea of when they are wrong and will bail out. (more…)

10 Quotes of Jesse Livermore

When seasoned traders get together, we have a sort of “secret handshake” that the uninitiated may not notice.  We ask each other if they’ve read Reminiscences of a Stock Operator.  The insiders reply by telling you the number of times they’ve read the book.  Novices ask for the author’s name.

Recently, I’ve been rereading Jon Markman’s wonderful annotated version of this Jesse Livermore classic.  This special edition even has a forward written by Paul Tudor Jones.  As I revisited Mr. Livermore’s wisdom, I realized that so much of the trading baton that I’ve endeavored to pass on to my readers is directly or indirectly the result of the special batons he passed on to me.  In considering this, I feel it’s only appropriate to salute the man.  Afterall, I have patterned myself after him and my favorite quotes come from this truly extraordinary trader.  As Dr. George Lane, the creator of the stochastic oscillator, once told me over dinner, “Gatis, you can never get enough of that good stuff.” 

My trading approach is organized into 10 stages that I call Tensile Trading.  For this week’s blog, I’ve chosen a few of my favorite Jesse Livermore quotes for each of these 10 stages.
1. Money Management:
    * “I trade on my own information and follow my own methods.”
    * “The desire for constant action irrespective of underlying conditions is responsible for many losses on Wall Street, even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.”

2. Business of Investing:
    * “I believe that anyone who is intelligent, conscientious, and willing to put in the necessary time can be successful on Wall Street.  As long as they realize the market is a business like any other business, they have a good chance to prosper.”
3. The Investor Self:
    * “My satisfaction always came from beating the market, solving the puzzle.  The money was the reward, but it was not the main reason I loved the market.  The stock market is the greatest, most complex puzzle ever invented – and it pays the biggest jackpot…it was never the money that drove me.  It was the game, solving the puzzle, beating the market that had confused and confounded the greatest minds in history.  For me, that passion, the juice, the exhilaration was in beating the game, a game that was a living dynamic riddle…” (more…)

Trade Your Plan

“When you see a position that is going against you and the market is dropping, and you are losing money on a trade, but your stop loss hasn’t been hit yet, how do you stay with the position? What is your secret? Do you pullback and look at the big picture or do you simple assume its all noise as long as it doesn’t hit that lower low? This is my biggest problem with tracking your trades and most of the time you are right in holding on.” … Because we thought our answer to his question may be beneficial to other traders as well, we wanted to share our reply to his e-mail, which was…

“The key point you stated is ‘but your stop loss hasn’t been hit yet.’ When we put on a trade, it’s like entering into a contract, so we try to stay the course and simply follow the plan. Over the years, we’ve found it’s best to stick with our original analysis because we usually plan a trade at night, or in the pre-market, without the stress of live trading. During the trading session, in the heat of the moment, there is so much pressure that we have to fight the voice in our heads telling us to sell the position when everything around is crumbling. It basically comes down to planning the trade and trading the plan…easier said than done, right? Sometimes, if you have a feeling things are going bad, and you’re an active trader, you can maybe sell 1/4 or 1/3 of the position to ease your mind. However, you must have the discipline to get back in once the coast is clear. Try to lay out a plan, write it on paper, and stick to it. The one thing every trader must accept, in order to be successful, is a loss. You must be fully prepared to lose what you’re risking. Once you accept losses as part of the trading game, the pressure to be right is not so intense. By the way, we at ASR are no different; we fight the same urges to sell that most traders do. It’s a constant battle, that’s for sure!”

Good Luck Bad Luck!

horses-gallopThere is a Chinese story of a farmer who used an old horse to till his fields. One day, the horse escaped into the hills and when the farmer’s neighbors sympathized with the old man over his bad luck, the farmer replied, “Bad luck? Good luck? Who knows?” A week later, the horse returned with a herd of horses from the hills and this time the neighbors congratulated the farmer on his good luck. His reply was, “Good luck? Bad luck? Who knows?”

Then, when the farmer’s son was attempting to tame one of the wild horses, he fell off its back and broke his leg. Everyone thought this very bad luck. Not the farmer, whose only reaction was, “Bad luck? Good luck? Who knows?”

Some weeks later, the army marched into the village and conscripted every able-bodied youth they found there. When they saw the farmer’s son with his broken leg, they let him off. Now was that good luck or bad luck?

Who knows?

14 Ways To Acquire Knowledge

14 WAYS TO ACQUIRE KNOWLEDGE

  1. PRACTICE

Consider the knowledge you already have — the things you really know you can do. They are the things you have done over and over; practiced them so often that they became second nature. Every normal person knows how to walk and talk. But he could never have acquired this knowledge without practice. For the young child can’t do the things that are easy to older people without first doing them over and over and over.

[…]

Most of us quit on the first or second attempt. But the man who is really going to be educated, who intends toknow, is going to stay with it until it is done. Practice!

  1. ASK

Any normal child, at about the age of three or four, reaches the asking period, the time when that quickly developing brain is most eager for knowledge. “When?” “Where?” “How?” “What?” and “Why?” begs the child — but all too often the reply is “Keep still!” “Leave me alone!” “Don’t be a pest!”

Those first bitter refusals to our honest questions of childhood all too often squelch our “Asking faculty.” We grow up to be men and women, still eager for knowledge, but afraid and ashamed to ask in order to get it.

