- If a trader is motivated by the money, then it is the wrong reason. A truly successful trader has got to be involved and into the trading, the money is the side issue… The principal motivation is not the trappings of success. It’s usually the by-product – simply stated ‘the game’s the thing’.
- Most of the top traders have a child-like fascination with the game. Whether it’s the psychological elements of the game, the technical elements of the game, whether it’s the nameless, faceless aspect of a market, or them as single individuals against the market, or beating their brains against everyone else’s.
- There’s a kind of almost insane focus you must have to achieve trading excellence… I think people in our own industry do not understand the importance of this type of focus. You will always get people who will look at a trader and think, “God, he’s up at 5.30am every morning, always working at the weekends. He has no life. I’m outta here. I’m taking my vacation. I’m going to Switzerland for three weeks.” Now I am not saying people should not take vacations, but the thing is, the very best traders don’t take a lot of time off. They don’t want to.
- The price of phenomenal success is not one many are prepared to pay. For others, a lack of talent means they do not have the currency with which to pay the price in any event. For those with insane focus, there is virtually no price to pay – they love what they are doing.
Archives of “stock market” tag
rssTrading 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 A Trading Psychology Lesson :Know Who You Are
A good analyst is someone who can figure out that markets are going from Point A to Point B;
A good trader is someone who can navigate the path from Point A to Point B;
A good investor is someone who can weather the path from Point A to Point B;
Good analysts often are not good traders.
Good traders often are not good investors.
Good investors often are not good traders.
Good traders and investors often need to hire good analysts.
So much of success boils down to knowing who you are and accepting that.
Why Traders Have Problems
Today I read another article that went along these lines- here are some excerpts:
On why traders have problems:
No, it is not your fear of losing, it isn’t your inability to read the market correctly, nor is it your lack of charting knowledge that causes your trading difficulties.
In a nutshell: The number one reason for all your problems revolves around the fact that you have reality back to front.”
The author then goes on to explain what they mean – that our mind is focused on the wrong things- that we are weighed down by preconditioning.
The presented solution:
“First of all you must let go of the idea that you need to fix your trading. No, you don’t need to fix your trading, in fact, you don’t really need to fix anything. How can you? You are looking at old stuff that was created yesterday. However, you do need to fix the way you look at your life in general. This requires that you learn a thing or two about how you generate reality, learn a few basic things about quantum physics and understand how this applies to your trading and indeed to your life.
Your refusal to do this and instead carry on with the same old tried and tested paradigms, expecting different results in your trading account, is akin to placing a plaster on a festering wound.”
12 Market Wisdoms from Gerald Loeb
It is funny how the best traders of all times basically repeat the same things with different words.
Gerald Loeb is the author of ‘The Battle for Investment Survival’ and is one of the most quotable men on Wall Street. Here are 12 of the smartest things he has ever said about the stock market:
1. The single most important 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…)
Conventional Wisdom
Conventional wisdom is defined as: the generally accepted belief, opinion, judgment, or prediction about a particular matter.
Conventional wisdom is almost universally agreed upon by everyone that it rarely gets questioned, even if sometimes the belief isn’t really true.
The conventional wisdom with regards to investing is to buy and hold great companies for long periods of time so that your portfolio compounds with capital appreciation and dividend re-investment. This approach has strong validity and is best exemplified by Warren Buffett. He has the long term returns to prove it.
But it may not be for everybody, or else everyone would have invested like Warren Buffett. Very few have the right skill set to buy-and-hold and be successful like Buffett, or be successful for decades.
In short term trading, the conventional wisdom is enter stocks at pivot points, trade small and cut your losses and let your gains run, and use risk and money management. Very few can succeed with the short term trading approach, due to lack of skillset or lack of discipline. Also, in the short term, the market fluctuates too much so that stoplosses get frequently hit. Even if successful, it is doubtful many can beat the returns of buy-and-hold investors in the long run.
Another conventional wisdom is that in order to get bigger returns, one has to dramatically increase risk. Like getting into leverage instruments such as options, futures and penny stocks. Very few can succeed long term via this route, mainly due to the extreme risk factor.
One can go through a lifetime or even several lifetimes and still cannot get through the stock market dilemma and confusion. For many people, only through a paradigm shift in thinking and approach can they increase their chances of market success.
