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Jesse Livermore quote

  
  Education
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jjlivermoreIf you had read Livermore, the guy’s puzzled too.
Let me quote an excerpt from Richard Smitten’s How to Trade Like Jesse Livermore

Livermore believed that the game of speculation is the most uniformly fascinating
game in the world. But it is not a game for the stupid, the mentally lazy, or the person of inferior emotional balance, or for the get-rich-quick adventurer. They will die poor.
There is a very true adage that Livermore loved: “You can beat a horse race, but you can’t beat the races.”
So it is with market operations. There are times when money can be made investing and speculating in stocks, but money cannot consistently be made by trading every day or every week during the year. Only the foolhardy will try it.

The Proverb of the Ants

  
  Education
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The chair asks: What fable of Aesop best explains the tendency to seek short term gain in speculation as the expense of the long term. Such situation often occur when it looks like the next 1/2 hour ( or day) will be very bad for your position but the next 8 hours (or week) will be very good. What to do? Be an ant or a grasshopper dancing and fiddling.

2009…Heads or Tails?

  
  Education
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headsortails

Adam Smith (1723 – 1790) in “The Money Game” wrote:
“Prices have no memory and yesterday has nothing to do with tomorrow. Every day starts out fifty-fifty!”
If the above statement is to be trusted, then you could just take the 50 – 50 odds, expand their daily time horizon to a yearly one, and decide whether or not to “stay in the stock market game” in 2009!
Decide on just a flip of a coin?
Given the past year’s negative returns, what does this “flip” imply for the investors’ chances this coming year?
Well, that is a matter of asking the question the right way!
If you assume that the years are flipping randomly, and that there is no bias for any year, then you could ask if it is fair enough to assume that flipping through a calendar is otherwise the same as just flipping a coin?
Let’s assume that you were just flipping a coin. Then, YES …
The odds of one flip would always be 50 – 50!
Indeed, you might be led to start questioning about how fair the coin actually would be! In this case, you really should look back and base your expectations on historical econometric analysis and try to establish how fair the coin would be!
But if you are guessing that some things do look like a flip of a coin, shouldn’t you also assume that just because we had a negative year, we’re now going to get a positive one?
Who knows … Investments based on that kind of speculation might actually end up yielding a positive result!
But the odds are still only 50 – 50!
On the other hand …
I do know that …
I will get a much better than 50 -50 chance!

Last Suppers for a Lifetime

  
Education, Life
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I was reading Da Vinci’s notebooks recently, and was intrigued by his method for learning to paint. I thought it might be interesting to try to adapt his model to learning to trade. I’m not sure how useful my little Saturday afternoon research has been but it was fun. Listed below is the sequence Da Vinci recommended for young men to learn how to paint, followed by my own interpretation of the general learning outcomes, and then their trading applications.

Leonardo Da Vinci’s model for learning to paint, from his own notes:

1. Imitate a masters work — best to imitate an antique.
2. Draw objects from relief but not from memory.
3. Familiarity of the human form — seeing each muscle in every possible position.
4. Do stick drawings from nature and expand them at home.
5. “Thus I say to you, whom nature prompts to pursue this art, if you wish to have a sound knowledge of the forms of objects begin with the details of them, and do not go on to the second [step] till you have the first well fixed in memory and in practice.”
6. Keep the company of people who share the outlook of being mirror like in their observations. If such people cannot be found then keep your speculations to yourself.
7. “I myself have proved it to be of no small use, when in bed in the dark, to recall in fancy the external details of forms previously studied, or other noteworthy things conceived by subtle speculation; and this is certainly an admirable exercise, and useful.”
8. “Winter evenings ought to be employed by young students in looking over the things prepared during the summer; that is, all the drawings from the nude done in the summer should be brought together and a choice made of the best [studies of] limbs and body.”
9. He is a poor disciple who does not excel his master.
10. “Some may distinctly assert that those persons are under a delusion who call that painter a good master who can do nothing well but a head or a figure. Certainly this is no great achievement.
11. “Nature has beneficently provided that throughout the world you may find something to imitate.”
12. The mind of the painter must resemble a mirror.
13. “When, Oh draughtsmen, you desire to find relaxation in games you should always practice such things as may be of use in your profession”
14. “The sorest misfortune is when your views are in advance of your work.”


