Stock traders are the world’s worse at making poor trading decisions while denying that poor decisions were made in the first place. It is a disease called denialism and it starts when a trader abandons his rules (or worse yet has none), and trades whatever feels or looks right whenever it feels or looks right Once the trade is entered, denialism begins to spread like a cancer looking for its next body part to attack. The disease grows in stages, with each successive stage sucking more life out of its victim.
Archives of “stock trader” tag
rssBe a boss like Schloss
Consider an investor like Walter Schloss who never aspired to be the biggest and kept his fund small but constantly just bought all the cheap stocks he could find and held them until they worked. Schloss earned about 20 percent gross for his investors for almost 50 years simply by buying cheap stocks in bad markets and holding them for long periods of time. He took advantage of the size and time advantage and made an enormous amount of money for himself and his investors.
There is a reason private equity is consistently one of the highest performing asset classes. Investors buy businesses when condition in the economy, or a specify sector, are not very good and they can buy a business at a bargain price. Investors hold them for a full business cycle or two and sell them in five years or so at a huge gain when conditions have improved substantially.
Investors could care less about the ticker tape or the candlestick pattern of a portfolio company and focus only on the business value. This is exactly the approach individual investors need to use to make money in the stock market.
Price and patience is the key to stock market profits. Buy businesses at a cheap stock price and hold them until they are no longer cheap. Ignore the bells, patterns and noise coming from Wall Street.
Your broker may not like it, but your accountant will.
Personal Life And Its Influence On Trading
I’ve just finnished reading a book of Richard Smitten “Jesse Livermore World’s Greatest Stock Trader”. Amazing read. For those who want to know how important psycholigal influence on trading, this is a book to read. I’d like to say a few things about greatest trader. He failed in the market when he started going to other women, he stopped being focused on the market, his 3-d wife (who brought him 2 beautiful boys Jesse Jr and Paul) Dorothy was his soul companion as later his son Jesse Jr will say. Jesse Livermore made 100 millions during October 1929 crash, at that time he was one of the richest men in the world, in 1932 his wife filed for divorce and took away their 2 boys from him, he was empty, depressed, sitting on his cash, understanding that he’s life is actually a failure(its why he later commited a suicide). Its when he started losing it all. No one knows his trades after 1932, but the majority were losses and then he finally filed bankruptsy. He still had 1 million untouchable fun for his kids and about 3 million dollars in cash(in his apartment in New York), his 4-th wife took it 3 million in cash in the bags out of house after he commited suicide( his son Paul tells about it). (more…)
Six steps for Traders
- Define the question
- gather information and resources
- form hypothesis
- perform experiment and collect data
- analyze data
- interpret data and draw conclusions that serve as a starting point for a new hypothesis.
1. Define the question: What is it exactly that you are trying to achieve? Are you shooting for high returns with high risk, long term gains with minimal risk, day trading, swing trading, position trading? Are you trying to make enough money to buy a new car or enough to buy a yacht? First define what it is that you want out of your trading!
2. Gather information and resources: What will be the best route to achieve your trading goals? Are you going to be a stock trader, a futures trader, a forex trader? Maybe everything? Doing the necessary research and taking the time to really get to know your market/markets is absolutely key to successful trading. Some people make great futures traders but horrible stock traders and vice-versa, while others are able to dabble in a little bit of everything and be successful. One way to see what fits you best is to try trading a little bit of everything and see where you feel the most comfortable. Start with small accounts and see what fit is a good one for you.
3. Form hypothesis: This is the fun part and where you get to design your “system” or “rules” by which to trade. Does your trading hypothesis revolve around chart patterns, trendlines, support and resistance, or are you more of a numbers kind of person that trades strictly off price? Do you use indicators? Maybe you are a programmer that has developed an algorithm. Whatever it is I believe it is important to form a hypothesis and then… (more…)
21 One Liners For Traders
- It is possible to see that a market is dramatically overbought and prepare for, and then capture, huge gains after the sell off.
- Risk small amounts to make big profits.
- Bet against times when numerous leaders must agree.
- Long hours and a strong work ethic are keys to being a successful trader.
- While it is good to trade any market that will turn a profit, specializing in a market can lead to great success.
- The markets go down faster than they go up.
- If the market will not go down during bad news, it will likely go higher.
- The stock market moves in patterns and in cycles. Past price patterns repeat themselves due to human emotions.
- Many times traders think a big position order size means that a whale knows something, most times they do not.
- It is okay to skip a trade if you can’t get your entry price.
- A momentum move does not just stop, it takes time to roll over.
- It is possible to trade successfully by gaming the actions of other traders.
- Be aggressive at high probability moments.
- Always stay in control of your trading and manage risk.
- Focus on risk management as the #1 priority in trading.
- Having the right mindset during a big loss that it is just temporary, is the key to coming back and being successful.
- Letting profits run is sometimes a great plan.
- Being long at all time highs in the indexes is a great strategy.
- Great money managers trade with passion.
- Even Market Wizards have doubts about winning when entering a trade.
