Perfect speculator must know when to get in;
More important he must know when to stay out;
And most important he must know when to get out once he’s in.
Archives of “speculator” tag
rssTrading Rules: Strategies For Success
1. Divide your trading capital into ten equal risk segments
2. Use a two-step order process
3. Don’t overtrade
4. Never let a profit turn into a loss
5. Trade with the trend
6. If you don’t know what’s going on, don’t do anything
7. Tips don’t make you any money
8. Use the right order to get into the markets
9. Don’t be whimsical about closing out your trades
10. Withdraw a portion of your profits
11. Don’t buy a stock only to obtain a dividend
12. Don’t average your losses
13. Take big profits and small losses
14. Go for the long pull as an outside speculator
15. Sell shorts as often as you go long
16. Don’t buy something because it is low priced
17. Pyramid correctly, if at all
18. Decrease your trading after a series of successes
19. Don’t formulate new opinions during market hours
20. Don’t follow the crowd – they are usually wrong
21. Don’t watch or trade too many markets at once
22. Buy the rumor, sell the fact
23. Take windfall profits when you get them
24. Keep charts current
25. Preserve your capital
26. Nothing new ever occurs in the markets
27. Money cannot be made every day from the markets
28. Back your opinions with cash when they are confirmed by market action
29. Markets are never wrong, opinions often are
30. A good trade is profitable right from the start
31. As long as a market is acting right, don’t rush to take profits
32. Never permit speculative ventures to turn into investments
33. Don’t try to predetermine your profits
34. Never buy a stock because it has a big decline from its previous high, nor sell a stock because it is high priced
35. Become a buyer as soon as a stock makes new highs after a normal reaction
36. The human side of every person is the greatest enemy to successful trading
37. Ban wishful thinking in the markets
38. Big movements take time to develop
39. Don’t be too curious about the reasons behind the moves
40. Look for reasonable profits
41. If you can’t make money trading the leading issues, you aren’t going to make it trading the overall markets
42. Leaders of today may not be the leaders of tomorrow
43. Trade the active stocks and futures
44. Avoid discretionary accounts and partnership trading accounts
45. Bear markets have no supports and bull markets have no resistance
46. The smarter you are, the longer it takes
47. It is harder to get out of a trade than to get into one
48. Don’t talk about what you’re doing in the markets
49. When time is up, markets must reverse
50. Control what you can, manage what you cannot
The Right Side
A quote from one the best traders of our time, Jesse Livermore: “It takes a man a long time to learn all the lessons of all his mistakes. They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side. It took me longer to get that general principle fixed firmly in my mind than it did most of the more technical phases of the game of stock speculation.”
Being a bull or a bear alone is meaningless out of the crucial context of the current market conditions. All that really matters for the great game of speculation is being on the “right side”, knowing when the markets are in a bull or a bear trend and deploying your speculative capital accordingly.
Once again Livermore ties speculation back into the speculator’s own internal emotions. He points out that it makes no sense to be bullish or bearish as a rule, but to carefully watch the market conditions in order to be on “the right side” at any given moment. Most speculators are burdened with an innate emotional bias to be bullish that is dangerous and must be eradicated if they wish to succeed in speculation.
A speculator must not foolishly try to bend the markets to his will, but instead prudently bend his will to the markets! If a bull trend is evident, be long. If a bear trend dominates, be short. An elite speculator doesn’t care at all which way the markets are moving, he just wants to be “right” and recognize the trend early enough to prudently deploy his own capital and be blessed to harvest profitable trades.
Forget the endless bull and bear arguments and don’t let any other speculators try to pigeonhole you into one of the two warring camps. Instead of being a perma-bull or perma-bear, instead strive to listen to the rhythm of the markets and simply be “right” about what is coming to pass next and trade accordingly.
Fear
One of my favorite bits of trading advice was given 85 years ago by Jesse Livermore in Reminiscences of a Stock Operator:
“The speculator’s chief enemies are always boring from within.
“It is inseparable from human nature to hope and to fear. In speculation when the market goes against you, you hope that every day will be the last day and you lose more than you should had you not listened to hope… to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and you get out too soon. Fear keeps you from making as much money as you ought to.
The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit. It is absolutely wrong to gamble in stocks the way the average man does.” (more…)
legendary speculator Jesse Livermore
legendary speculator Jesse Livermore on LETTING YOUR WINNERS RUN
(Chapter V) … “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.
“be right and sit tight”
(Chapter V) … “And right here let me say one thing: 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 my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying and selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine – that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.” (more…)
9 Lessons From The Greatest Trader Who Ever Lived
One of the good guys (for me, at least) has always been Jesse L. Livermore. He’s considered by many of today’s top Wall Street traders to be the greatest trader who ever lived.
