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.
Archives of “stake” tag
rssMy notes on Reminiscences of a Stock Operator
Of course there is always a reason for fluctuations, but the tape does not concern itself with the why and wherefore.
My plan of trading was sound enough and won oftener than it lost. If I had stuck to it I’d have been right perhaps as often as seven out of ten times.
What beat me was not having brains enough to stick to my own game.
But there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying or selling stocks daily or sufficient knowledge to make his. play an intelligent play.
The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.
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.
My losses have taught me that I must not begin to advance until I am sure I shall not have to retreat. But if I cannot advance I do not move at all. I do not mean by this that a man should not limit his losses when he is wrong. He should. But that should not breed indecision.
I was still ignoring general principles; and as long as I did that I could not spot the exact trouble with my game. (more…)
Buffett builds Munich Re stake
Warren Buffett, the US investor, has expanded his reinsurance holdings by becoming one of the largest shareholders in industry giant Munich Re. Buffett has built a stake worth €660m ($934m) in the German reinsurer, according to a market announcement triggered when his stake rose above 3%. It makes him the second-largest investor in Munich Re, after US asset manager BlackRock with almost 4.6%.
Jesse Livermore’s Money Management Rules
If you haven’t read this book “Reminiscences of a Stock Operator” written in 1923, read it! It is purpordetly the unofficial biography of one of the greates traders ever; Jesse Livermore. The rules Jesse followed back at the turn of the last century are still very much applicable today.
1) Don’t lose money. Don’t lose your stake. A speculator without cash is like a store-owner with no inventory. Cash is your inventory, your lifeline, and your best friend. Without cash, you are out of business. Don’t lose your line. There is no place in speculating for hoping, for guessing, for fear, for greed, for emotions. The tape tells the truth.
2) Always establish a stop. A successful speculator must set a firm stop before making a trade and must never sustain a loss of more than 10 percent of invested capital. I have also learned that when your broker calls you and tells you he needs more money for a margin requirement on a stock that is declining; tell him to sell out the position. When you buy a stock at 50 and it goes to 45, do not buy more in order to average out your price. The stock has not done what you predicted; that is enough of an indication that your judgment was wrong. Take sour losses quickly and get out. Remember, never meet a margin call, and never average losses. Many times I would close out a position before suffering a 10 percent loss. I did this simply because the stock was not acting right from the start. Often my instincts would whisper to me: “J.L., this stock has a malaise, it is a lagging dullard. It just does not feel right,” and I would sell out of my position in the blink of an eye. I absolutely believe that price movement patterns are repeated and appear over and over with slight variations. This is because humans drive the stocks, and human nature never changes. Take your losses quickly. Easy to say, but hard to do. (more…)
Insider Trading in UTTAM GALVA STEEL ?
Today morning just read this NEWS :ArcelorMittal gets in through Uttam Galva
Uttam Galva, in a late evening notice to the Bombay Stock Exchange (BSE), announced that it will allow ArcelorMittal to acquire shares in the company through an open offer.
At the first stage, Lakhmi Mittal-owned ArcelorMittal will purchase a 5% stake for Rs69.6 crore at Rs120 a share.
Subsequently, the Mittals will make an open offer to purchase a 30% stake at the same price paid to the promoters for the 5% stake, valuing the company at Rs1,384.3 crore.
This is Daily chart of UTTAM STEEL.
Just see the movement of the stock from Rs.53 on 11th August and on Friday it closed at 113.95 level.
My question to Readers ,Traders ,STOCK EXCHANGE and SEBI is ….The annoucement of stake sale or picking of stake by Arcelor Mittal was decided on Friday (4th September) or talks were going on since last 1-2 months ??
-Who were knowing about this Deal ?
-Who bought these shares ??
-Do u not think Insiders in India are minting money and people close to Company circle ??
-Just small thought ….if possible comment ………Jai Ho !!
Updated at 18:52/5th Sept/Baroda
French Doctor Accused Of Assisting Hedge Fund Manager Insider Trade
The Securities and Exchange Commission accused a French medical doctor with illegally tipping off a hedge-fund manager about the results of a clinical trial conducted by Human Genome Sciences Inc., prompting the manager to dump roughly six million shares of the drug maker. The SEC alleged in the civil complaint Tuesday that Dr. Yves M. Benhamou gave the hedge-fund manager nonpublic information about negative developments in the trial of the drug Albuferon, used to treat Hepatitis C, including that one trial participant had died…Over a period of weeks prior to the announcement, the hedge-fund manager ordered the sale of all Human Genome Sciences stock held by six hedge funds he co-managed, a stake of roughly six million shares, the SEC said. [WSJ]
AN 1873 LETTER ON LUCK VERSUS SKILL
We often confuse luck with skill, especially in the stock market. In fact, Michael J. Mauboussin has written a worthy read on separating the two in his newest book The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing. But long before the contemporary discussions of luck versus skill, ancient speculators were enthralled by luck’s deceptive ways of making mere mortals feel godlike. However, that sense of omniscience, just like a string of luck, is fleeting and continues to lure modern speculators into a trap today just like it did Saxon-les-Bains, a man of culture, almost 150 years ago. In a 1873 letter to The Spectator entitled “A Study in the Psychology of Gambling” Saxon-les-Bains describes his gambling experience in Monte Carlo.
