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Jesse Livermore: Preparation And Experience Is Required For Success

  
  Education
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“Of course the same things happen in all speculative markets. The message of the tape is the same. That will be perfectly plain to anyone who will take the trouble to think. But people never take the trouble to ask questions, leave alone seeking answers. The one game of all games that really requires study before making a play is the one he goes into without his usual highly intelligent preliminary and precautionary doubts. He will risk half his fortune in the stock market with less reflection than he devotes to the selection of a medium-priced automobile.”

Traders Can Control Only 2 Things

  
  Education
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If you understand that you can only control two things in the stock market, the rest is easy. This understanding simplifies decision-making processes and lightens worry…

Your Cash

You can control the cash you have, whether it’s on-hand or in investments.

Entry & Exit Points or Your Stops

You can control where you get in a stock or where you get out of a stock. You can control where you get in a certain stock at a certain price or where you get out of a stock if it’s falling below.

As a stock is climbing higher and higher, it’s a profit point. It’s a point where you get out.

These are the only two things you can control: your cash and your stops. It makes things easy, doesn’t it?

We can’t control the wave of the market as individual investors. We are not the operators; the operators can control much more. We don’t have billons of dollars to put into one stop to make it move.

Of course you can control where your position is on spreads, but where are you getting in and where are you getting out? Your cash and your stops are in your control.

If you focus and remember the two things you can control, the worry will subside…

6 Points For Traders

  
  Education
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1.  Consistently profitable trading is not about discovering some magic way to find profitable trades.
2.  Consistently successful trading is founded on solid risk management.
3.  Successful trading is a process of doing certain things over and over again with discipline and patience.
4.  The human element of trading is enormously important and has been ignored by other authors for years.  Recognizing and managing the emotions of fear and greed are central to consistently successful speculation.
5.  It is possible to be profitable over time even though the majority of trading events will be losers.  “Process” will trump the results of any given trade or series of trades.
6.  Charting principles are not magic, but simply provide a structure for a trading process.

Ten questions to ask yourself before every trade

  
  Education
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  1. Does this trade fit my chosen trading style? Whether it is:  swing trading, momentum, break out, trend following, reversion to the mean, or day trading?

  2. How big of a position do I want to trade? How much capital am I going to risk? Am I limiting my risk to 1% or 2% of my trading capital?
  3. What is my risk of ruin based on my capital at risk?
  4. Why am I entering the trade here? What is the trigger to trade?
  5. How will I exit with a profit? A price target or trailing stop?
  6. At what price will I know that I was wrong? Where is my stop loss based on the position size?
  7. Will I be able to admit I was wrong and exit the trade if my stop is hit, or will my ego make me hold and hope?
  8. Is the risk small enough that I can emotionally handle the loss without blaming the market?
  9. Can I really risk this money or do I need it for upcoming bills? Trade with risk capital not living expenses.
  10. Am I committed to staying disciplined and following my trading plan on the trade?

I believe the answers to these questions will determine your success in any trade more than anything else.

THE STOCK MARKET IS DESIGNED TO FRUSTRATE

  
  Education
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Our frustration is greater when we have much and want more than when we have nothing and want some.  – Eric Hoffer
Most plans are just inaccurate predictions. – Ben Bayol

While technical analysis is a wonderful tool, traders who abuse it will lose to a market designed to frustrate even the best laid plans. 

-Last week ,We had written on Friday we will see unexpected level.It made High of 6182.On Monday we had written either Today or Tuesday ….Mkt will reverse !!

-Our Hurdle-Laxman Rekha was :6231 (It kissed 6208 ,6210 ) and crashed.

-On Monday written sell everything with stop of 6231 ,Same on Tuesday……!!

-Wed ,Thur & Today too…We were Highly Bearish in NF ,BANK NF ,Bank Stocks ,Fertilizer Stocks and Yesterday written :Sell AUTO Stocks !

-What happened u all know !

Today our Target below 6066 was of 5950 level !!

Have u Read our Bank NF levels ??No……U had not read !!

-Do u What happened ??It kissed 11040 level !!

Today During Trading hrs ,Written to Buy NF with stoploss of 5980- 5950.

It was mentioned not breaksing 5980 & remains above 6010 will create fire work !!

-So your stoploss was of 25-30 points !!

Now if u are not able to take risk of  30 points was first support and there after 5950 was rock solid last support.

-Don’t act smart ,If u had bought had 6010 level and stoploss was triggred at 5980…Risk was 30 points and if u had hold upto 5950 then u had lost Rs.60 points maximum……Below 5980 it took 15 minute to break 5950 level.

