"I can only trade in accordance with the experience of many years" – Reminiscences of a Stock Operator
Archives of “stock market” tag
rssBelieve in Yourself and Your Judgement (Chapter III -Reminiscences of a Stock Operator )
Livingstone lets us look over his views on the type of determination needed to win at this game.
“A man must believe in himself and his judgment if he is to make a living at this game.”
He gives a few great examples of the hard lessons he learned by going with someone else’s opinion or trading advice. Your own opinion based on your own research, by trying it with money, is the only way to have the confidence to go against everyone else’s advice at the correct time.
He walks us through his learning phases, with the benefit of hindsight added like a mystery story, edging the reader to uncover the source of the self-admitted blind-spot in his trading. What general principal was he ignoring that could be so surely fatal?
“I was dead right and – I lost every cent I had!” (more…)
Emotional Resilience & Creativity -Qualities of Successful Traders
Emotional Resilience – The very successful traders have a great attitude about losing. They know it’s going to happen. They don’t take it personally. If anything, they try to find learning experiences from losses. Elsewhere I have written about how good traders view a losing trade as “paying for information”. A trade with an edge that doesn’t go their way either tells them something important about the market, or it tells them something about their execution. Either way, it’s a potential learning experience. Resilience means that the excellent traders trade well out of a hole. They can be down money for day, week, or quarter and continue to make the same good trades they would normally make.
Creativity – We normally think of creativity as a trait that belongs to artists, but it also is quite noticeable among traders who have been successful over many years. They find edges in the most unlikely places. They look at interesting relationships within the market they’re trading, and they find unique relationships from one market to another. One trader very recently told me of a strategy that exploited the way one market was priced related to a similar market at certain time periods. I would have never thought of that idea in a million years. He was making consistent money from the concept.
20 Principles That Make Market Wizards Successful
- They have the resilience to come back from early losses and account blow ups.
- They focus on what really matters in trading success.
- They have developed a trading method that fits their own personality.
- They trade with an edge.
- The harder they work at trading the luckier they get.
- They do the homework to develop a methodology through researching ideas.
- The principles they use in their trading models are simple.
- They have mental and emotional control is key while winning or losing.
- They manage the risk to avoid failure and pain.
- They have the discipline to follow their trading plan.
- Market wizards have confidence and independence in themselves as traders
- They are patient with winning trades and impatient with losing trades.
- Emotions are dangerous masters to the trader; they know how to manage their own emotions.
- Market wizards evolve as a trader to avoid eventually failing in a method that has lost its edge over time.
- It is not the news but how the market reacts to that news is what they watch for.
- The fully understand the right way to position size for their goals of returns and drawdowns based on their risk/reward and winning percentage.
- Market wizards understand comfortable trades are usually losing trades while the more uncomfortable trades are usually the winners.
- They are good losers. Cutting losses when proven wrong and even reversing the direction of their trades when the price action dictates it.
- The best traders are always learning through their own mistakes.
- Passion for trading was the fuel for their eventual success.
Trading Wisdom
What I say to the youngling… “It is one of the great paradoxes of the stock market that what seems too high usually goes higher and what seems too low usually goes lower.” – William O’Neil “When asked if there was a technique for making money on the stock exchange, Nathan Rothschild said, “There certainly is. I never buy at the bottom and I always sell too soon.” – William O’Neil “Only a fool holds out for the top dollars,” said Joe Kennedy, one-time wall street speculator and the father of former President John F. Kennedy. The object is to get out while a stock is up, before it has a chance to break. Gerald M. Loeb states, ” Once the price has risen into estimated normal or overvaluation areas, the amount held should be reduced steadily as quotation advance.” (At this point it’s all right to ask yourself, “Why didn’t I sell when it was going up and looked so strong?”)” — William O’Neil “Another thing to bear in mind is this: Never try to sell at the top. It isn’t wise. Sell after a reaction if there is no rally.” – Jesse Livermore |
Goodfellas and trading
Karen Hill: “God forbid, what would happen if you had to go to prison? Mickey said that Jeannie’s husband…”
Henry Hill: “Do you know why Jeannie’s husband went to the can? Because he wanted to get away from her.
Let me tell you something. Nobody goes to jail unless they want to. Unless they make themselves get caught. They don’t have things organized.”
