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The Pitfalls of Speculation

  
  Education
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The question at once asks itself: “How may the top of the market be discerned, and the dangers of the eleventh hour be avoided?” The answer is more or less complex.

It is, of course, necessary above all things to revert to the estimated and fixed value of the stocks traded in and to find out how much above this normal point the securities are selling. This done, common sense, plus prudence, and minus piggishness, may determine the question and dictate the time for liquidation. This action, however, once decided upon must be adhered to with great rigidity, for thousands of traders who thus take time by the forelock have been dissatisfied afterwards by seeing a still greater advance in which they had no interests, and through greed and impatience have re-entered the lists at a most inopportune time.

The trader who realizes his profits, and sees a further advance following his own withdrawal from the market, may console himself with the fact that he has made and secured a profit; that trying to guess the exact extreme of a cycle is hazardous, and that the advance which followed his withdrawal is unsound, being founded on speculation rather than valuation.

But this is a digression from the technical phase of the matter.  So far as it is possible to judge the culmination of the speculative campaign by extraneous appearances, it may be said that a long period of backing and filling, a swinging back and forth of prices at the approximate high level marks the beginning of the end.

The definition of the “top” of the market is that point at which the great traders have almost in unison decided to unload, and per contra, the public has reached its highest level of enthusiasm.  At the beginning of this period the insiders possess and enormous aggregate of stocks which must be sold in such a manner as not to break the market. This operation will take weeks, or even months to accomplish, as any precipitate selling would be disastrous.  The wise element, therefore, sells all the market will absorb without any severe decline, and ceases selling, or even takes the buying side at the first sign of any “softness.” In short, they do all they can to maintain a good feeling and high prices, at the same time parting with the securities as rapidly as possible.

This statement may convey the impression that the shrewd speculators act in unison.  This is true, but not necessarily in the sense that there is any preconceived arrangement between them.  The unison or more or less unconscious, and is founded on the fact that there are only two sides to the market, the right and the wrong side, and that those of the speculative world who have sufficient wisdom and experience to know what is right are working to the same end, while all the inexperienced or unthinking horde are working on theories diametrically opposed to reason or even probability. 

From the SAME AS IT EVER WAS files:

The Pitfalls of Speculation by Thomas Gibson, 1906.

 

Victor Sperandeo -Quotes

  
  Education
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The key to investment success is emotional discipline. Making money has nothing to do with intelligence. To be a successful investor, you have to be able to admit mistakes. I trained a guy to trade who had a 188 IQ. He was on “Jeopardy” once and answered every question correctly. That same person never made a dime in trading during 5 years!
-Victor Sperandeo

Most people lose money because of lack of emotional discipline
-the ability to keep their emotions removed from investment decisions. Dieting provides an apt analogy. Most people have the necessary knowledge to lose weight—that is they know that in order to lose weight you have to exercise and cut your intake of fats. However, despite this widespread knowledge, the vast majority of people who attempt to lose weight are unsuccessful. Why? Because they lack the emotional discipline.
-Victor Sperandeo

In my opinion, the greatest misconception about the market is the idea that if you buy and hold stocks for long periods of time, you’ll always make money. Let me give you some specific examples. Anyone who bought the stock market at any time between the 1896 low and the 1932 low would have lost money. In other words, there’s a 36 year period in which a buy-and-hold strategy would have lost money. As a more modern example, anyone who bought the market at any time between the 1962 low and the 1974 low would have lost money.
-Victor Sperandeo
-Victor Sperandeo
Once a price move exceeds its median historical age, any method you use to analyze the market, whether it be fundamental or technical, is likely to be far more accurate. For example, if a chartist interprets a particular pattern as a top formation, but the market is only up 10% from the last low, the odds are high that the projection will be incorrect. However, if the market is up 25% to 30%, then the same type of formation should be given a great deal more weight.
-Victor Sperandeo
To use a life insurance analogy, most people who become involved in the stock market don’t know the difference between a 20 year old and an 80 year old. Investing in the market without knowing what stage it is in is like selling life insurance to 20 year olds and 80 year olds at the same premium.

