1.Time horizon is one year, not one day
2.Sangfroid wins. Equanimity is more important than anything else
3.Make your own decisions; listen to yourself
4.When you sell a long, consider a 180 and shorting it (and vice versa)
5.Don’t buy a stock right ahead of an earnings call
6.Your performance is better when you don’t listen to underperformers.
7.Listen to analysts only for potential stock ideas- and do my own work
8.Don’t agree and don’t argue (when you differ in opinion)
9.Be humbly confident when things go your way. Say “I got lucky this time”
10. Ego has no place here. Trade to make money, forget pride.
11. Act without full information, while doing efficient work
12. It’s OK to make mistakes.
13. Correct mistakes early- sell on missed earnings/changed thesis, and buy back something you’ve sold if things change.
14. Learn every day- build a new sheet – read filings- listen to calls
15. Don’t worry too much about what the crowd thinks
16. Don’t waste too much time on big Macro
17. “Sometimes you have to let the other guy make some money too”
18. Worrying is not doing
19. Don’t be a second-guesser or let them hover around you
20. Sometimes you have to suffer first before you win.
21. Just because the majority agrees on something doesn’t mean they’re right.
22. Focus on The Game
Archives of “Short” tag
rss24 Mistakes done by 90% of Traders
- EGO (thinking you are a walking think tank, not accepting and learning from you mistakes, etc.)
- Lack of passion and entering into stock trading with unrealistic expectations about the learning time and performance, without realizing that it often takes 4-5 years to learn how it works and that even +50% annual performance in the long run is very good
- Poor self-esteem/self-knowledge
- Lack of focus
- Not working hard enough and treating your stock trading as a hobby instead of a small business
- Lack of knowledge and experience
- Trying to imitate others instead of developing your unique stock trading philosophy that suits best to your personality
- Listening to others instead of doing your own research
- Lack of recordkeeping
- Overanalyzing and overcomplicating things (Zen-like simplicity is the key)
- Lack of flexibility to adapt to the always/quick-changing stock market
- Lack of patience to learn stock trading properly, wait to enter into the positions and let the winners run (inpatience results in overtrading, which in turn results in high transaction costs)
- Lack of stock trading plan that defines your goals, entry/exit points, etc.
- Lack of risk management rules on stop losses, position sizing, leverage, diversification, etc.
- Lack of discipline to stick to your stock trading plan and risk management rules
- Getting emotional (fear, greed, hope, revenge, regret, bragging, getting overconfident after big wins, sheep-like crowd-following behavior, etc.) (more…)
3 Mistakes -Traders are Doing (101% It's All Mindset )
If you agree with me that not a lot changes in the markets you won’t mind that I site an old study and will see the benefit of this little reminder of mine.
In 1974 Blair Stewart completes a study of 8,922 brokerage customer accounts.
The following mistakes are found:
1) Speculators showed a clear tendency to cut profits short, while letting their losses run.
2) Speculators were more likely to be long than short, even though prices generally declined during the 9 years of the study.
3) Longs bought on weakness, and shorts sold on strength, indicating they were price-level rather than price-movement traders.
If you are currently struggling in your trading you might like to consider these three well repeated mistakes and develop a plan that you can follow so as not to fall foul of them.
22 Trading Principles -By Paul Tudor Jones
- It is possible to see that a market is dramatically overbought and prepare for, and then capture, huge gains after the sell off.
- Risk small amounts to make big profits.
- Bet against times when numerous leaders must agree.
- Long hours and a strong work ethic are keys to being a successful trader.
- While it is good to trade any market that will turn a profit, specializing in a market can lead to great success.
- The markets go down faster than they go up.
- If the market will not go down during bad news, it will likely go higher.
- The stock market moves in patterns and in cycles. Past price patterns repeat themselves due to human emotions.
- Many times traders think a big position order size means that a whale knows something, most times they do not.
- It is okay to skip a trade if you can’t get your entry price.
- A momentum move does not just stop, it takes time to roll over.
- It is possible to trade successfully by gaming the actions of other traders.
- Be aggressive at high probability moments.
- Always stay in control of your trading and manage risk.
- Focus on risk management as the #1 priority in trading.
- Having the right mindset during a big loss that it is just temporary, is the key to coming back and being successful.
- Letting profits run is sometimes a great plan.
- Being long at all time highs in the indexes is a great strategy.
- Great money managers trade with passion.
- Even Market Wizards have doubts about winning when entering a trade.
- When the top in a market is reached, there is a lot of money to be made shorting as panic selling sets in.
- Guys from Tennessee can trade!
Don’t Marry Hot stocks, Just Date Them
- Hot stocks are only good when they are in up trends, when the party is over you have to break up with them.
- Hot stocks are great to trade in and out of but you don’t want to turn them into a life long investment.
- A good stock might look great on the outside with it’s price action but it may not have the best fundamentals for getting serious with.
- Hot stocks are great for the short term but for the long term you want a solid investment.
- Be careful with hot stocks they may look great on the outside but they can break your heart at any moment.
- A hot stock can be a lot of fun for awhile but they can be a lot of drama when no one wants them anymore.
- As long as a hot girlfriend is very popular she will be happy but when no one wants to date her she goes into a downward spiral. This applies to hot stocks as well.
10 Lessons For Traders
1. Call options. If you truly have conviction, buy long dated call options as volatility tend to be under priced for long maturities.