Same Happened with Bank NF too !

Here we track every moment of market.Don’t think writing comments wiill give u something.Stoploss was triggred (that too u all traded blindly )read again…our Intraday update.

-Don’t worry about us.From 6200 to 6000 level….nobody sold NF ,Bank NF ,Bank Stocks ,Auto Stocks……just losing 30-40 points and started doing bla-bla.Next time u post comment or write …do mention your contact number !!

Technically Yours/ASR TEAM/BARODA

Mental Toughness

  
  Education
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The mental part of the game. Its an aspect of trading that can easily be ignored, we all choose how we approach this game. Some see failures as opportunities to learn and progress, while others see them as outright failures and road blocks which should be avoided at all costs. Its all about attitude. 
 
I feel that trading should be ‘easy’ It should be effortless and without conflict. If we are going to be in this game for 20+ years. I feel its important to make the experience as easy as we can. We shouldn’t be ‘fighting’ with the market, in the boxing ring, hoping, fearing and stressing. 
 
There is RISK management, but SELF management is equally as important. When we are actively trading the market, we are free to make buy and sell decisions whenever we want. The tough part is consistently making the correct buy/sell decisions. These decisions come with conflict!
 
 
Taking Profits

So this is the hardest part of trading. It can be made simple if we accept a few hard facts. 
 
1. You will never sell at the top. 
2. Your going to be wrong when you sell. 
 
This is fact. As soon as you sell, the stock will probably keep going up. You may look at it 5 months later and its up 100% since you sold it. Point is, when you sell, your probably going to be wrong. This creates a conflict. 
 
As humans, we do not want to be wrong. We seek perfection, we want to nail the top! It can help explain why people run up stocks 20% to watch them come all the way back down to break even. The reason why they did not sell is because they are afraid to be wrong. By selling you are forced to draw a line under your mistake. But being wrong in the stock market is inevitable.  (more…)

Jesse Livermore Quotes -Must Read & Follow

  
  Education
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1) The stock market is never obvious. It is designed to fool most of the people, most of the time.

2) Play the market only when all factors are in your favor. No person can play the market all the time and win.There are times when you should be completely out of the market, for emotional as well as economic reasons.

3) Do not use the words “Bullish” or “Bearish.” These words fix a firm market-direction in the mind for an extended period of time. Instead, use “Upward Trend” and “Downward Trend” when asked the direction you think the market is headed. Simply say: “The line of least resistance is either upward or downward at this time.”Remember, don’t fight the tape!

4) The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.

5) The only thing to do when a person is wrong is to be right, by ceasing to be wrong. Cut your losses quickly, without hesitation. Don’t waste time. When a stock moves below a mental-stop, sell it immediately. (more…)

Coast is Clear

  
  Education
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1. Swear off the stock market forever. Look, the reality is that making money in the stock market is hard. Most of us just don’t have the emotional makeup to do it. That’s OK. If during the last 10 years you’ve found yourself making big behavior mistakes over and over, then stop. You might be  better off just committing yourself to a life of owning only certificates of deposit, given how poor your stock returns could be if you trade too much.

2. Act like you have a blind trust. Find someone you trust, give them your money, tell them to buy you an index fund and then have them update you again in five years. This could be a financial planner like me, but you could also enlist a trustworthy friend who won’t charge you anything for the privilege.

I know that there are people who have been successful, people who behaved correctly. If you are one of them, congratulations and keep doing what you’ve been doing.

But we have to recognize that the way most of us have been doing things hasn’t worked, and it probably won’t work in the future.

Trading Mathematics and Trend Following

  
Analysis, Education
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Some quick points, to be making money, Profit Factor must be greater than 1.

  • Profit Factor (PF)
  • = Gross Gains / Gross Losses
  • = (Average win * number of wins) / (Average loss * number of losses)
  • = R * w / (1-w)
    • where R = Average win / Average loss
    • w = win rate, i.e. % number of winners compared to total number of trades

Re-arranging, we have

  • w = PF / (PF + R)
  • R = PF * (1 – w) / w

Sample numbers showing the minimum R required to break-even (i.e. PF = 1, assuming no transaction costs) for varying win rates.

  • w = 90% >> R = 0.11
  • w = 80% >> R = 0.25
  • w = 70% >> R = 0.43
  • w = 60% >> R = 0.67
  • w = 50% >> R = 1
  • w = 40% >> R = 1.5
  • w = 30% >> R = 2.33
  • w = 20% >> R = 4
  • w = 10% >> R = 9

(more…)

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