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7 Things Every Trader must have

1) Strategy – There are so many different strategies: value, growth, momentum, short selling, etc. Find one that fits your personality and do your best to master it. The fastest way to learn is to study success. In other words, find someone who is successful at the strategy you like, and then mimic them with your own style. Another key is to recognize when the market environment is not conducive to your strategy, and make the proper adjustments.

2) Confidence – If you don’t have confidence, you have very little chance of succeeding. This doesn’t just apply to trading, it applies to EVERYTHING in life (business, athletics, relationships, etc.). With regards to trading, you have to believe in what you are doing and not be afraid to make mistakes. The key is to learn from them, make adjustments, and constantly reevaluate your progress.

3) Product Focus – There are so many different trading vehicles: futures, commodities, currencies, stocks, bonds, options, etc. It’s ok to dabble in a few things at first, but eventually you need to find out what product works best for you, focus on it, and MASTER it. As they say, don’t be a “jack of all trades and master of none.”

4) Know Your Time Frame – You must find a time frame that fits your personality. If you are too nervous, maybe short-term trading isn’t for you. Everyone wants to make tons of money in the market really fast, but keep in mind that is not a healthy approach. Most people with this mindset tend to be “boom and bust” traders. They make a bunch of money and eventually blow up. If you are truly passionate about trading and hope to be in the game for a long time, I recommend focusing on a slow and steady approach. (more…)

A Venerable Technique

JL-ASROne of intelligent honest things that Livermore did was to get out of one market by selling a related market, inducing the other traders to think that there was weakness in one market which would carry over to the related market. The art of indirection and letting people use their own intelligence and inferences to come to their own conclusion. for example if he wanted to get out of cotton, he’d sell some coffee. If he wanted to get out of a common, he’s sell the preferred or a related company that owned a big chunk of it, like sell Christiana which owned general motors et al. This technique one wonders how often is it used today. When it happens, is it artful indirection or chance? How to quantify and what predictions to be made? Would the robots be smart enough to do this?

There was a moment in late 80s Energy trading, when legend has it that a great admirer of Livermore who runs a venerable hedge fund near New York was Bearish to the tune of 40,000 lots. If you think it’s not much, just remember that Exchange limit for open speculative position in any contract was 6,000. Of course, his positions were in all possible inter-month spreads and across products. So once decision to cover was made, he picked up the phone and asked for the cockiest trader in the Crude pit. “Are you a man or mouse?” Trader thought it was a prank: “Come on Paul, what do you want?” “I’ll give an order to sell 1,000 market, and I mean worst. But if I don’t see Crude print through even– they’re all yours! Do you accept?” 

20 One Liners From :The Little Book of Market Wizards by Jack Schwager

  1. They have the resilience to come back from early losses and account blow ups.The_Little_Book_of_Market_Wizards_large
  2. They focus on what really matters in trading success.
  3. They have developed a trading method that fits their own personality.
  4. They trade with an edge.
  5. The harder they work at trading the luckier they get.
  6. They do the homework to develop a methodology through researching ideas.
  7. The principles they use in their trading models are simple.
  8. They have mental and emotional control is key while winning or losing.
  9. They manage the risk to avoid failure and pain.
  10. They have the discipline to follow their trading plan. (more…)

10 Things that Great Traders have Declared Independence From –

 

  1. Great traders do not have to be right about any one trade, their success is based on winning more than they lose on a large amount of trades.
  2. Great traders do not need trade ideas from other traders, they trade a system and method independent of others opinions.
  3. The best traders are independent of holding on to losing trades stubbornly trying to prove they are right, they cut losses.
  4. The best traders are not prisoners of their emotions they can make clear headed decisions due to trading like it is a business not an ego trip.
  5. Rich traders became rich because they had systems that allowed winning trades to be free to run as far as they would go. They are independent of price targets.
  6. Rich traders trade independently from BLUE CHANNEL sentiment.
  7. Great traders trade charts independently of market sentiment.
  8. Great traders trade independently of talking heads on financial television.
  9. Winning traders are independent of market gurus they have proven systems and methods.
  10. Great traders are free from the risk of ruin because they never risk more than 1% to 2% of their total capital on any one trade.

Why Traders Keep Losing Money

“Imagine a mutual fund run by several money managers. Some of these managers are relatively astute and quite attentive to market data and patterns. Others tend to take their eye off the market ball and consistently lose money. The overall performance of the fund, averaging the returns of these managers, is mediocre, as the losses of the poorly performing managers cancel out the gains of the astute ones.
 
What would you do if you were the chief executive officer (CEO) of this fund?
 
Easy, you say. You would identify the successful managers and place all the money in their hands. You would either fire the unsuccessful ones or ensure that they couldn’t make final decisions about the investment of funds.
 
Now imagine that, within yourself, there are actually several different traders, each of whom takes control of your account for a period of time each day. One or two of these traders are relatively astute; others are downright destructive. Your overall performance suffers as a result. As Chief Executive Observer of your own account, what should you do?
 