[…]

Every person possessing knowledge is more than willing to communicate what he knows to any serious, sincere person who asks. The question never makes the asker seem foolish or childish — rather, to ask is to command the respect of the other person who in the act of helping you is drawn closer to you, likes you better and will go out of his way on any future occasion to share his knowledge with you.

Ask! When you ask, you have to be humble. You have to admit you don’t know! But what’s so terrible about that? Everybody knows that no man knows everything, and to ask is merely to let the other know that you are honest about things pertaining to knowledge.

  1. DESIRE (more…)

Characteristics of Successful Trader

SUCESS1From time to time I have been asked to offer my perspectives on things I have found common in successful traders. I have always struggled with my reply to that question because there are only a few traders of which I have gained enough understanding of what they do every day to achieve their results.

However, in Van Tharp’s latest book “Super Trader,” he provides 10 common characteristics frequently found among the best of the best among the hundreds of traders he’s worked with throughout his career. Like me, I think you may find it of interest!

  1. They all have a tested, positive expectancy system that’s proved to make money for the market type for which it was designed.

  2. They all have systems that fit them and their beliefs. They understand that they make money with their systems because their systems fit them.

  3. They totally understand the concepts they are trading and how those concepts generate low-risk ideas. (more…)

Are U Bull or Bear ?

Casual acquaintances who come to learn know I trade for a living (something I rarely volunteer without being asked) will always ask whether I’m a bullish or bearish on the market or economy. My reply often irritates them when I say “I’m neither one – I’m just an opportunist.”

What I mean by that is that I go out of my way to avoid placing myself into a neat and tidy category that can influence my analysis of the markets and the stocks I trade. Although I’m far from perfect and sometimes let my opinions cloud my judgment (I am human after all), I do really try to do everything I can to look for opportunities on both sides of the market.

Many investors and also traders try to fit themselves into one neat category based on their opinions or of others who’ve they have come to respect. Even worse, those views are frequently tainted by how their portfolio is currently positioned (people want to be right after all) which can be both dangerous and quite unprofitable.

Case in point, I know several traders who are struggling now because they are very bearish about the market. While in principle I agree many of their views, I cannot let those views cloud both my analysis and trading. While I’m fairly certain there will be a time when their views will be proven correct, in this business timing is everything. Opinions after all, don’t pay the bills – only profitable trades do!

Remember this – in trading it isn’t about who is right or wrong. Instead it is all about who can make money and take advantage of the most opportunities in the present. Opinions are terrific things, but in most cases, you would be wise to set them aside and trade the market you see rather than the market you think you should or want to see.

Trade Your Plan

After yesterday’s close, we received an e-mail from a long-time subscriber, who asked us the following question, “When you see a position that is going against you and the market is dropping, and you are losing money on a trade, but your stop loss hasn’t been hit yet, how do you stay with the position? What is your secret? Do you pullback and look at the big picture or do you simple assume its all noise as long as it doesn’t hit that lower low? This is my biggest problem with tracking your trades and most of the time you are right in holding on.” … Because we thought our answer to his question may be beneficial to other traders as well, we wanted to share our reply to his e-mail, which was…

“The key point you stated is ‘but your stop loss hasn’t been hit yet.’ When we put on a trade, it’s like entering into a contract, so we try to stay the course and simply follow the plan. Over the years, we’ve found it’s best to stick with our original analysis because we usually plan a trade at night, or in the pre-market, without the stress of live trading. During the trading session, in the heat of the moment, there is so much pressure that we have to fight the voice in our heads telling us to sell the position when everything around is crumbling. It basically comes down to planning the trade and trading the plan…easier said than done, right? Sometimes, if you have a feeling things are going bad, and you’re an active trader, you can maybe sell 1/4 or 1/3 of the position to ease your mind. However, you must have the discipline to get back in once the coast is clear. Try to lay out a plan, write it on paper, and stick to it. The one thing every trader must accept, in order to be successful, is a loss. You must be fully prepared to lose what you’re risking. Once you accept losses as part of the trading game, the pressure to be right is not so intense.

Trading Wisdom – Jesse Livermore

“I think it was a long step forward in my trading education when I realized at last that when old Mr. Partridge kept on telling the other customers, “Well, you know this is a bull market!” he really meant to tell them that the big money was not in the individual fluctuations but in the main movements – that is, not in reading the tape but in sizing up the entire market and its trend.”

In all of “Reminiscences” this crucial idea that the Really Big Money is always earned by prudently riding the large trends over time and not in day trading every minute fluctuation is one of the central themes of the book. Livermore hammers this again and again, attacking it from countless angles and spicing up all of his amazing lessons with his own enthralling personal experiences.

This old and successful speculator that Livermore mentions, Mr. Partridge, would always politely tell the younger speculators who asked him trading questions that it was a bull market. The young speculators were always eager to trade, but Partridge was old and battle-scarred enough to know that no mere mortal could even hope to catch every individual fluctuation so the wisest strategy was just to ride the major trends. His simple reply, which would annoy the youngsters since they couldn’t yet perceive the deep wisdom in it, was to subtly advise them to just ride the primary trend and not worry about rapid-fire trading.

If a particular market happens to be in a primary bull trend, then just be long and don’t worry about trying to interpret and trade upon the essentially random day-to-day market noise. If a particular market is in a primary bear trend, then either sit out in cash or stay short and wait for the trend to fully mature and run its course. Don’t try to frantically outguess the primary trend everyday, just accept it and trade with it and you will win in the end.