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For Saudi Arabia, it is a philosophical issue that the black gold pouring out of its deserts should be treated as a tangible, physical commodity – not the paper plaything of traders on Wall Street hedging against the weak dollar. This thinking is at the heart of the Middle Eastern country’s decision last week to abandon its long alliance with West Texas Intermediate crude – the famous oil used by most global producers to price their exports to the US.
It is both a technical issue and a symbolic shift that strikes a blow to the domin-ance of the New York Mercan-tile Exchange, the world’s biggest centre of oil trading where the most popular products relate to WTI crude. (more…)
Archives of “speculators” tag
rssWith every market defeat lessons are learned
Here are some of the lessons I learned: 
- 1)When faced with severe losses, it’s nearly impossible to objectively evaluate your position.
- 2)Leverage can be a killer.
- 3)A trading plan should be simple, not based on the collective opinions of 15 financial authors.
- 4)Never buy front month out of the money options, they are strictly for crazy speculators. If you’re going to use these, sell them to crazy speculators against your longer-term positions.
- 5)Bullish and Bearish divergences fail frequently.
- 6)If you want to arrive early to the party, be prepared to wait a long time for the action to arrive.
- 7)Those funny Greek names, Delta and Theta, actually mean something!
- 8)It’s not acceptable to have multiple blowups like this. Many great traders have suffered a crushing capital blow early in their careers, only to return stronger and wiser. Others, like Jesse Livermore, ended his career (and life) after one too many detonations.
Trading Lessons From Nicolas Darvas
There are no good or bad stocks. There are only stocks that rise in price and stocks that decline in price, and that price is based on the laws of supply and demand in the marketplace - “You can never go broke taking a profit” is bad advice that will result in overtrading and cutting winners short. Selling winners and holding losers is to be avoided at all times
- There is a “follow-the-leader” style in the market. You will find success by selecting the most active and strongest industry group and trading its top leader
- The combination of price and increased volume is key to stock selection. Focus your time on new leaders emerging with a new market cycle
- It is the anticipation of growth rather than the growth itself that leads to great profits in growth stocks. “You have to find out what the public wants and go along with it. You can’t fight the tape, or the public.”
- One of the quickest ways to lose money in the market is to listen to others and all of their so-called expert opinions. To succeed, you must ignore all outside opinions and predictions. Follow your own strategy!
- Losses are tuition on Wall Street. Learn from them.
- You should expect to be wrong half of the time. Your goal is to lose as little as possible when you are. “I have no ego in the stock market. If I make a mistake I admit it immediately and get out fast. If you could play roulette with the assurance that whenever you bet $100 you could get out for $98 if you lost your bet, wouldn’t you call that good odds?”
- Most of your big failures will come from three things: 1) when you abandon your rules, 2) you become overconfident, and 3) trade in despair when unsuccessful
- The best speculators search only for the very best opportunities. To be truly successful, you must wait for the right opportunities to present themselves and this often means doing nothing for long periods of time
- The market behaves the way it does due to participants behaving the way they do. No one knows what they will do until they actually do it
- Long-term investors are the real gamblers in the market due to their eternal hope that losing stocks will come back in price
- It is difficult to be profitable on the short side of the market versus the long side – trading in rising or bull markets will give you the best chance for success
- Most, if not all stocks, will follow the general trend of the market
- To train your emotions, write down the reasons for making every trade. When you lose, write down what you thought contributed to the loss. Then study and set new rules to avoid making those same mistakes
- Concentrate your trades. At the peak of his success, Darvas would hold only 5 to 8 stocks at one time which was in contrast to his earlier days when he was overtrading and would hold up to 30 stocks at a time
- Avoid fallen leaders. Overhead resistance will keep upside potential limited due to supply from previous buyers who had not cut short their losses. According to Darvas, the only sound reason for a stock is one that is rising in price. If that is not happening, then there is “no other reason worth considering.”
- Darvas used his “box theory” to trade using boxes to time his entries (on breaking out to a new higher box) and exits (breaking below the current trading box).
- For new trades, Darvas used “pilot buys” which basically were starter positions in stocks he liked. Only if the stock continued to move higher would he then pyramid and increase his position. He learned never to buy more of a losing position
- He thought many unsuccessful investors made the mistake of looking at the same familiar names that might have worked well for them in the past instead of focusing on the next stock with the right elements for the new market cycle. “I am only in infant industries where earnings could double or triple. The biggest factor in stock prices is the lure of future earnings. The dream of the future is what excites people, not the reality.”
- Perfection has no role in successful trading. No one can buy at the absolute lowest price and sell at the highest price. No time or effort should be devoted to that goal. “I never bought a stock at the low or sold one at the high in my life. I am satisfied to be along for most of the ride.”