2. Short selling. It is harder to short sell than most think, and almost no one is good at it. One hurdle is the drift, but there are countless more.
3. Romance. You’re clearly better off to marry someone in management than to marry the stock.
4. Dip buying. The successful buys on dips and vice versa, it follows that the unsuccessful do the opposite.
5. Market. Everyone is always bearish on the market, only the super successful dares to be bullish/naive.
6. Story. Human brains are hard wired over thousands of years to build stories around your beliefs/thesis.
7. Flexibility. The super successful are always ready to change their mind/direction. Go from long to short or from short to long.
8. Art. Stock picking is as much art as science and very rarely are the smartest the best at this game.
9. Top-down. Local knowledge remains under appreciated. The top down guys ends up shorting the best companies and vice versa.
10. Management. Always invest with the best in class management, however you are better off with a good end market and bad management than the other way around.
Quotes on Manipulation
“Observation # 1: The greatest number of losing traders is found in the short-term and intraday ranks. This has less to do with the time frame and more to do with the fact that many of these traders lack proper preparation and a well thought-out game plan. By trading in the time frame most unforgiving of even minute error and most vulnerable to floor manipulation and general costs of trading, losses due to lack of knowledge and lack of preparedness are exponential. These traders are often undercapitalized as well. Winning traders often trade in mid-term to long-term time frames. Often they carry greater initial levels of equity as well.” Walter Downs
“The ability of banks to issue claims far in excess of their reserve position is essentially regulated counterfeiting when those claims have little or no chance of being satisfied, and it is an inherently cyclical and destabilizing process. The Fed, as US banks’ chief regulator, has not only condoned this imprudent, unsustainable (and Constitutionally-dubious) activity, it has encouraged and abetted it.” Paul Brodsky and Lee Quaintance
“He did not publish or spread any information that was false. Instead he praised the companies he had invested in to the skies, including the spreading of rumors. Does his action fall into information-based manipulation because of this? The answer is: partly. From the total gain of USD 800,000 he had to repay USD 285,000, so just over a third of the total gain.” Mark Schindler
“Runs occur when a group of traders create activity or rumors in order to drive the price of a security up.” Unknown (more…)
Jesse Livermore and natural disasters
Those of you who have read Reminiscences of a Stock Operator, Edwin Lefevre’s classic book reportedly based on Jesse Livermore, will know that ‘Larry Livingston’(Livermore) profited from shorting stocks immediately prior to the 1906 San Francisco earthquake. Initially the market held up, but Livermore was patient enough to sit in his positions, and the market finally succumbed to a sharp downdraft after a couple days.
In Michael Covel’s book Trend Following, there is a section devoted to major events that have occurred, which have significantly affected the markets, and that it was pointed out how often a trend follower was trading in the correct direction at that particular time. By definition, a trend follower would be trading in the correct direction when there is a major market specific event (such as the 1987 market crash, the dot.com bubble, the 2008 crash etc), but also more often than not when other major events occur, such as the collapse of Barings Bank, 9/11 etc.
Back to Livermore. While he started shorting stocks on a hunch prior to the earthquake, I follow the trend on the indices as a basis for whether I should be long or short stocks. Indeed, Livermore himself came to the same conclusions:
“I began to see more clearly – perhaps I should say more maturely – that since the entire list moves in accordance with the main current… Obviously the thing to do was to be bullish in a bull market and bearish in a bear market. Sounds silly, doesn’t it? But I had to grasp that general principle firmly before I saw that to put it into practice really meant to anticipate probabilities. It took me a long time to learn to trade on those lines.”
Do You want to Win or Lose at Trading?
There are things that make you win in the stock market over the long term and then there are things that make you lose quickly even in the short term. The key to trading success is learning the difference quickly and doing what really works not what you emotions or opinions tell you to do.
If you want to win then you must create your own trading plan and follow it, if you want to lose just trade whatever you want whenever you want based on your own opinion.
If you want to win then you must control your risk carefully with only 1% or 2% of your capital at stake in every individual trade, if you want to lose then just trade huge position sizes, put all your chips on the table.
If you want to win plan your entries and exits before you enter a trade then follow them, if you want to lose ask for everyone’s opinion and just make decisions based on other people.
If you want to win cut your losses short and let your winners run, if you want to lose hold your losers and hope that they come back and sell your winners quickly to lock in gains.
If you want to win trade only the best high quality stocks in the market, if you want to lose trade the junk and hope for a miracle come back.
If you want to win then build complete confidence for your system through chart studies and back testing, if you want to lose trade with no idea of if what you are doing even works.
If you want to win go with the current trend of the market, if you want to lose fight the trend and trade against it.
If you want to win then go long the hottest stocks in a bull market, if you want to lose short the hottest stocks in a bull market.
Do what makes money not what you feel like doing.
“Don’t marry hot stocks, just date them.”
- Hot stocks are only good when they are in up trends, when the party is over you have to break up with them.
- Hot stocks are great to trade in and out of but you don’t want to turn them into a life long investment.
- A good stock might look great on the outside with it’s price action but it may not have the best fundamentals for getting serious with.
- Hot stocks are great for the short term but for the long term you want a solid investment.
- Be careful with hot stocks they may look great on the outside but they can break your heart at any moment.
- A hot stock can be a lot of fun for awhile but they can be a lot of drama when no one wants them anymore.
- As long as a hot girlfriend is very popular she will be happy but when no one wants to date her she goes into a downward spiral. This applies to hot stocks as well.