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What Not to Do-What to Do

  
  Education
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What Not to Do

  1. Have an opinion. One sure way to find yourself trading against the market is to have a market opinion. Trading with a rigid belief about what the market will do next can limit your ability to see what the market is actually telling you. 
  2. Have someone else’s opinion. Adopting some market guru’s market opinion is actually worse than having your own. Market gurus are notoriously inaccurate in their predictions.  Embracing another’s market judgment prevents you from learning to read the market on your own. Besides, it’s doubtful the guru will be texting you to let you know when his or her opinion has changed.
  3. Make your opinion public. Putting your bias into a chat room or forum thread makes it public. Making something public gives it a psychological life of its own. It’s hard to back off an opinion once you have announced it to others. 
  4. Let your ego get involved. Everyone wants to be right. In trading, learning to accept being wrong and the losses associated with being wrong is a big part of the game. This is no place for big egos.
  5. Ride a loser. Still wanting to be right? Having a bias, making it public, and getting your ego involved will cause you to hold losers far longer than you should.

What to Do

  1. Anticipate. Avoid having an inflexible bias. Identify areas where the market might turn, break out, or continue, and think through what that would look like. Anticipate the alternative ways the market may trade. When you see the market trading as anticipated, you already know what to do.
  2. Keep your own counsel. Avoid gurus. Jesse Livermore viewed trading as a “lone-wolf” business, and it is. Learn to read the market and make your own decisions.
  3. Avoid the forums while trading. Use the good ones as a source of education, but refrain from making your trades public.
  4. Check your ego. Be aware of when you want to be right. Ask yourself, “What is more important, being right or making money?” Then, make the correct decision.
  5. Cut losses short. Use hard stops and be merciless with losing trades. When the market turns against you, exit.

Five Trading “Don’ts”

  
  Education
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Trading can be complicated to learn. Many traders spend hours every day on their charts, yet still find success elusive. Part of the difficulty can arise when little attention is paid to the mental side of the game. Developing a mental edge is just as important as possessing a technical trading edge. Here are five common mental “wrong steps” that can quickly derail your trading. These can blindside you no matter how good your technical skills. This brief discussion regarding these trading “don’ts” offers an introduction to trading psychology and some sensible solutions:

What Not to Do

  1. Have an opinion. One sure way to find yourself trading against the market is to have a market opinion. Trading with a rigid belief about what the market will do next can limit your ability to see what the market is actually telling you. 
  2. Have someone else’s opinion. Adopting some market guru’s market opinion is actually worse than having your own. Market gurus are notoriously inaccurate in their predictions.  Embracing another’s market judgment prevents you from learning to read the market on your own. Besides, it’s doubtful the guru will be texting you to let you know when his or her opinion has changed.
  3. Make your opinion public. Putting your bias into a chat room or forum thread makes it public. Making something public gives it a psychological life of its own. It’s hard to back off an opinion once you have announced it to others. 
  4. Let your ego get involved. Everyone wants to be right. In trading, learning to accept being wrong and the losses associated with being wrong is a big part of the game. This is no place for big egos.
  5. Ride a loser. Still wanting to be right? Having a bias, making it public, and getting your ego involved will cause you to hold losers far longer than you should.

What to Do

  1. Anticipate. Avoid having an inflexible bias. Identify areas where the market might turn, break out, or continue, and think through what that would look like. Anticipate the alternative ways the market may trade. When you see the market trading as anticipated, you already know what to do.
  2. Keep your own counsel. Avoid gurus. Jesse Livermore viewed trading as a “lone-wolf” business, and it is. Learn to read the market and make your own decisions.
  3. Avoid the forums while trading. Use the good ones as a source of education, but refrain from making your trades public.
  4. Check your ego. Be aware of when you want to be right. Ask yourself, “What is more important, being right or making money?” Then, make the correct decision.
  5. Cut losses short. Use hard stops and be merciless with losing trades. When the market turns against you, exit.

The Real Leadership Lessons of Steve Jobs

  
Analysis, Education, Life
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Walter Isaacson follows up his biography of Steve Jobs with an “insanely great” piece in the April HBR.   He drills down on the factors that helped to catapult the legendary entrepreneur into an elite league of American business leaders, including Thomas Edison, Henry Ford, and Walt Disney.

