“Few human activities have been exhaustively studied during the past fifty years, from so many angles and by so many different sorts of people, as has the buying and selling of corporate securities. The rewards which the stock market holds out to those who read it right are enormous; the penalties it exacts from careless, dozing, or “unlucky” investors are calamitous-no wonder it has attracted some of the world’s most astute accountants, analysts, and researchers, along with a motley crew of eccentrics, mystics and “hunch players,” and a multitude of just ordinary hopeful citizens. Able brains have sought, and continue constantly to seek, for safe and sure methods of appraising the state and trend of the market, of discovering the right stock to buy and the right time to buy it. This intensive research has not been fruitless-far from it. There are a great may successful investors and speculators (using the word in its true sense which is without opprobrium) who, by one road or another, have acquired the necessary insight into the forces with which they deal and the judgment, the forethought and the all-important self-discipline to deal with them profitably.” |
Archives of “stock market” tag
rssManaging Emotions
The hardest thing about trading is not the math, the method, or picking the right stock, currency, commodity, or futures contract. The most difficult thing about trading is dealing with the emotions that arise with trading itself. From the stress of actually entering a trade, to the fear of losing the paper profits that you are holding in a winning trade, and most importantly dealing with the emotional lows of a string of losses or the highs of many consecutive wins the bottom line is how you deal with those emotions will determine your long term success in trading more than any other one thing.
To manage your emotions first of all you must trade a robust trading methodology that is profitable and you have to know that it will be a winner in the long term if you stay disciplined. You also must trade your method with proper position sizing and risk management to keep the volume down on your emotions and ego. If you have that the next step is the management of your emotions.
You must understand that every trade is not going to be a winner and not blame yourself for equity drawdowns if you are trading with discipline.
Do not bet your entire account on any one trade, in fact risking only 1% of your total capital on any one trade is the best thing you can do for your stress levels and to bring your risk of ruin to virtually zero. (more…)
The best pieces of trading advice
Here is some great trading advice I have gathered around the web. These were either answers from real traders to the question “What is the best trading advice you ever received?” Or it was advice given be successful traders when asked “What one piece of advice would you give to traders?” There are some gems in here.
Don’t treat trades like their actual cash, separate the thought of money lost and focus on the next gain.
Always use stop losses.
Don’t trade with funds you can’t afford to lose.
Don’t be obsessed by indicators .
Always, always, put in a trailing stop and take your profit.
Decide what kind of trader you wish to be. Do you want to be a day-trader, a short term trader, or a longer term trader?
The Holy Grail of investing/trading is risk management. If you don’t have an exit strategy or proper position sizing, you are gambling. I recommend all traders spend 90% of their time perfecting risk management, and success will come with time. -Damien Hoffman
Cut losses, cut losses, cut losses. If I followed my own advice, my email would be unlisted or a Hawaii address. -Howard Lindzon (more…)
10 Things I’ve Learned About Markets
1. “There is no such thing as easy money”
2. Events that you think are affected by cardinal announcements like the employment numbers at 8:30 am on Friday are often known to many participants before the announcement
3. Markets that have little liquidity are almost impossible to profit from.
4. When the stock market is way down, policy makers take notice and do what they can to remedy the situation.
5. The market puts infinitely more emphasis on ephemeral announcements that it should.
6. It is good to go against the trend followers after they have become committed.
7. The one constant, is that the less you pay in commissions, and bid asked spread, the more money you’ll end up with at end of day. Too often, a trader makes a fortune on the prices showing when he makes a trade, and ends up losing everything in the rake and grind above.
8. It is good to take out the canes and hobble down to wall street at the close of days when there is a panic.
9. A meme about the relation between today’s events and those of x years ago is totally random but it is best not to stand in the way of it until it is realized by the majorit of susceptibles
10. All higher forms of math and statistics are useless in uncovering regularities.
TEN WAYS TO BE A TRADER NOT A GAMBLER
- Trade based on the probabilities NOT the potential profits.
- Trade small position sizes based on your account NEVER put your whole account at risk of ruin.
- Trade a plan NOT emotions.
- Always enter a trade with an edge that can be defined DO NOT trade with entries that are only opinions.
- Trade based on quantifiable facts NOT opinions.
- Trade after extensive research on what works and what does not. Don’t trade in ignorance.
- Trade with the correct position sizing since risk management is your number one priority and profits are secondary concern.
- Trade in a way that eliminates any chance of financial ruin NOT to get rich quick.
- Trade with discipline and focus DO NOT change the way you trade suddenly due to winning or losing streaks.
- Trade in the present moment and DO NOT get biased due to old wins or losses.