A paradigm shift is a change in accepted theories, opinions or approaches, a step above and beyond, and is almost always better than the conventional wisdom. That’s why it’s called a paradigm shift.
The question is:
The question is:
Is there such a paradigm-shifting stock market approach out there?
The Essence of Success
Charles Dow used to counsel that no individual should ever be promoted if they hadn’t made a large error at some point. Phil Fisher used to insist only in investing in those stocks that had management teams willing to make big mistakes. If they didn’t make mistakes, they wouldn’t also take the risks required for success. Is this the essence of success? How does a corporate management team, upon the fruition of such errors, survive being “stopped out” of their positions in today’s hair twitch paradigm? Is being expropriated from your career rather than your capital not the bigger risk today? And thus can it only be stocks with founder, family or veto shareholdings that make for truly great growth stocks today? Should not Tim Cook undertake an LBO with the Qataris?
10 Types of Trading Animals:Which Are You?
The Bear- This trading animal believes the market will be going down and plays the short side. Bears think that a market is going to be very red.
The Bull- This trading animal is very optimistic that the market will be green. Bulls love to buy and believe their screen will be full of green.
The Whale- This trading animal can move prices when it buys and sells. The whale has to faze into positions and out of them so it does not make big enough waves to attract piggy backers. A lot of money can be made trading along side the right whale.
The Pig- This trading animal likes to trade big and often. The problem is that the pig does not know how to exit a winning trade he usually has too big of a target, too big of a position size, and too big of a time frame.
The Shark- This trading animal is just about making money, it gets into trades, makes money and gets out. It has little interest in big complicated theories or esoteric methods. The shark keeps it simple it makes money then moves on to the next opportunity. (more…)
10 Tips For Managing Trader Stress
Traders should never underestimate the role that stress plays in their trading. Many more will succeed or fail based on their ability to handle stress than will have their winning and losing determined by a robust method, mentor, or risk management. It is even possible for a trader to win consistently and still not be able to win in the long term due to the fact that they can not get comfortable being uncomfortable with capital on the line with an unknown outcome. Others will simply burn themselves out stressing excessively while losing and also stressing when they win scared they will give back their profits. If you are going to be a successful trader you will need to manage the weakest link in any trading system: the trader. Stress management is the traders weakest spot. You have to be able to handle the heat of trading so you don’t melt.
Here are the ten ways to manage your stress in trading:
1). When you get over excited calm down by concentrating on your breath.
2). Never trade so big that one trade will make or break your account, trading career, or lifestyle.
3). Only trade systems and methods that you fully understand and have faith in for profitable in the long term.
4). Visualize yourself being a success as a trader.
5). Slow down your trading to a pace that does not rattle your nerves.
6). Connect with like minded traders that understand your battles and goals.
7). Study and do so much homework about trading that you begin to have unshakable confidence in yourself.
8). Stop doing what does not work in your trading and start doing more of what does work for you and makes you money.
9). Do not let others shake your confidence, do not accept any unsolicited advice from anyone, stick to your game plan.
10). Accept your losses quickly when stops are hit to avoid emotional damage and stress from big losses.
Do everything you can to prevent the damaging effects of stress on your trading and life. (more…)
7 Points for Traders
- You don’t choose the stock market; it chooses you. A little bit of early trading success can have a profound effect on a person’s soul. If it does choose you, you’ll have to accept that your life and investing will become forever connected.
- Your methodology must provide an unshakeable foundation that you believe in totally, and you must have the conviction to trade based upon it. If your belief is tentative or if you don’t have complete faith in your methodology, then a few bad trades will destabilize and erode your confidence.
- A calm mindset that can focus on the execution and not on the outcome is what produces profits. It takes total emotional control. You must maintain your balance, rhythm and patience. You need all three to stay in the game.
- The markets are always conniving with ingenious techniques to get you to lose your patience, to get you frustrated or mad, to bait you to do the wrong thing when you know you shouldn’t. A champion doesn’t allow the markets to get under his skin and take him out of his game.
- Like a great painting, all good trades start with a blank canvas. Winning traders first paint the trade in their mind’s eye so that their emotional selves can reproduce it accurately with clarity and consistency, void of emotions as they play it out in the markets. (more…)