The 14 factors listed below continue at Apple as part Jobs’ legacy, which is helping drive the stock on an epic run,  now up 67 percent since November 25th and adding $240 billion to the company’s market capitalization.  That’s a lot wealth creation — equivalent to 1.6 percent of U.S. GDP.  No wonder the animal spirits are running again.

1)    Focus;
2)   Simplify;
3)   Take Responsibility End to End;
4)   When Behind, Leapfrog;
5)   Put Products Before Profits;
6)   Don’t Be a Slave To Focus Groups;
7)   Bend Reality;
8)   Impute;
9)   Push for Perfection;
10) Tolerate Only “A” Players;
11)  Engage Face-to-Face;
12)  Know Both the Big Picture and the Details;
13)  Combine the Humanities with the Sciences;
14)  Stay Hungry, Stay Foolish.

Below are the first few paragraphs of the article with a link to the full article.   This is a must read, folks! (more…)

Dalton, Jones, & Dalton, Mind Over Markets

  
  Education
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Mind Over Markets, the book that popularized (and expanded on) Peter Steidlmayer’s Market Profile, was first published in 1990. Anyone who bought the book expecting a self-help manual would have been sorely disappointed because what they got instead was a pretty complicated alphabetic model for organizing the distribution of market data along price and time axes. Twenty-three years later James F. Dalton, Eric T. Jones, and Robert B. Dalton are back with an updated edition of their text, Mind Over Markets: Power Trading with Market Generated Information (Wiley, 2013).

The book itself is organized according to the Market Profile trader’s achievement level—novice, advanced beginner, competent, proficient, and expert—with the greatest time spent on the competent level. The expert trader gets a mere two pages. (more…)

Larry Hite Insights and Wisdom

  
  Education
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Larry Hite, who was profiled in Jack Schwager’s Market Wizards’ series, spoke recently to a group of students. An excerpt:

I believe I had to get into this business because it was simple. There are just a few questions you got to ask yourself. It’s like a checklist that you have to go through. I’m going to go through those questions, discuss them with you, and they can save you a lot of grief. I don’t know that they will make you a lot of money, but mostly they do. I mean, making money in the markets is more simple than it’s not. The trouble is that sometimes you get in the way, or if you’re working for a firm, they get in the way, because there are a lot of social implications. First I’m going to tell you a little about math. I have a guy that works for me, [who] graduated from Wharton, magna cum laude, and we were sitting around one day and we were, I don’t remember what we were doing but we had to figure out the compounded rates of return, and instead of using a calculator we were just looking at the numbers and doing it in our heads. He was young and just out of college, and he kind of felt puffed up about it. You know, it made us feel smart, which is a rare feeling for me. Then I said to him, “You know Michael, the problem with this is anybody can do this with six dollar calculator. You don’t have to be a phi beta kappa. Anybody can do this.”Larry Hite

Later he continued:

One of the great things about the market is, the markets don’t care about you. The market doesn’t care what color you are. The markets don’t care if you are short or tall. They don’t care about anything. They don’t care whether you leave or stay…I met the guy who wrote this best seller now called, Bringing Down the House, it’s about these MIT guys who beat the blackjack tables. And part of the problem, if you’re going to be a blackjack counter is that the casinos don’t like you. They actively don’t like you. And they come and tell you in rather strong things to take your business away. Well, the beautiful thing about the markets, they don’t like you, they don’t dislike you, they just don’t care. They are there everyday. You want to play, you can play. You don’t want to play, don’t play. And you can choose. You sit, there is no penalty. You know, when you stand you know…I don’t know how many of you play baseball…when your at bat if something comes through the strike[zone], if you don’t swing you still get a strike against you. But the markets are a no penalty game. You can stand there and wait. You can go home and wait. It doesn’t matter. And that’s really a terrific thing.Larry Hite

Many people lose sight of the main goal of trading the markets. Instead of worrying about making money, they worry about how much they are trading. Keep Hite’s words close, and don’t forget the main goal.