Karen Hill: “God forbid, what would happen if you had to go to prison? Mickey said that Jeannie’s husband…”This conversation from the Goodfellas film reminds me of Ed Seykota’s famous saying, that ‘Win or lose, everybody gets what they want out of the stock market. Some people seem to like to lose, so they win by losing money’. I don’t believe in the literal interpretation of Seykota’s comment but I find the quote serves as a reminder to question the motives behind my trades.
The Way of The Turtle -17 Quotes
I like to collect quotes from books I read, and here you have some good quotes from the book:
- …we were taught how to think in terms of the long run whan trading and we were given a system with an edge. (page 34)
- The Turtle Way views losses in the same manner: they are the cost of doing business rather than an indication of a trading error or a bad decision. ……In fact, we were taught that periods of losses usually precede periods of good trading (page 37)
- The secret of trading and of the Turtles’ success is that you can trade successfully by using ideas and concepts that are well known and have been around for years. But you have to follow those rules consistently (page 39)
- Over the years I kept finding evidence that emotional and psychological strength are the most important ingredients in successful trading. This was my first exposure to that idea and the first time I had seen it in action (page 44).
- Good trading is not about being right, it’s about trading right. If you want to be successful, you need to think of the long run and ignore the outcomes of individual trades (page 44).
- ….It takes a lot of time and study before one realizes just how simple trading is, but it takes many years of failure before most traders come to grips with how hard it can be to keep things simple and not lose sight of the basics (page 115).
- Keep it simple. Simple time tested methods that are well executed will beat fancy complicated methods every time (page 131).
- In a similar manner, simple rules make systems more robust because those rules work in a greater variety of circumstances (page 212).
- People have a tendency to believe that complicated ideas are better than simple ones….Some of us thought that trading successfully couldn’t possibly be that simple; that there must be something else to it (page 224).
- The primary goal of trading should be to stay in the game (page 116).
- Luck or random effects play a large role in the performance of actual traders and actual funds even though the best traders do not like to admit that to their investors (page 159).
- They often do not realize how markets go through phases and change over time, often returning to conditions that previously existed….In trading as in life, the young often fail to see the value in studying the history that occurred before they existed (page 193).
- The reality is that you don’t know and can’t predict how a system will perform. The best you can do is use tools that provide a sense of the range of potential values and the factors that affect those values (page 196).
- There are many successful discretionary traders, but there are far more unsuccessful ones. The biggest reason for this is that the ego is not your friend as a trader. The ego wants to be right, it wants to predict, and it wants to know secrets. The ego makes it much more difficult to trade well by avoiding the cognitive biases that hinder profits (page 224).
- One of the ways in which good traders differ from those who are less successful is that they are not afraid to be different (page 235).
- Nothing ventured, nothing gained. Risk is your friend (page 236).
- Most successful traders use a mechanical trading system…..It makes it easier for a trader to trade consistently because there is a set of rules that specifically define exactly what should be done (page 245).
Nassim Taleb’s Risk Management Rules of Thumb
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. (more…)
Trading Rules to become Great Trader
Time for another list of Trading Rules . Make it a habit to reread these trading rules every now and then.
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. (more…)
These Behaviors Guarantee losses
- Lack of discipline: It takes an accumulation of knowledge and sharp focus to trade successfully. Many would rather listen to the advice of others. They just want to believe, like Fox Mulder.
- Impatience: Some have an insatiable need for action. The day trading adrenaline rush and the gamblers high can have heroin-like addiction pull.
- No objectivity: Some are unable to disengage emotionally from the market. They create a virtual lifelong marriage to their trades. Divorce is not an option.
- Greed: A desire for quick profit blinds many from the diligent work needed to actually win in the long run.
- Refusal to accept truth: Some do not want to believe that the only knowable truth is price action. They feel more secure following cult leaders serving Kool-Aid.
- Impulsive behavior: Many jump into investments based on the morning paper or Good Morning America. Thinking that if you act quickly, somehow you will beat everybody else in the great race is a recipe for a messy failure.
- Inability to stay in the moment of now: To be a successful trader, you cannot spend your time thinking about how you are going to spend your profits. Trading because you have to have money is not workable.
- Stay open-minded: Come into the day knowing your future steps. Do not be stubborn when the market does not go your way. Cut your losses and follow your stinking trading plan.