Excerpt: “Hungarian by birth, Nicolas Darvas trained as an economist at the University of Budapest. Reluctant to remain in Hungary until either the Nazis or the Soviets took over, he fled at the age of 23 with a forged exit visa and fifty pounds sterling to stave off hunger in Istanbul, Turkey. During his off hours as a dancer, he read some 200 books on the market and the great speculators, spending as much as eight hours a day studying. Darvas invested his money into a couple of stocks that had been hitting their 52-week high. He was utterly surprised that the stocks continued to rise and subsequently sold them to make a large profit. His main source of stock selection was Barron’s Magazine. At the age of 39, after accumulating his fortune, Darvas documented his techniques in the book, How I Made 2,000,000 in the Stock Market. The book describes his unique “Box System”, which he used to buy and sell stocks. Darvas’ book remains a classic stock market text to this day.”
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Traders-Never Do These 5 Things
There are things that we do as traders that set us back in our journey to success and lose us money. There are other things that traders do that just destroy themselves. Many of the following things are done daily by the 90% of traders that lose money in the market consistently. If we want to be a longer term winner trading the markets we have to take these lessons to heart and over come our natural instincts by doing the opposite.
- Instead of cutting a loss the trader holds it stressing over it for the rest of the day or a week. This destroys the trader’s mental capital and inflicts completely unnecessary emotional pain. The first loss it the best loss.
- A trader that trades their opinion instead of the price action has a lower success rate than someone who just trades price action. The vast majority of traders make money by following trends and chart patterns not their own opinion.
- A trader who puts on the one big trade that they think they just can’t lose on is usually the one that blows up their account. A trader must always have stops and must always manage risk regardless of their belief in any one trade.
- Believing that you are right about a trade and the market is wrong is a sure path to destruction. The market is always right because price is reality. How do we know when we are wrong? We lose money that is proof enough.
- A trader who endlessly searches for stock picks and predictions instead of learning how to trade a robust method while managing their own mind and using risk management is doomed to failure.
The war against ‘insider trading 2.0’
In India u can fight for Poverty or can try to stop Corruption…….But u can’t stop INSIDER TRADING-It’s our Challenge
Insider trading is a fluid concept. Until 1980, the practice was not illegal in the UK. Prior to then, tipping off favoured clients about market-sensitive company information was a stockbroker’s job description, rather than an illegal activity. Times have changed and so has the pace of financial markets.
In 2009, Samantha Bee, one of the cast members on The Daily Show, the satirical US television programme, said that “if I know about a stock’s activity the day before, it’s called insider trading. But if I know about a stock’s activity one second before, it’s called high-frequency trading.”
Now, however, Eric Schneiderman, the New York attorney-general, is waging war on what he calls “insider trading 2.0”. He is taking aim at the precise time sensitive information is delivered electronically.
Mr Schneiderman’s office is currently investigating the market data industry. In July, under pressure from Mr Schneiderman, Thomson Reuters suspended its practice of releasing consumer survey data from the University of Michigan (UoM) two seconds earlier to high-frequency trading clients who paid an additional fee. Clients paying for Thomson Reuters’ financial information terminals will continue to receive the data five minutes ahead of the general public, who have to make do with a press release. (more…)
23 Trading Lessons
1. All successful traders use methods that suit their
personality; You are neither Waren Buffett nor George Soros nor Jesse Livermore; Don’t assume you can trade like them.
2. What the market does is beyond your control; Your reaction to the market, however, is not beyond your control. Indeed, its the ONLY thing you can control.
3. To be a winner, you have to be willing to
take a loss;
4. HOPE is not a word in the winning Trader’s vocabulary;
5. When you are on a
losing streak — and you will eventually find yourself on one — reduce your position size;
6. Don’t underestimate the time it
takes to succeed as a trader — it takes 10 years to become very good at anything;
7. Trading is a vocation — not a
hobby
8. Have a business/trading plan;
9. Identify your greatest weakness, Be honest — and DEAL with it (more…)
HOW TO LOSE MONEY IN THE STOCK MARKET
There are so many ways to lose money in the stock market but whether it is from blindly trusting what turns out to be a Bernie Madoff ponzi scheme to refusing to take a loss on a “sure thing”, the root cause of losses is our inability to objectively perceive market action without the many and varied biases associated with “money on the line”.
According to Mark Douglas…
In any particular trade you never really know how far prices will travel from any given point. If you never really know where the market may stop, it is very easy to believe there are no limits to how much you can make on any given trade. From a psychological perspective this characteristic will allow you to indulge yourself in the illusion that each trade has the potential of fulfilling your wildest dream of financial independence. Based on the consistency of market participants and their potential to act as a force great enough to move prices in your direction, the possibility of having your dreams fulfilled may not even remotely exist. However, if you believe it does, then you will have the tendency to gather only the kind of market information that will confirm and reinforce your belief, all the while denying vital information that may be telling you the best opportunity may be in the opposite direction.
There are several psychological factors that go into being able to assess accurately the market’s potential for movement in any given direction. One of them is releasing yourself from the notion that each trade has the potential to fulfill all your dreams. At the very least this illusion will be a major obstacle keeping you from learning how to perceive market action from an objective perspective. Otherwise, if you continually filter market information in such a way as to confirm this belief, learning to be objective won’t be a concern because you probably won’t have any money left to trade with (italics mine).
