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5 Points for Discretionary Traders

  
  Education
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1)  A discipline of pre-market preparation:  All emphasize the importance of process and preparation: sticking to what you do best and being prepared for fresh opportunity–and threat–each market day.

2)  Selectivity:  All have some methods for screening stocks and focusing on a core group that offer opportunity.  Often, these screens focus on stocks that are trading actively, that show good movement, and that are setting up for directional price moves because of earnings reports, breakout patterns, etc.

3)  Patience:  This follows from the first two.  The experienced traders emphasize risk management and waiting for high quality trades, rather than overtrading.  All stress understanding the current market environment and adapting to it.

4)  Diversification:  These traders don’t focus on one or two opportunities, but look at a range of promising shares and setups and trade more than one thing at a time.  All the proverbial eggs are not in one basket.

5)  Simplicity:  My sense is that the traders are focused on understanding what is happening now, not predicting what will happen in the future.  If I had to guess, I’d say that they are talented in detecting the flow of activity in and out of shares and are riding moves as they are getting under way.  They don’t appear to be researching deep value and holding for long periods to wait for that value to be realized.

“Don’t marry hot stocks, just date them.”

  
  Education
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  1. Hot stocks are only good when they are in up trends, when the party is over you have to break up with them.
  2. Hot stocks are great to trade in and out of but you don’t want to turn them into a life long investment.
  3. A good stock might look great on the outside with it’s price action but it may not have the best fundamentals for getting serious with.
  4. Hot stocks are great for the short term but for the long term you want a solid investment.
  5. Be careful with hot stocks they may look great on the outside but they can break your heart at any moment.
  6. A hot stock can be a lot of fun for awhile but they can be a lot of drama when no one wants them anymore.
  7. As long as a hot girlfriend is very popular  she will be happy but when no one wants to date her she goes into a downward spiral. This applies to hot stocks as well. 

Why 90 % Traders Lose Money ?Read These 20 points

  
  Education
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  1. They risk too much to try to make so little.

  2. They trade with the probabilities against them.
  3. They think trading is easy money.
  4. Instead of focusing on learning how to trade they focus on getting rich.
  5. They blow up due to improper position sizing.
  6. With no understanding of the mathematical risk of ruin they are doomed after the first long string of losing trades.
  7. Blindly following a guru that leads them down the road of destruction.
  8. They don’t do their homework.
  9. They trade opinions not robust systems.
  10. They go looking for ‘trades’ instead of a methodology. (more…)

“The Stock Market is Rigged!”

  
  Education
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Once upon a time in the late 1700′s, there were two types of sonofabitches trading the earliest version of securities in Lower Manhattan: There were the auctioneer sonofabitches and there were the merchant sonofabitches.

The auctioneers were all-powerful and totally destructive at times. They presided over trade, which took place outside under a Buttonwood Tree on Wall Street. What the auctioneers did that was most maddening to the rest of the participants in these protozoic markets was charge exorbitant commissions and allow for securities to trade in a lawless fashion, without regard for fairness of any kind.

Meanwhile, the cutthroat speculators were growing to be quite fed up with this arrangement so they did what all would-be conspirators do – they met in secret to plot an overthrow. In March of 1792, twenty four of these merchant sonofabitches snuck into the Corre’s Hotel, which occupied what is now 68 Wall Street (which has since been absorbed into 40 Wall Street, aka the Trump Building), for their clandestine sitdown.

Two months later, they hatched their scheme, signing a document called the Buttonwood Agreement (at left), named for the tree they’d been wheeling and dealing under each day. The accord meant that all twenty four signers were bound to trade securities only amongst each other, to deny entry into their clique to outsiders who’d not been accepted by the membership and to fix commissions on trades at a set amount (.25% of face value for all shares of stock or similar instrument). This banding together made these twenty four large-scale merchant sonofabitches into the de facto monopoly that controlled all trade and it sent the other sonofabitches, the auctioneers, out of business. (more…)

5 Trading Lessons-Must Read

  
  Education
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  • Most of the time, markets are very close to efficient (in the academic sense of the word.) This means that most of the time, price movement is random and we have no reason, from a technical perspective, to be involved in those markets.five--
  • There are, however, repeatable patterns in prices. This is the good news; it means we can make money using technical tools to trade.
  • The biases and statistical edges provided by these patterns are very, very small. This is the bad news; it means that it is exceedingly difficult to make money trading. We must be able to identify those points where markets are something a little “less than random” and where there might be a statistical edge present, and then put on trades in very competitive markets.
  • Technical trading is nothing more than a statistical game. The parallels to gambling and other games of chance are very, very close. A technical trader simply identifies the patterns where an edge might be present, takes the correct position at the correct time, and manages the risk in the trade. This is, of course, a very simplified summary of the trading process, but it is useful to see things from this perspective. This is the essence of trading: find the pattern, put on the trade, manage the risk, and take profits.
  • Because all we are doing is playing the small edges as they occur in the markets, it is important to be utterly consistent in every aspect of our trading. Many markets have gotten harder (i.e. more efficient, more of the time) over the past decade and things that once worked no longer work. Iron discipline is a key component of successful trading. If you are not disciplined every time, every moment of your interaction with the market, do not say you are disciplined.