Focus & Discipline
The stock market is always one step ahead of you. The sooner you accept this fact, the better for your trading results. It helps to think of the market like the rabbit on the rail at the greyhound racetrack. As an investor, you should never mistake yourself for the rabbit or else the market will have to humble you and remind you that you are just a dog. The best you can expect to be is a greyhound in close pursuit, tethered to this market rabbit by an invisible rope. The fact is that the market rabbit is not really in the race. You are racing your fellow greyhounds. They are the ones whom you want to stay out in front of.
The questions you should ask are twofold. The first question is how to stay tethered to this rabbit. The second question is how closely tethered you actually want to be. Candidly answering the first may result in your answering the second by default. So focus on the first question and then ask yourself this: what you are willing to do each day to maintain your connection to the market? Your personal daily circumstances as well as your emotional commitment and discipline should guide you to generate a reasonable answer. With those inputs, you can then decide whether you allocate 30 minutes a day or 30 minutes a week. (more…)
12 Truths-Traders Should Know
1. Stock prices run in cycles. Periods of re-pricing are usually quick and powerful and then they are followed by trendless consolidation.
2. Stocks are very highly correlated during drastic selloffs and during the initial stage of the recovery. In general, correlation is high during bear markets.
3. Bull markets are markets of stocks, where there are both winners and losers. When the market averages consolidate, there are stocks that will break out or down, revealing the intentions of institutional buyers.
4. In the first and last stage of a new bull market, the best performers are small cap, low float, low-priced stocks.
5. Try to trade in the direction of the trend. It is not only the path of least resistance, but also provides the best profit opportunities. Have a simple method to define the direction of the trend.
6. Traders’ attention (and market volume) is attracted by unusual price moves. Sudden price range expansion from a consolidaiton is often the beginning of a powerful new trend.
7. Opportunity cost matters a lot. Be in stocks that move. Stocks in a range are dead money. (more…)
Market Wisdom From Bernard Baruch
You don’t read a lot about Bernard Baruch anymore, but his teachings about the market are useful today as they always have been. There are several good books about him including his own “Baruch: My Own Story” which I recommend highly especially for those of you looking for a book to take with you on your vacations.
Baruch started out as most traders do – i.e. losing lots of money because he lacked the knowledge, experience, & discipline. “You have to lose money in order to better yourself.” (more…)
In Trading If You are Losing Money Then You Are Doing….
- You consistently trade huge position sizes in volatile trading vehicles.
- You enter a trade with no exit strategy.
- You care more about being right than making money.
- Your emotions fluctuate wildly with your trading capital equity curve.
- You are trading your opinions instead of a robust trading method.
- Your ego is tied to your trading results. (more…)
Major Points on Schwager’s Market Wizards Interview with Michael Marcus
METHODOLOGY
Ride Your Winners – Never Get Out Unless the Trend Changed
- One time, [Ed Seykota] was short silver and the market just kept eking down, a half penny a day, a penny a day. Everyone else seemed to be bullish, talking about why silver had to go up because it was so cheap, but Ed just stayed short. Ed said, “The trend is down, and I’m going to stay short until the trend changes.” I learned patience from him in the way he followed the trend.
- During the great soybean bull market, the one that went from $3.25 to nearly $12, I impulsively took my profits and got out of everything. I was trying to be fancy instead of staying with the trend. Ed Seykota never would get out of anything unless the trend changed. So Ed was in, while I was out, and I watched in agony as soybeans went limit-up for twelve consecutive days. I was real competitive and every day I would come into the office knowing he was in and I was out. I dreaded going to work, because I knew soybeans would be bid limit again and I couldn’t get in.
- If you don’t stay with your winners, you are not going to be able to pay for the losers.
Get Out When the Volatility and Momentum Become Absolutely Insane
- One way I had of measuring that was with limit days. In those days, we used to have a lot of situations when a market would go limit-up for a number of consecutive days. On the third straight limit-up day, I would begin to be very, very cautious. I would almost always get out on the fourth limit-up day. And, if I had somehow survived with any part of my position that long, I had a mandatory rule to get out on the fifth limit-up day. I just forced myself out of the market on that kind of volatility.
Take Note of Intraday Chart Points
- I learned the importance of intraday chart points, such as earlier daily highs. At key intraday chart points, I could take much larger positions than I could afford to hold, and if it didn’t work immediately, I would get out quickly. For example, at a critical intraday point, I would take a twenty-contract position, instead of the three to five contracts I could afford to hold, using an extremely close stop. The market either took off and ran, or I was out. Sometimes I would make 300, 400 points or more, with only a 10-point risk.
- Although that approach worked real well then, I don’t think it would work as well in today’s market. In those days, if the market reached an intraday chart point, it might penetrate that point, take off, and never look back. Now it often comes back. (more…)