- When the top in a market is reached, there is a lot of money to be made shorting as panic selling sets in.
TRADER’S TWO MOST POWERFUL WORDS
Let’s face it, no matter the outcome of a trade-lose, win, draw, and even the miss-traders are rarely satisfied with the result. This is exactly why it is so important that we utilize the two most powerful words in a stock trader’s vocabulary..and no… it does not involve four letters! The following is a list that you can use these two words with. You will get my point. Of course you can add to it if you like.
I missed the trade…SO WHAT!
This trade did not work…SO WHAT!
I excited a profitable trade too early…SO WHAT!
I excited with a loss too quickly…SO WHAT!
My stock gapped against me…SO WHAT!
The stock recovered without me…SO WHAT!
A stock I was bullish on was downgraded by an ANALyst…SO WHAT! (more…)
The markets will not be as easy as your trading system planned for, but we still have to follow our trading plan.
24 Mistakes done by 90% of Traders
- EGO (thinking you are a walking think tank, not accepting and learning from you mistakes, etc.)
- Lack of passion and entering into stock trading with unrealistic expectations about the learning time and performance, without realizing that it often takes 4-5 years to learn how it works and that even +50% annual performance in the long run is very good
- Poor self-esteem/self-knowledge
- Lack of focus
- Not working hard enough and treating your stock trading as a hobby instead of a small business
- Lack of knowledge and experience
- Trying to imitate others instead of developing your unique stock trading philosophy that suits best to your personality
- Listening to others instead of doing your own research
- Lack of recordkeeping
- Overanalyzing and overcomplicating things (Zen-like simplicity is the key)
- Lack of flexibility to adapt to the always/quick-changing stock market
- Lack of patience to learn stock trading properly, wait to enter into the positions and let the winners run (inpatience results in overtrading, which in turn results in high transaction costs)
- Lack of stock trading plan that defines your goals, entry/exit points, etc.
- Lack of risk management rules on stop losses, position sizing, leverage, diversification, etc.
- Lack of discipline to stick to your stock trading plan and risk management rules
- Getting emotional (fear, greed, hope, revenge, regret, bragging, getting overconfident after big wins, sheep-like crowd-following behavior, etc.) (more…)
Thoughts from Legendary Investors
On Waiting…..
Wait for the fat pitch. – Warren Buffett: comparing investing to a baseball game where you can wait endlessly for the perfect pitch before you swing.
I only go to work on the days that make sense to go to work…And I really do something on that day. But you go to work and you do something every day and you don’t realize when it’s a special day. – George Soros talking to Byron Wien
His first conclusion was that he won when all the factors were in his favor, when he was patient and waited for all the ducks to line up in a row. – from Jesse Livermore, Worlds Greatest Stock Trader
Profits can be made safely only when the opportunity is available and not just because they happen to be desired or needed. …Willingness and ability to hold funds uninvested while awaiting real opportunities is a key to success in the battle for investment survival.- Gerald Loeb
You make money on wall street by being very selective and being patient, waiting for those opportunities that are irresistible, where the percentages are very heavily in your favor.- Seth Glickenhaus
Unless, however, we see a very high probability of at least 10 percent pretax returns (which translate to 6 percent to 7 percent after corporate tax), we will sit on the sidelines. With short-term money returning less than 1 percent after-tax, sitting it out is no fun. But occasionally successful investing requires inactivity.- Warren Buffett
Many equity investors feel compelled to remain 100% invested in equities at all times. Bond investors are often similarly constrained. We strongly believe that this mentality leads to pursuit of relative rather than absolute investment returns, a direction we certainly want to avoid…A smaller pool of funds seeking to avoid meaningful declines in market value at every point in time and seeking more aggressive return objectives cannot afford to be fully invested in the absence of attractive opportunities. – Seth Klarman
On Mistakes….
…if anything, I make as many mistakes as the next guy. But where I do think that I excel is in recognizing my mistakes, you see. And that is the secret to my success. The key insight that I have reached is recognition of the inherent fallibility of human thought. –George Soros
The only way you get a real education in the market is to invest cash, track your trade, and study your mistakes! – Jesse Livermore
On Psychology… (more…)
Trading Wisdom – Andrew Gordon
Legendary stock trader Jesse Livermore had it right: The big money is in the big moves … and the trick to making the big money is knowing how to sit tight and ride the trend for all it’s worth. As obvious as that may seem, many investors have trouble doing it.
They are, as cognitive psychologists like Daniel Kahneman and Amos Tversky would say, “risk-averse.” The pain they experience in losing money is far greater than the pleasure they experience in making it. As a result, these investors typically sell their investments too soon for fear of incurring a real or even a paper loss.
To profit the most from an investment, you need to be able to wait long enough for it to achieve its full potential. So if you’re “risk-averse” by nature, it might be a good idea for you to avoid paying too much attention to the news. If you’re watching television and the nightly business report comes on, change the channel. Set aside the business section of the paper to read on a rainy day. Ignore cocktail chatter about investing. That way, you’re more likely to stick to your trading plan instead of letting your emotions overpower your better judgment.