And what was my experience? This chiefly, that I was distinctly conscious of partially attributing to some defect of stupidity in my own mind, every venture on an issue that proved a failure; that I groped about within me something in me like an anticipation or warning (which of course was not to be found) of what the next event was to be, and generally hit upon some vague impulse in my own mind which determined me: that when I succeeded I raked up my gains, with a half impression that I had been a clever fellow, and had made a judicious stake, just as if I had really moved skillfully as in chess; and that when I failed, I thought to myself, ‘Ah, I knew all the time I was going wrong in selecting that number, and yet I was fool enough to stick to it,’ which was, of course, a pure illusion, for all that I did know the chance was even, or much more than even, against me. But this illusion followed me throughout. I had a sense ofdeserving success when I succeeded, or of having failed through my own willfulness, or wrong-headed caprice, when I failed. When, as not infrequently happened, I put a coin on the corner between four numbers, receiving eight times my stake, if any of the four numbers turned up, I was conscious of an honest glow of self-applause… (more…)
Could you Trade Full Time?
Take this quick quiz and honestly determine if you are built to trade full time:
- Are you properly capitalized?
I wouldn’t suggest anyone start to think about trading full time until they have at least six figures that can be used solely for trading. Living expenses must come from other income or saved funds. Without six figures (and the more then better), I suggest you continue to build your stake. - Are you a successful part time trader?
Why do you think you can succeed being a full time trader if you haven’t made money as a part time trader? Have you built your own stake to six figures trading part time? If so, you pass this question with flying colors. - Have you developed a system that works?
Does your system have a positive expectancy? Have you back tested the system (I don’t hold too much weight to this question)? Do you understand position sizing and do you implement it properly so you don’t blow-up with one or two trades? - Does your system offer enough opportunity?
Without opportunity (multiple trading signals per day/ week), you will not be able to achieve your system’s expectancy. A lack of opportunity may skew your results and turn your anticipated positive expectancy to a negative expectancy and cause you to go broke. - Can you handle your emotions?
How do you handle your emotions now with longer term positions or part time trading? Do you follow your rules, all the time? Will you have pressure to make money every month, week or day? Can you handle being alone (most cases) and staring at a computer for large portions of the day? - Finally, do you have spouse or other influence that will interfere with your endeavor?
A spouse, friend or family (member) can have a negative affect on your trading that may result in subconscious sabotage. Outside negative forces or nagging pressure people may lead you down a path that is not controllable because you are trying to prove something rather than “just trade” based on your acquired skills. Make sure the closest people in your life support you while making the move to full time trading.
4 Valuable Trading Lessons
A). No matter how good you think you’re in the knowledge of the financial markets, your perception would change when your hard-earned money is at stake. No matter how much you’ve read about trading, you’ll realize that theory is different from practice when the market shows you its true color.
B). If you lose in the markets, don’t despair. It means you’re only paying tuition fees to the markets. Eventually, you’ll stop losing more than you gain and become a great trader and harvest profits from the markets on annual basis. It may take some time and perseverance to achieve this. Just make sure you learn from your mistakes and never repeat them.
C). The best strategies are trend-following strategies. One of the best trading methods is to buy pullbacks in an uptrend or sell rallies in a downtrend. Some indicators can be used to attain this aim (like moving averages). It pays to go with the overall trend. When a trend changes, it must be confirmed before one starts going with it.
D). It is very dangerous to trade without stop loss or to refuse to go out of the market that’s going against you. There are no other ways protect your account as a private trader. This is a way to deal with the permanent uncertainty in the markets. You mayn’t make profits sometimes, but you can make your losses to be as small as possible. By taking risk management serious, you’ll never lose a huge percentage of your portfolio. When you specialize on not losing, you’ll eventually make money and go ahead in the markets.
3 Biases That Affect Your Trading
1) Gambler’s fallacy bias
People tend to believe that after a string of losses, a win is going to come next. Take for example that you are playing a game of coin tossing with a capital of $1000. You lost 3 bets in a row on heads and cost you $100 each bet. What will you bet next and how much would you stake?
It is likely you will continue to bet on heads and with a higher stake, say $300. You do not ‘believe’ that it can be tails consistently. People fail to realize coin tossing is random and past results do not affect future outcomes.
Traders must treat each trade independently and not be affected by past results. It is important that your trading system tells you how much to stake your capital which is also known as position sizing, so that the risk-reward ratio will be optimal.
2) Limit profits and enlarge losses bias
People tend to limit their profits and give more room to losses. Nobody likes the feeling of losing. Most investors tend to hold on to losses and hope their investments will turn around soon, and they will be happy if their holdings break even. However, chances are that they will amount to greater losses. On the other hand, if they are winning, most investors tend to take profits early as they fear their profits will be wiped out soon. Thereafter, they regretted that they didn’t hold a little longer (sounds familiar?).
One of the most important principle in trading is contrary to what most investors do – Traders have to LIMIT LOSSES and let PROFITS RUN. Losses are part and parcel of trading and hence, it is crucial to protect the capital from depleting too much – live to fight another day is the mantra for all traders. Large profits are thus required to cover the small losses – so do not limit profit runs.
3) I am right bias
Humans are egoistic in nature and we want to prove that we are right. High accuracy is not important in trading but making more money when you are right is. Remember what George Soros said, “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”