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Justin Mamis – When To Sell

  
  Education
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when-to-sell
when-to-sell1

How Professionals Minimize Losses page 73-75:

Blaming ‚them’ is a psychologically and socially acceptable way to avoid blaming oneself. Yet professionals can, and do, make mistakes. When they buy a stock and it doesn’t go up (even if it doesn’t go down) that’s wrong enough for them, simply because it did not perform as expected. The pro reasons that the stock went against his judgement, so he sells it. And he doesn’t expect to be perfect, any more than a professional baseball player expects to bat 1.000. Knowing that losses are inevitable, he seeks to minimize them at all times. To be sure, his ability to take a small loss is enhanced by the benefit of not having to reckon with commission costs, but even so, if he were relatively incompetent he wouldn’t last long in the business; the loss might be less, or slower to pile up, but the return on invested capital would be dismal enough eventually to send him to another field.

Rule One of the professional trader is: When a stock doesn’t do what you expect it to do, sell it. (more…)

7 Things -Traders Must Accept

  
  Education
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  1. You will have to accept that over the long term at best only 60% of your trades will be winners. It will be much less with some strategies.
  2. Accept that the key to being a successful trader is having big wins and small losses, not big bets paying off. Big bets can lead quickly to you being out of the game after a string of losses.
  3. Accept that the best traders are also the best risk managers, even the best traders do not have crystal balls so they ALWAYS manage their capital at risk on EVERY trade.
  4. If you want to be a better trader then you need to accept that trading smaller and risking less is a key to your success. Risking 1% to 2% of your capital on any single trade is the first step to winning at trading. Use stops and position sizing to limit your losses and get out when your losses grow to these levels.
  5. You must accept that you will have 10 trading losses in a row a few times each year. The question is what your account will look like when they happen.
  6. You have to accept that you will be wrong, a lot.  The sooner you accept you are wrong and change your mind the better off you will be.
  7. If you really want to be a trader then you are going to have to accept the fact that trading is not easy money. It is a profession like any other and requires much work and effort and even years to become proficient. Expect to work for free and pay tuition to the markets through losses until you learn to trade consistently and profitably.

Trading is about math, ego control, risk management, psychology, focus, perseverance, passion, and dedication. If you are missing one, you may not make it. Trade wisely my friends.

Nicolas Darvas

  
  Education
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Great links with Nicolas Darvas interviews

“Since he has to do trading from wherever he is dancing he ignores tips, financial stories and brokers’ letters, and has never been in a broker’s office. Basically, his approach is that of a chartist: he watches price and volume … When a stock makes a good advance on strong volume, he begins watching it, buys when he feels that informed buyers are getting in. For example, when he was playing in Calcutta, he noticed E. L. Bruce moving up in the stock tables. Suddenly, on 35,000 shares it moved from 16 to 50. He bought in at 51, though he knew nothing about the company, and ‘I didn’t care what they made.’ (They make hardwood flooring.) He sold out at 171 six weeks later.

Darvas places his buy orders for levels that he considers breakout points on the upside. At the same time, he places a stop-loss sell order just below his buy order, so that if the stock does not move straight up after he buys, he will be sold out and his loss cut. ‘I have no ego in the stock market,’ he says. ‘If I make a mistake I admit it immediately and get out fast.’ Darvas thinks his system is the height of conservatism … If he has a big profit in a stock, he puts the stop-loss order just below the level at which a sliding stock should meet support. He bought Universal Controls at 18, sold it at 83 on the way down after it had hit 102.

Darvas trained for the market just as methodically as he had studied his dancing, read some 200 books on the market and the great speculators, spent eight hours a day until saturated. Two of the books he rereads almost every week: Humphrey Neill’s Tape Reading and Market Tactics and G. M. Loeb’s The Battle for Investment Survival. He still spends about two hours a day on his stock tables.”

That line, “[He] buys when he feels that informed buyers are getting in,” made me chuckle. It should read “He buys when he suspects that uninformed fools are piling in.”

An Interview With Nicolas Darvas in 1974:

Don’t forget I too went through a period of learning from 1953 to 1958 where I lost a substantial amount of capital before I worked out what worked and then was lucky enough to time it in the 1958-1960 bull market.”


1930-The Gartley Pattern -For Traders

  
  Education
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A leading technical analyst of the 1930s created a method for trading that is still applicable today. Learn how to trade market turning points based on Fibonacci retracements and market psychology with the Gartley Pattern.

Many traders ask how a trading method that is 77 years old is applicable today. When you combine timeless tools like Fibonacci Retracements with great risk: reward ratios, it’s easy to see why this method is so popular. If those aspects of a trading method appeal to you, it’s my pleasure to introduce you to the Gartley chart pattern.