- Trade only when the environment is in your favor. Darvas’ strategy kept him out of poor and bear markets because he wouldn’t trade stocks that didn’t fit his requirements which were only found in raging bull markets
- Be aggressive when warranted. Darvas believed in making aggressive trades when his system pointed to a great trade. In fact, sometimes 50% of his capital was devoted to just one stock
- While his trading approach was very technical, after studying the market’s winners he understood the relevance of finding stocks also with good fundamentals. Namely, Darvas thought that earnings and the future estimate of increased earnings were very important
- Be a student of the market. Darvas learned by reading more than 200 books about speculators and the market and devoted studying the market for many hours a day. In fact, Gerald Loeb’s books & approach served as key inspiration
- No one can completely master the market. After millions of dollars and best selling books, Darvas was still learning and tweaking his system until he passed away
There are no good or bad stocks. There are only stocks that rise in price and stocks that decline in price, and that price is based on the laws of supply and demand in the marketplace 12 Market Wisdoms from Gerald Loeb
1. The most important single factor in shaping security markets is public psychology.
2. To make money in the stock market you either have to be ahead of the crowd or very sure they are going in the same direction for some time to come.
3. Accepting losses is the most important single investment device to insure safety of capital.
4. The difference between the investor who year in and year out procures for himself a final net profit, and the one who is usually in the red, is not entirely a question of superior selection of stocks or superior timing. Rather, it is also a case of knowing how to capitalize successes and curtail failures.
5. One useful fact to remember is that the most important indications are made in the early stages of a broad market move. Nine times out of ten the leaders of an advance are the stocks that make new highs ahead of the averages.
6. There is a saying, “A picture is worth a thousand words.” One might paraphrase this by saying a profit is worth more than endless alibis or explanations. . . prices and trends are really the best and simplest “indicators” you can find. (more…)
THE BEST OF JESSE LIVERMORE
On emotions:
The unsuccessful investor is best friends with hope, and hope skips along life’s path hand in hand with greed when it comes to the stock market. Once a stock trade is entered, hope springs to life. It is human nature to be positive, to hope for the best. Hope is an important survival technique. But hope, like its stock market cousin’s ignorance, greed, and fear, distorts reason. See the stock market only deals in facts, in reality, in reason, and the stock market is never wrong. Traders are wrong. Like the spinning of a roulette wheel, the little black ball tells the final outcome, not greed, fear or hope. The result is objective and final, with no appeal.
I believe that uncontrolled basic emotions are the true and deadly enemy of the speculator; that hope, fear, and greed are always present, sitting on the edge of the psyche, waiting on the sidelines, waiting to jump into the action, plow into the game.
Fear keeps you from making as much money as you ought to.
On herd behavior:
I believe that the public wants to be led, to be instructed, to be told what to do. They want reassurance. They will always move en masse, a mob, a herd, a group, because people want the safety of human company. They are afraid to stand alone because they want to be safely included within the herd, not to be the lone calf standing on the desolate, dangerous, wolf-patrolled prairie of
contrary opinion.
On cash:
First, do not be invested in the market all the time. There are many times when I have been completely in cash, especially when I was unsure of the direction of the market and waiting for a confirmation of the next move….Second, it is the change in the major trend that hurts most speculators. (more…)
Top Ten Reasons Not to Trade– and Why You Should Do It Anyway
#1 Trading creates no greater good
– like when you buy grain futures, the price skyrockets, and you make a killing! A poor farmer plants more seeds as a consequence, third world children get affordable bread, hmm, did I say you make a living?
#2 Trading makes you selfish
– and that’s why filthy rich old speculators turn to philanthropy.
#3 Staring at screens all day is not healthy
– which is true, and why slow lunch hours are perfect for physical exercise.
#4 Staring at screens all day is not good for your social skills
– which is why traders are out having fun when the market is closed. (Don’t “normal” people spend evenings in front of the TV?)
#5 The market is a casino
– where scrupulous gamblers make it easier (and more important) for sane traders to make a living. (more…)
Gerald Loeb’s Market Wisdom
1. The most important single factor in shaping security markets is public psychology.
2. To make money in the stock market you either have to be ahead of the crowd or very sure they are going in the same direction for some time to come.
3. Accepting losses is the most important single investment device to insure safety of capital.
4. The difference between the investor who year in and year out procures for himself a final net profit, and the one who is usually in the red, is not entirely a question of superior selection of stocks or superior timing. Rather, it is also a case of knowing how to capitalize successes and curtail failures.
5. One useful fact to remember is that the most important indications are made in the early stages of a broad market move. Nine times out of ten the leaders of an advance are the stocks that make new highs ahead of the averages. (more…)
50 Trading Mistakes
1. Many futures traders trade without a plan. They do not define specific risk and profit objectives before trading. Even if they establish a plan, they “second guess” it and don’t stick to it, particularly if the trade is a loss. Consequently, they overtrade and use their equity to the limit (are undercapitalized), which puts them in a squeeze and forces them to liquidate positions.
Usually, they liquidate the good trades and keep the bad ones.