General Learning Statements:

1. Copy the work of someone who has done great work before.
2. Copy the actions of a master.
3. Look at each part of the work and see every permutation and how it fits with the other parts.
4. Do basic models of the whole process, to practice.
5. If you wish to have a sound knowledge of the task or subject then study the details and memorize them and practice them.
6. Don’t become clouded by other peoples views and thinking processes.
7. “I myself have proved it to be of no small use, when in bed in the dark, to recall in fancy the external details of forms previously studied, or other noteworthy things conceived by subtle speculation; and this is certainly an admirable exercise, and useful.
8. When ‘out of season’ you should study past actions and commit them to memory and learn from them.
9. Look to excel past the people you learn from, but without arrogance.
10. Always learn and practice all elements of your skill.
11. Look in other areas of your life and world opportunities to learn and transfer observations to your study.
12. Only observe.
13. Make games that will help you learn better your skill.
14. “The sorest misfortune is when your views are in advance of your work.”


Stock Market Learning:

1. Read the works of Soros, Jesse Livermore, William O’Neill, Warren Buffett and Nick Darvis.
2. Choose one and copy exactly what they do.
3. See each stage they go through to reach their conclusions and the actions they take and the inferrences they derive from the outcomes.
4. Pick stocks and plan out the course of action and all the permutations of what will happen in all price scenarios and put them into practice.
5. Memorise the details of the great coups and all the rules the masters have made in trading.
6. Keep all your trading a secret and don’t let others’ views interfere with your own. Keep your mind totally on the facts at hand and the details of what you see.
7. Before going to sleep look at the coups of other traders and of your own. Talk with the masters you are studying and meet them in your mind for interviews.
8. When the markets are not open or the market isn’t acting right for you then study past trades and memorise the actions you took and piece together the trade again looking for the lesson.
9. Be a better trader than your teachers and ask yourself how you can do better.
10. When you have practiced and ‘perfected’ position entry, move to exits, patterns, money management, probability theory, etc..
11. Look at situations and look at them as you would a trade. What would you do? Are there any interesting things to learn here that can be used in the markets?
12. See what’s happening rather than guess.
13. Play games like the one played in Liar’s Poker, where you invent scenarios and ask each other what you would do in that situation. E.g. nuclear explosion in Tokyo…
14. Be aware of views you are taking on a trade. Look at it always as if it’s the first time you have seen it and review an open trade every day as if you have just placed it.

Forecasts Predictions And Prophets

  
  Education
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Here’s what Max Gunther, author of ‘The Zurich Axioms’ has to say:

The Zurich Axioms: ‘On Forecasts’, page 62:

Human behavior cannot be predicted. Distrust anyone who claims to know the future, however dimly.

‘Speculative Strategy’:
The Fourth Axiom tells you not to build your speculative program on a basis of forecasts, because it won’t work. Disregard all prognostications. In the world of money, which is a world shaped by human behavior, nobody has the foggiest notion of what will happen in the future. Mark that word. Nobody.
Of course, we all wonder what will happen, and we all worry about it. But to seek escape from that worry by leaning on predictions is a formula for poverty. The successful speculator bases no moves on what supposedly will happen but reacts instead to what does happen.
Design your speculative program on the basis of quick reactions to events that you can actually see developing in the present. Naturally, in selecting an investment and committing money to it, you harbor the hope that its future will be bright. The hope is presumably based on careful study and hard thinking. Your act of committing dollars to the venture is itself a prediction of sorts. You are saying, “I have reason to hope this will succeed.” But don’t let that harden into an oracular pronouncement: “It is bound to succeed because interest rates will come down.” Never, never lose sight of the possibility that you have made a bad bet.
If the speculation does succeed and you find yourself climbing toward a planned ending position, fine, stay with it. If it turns sour despite what all the prophets have promised, remember the Third Axiom. Get out.

10 Favorite Quotes from Reminiscences of a Stock Operator

  
  Education
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Markets, trading methodologies and products may change, but timeless investing advice does not. That’s why my favorite trading book remains Reminiscences of a Stock Operator by Edwin Lefevre with Jessie Livermore—it is chocked full of great advice for any investor. First appearing as a series of articles in the Sunday Evening Post during the 1920s, the book is largely a biographical account of Livermore’s professional life. He is remembered as one of the world’s greatest traders who won and lost tremendous fortunes before tragically taking his own life in 1940.

Although Jessie’s life ended too early, his words of wisdom live on for discovery. The book is filled with obscure references and colorful characters long forgotten by the general public, but the key themes of the text remain as relevant as ever. Therefore, I’ve pulled out my favorite quotes, below, though I highly recommend reading the entire text.

There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.

The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among professionals.

I never lose my temper over the stock market. I never argue the tape. Getting sore at the market doesn’t get you anywhere.

They say you can never go poor taking profits. No, you don’t. But neither do you grow rich taking a four-point profit in a bull market. Where I should have made twenty thousand I made two thousand. That was what my conservatism did for me.

Remember that stocks are never too high for you to begin buying or too low to begin selling.