What is the Gartley Pattern?

The Gartley pattern is a powerful and multi-rule based trade set-up that takes advantage of exhaustion in the market and provides great risk: reward ratios. The pattern is also known as the “Gartley 222” because the pattern originated from page 222 of H.M. Gartley’s book, Profits in the Stock Market that was published in 1935 and reportedly sold for $1,500 at the time.

The Gartley pattern is based on major turning points or fractals in the market. This pattern plays on trend reversal exhaustion and can be applied to the time frame of your choosing. The other key that makes this pattern unique are the crucial Fibonacci retracements that come together to fulfill the plan.

There is a bullish / long / buying pattern and an equally powerful bearish / short / selling pattern. Much like you would find with a head and shoulders pattern you buy or sell based on the fulfillment of the set up.

Buy & Sell Gartley Chart Pattern (more…)

Don't Try to Predict Your Own Behavior

  
Analysis, Education
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“It’s easy to see, hard to foresee.” ~ Ben Franklin

How often have you accurately predicted your reaction to emotion-provoking events in your life?

When the stock market gets volatile as it has been in recent weeks, I am reminded of the irrelevence of risk tolerance questionnaires.  If you’ve ever sat down with an investment advisor or financial planner, you’ve likely seen or heard the questions that try to predict how you might react in various stock market scenarios. 

For example: 

“If your investment portfolio were to fall by 20% in the course of one year, how would you react?  Would you A) Do nothing, B) Wait a few months to make a decision, or C) Sell your stocks immediately?” (more…)

3 Invaluable Quotes from Reminiscences of a Stock Operator

  
  Education
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“A man must believe in himself and his judgment if he expects to make a living at this game. That is why I don’t believe in tips. If I buy stocks on Smith’s tip, I must sell those same stocks on Smith’s tip.” 
 

“The recognition of our own mistakes should not benefit us any more than the study of our successes. But there is a natural tendency in all men to avoid punishment. When you associate certain mistakes with a licking, you do not hanker for a second dose, and, of course, all stock-market mistakes wound you in two tender spots – your pocketbook and your vanity.”

…“One of the most helpful things that anybody can learn is to give up trying to catch the last eighth or the first. These two are the most expensive eighths in the world. They have cost stock traders, in the aggregate, enough millions of dollars to build a concrete highway across the continent.”

9 Rules For Risk Management

  
  Education
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Rule No. 1- Do not venture in markets and products you do not understand. You will be a sitting duck.

Rule No. 2- The large hit you will take next will not resemble the one you took last. Do not listen to the consensus as to where the risks are (that is, risks shown by VAR). What will hurt you is what you expect the least.

Rule No. 3- Believe half of what you read, none of what you hear. Never study a theory before doing your own observation and thinking. Read every piece of theoretical research you can-but stay a trader. An unguarded study of lower quantitative methods will rob you of your insight.

Rule No. 4- Beware of the nonmarket-making traders who make a steady income-they tend to blow up. Traders with frequent losses might hurt you, but they are not likely to blow you up. Long volatility traders lose money most days of the week.

Rule No. 5- The markets will follow the path to hurt the highest number of hedgers. The best hedges are those you alone put on. (more…)

Managing the Mind to Stay in the Game

  
  Education
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  • “The creation of bad trades is easy:  trade your opinion, trade big, don’t cut your losses, just hold on and hope.  Bad trades fight trends; they put out a lot money with the risk of making little.  The entry and exit signals for bad trades are hope and fear, with the ego stepping in and refusing to honor the stop loss.”
  • “Dramatic and emotional trading experiences tend to be negative; pride is a great banana peel, as are hope, fear, and greed.  My biggest slipups occurred shortly after I got emotionally involved with positions.”  -Ed Seykota
  • A good trade is taken with complete confidence and follows your trading method; a bad trade is taken on an opinion.
  • A good trade is taken with a disciplined entry and position size; a bad trade is taken to win back losses the market owes you.
  • “Ninety-five percent of the trading errors you are likely to make–causing the money to just evaporate before you eyes–will stem from you attitudes about being wrong, losing money, missing out, and leaving money on the table.”  -Mark Douglas
    • A loss is not when I lose money; it’s when I don’t follow my plan
    • Turn down the heat when you are getting smoked (pare back position size, trade smaller in a drawdown)
  • A good trade is taken when your entry parameters line up; a bad trade is taken out of fear of missing a move
  • A good trade is taken to be profitable in the context of your trading plan; a bad trade is taken out of greed to make a lot of money quickly.
  • A good trade is taken according to your trading plan; a bad trade is taken to inflate the ego.
  • A good trade is taken without regret or internal conflict; a bad trade is taken when a trader is double-minded.
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