2. Many traders don’t realize the news they hear and read has already been discounted by the market.
3. After several profitable trades, many speculators become wild and aggressive. They base their trades on hunches and long shots, rather than sound fundamental and technical reasoning, or put their money into one deal that “can’t fail.”
4. Traders often try to carry too big a position with too little capital, and trade too frequently for the size of the account.
5. Some traders try to “beat the market” by day trading, nervous scalping, and getting greedy.
6. They fail to pre-define risk, add to a losing position, and fail to use stops.
7 .They frequently have a directional bias; for example, always wanting to be long.
8. Lack of experience in the market causes many traders to become emotionally and/or financially committed to one trade, and unwilling or unable to take a loss. They may be unable to admit they have made a mistake, or they look at the market on too short a time frame.
9. They overtrade.
10. Many traders can’t (or don’t) take the small losses. They often stick with a loser until it really hurts, then take the loss. This is an undisciplined approach…a trader needs to develop and stick with a system. (more…)
10 Great Quotes of Jesse Livermore
“Do not anticipate and move without market confirmation—being a little late in your trade is your insurance that you are right or wrong.” -Jesse Livermore
“The good speculators always wait and have patience, waiting for the market to confirm their judgment.” -Jesse Livermore
“{Limit} interest in too many stocks at one time. It is much easier to watch a few than many.” -Jesse Livermore
“Experience has proved to me that the real money made in speculating has been: “IN COMMITMENTS IN A STOCK OR COMMODITY SHOWING A PROFIT RIGHT FROM THE START. ” -Jesse Livermore
“As long as a stock is acting right, and the market is right, do not be in a hurry to take a profit. You know you are right, because if you were not, you would have no profit at all. Let it ride and ride along with it. It may grow into a very large profit, and as long as the “action of the market does not give you any cause to worry,” have the courage of your convictions and stay with it.” -Jesse Livermore
“It is foolhardy to make a second trade, if your first trade shows you a loss. ” “Never average losses. ” Let that thought be written indelibly upon your mind.” -Jesse Livermore
“One should never sell a stock, because it seems high-priced.” -Jesse Livermore
“Profits always take care of themselves but losses never do. ” The speculator has to insure himself against considerable losses by taking the first small loss. In so doing, he keeps his account in order so that at some future time, when he has a constructive idea, he will be in a position to go into another deal, taking on the same amount of stock as he had when he was wrong.” -Jesse Livermore
“It is significant that a large part of a market movement occurs in the last forty-eight hours of a play, and that is the most important time to be in it.” -Jesse Livermore
“A speculator should make it a rule each time he closes out a successful deal to take one-half of his profits and lock this sum up in a safe deposit box. The only money that is ever taken out of Wall Street by speculators is the money they draw out of their accounts after closing a successful deal.” -Jesse Livermore
Risk & Chance
Here are some interesting quotes from ‘Risk & Chance’ (Dowie and Lefrere) that have a relevance to trading and speculation more generally:
Henslin (1967) notes …dice players behave as if they are controlling the outcome of the toss. One of the ways they exert this is to toss the dice softly if they want a low number, or hard for a high number. Another is to concentrate and exert effort when tossing. These behaviours are quite rational if one believes that the game is a game of skill.
As a trader I wish I could figure out what portion of my trading results can be attributed to luck, and what portion to skill. The problem is that trading seems to be a game of both skill and luck, so we spend half our time figuring out just how hard we should be throwing the dice. Splitting skill from luck is a problem for all speculators, but high frequency traders can find out much sooner than low frequency macro traders, who only take a few positions each year. In the latter case, it may be close to impossible to look back to a macro trader’s career and make this determination with any reasonable level of certainty.
De Charms(1968) stated that “Man’s primary propensity is to be effective in producing changes in his environment. Man strives to be a causal agent, to be the primary locus of causation for, or the origin of, his behaviour; he strives for personal causation.
The polar opposite of mastery is helplessness.
In the markets, those with an ‘edge’ over the market can be thought of as masters, while those who don’t believe in outperformance of the averages can be thought of as helpless. Of course, in this case the helpless are not truly helpless; they may accept they have no influence on the outcome but provided they accept the proven long-term upward drift of the market, they can choose the path of the low-cost index fund, saving time and money against the perceived masters (on average, the indices outperform). This doesn’t apply to the foreign exchange market.
Lefcourt (1973)… concluded that “the sense of control, the illusion that one can exercise personal choice, has a definite and positive role in sustaining life.” Thus, people show a preference for controllable over uncontrollable events.The distinction between skill and chance situations is further complicated by the fact that positive outcomes are most often attributed to the actions that precede them.
Think of many of the individuals who have made big gains in the housing market, founders of certain successful businesses, and some flavour-of-the-month fund managers. Positive results, especially those associated with a large monetary gain, often imbue individuals with a false sense of superiority and foresight, or even control, over events that are actually largely outside of their control.