Trading Psychology Quotes

  
  Education
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Anyone who claims to be intrigued by the “intellectual challenge of the markets” is not a trader. The markets are as intellectually challenging as a fistfight. Ultimately, trading is an exercise in self-mastery and endurance.

The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading.

Just remember, without discipline, a clear strategy, and a concise plan, the speculator will fall into all the emotional pitfalls of the market – jump from one stock to another, hold a losing position too long, and cut out of a winner too soon, for no reason other than fear of losing profit. Greed, Fear, Impatience, Ignorance, and Hope will all fight for mental dominance over the speculator. Then, after a few failures and catastrophes the speculator may become demoralised, depressed, despondent, and abandon the market and the chance to make a fortune from what the market has to offer. (more…)

Market Manipulation

  
  Education
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Jesse Livermore learned the art of stock market manipulation, manipulating the prices of thinly traded stocks, in bucket shops.

On March 13, 1925, Arthur Cutten – one of his biggest rivals – accused Livermore of continuing his shady dealings – not in bucket shops – but, very seriously, on the Chicago Futures Exchange.

At the beginning of his career, Jesse Livermore had traded exclusively in bucket shops. He had prospered and built up his funds. Bucket shops weren’t set up to lose money, however, and soon they were refusing to deal with Livermore or worse, were cheating him. (more…)

5 Characteristics of less Successful Traders

  
  Education
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1) The less successful traders are anticipating market movement and trading accordingly. The highly successful traders are identifying asset class mispricings and trading off those.

2) The less successful traders are trading particular instruments and pretty much stick to those. The highly successful traders recognize that any combination of trading instruments can be considered an asset class and appropriately priced (and gauged for mispricing).

3) The less successful traders think of their market as *the* market. The highly successful traders focus on interrelationships among markets that cut across nationalities and asset classes.
4) The highly successful traders place just as much emphasis on understanding markets as predicting them. The less successful traders don’t ask “why” questions.

5) The less successful traders are convinced they have proprietary information of value that they must not disclose to anyone. The highly successful traders use their proprietary information to selectively share with other highly successful participants, thereby gaining a large informational edge.

If I had to use one phrase to capture the essence of the highly successful traders, it would be analytical creativity. These traders are creative in their thinking about markets and rigorous in their pursuit of this creativity.

Short Term Trading and Day Trading Is No Nostrum

  
  Education
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Consider an excerpt from Trend Following:

When you trade more or with higher frequency, the profit that you can earn per trade decreases, whereas your transaction costs stay the same. This is not a winning strategy. Yet, traders still believe that short-term trading is less risky. Short-term trading, by definition, is not less risky, as evidenced by the catastrophic blowout of Victor Niederhoffer and Long Term Capital Management (LTCM). Do some short-term traders excel? Yes. However, think about the likes of whom you might be competing with when you are trading short term. Professional short-term traders, such as Jim Simons, have hundreds of staffers working as a team 24/7. They are playing for keeps, looking to eat your lunch in the zero-sum world. You don’t stand a chance.

Unfortunately, the flaws in day trading are often invisible to those who must know better. Sumner Redstone, CEO of Viacom, was interviewed recently and talked of constantly watching Viacom’s stock price, hour after hour, day after day. Although Redstone is a brilliant entrepreneur and has built one of the great media companies of our time, his obsession with following his company’s share price is not a good example to follow. Redstone might feel his company is undervalued, but staring at the screen will not boost his share price.

Trading Books -Every Trader Should Read

  
  Education
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The Market Wizards Series – Jack Schwager:  Chances are you will find these books on the shelf of any serious trader.  They are without a doubt the most comprehensive collection of interviews with superstar traders ever published.  However, their dirty little secret is that although they capture perfectly a moment in time, they are extremely dated and will give you almost no insight into today’s markets or how to trade them. Their value now is in showing how even the greatest traders initially struggled and often blew up (repeatedly) before becoming successful.

Stan Weinstein’s Secrets For Profiting in Bull and Bear Markets – Stan Weinstein: This book was the first to quantify one of the most important concepts in trading; the four stages in which stocks move, which are the basing, advancing, topping, and declining stages.  Despite the fact that the cover of this book has not been updated since it was published in 1988, stage analysis is still relevant today.

How to Make Money In Stocks – O’Neil:  As an unnamed trader friend of mine recently said, all you need to do is review the charts in the first 150 pages of this book and you will be good to go.    These charts along with O’Neil’s annotations, give you a great foundation to understand the patterns stocks form before they go on massive runs.

Reminiscences of a Stock Operator – Edwin Lefevre:  Tough call on this book, only because I don’t think it is the Rosetta Stone of trading books like it is often described as.  The language is dated and colloquial, which though strange, is actually part of its charm. There are definitely some foundational lessons for trading in this book, but you as the reader have to do the historical conversion in your head from venue’s like “bucket shops,” to today’s market. (more…)

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