A man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street…nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.

After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was the sitting. Got that? My sitting tight!

(more…)

Essential qualities for Speculator

  
  Education
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1)Self-reliance :A man must think for himself ,must follow his own convictions.Self-trust is the foundation of successful effort.

2)Judgement :That equipoise ,that nice adjustment of the facilities one to the other ,which is called  good judgement ,is an essential to the speculator.

3)Courage :That is ,confidence to act on the decisions of the mind.In speculation ,there is value in Mirabeau’s dictum :Be bold ,still be bold ,always be bold.

4)Prudence :The power of measuring the danger ,together with certain alertness and watchfulness is important.There should be a balance of these two ,prudence and courage ,prudence is contemplation ,courage in execution.Connected with these qualities ,properly an outgrowth of them ,is a third ,viz :promptness.The mind
convinced ,the act should follow.Think ,act ,promptly

5Pliability :The ability to change an opinion ,the power of revision.He who observes ,says Emerson,and observes again ,is always formidable.

The Psychology Of Speculation – The Disconcerting Effect Of Sudden Losses And Gains

  
  Education
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Henry Howard Harper: ‘The Psychology of Speculation – The Human Element in Stock Market Transactions’

The Disconcerting Effect of Sudden Losses and Gains, page 17 – 19

There are but few things more unbalancing to the mind than the act of suddenly winning or losing large sums of money. A few years ago at Monte Carlo I was in company with a friend, a well known man of affairs who while there played at roulette nearly every day, merely as pastime. He was of mature age, naturally methodical, conservative, temperate and cool-headed. He made it an unalterable rule to limit his losses to $200 at any one sitting, and on losing his amount he always stopped playing. His bets were usually limited to two dollars on the numbers, and never doubled except for one turn of the wheel when his number won. He generally played three numbers at a time; never more than four. For ten consecutive sittings luck was against him and each time he had lost his stake of $200. I saw him get up and leave the room, apparently in a state of disgust. An hour or so later I discovered him at a roulette table in another room stacking his chips in piles on a dozen or more numbers. (more…)

Market Truisms and Axioms

  
  Education
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Commandment #1: “Thou Shall Not Trade Against the Trend.”

• Portfolios heavy with underperforming stocks rarely outperform the stock market!

• There is nothing new on Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again, mostly due to human nature.

• Sell when you can, not when you have to.

• Bulls make money, bears make money, and “pigs” get slaughtered.

• We can’t control the stock market. The very best we can do is to try to understand what the stock market is trying to tell us.

• Understanding mass psychology is just as important as understanding fundamentals and economics.

• Learn to take losses quickly, don’t expect to be right all the time, and learn from your mistakes.

• Don’t think you can consistently buy at the bottom or sell at the top. This can rarely be consistently done.

• When trading, remain objective. Don’t have a preconceived idea or prejudice. Said another way, “the great names in Trading all have the same trait: An ability to shift on a dime when the shifting time comes.”

• Any dead fish can go with the flow. Yet, it takes a strong fish to swim against the flow. In other words, what seems “hard” at the time is usually, over time, right.

• Even the best looking chart can fall apart for no apparent reason. Thus, never fall in love with a position but instead remain vigilant in managing risk and expectations. Use volume as a confirming guidepost.

• When trading, if a stock doesn’t perform as expected within a short time period, either close it out or tighten your stop-loss point.

• As long as a stock is acting right and the market is “in-gear,” don’t be in a hurry to take a profit on the whole positions. Scale out instead.

• Never let a profitable trade turn into a loss, and never let an initial trading position turn into a long-term one because it is at a loss.

• Don’t buy a stock simply because it has had a big decline from its high and is now a “better value;” wait for the market to recognize “value” first. (more…)

Fast Easy Money

  
  Education
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You know, it never stop puzzling me, why people think the stock market is a place for fast easy money.
J-LIf you had read Livermore, the guy’s puzzled too.
Let me quote an excerpt from Richard Smitten’s How to Trade Like Jesse Livermore
Livermore believed that the game of speculation is the most uniformly fascinating
game in the world. But it is not a game for the stupid, the mentally lazy, or the person of inferior emotional balance, or for the get-rich-quick adventurer. They will die poor.
dinner-party-

Over a long period of years, he rarely attended a dinner party including strangers when someone did not sit down beside him and inquire after the usual pleasantries:
“How can I make some money in the market?”
In his younger days, he went to considerable pains to explain all the difficulties faced by the trader who simply wishes to take quick and easy money out of the market; or through courteous evasiveness, he would work his way out of the snare.
In later years, his answer became a blunt “I don’t know.” (more…)

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