From Chapter Four of THE DISCIPLINED TRADER
Bottom line: successful trading is about making money…not about being right.
More Sellers than Buyers
“The real story of the rescue. Save the euro, must save the euro. All the world’s central banks rush to save a fiat currency. If the euro should collapse, it would demonstrate the inherent vulnerability of a leading fiat currency. The central banks and the IMF have put up nearly one trillion dollars to bail out Greece, but more important, to show the world that fiat currencies are “safe” and here to stay. Remember, the business and power of central banks lies in their fiat, non-intrinsic money – money they can create at will). To hell with Greece, the euro, therefore, at all costs, MUST be saved. In all my market years, I’ve never seen such consternation and disbelief in market action, and I’m referring to last week’s crash. Headlined the Los Angeles Times on Saturday, “Stocks’ Plunge a Troubling Mystery.” From the NY Times on Saturday, “Origin of Scare on Wall Street Eludes Officials.” Front page of Barron’s — “Don’t Let Europe’s Problems Fool You. The Bull Market Will Regain His Footing.” The Saturday Wall Street Journal even viewed the crash as a God-given opportunity with a big black-letter headline, “Playing the Market Plunge.” Wall Street and the public are so all-fired bullish that they are calling the crash a mistake, a computer error, or even the stock market losing its mind. Nobody, it appears, accepted the crash at face value. I find the cynical reaction to the crash rather ominous. I’d call it total disbelief in the market. Behind the disbelief are the unspoken words, “The economy is good, Corporate earnings are improving dramatically. Therefore, the stock market must be advancing. The crash was a terrible mistake. The stock market has lost its mind. Buy the mistake, it’s a great opportunity.” A radio station called me and asked what caused the crash. I answered, “Four words — More sellers than buyers.” The interviewer seemed stunned. He paused for about 10 seconds and asked, “You mean that’s it?” I answered, “Right, when sellers overwhelm buyers in a big way, guess what? The market goes down in a big
Trading Wisdom – Jesse Livermore
Many books have been written by and about Mr. Livermore. He was a fascinating individual who reportedly made $100 million in a single day in the 1929 crash.
Legend has it that during the crash J.P. Morgan personally walked over to the N.Y. Stock exchange to ask Jesse Livermore to stop selling and start buying in order to save the markets.
He was an expert at following the right trend, with the exception of marriage. His wife was married about four times prior to marrying him, and all four husbands killed themselves, as did Jesse eventually. Not quite marriage counselor material, he is nonetheless one of the greatest wells of trading wisdom from which I have quenched my thirst in the past.
I am a much better trader because of Jesse Livermore. Every time I get stuck in a trading rut, I review my notes on his trading philosophies, which I would like to share with you below. (more…)
Tops & Bottom
Trading vs investing
But let’s use a couple of examples:
– trading: I buy a basket of stocks this morning with the intention of reselling before the close
– investing: I build a portfolio of stocks with the intention to keep it a relatively long time, because I think that these stocks value will increase due to whatever reason, growth, value, the economy…
I also like the following classification, which I believe comes from Minsky:
– Profits on the position neither depend on price variation of the asset, nor on cost of carry: I am investing.
– Profits do not depend on price variation, but only on positive carry: I am trading.
– Profit depend on price variation of the asset: I am speculating.
The example and the definition are not equivalent, but they give a rough idea of what trading is and what investing is. The border between both activities can be blurry. But if you invest, you do not need a market. You can buy a bond with the intention of holding it to maturity. If you trade, you need a market to close the trades.
Herd Behavior in Financial Markets
Over the last twenty-five years, there has been a lot of interest in herd behavior in financial markets—that is, a trader’s decision to disregard her private information to follow the behavior of the crowd. A large theoretical literature has identified abstract mechanisms through which herding can arise, even in a world where people are fully rational. Until now, however, the empirical work on herding has been completely disconnected from this theoretical analysis; it simply looked for statistical evidence of trade clustering and, when that evidence was present, interpreted the clustering as herd behavior. However, since decision clustering may be the result of something other than herding—such as the common reaction to public announcements—the existing empirical literature cannot distinguish “spurious” herding from “true” herd behavior.
In this post, we describe a novel approach to measuring herding in financial markets, which we employed in a recently published paper. We develop a theoretical model of herd behavior that, in contrast to the existing theoretical literature, can be brought to the data, and we show how to estimate it using financial markets transaction data. The estimation strategy allows us to distinguish “real” herding from “spurious herding,” or the simple clustering of trading behavior. Our approach allows researchers to gauge the importance of herding in a financial market and to assess the inefficiency in the process of price discovery that herding causes.
The Model
Let’s give an overview of the model that we brought to the data and try to explain why herding would arise. In the model, an asset is traded over many days; at the beginning of each day, an event may occur that changes the fundamental value of the asset. If an event occurs, some traders (informed traders) receive (private) information on the new asset value; although this information may be imprecise, these traders do know that something occurred in the market to alter the value of the asset. The other traders in the market trade for reasons not related to information, such as liquidity or hedging motives. If no event occurs, all traders only trade for non-informational reasons. (more…)