Five Things to Avoid In Trading

  
  Education
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What Not To Do

 
1.  Have an opinion.  One sure way to find yourself trading against the market is to have a
market bias.  Trading with an opinion about what the market will do next can limit your
ability to see what the market is actually telling you.  
2.  Have worse than having your own.  Market gurus are notoriously inaccurate in their predictions.   s market judgment prevents you from learning to read the market on
your own.opinion has changed.
3.  Make your opinion public.  Putting your bias into a chat room or forum thread makes it
off an opinion once you have announced it to others.
4.  Let your ego get involved.  Everyone wants to be right.  In trading, you have to ask
yourself 
5.  Ride a loser.  Still wanting to be right?  Having a bias, making it public and getting your ego involved will cause you to hold losers far longer than you should. 

What to Do


1.  Anticipate.  Avoid having a bias.  Identify areas where the market might turn or continue
and think through what that would look like.  Anticipate the alternative ways the market may
trade.
2.  Keep your own counsel.  Avoid gurus.  Learn to read the market and make your own
decisions.
3.  Avoid the forums while trading.  Use the good ones as a source of education, but refrain
from making your trades public.
4.  Check your ego.  Be aware of when you want   make the correct decision.
5.  Cut losses short.  Use hard stops.  When the market turns against you, exit. 

Trading Tactics

  
  Education
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Gerald Loeb

Gerald Loeb was a highly successful trader who wrote the classics “The Battle For Investment Survival” and “The Battle For Stock Market Profits.” Although they’ve been around for as long as I’ve been alive, you may find them helpful in today’s market.

Once in a while I take time to review old handwritten notes I’ve taken from the books I’ve read in the past including from Loeb. These notes often serve as inspiration to my own trading. Even though I’ve read them many times over the years, they always offer a good insight.

Loeb’s Trading Tactics:

  • The market is a battlefield. Make sure you are on the winning side
  • You must trade with the actions of the market and not simply by how you might think the market should trade
  • Knowledge through experience is one trait that separates successful stock market speculators from everyone else
  • To do well in short-term trading, it takes full-time attention and dedication
  • Exploit all new trends quickly and aggressively
  • The best traders are usually psychologists. The worst are usually accountants (more…)

Psychology of Day Trading

  
  Education
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ReadingNewspaperRead today’s paper tomorrow. When you read yesterday’s paper each day with the
 knowledge of what the market already did, you will affirm that this mornings paper with  yesterday’s news has nothing to do with today’s market.

exitfromtradeYour decision to exit a trade means you perceive changing circumstances. Don’t suddenly  think you can pick a price, exit at the market.

judgement Remember the “power of a position.” Never make a market judgment when you have a  position.

Jack Schwager’s “Hedge Fund Market Wizards” in Two Paragraphs

  
  Education
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READANDLEARNNearly every professional Trader will agree that Jack Schwager’s “Market Wizards” series is required reading. And his latest in the series, Hedge Fund Market Wizards, continues the same tradition of excellence. I’ve nearly finished my first read-through. If you are time constrained (and who isn’t) and/or you haven’t yet picked up the book, I may be able to save you some time by offering this brief mock introduction to each Trader that nearly describes every interview in the book:

Over the past 10-15 years, Trader X has achieved an [insert mid-teens to mid-twenties]average annual return. While this return may not sound that impressive, consider that Trader X has never had a drawdown larger than [insert impressive sounding single-digit number]percent! However, Trader X’s Sharpe Ratio is extremely high. How could this be? Well, a shortcoming of the Sharpe Ratio is that it makes no distinction between upside and downside volatility and therefore understates the Trader’s true performance because volatility has been heavily skewed to the upside (which, presumably, most investors wouldn’t have a problem with).

How has Trader X achieved such an impressive Return/Risk track record? He lazer beams extreme focus to risk controls and never risks more than [insert some minuscule number]percent of his total portfolio on any individual trade.  Combining these risk controls with his attention to seeking out asymmetric trading opportunities that have the potential to yield trading gains far in excess of the maximum risked to enter the trade is what separates Trader X from his pedestrian competitors.

There ya go, you’ve basically read all 15 chapters of Hedge Fund Wizards.

Now what do you think you need to focus on?

Trading Books -Every Trader Should Read

  
  Education
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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.

Reminiscences of a Stock Operator – Edwin Lefevre:  Tough call on this book, only because I don’t think it is the Rosetta Stone of trading books like it is often described as.  The language is dated and colloquial, which though strange, is actually part of its charm. There are definitely some foundational lessons for trading in this book, but you as the reader have to do the historical conversion in your head from venue’s like “bucket shops,” to today’s market. (more…)

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