Leaving home at age 14 with no more than five bucks in his pocket, Livermore went on to earn millions on Wall Street back in the days when they still literally read the tape.
Long or short, it didn’t matter to Jesse.
Instead, he was happy to take whatever the markets gave him because he knew what every good trader knows: Markets never go straight up or straight down.
In one of Livermore’s more famous moves, he made a massive fortune betting against the markets in 1929, earning $100 million in short-selling profits during the crash. In today’s dollars, that would be a cool $12.6 billion.
That’s part of the reason why an earlier biography of his life, entitled Reminiscences of a Stock Operator, has been a must-read for experienced traders and beginners alike.
A gambler and speculator to the core, his insights into human nature and the markets have been widely quoted ever since.
Here are just a few of his market beating lessons:
On the school of hard knocks:
The game taught me the game. And it didn’t spare me rod while teaching. It took me five years to learn to play the game intelligently enough to make big money when I was right.
On losing trades:
Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocket book and to the soul.
On trading the trends:
Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the fluctuations. In a bull market the game is to buy and hold until you believe the bull market is near its end. (more…)
Thoughts on The Psychology of Speculation by Henry Howard Hopper
Thoughts on the Psychology of Speculation by Henry Howard Hopper published in 1926 and then reprinted by Fraser Publishing Company.
The book is excellent on many different levels. I like most that it talks about encompassing principles of human nature. Not the trivial made up ones of behavioral economics but broad human tendencies that are crucial to how we make our decisions and go about living our life.
Included among these broad human tendencies is the tendency to go crazy when you see a massive flow in front of you like the many who commit suicide in Niagara falls after seeing the water flow and the many who lose their minds as the market goes up. Also paramount is the incredible ennui that a human feels when something that he formerly owned goes thru the roof in other hands. I also like the many market periods of boom and bust he covers including the fantastic bull market of 1915 in the middle of the war where stocks of many a sage speculator was short skyrocketed by 15 fold or more. “He did not live to see General Motors at 850 on October 25, 1916,” as his broker was forced to sell him out well before hand and “he had crossed the bar into the great beyond”.
Like my father’s experience in the Bowerey where he had to cart the bodies away when they couldn’t pay the rent after dying from gambling, “the widow was left almost penniless and he was buried at the expense of the lodge”. I like also the colorful vivid language so characteristic of the roaring 20s that makes on wish one was there and feel for the every emotion that he elicits.
I like best the last words he repeats of a short seller who made a fortune in leather goods and then lost it in the market through shorting. “In the past year I’ve suffered every torment known to the demons of hell. My only grain of comfort is that it’s all over now and I have nothing more to lose.” From this tragic experience, the author concludes “there is but little comfort or profit to be gained on the short side of a protracted bull market”. (more…)
Worth Reading..
“The mathematical expectation of the speculator is zero.” -Louis Bachelier was a French mathematician who was, well after the fact, credited with founding the Efficient Market Thesis. In 1900 Bachelier published his Ph.D thesis titled “The Theory of Speculation.” In his paper, Bachelier discussed the use of Brownian motion to evaluate stock prices. Unfortunately, his thesis was “not appropriately received”, which resulted in academic black-balling and the concept being buried for more than sixty years.
Almost sixty-five years later Professor Eugene Fama from the University of Chicago was officially credited with developing the Efficient Market Thesis after publishing his Ph.D thesis. His paper was titled “The Behavior of Stock Market Prices.” The core tenet of his paper and the Efficient Market Thesis is that an investor “cannot consistently achieve returns in excess of average of market returns on a risk-adjusted basis, given the information that is publicly available at the time the investment is made.”
Is it not somewhat ironic that the determination of who founded the Efficient Market Thesis was not efficient?”
“The mathematical expectation of the speculator is zero.” -Louis Bachelier was a French mathematician who was, well after the fact, credited with founding the Efficient Market Thesis. In 1900 Bachelier published his Ph.D thesis titled “The Theory of Speculation.” In his paper, Bachelier discussed the use of Brownian motion to evaluate stock prices. Unfortunately, his thesis was “not appropriately received”, which resulted in academic black-balling and the concept being buried for more than sixty years.Keep a Cash Reserve & Be Patient
There are times when playing the stock market that your money should be inactive – waiting on the sidelines in cash – waiting to come into play.
In the stockmarket – time is not money – time is time and money is money.
Often money that is just sitting can later be moved into the right situation at the right time and make a vast fortune – patience – patience.
Patience is the key to success not speed.
Time is a cunning speculator’s best friend if he uses it right.
Remember the clever speculator is always patient and has a reserve of cash.
Jesse Livermore
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.