…If you harbor multiple traders within you—some careful, some impulsive, some successful, some losing—your first task is to avoid labeling these traders and instead take an Observing stance. You need to figure out why these lousy traders within you are trading! They evidently are not trading simply for the monetary reward; if that were the case, they would never overrule the successful traders within you. The chances are good that they are trading to achieve something other than a good return on equity: a sense of excitement, a feeling of self-esteem, or an imposed self-image.
 
You do not fail at trading because you are masochistic or because you love failure or feel you deserve defeat. Rather, you sabotage your trading because you have different facets to your personality, each with its own needs, each clamoring for access to the trading account. Your trading suffers because you are not always trading with the equity stake firmly in mind. In a strange way, a losing trade can be a success to that part of you that is, for example, looking for excitement—not profits—from the markets.”

11 Points For Traders

  1. At the very top tier, the investors he’s interviewed don’t want to manage clients’ money and deal with client predilections, dramas and desires.  They have clients only until they can afford not to.
  2. The best traders are focused on varying bet sizes based on their calculations and the individual equities’ probability of success.  They bet more on positions that have a strong wind at their backs.
  3. If there is bad news or adverse results with respect to their equity and if the market shakes it off and barely moves down, these managers will add to their positions because they know that the market is telling them something valuable.
  4. In the long run, it’s not the genius of investment ideas that produce consistent profits.  Trade implementation and execution is more important and will usually trump big ideas.
  5. All your trades fall into one of 4 baskets.  Keep track and make the necessary adjustments.  (a) Winning trades where you properly followed your disciplines – the best choice.  (b) Winning trades where you did not follow your disciplines.   (c) Losing trades where you followed your disciplines – okay.  (d) Losing trades where you did not follow your disciplines.

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Thirty Trading Rules for Traders

1. Buying a weak stock is like betting on a slow horse. It is retarded.
2.
Stocks are only cheap if they are going higher after you buy them.
3.
Never trust a person more than the market. People lie, the market does not.
4.
Controlling losers is a must; let your winners run out of control.
5.
Simplicity in trading demonstrates wisdom. Complexity is the sign of inexperience.
6.
Have loyalty to your family, your dog, your team. Have no loyalty to your stocks.
7.
Emotional traders want to give the disciplined their money.
8.
Trends have counter trends to shake the weak hands out of the market.
9.
The market is usually efficient and can not be beat. Exploit inefficiencies.
10.
To beat the market, you must have an edge.
11.
Being wrong is a necessary part of trading profitably. Admit when you are wrong.
12.
If you do what everyone is doing you will be average, so goes the definition.
13.
Information is only valuable if no one knows about it.
14.
Lower your risk till you sleep like a baby.
15.
There is always a reason why stocks go up or down, we usually only learn the reason when it is too late.
16.
Trades that make a lot of intellectual sense are likely to be losers.
17.
You do not have to be right more than you are wrong to make money in the market.
18.
Don’t worry about the trades that you miss, there will always be another.
19.
Fear is more powerful than greed and so down trends are sharper than up trends.
20.
Analyze the people, not the stock.
21.
Trading is a dictators game; you can not trade by committee.
22.
The best traders are the ones who do not care about the money.
23.
Do not think you are smarter than the market, you are not.
24.
For most traders, profits are short term loans from the market.
25.
The stock market can not be predicted, we can only play the probabilities.
26.
The farther price is from a linear trend, the more likely it is to correct.
27
. Learn from your losses, you paid for them.
28.
The market is cruel, it gives the test first and the lesson afterward.
29.
Trading is simple but it is not easy.
30.
The easiest time to make money is when there is a trend.

Jesse Livermore: Original Trend Follower and Great Trader

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The unofficial biography of Jesse Livermore was Reminiscences of a Stock Operator published 1923. Below are selected quotes:

  • Another lesson I learned early is that 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.
  • I told you I had ten thousand dollars when I was twenty, and my margin on that Sugar deal was over ten thousand. But I didn’t always win. 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. In fact, I have always made money when I was sure I was right before I began. What beat me was not having brains enough to stick to my own game- that is, to play the market only when I was satisfied that precedents favored my play. There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, 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.
  • It takes a man a long time to learn all the lessons of 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.
  • There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order not to lose money, you begin to learn what to do in order to win. Did you get that? You begin to learn!
  • 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.
  • The reason is that 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, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight. Old Turkey was dead right in doing and saying what he did. He had not only the courage of his convictions but the intelligent patience to sit tight.
  • ?the average man doesn’t wish to be told that it is a bull or bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think. It is too much bother to have to count the money that he picks up from the ground.
  • To tell you about the first of my million dollar mistakes I shall have to go back to this time when I first became a millionaire, right after the big break of October, 1907. As far as my trading went, having a million merely meant more reserves. Money does not give a trader more comfort, because, rich or poor, he can make mistakes and it is never comfortable to be wrong. And when a millionaire is right his money is merely one of his several servants. Losing money is the least of my troubles. A loss never bothers me after I take it. I forget it overnight. But being wrong- not taking the loss- that is what does damage to the pocketbook and to the soul.
  • What I have told you gives you the essence of my trading system as based on studying the tape. I merely learn the way prices are most probably going to move. I check up my own trading by additional tests, to determine the psychological moment. I do that by watching the way the price acts after I begin.
  • Of all speculative blunders there are few worse than trying to average a losing game. My cotton deal proved it to the hilt a little later. Always sell what shows you a loss and keep what shows you a profit. That was so obviously the wise thing to do and was so well known to me that even now I marvel at myself for doing the reverse.
  • The loss of the money didn’t bother me. Whenever I have lost money in the stock market I have always considered that I have learned something; that if I have lost money I have gained experience, so that the money really went for a tuition fee. A man has to have experience and he has to pay for it.
  • In booms, which is when the public is in the market in the greatest numbers, there is never any need of subtlety, so there is no sense of wasting time discussing either manipulation or speculation during such times; it would be like trying to find the difference in raindrops that are falling synchronously on the same roof across the street. The sucker has always tried to get something for nothing, and the appeal in all booms is always frankly to the gambling instinct aroused by cupidity and spurred by a pervasive prosperity. People who look for easy money invariably pay for the privelege of proving conclusively that it cannot be found on this sordid earth. At first, when I listened to the accounts of old-time deals and devices I used to think that people were more gullible in the 1860’s and 70’s than in the 1900’s. But I was sure to read in the newspapers that very day or the next something about the latest Ponzi or the bust-up of some bucketing broker and about the millions of sucker money gone to join the silent majority of vanished savings.
  • There are men whose gait is far quicker than the mob’s. They are bound to lead- no matter how much the mob changes.

5 Steps To Becoming a Long-Term Success in Trading

1. Make Rational, Not Emotional, Decisions — Do you have a plan to enter and exit your trades? Or do you just wing it? If you have a plan, write down your rules, and make sure that you trade your plan. If you don’t, or can’t, follow your rules, hire someone who can.
2. Respect Risk — Stock Market  is not going anywhere. If you risk too much, your emotions will take over, and you will likely go broke. Always know where you are going to exit before you enter and how much you are going to risk if wrong.,
3. Don’t Judge Your Success One Trade at a Time — Losing money is part of trading. It happens to everyone. Once you learn to expect that will happen, you can plan for it and get past normal pitfalls, such as giving up on your system after a few losing trades.
4. Think like a winner — Remember that winning starts within. How you think is everything.,
5. Ask For Help — Making money on Wall Street is simple, but it is definitely not easy. Don’t let your ego get in your way of making money. Most people have a hard time asking for help. That’s just one reason why most people lose money on Stock Market . You don’t have to go it alone. Find someone you trust and are comfortable with, and don’t be afraid to ask for help.

19 Great Quotes From – “Hedge Fund Market Wizards”

1. As long as no one cares about it, there is no trend. Would you be short Nasdaq in 1999? You can’t be short just because you think fundamentally something is overpriced.

2. All markets look liquid during the bubble (massive uptrend), but it’s the liquidity after the bubble ends that matters.

3. Markets tend to overdiscount the uncertainty related to identified risks. Conversely, markets tend to underdiscount risks that have not yet been expressly identified. Whenever the market is pointing at something and saying this is a risk to be concerned about, in my experience, most of the time, the risk ends up being not as bad as the market anticipated.

4. The low-quality names tend to outperform early in the cycle, and the high-quality names tend to outperform toward the end of the cycle.

5. Traders focus almost entirely on where to enter a trade. In reality, the entry size is often more important than the entry price because if the size is too large, a trader will be more likely to exit a good trade on a meaningless adverse price move. The larger the position, the greater the danger that trading decisions will be driven by fear rather than by judgment and experience.

6. Virtually all traders experience periods when they are out of sync with the markets. When you are in a losing streak, you can’t turn the situation around by trying harder. When trading is going badly, Clark’s advice is to get out of everything and take a holiday. Liquidating positions will allow you to regain objectivity.

7. Staring at the screen all day is counterproductive. He believes that watching every tick will lead to both selling good positions prematurely and overtrading. He advises traders to find something else (preferably productive) to occupy part of their time to avoid the pitfalls of watching the market too closely.

8. When markets are trending up strongly, and there is bad news, the bad news counts for nothing. But if there is a break that reminds people what it is like to lose money in equities, then suddenly the buying is not mindless anymore. People start looking at the fundamentals, and in this case I knew the fundamentals were very ugly indeed.

9. Buying low-beta stocks is a common mistake investors make. Why would you ever want to own boring stocks? If the market goes down 40 percent for macro reasons, they’ll go down 20 percent. Wouldn’t you just rather own cash? And if the market goes up 50 percent, the boring stocks will go up only 10 percent. You have negatively asymmetric returns.

10. If a stock is extremely oversold—say, the RSI is at a three-year low—it will get me to take a closer look at it.8 Normally, if a stock is that brutalized, it means that whatever is killing it is probably already in the price. RSI doesn’t work as an overbought indicator because stocks can remain overbought for a very long time. But a stock being extremely oversold is usually an acute phenomenon that lasts for only a few weeks. (more…)

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