Patience

  
  Education
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PATIENCE FOR U1) If you insist on trading during unstable or volatile markets, keep your positions small.

2) If you go into cash, don’t get upset on days when we rally, it’s simply part of the game.

3) Don’t buy or sell stocks because someone else is doing it. Have your OWN plan, find a philosophy that works for YOU, and don’t blindly follow anyone!

4) Wait for the wind to be at your back. Right now, it’s swirling. No sense in forcing trades to make a few pennies when there are dollars to be made in better environments.

5) Let the market correct, let the dust settle, don’t be in such a rush to trade. I see too many people trying to bottom-fish this market and I feel like screaming: “You don’t have to trade!”

I am not saying all this to be an ass. I simply want traders to learn from my mistakes. I have lost too much money in the past by forcing trades in unfavorable environments. You are better off protecting your capital and more importantly, protecting your confidence. Wait for proper bases to form, wait for some institutional accumulation, and wait for sentiment to be “less bullish.” In other words, wait for a healthier environment…it might not be that far away. The key right now is discipline and patience.

Quotes on Psychology

  
  Education
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The most important single factor in shaping security markets is public psychology. – Gerald Loeb

Wall Street never changes. The pockets change, the suckers change, the stocks change, but Wall Street never changes because human nature never changes. – Jesse Livermore

There is nothing more important than your emotional balance. – Jesse Livermore

There are styles in securities as there are in clothes. A security may be undervalued, but if it is also out of style it is of little interest to the speculator. He is, therefore, compelled to study the psychology of the stock market as well as the elements of real value. – Phil Carret

When events have thinking participants, the subject matter is no longer confined to facts but also includes the participants’ perceptions.  The chain of causation does not lead directly from fact to fact but from fact to perception and from perception to fact. – George Soros

Noise

  
  Education
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75% of the price movement in most stocks takes place in 20% of the time. The rest is nothing but noise within a range. Relevant information  that causes repricing doesn’t change quickly and frequently. This is why trends exist. Higher prices often attract more buyers and lower prices attract more sellers until the rules of the game change. Focus on the main drivers and forget the rest.

Trading Truths

  
  Education
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      1. It’s all about risk management … never risk what you can’t comfortably lose.
      2. Never fall in love with a stock.
      3. To be succesfull in trading; study, understand and practice. The rest is easier.
      4. Always start by assuming your analysis is WRONG and that people much smarter and with more recent information are already positioned opposite you.
      5. Never take on a position larger than your comfort zone. (Don’t overtrade)
      6. Patience. never chase a stock.
      7. Before entering the trade very think carefully what will make you wrong, write it down clearly and put it infront of you where you trade, and when your wrong get out happy you’ve followed your trading discipline.
      8. Buy strength, sell weakness. Most traders are essentially counter-trend; most traders lose.
      9. No one ever went broke taking a profit!
      10. Once you find a good one, hang on unless of course they do you wrong.
      11. Never add to a losing position! (Unless scaling in was part of the plan).
      12. Whenever you think you’ve found the key to the lock, they’ll change the lock.
      13. Do not overtrade.
      14. Trade price not perception.
      15. Know the difference between stocks that you want to stay married to and those that are just a fling.
      16. The only sure way to make a small fortune is to start with a large one.

        17. and to paraphrase Will Rogers: Buy only stocks that will go up. Don’t buy the ones that don’t go up. “THIS is GAMBLING.”

      17. Cut your losses quickly and you may have a chance. (more…)

      Funniest Stock Broker Quotes

        
      Education, Humour
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      “Even though your friend likes the stock thinking people will always need underwear, we have a Sell on the stock, it’s still very, very discretionary spending.”
       
      Broker on the phone to a client.
       
       
      “Should I ask my girlfriend to live with me?”
       
       “Not if you want to make her happy.”
       
       Floor conversation.
       
       
      “I decided to bring my lunch in, instead of buy it. Times are tough.”
       
       “What have you got?”
       
       “Lobster.”
       
      Floor conversation.
       
       
      “This market is worse than divorce. I’ve lost half my wealth, but I still have my wife.”
       
       Broker on the phone to a client.
       
       
       “The guy says…I need you to…and then he stops because he has to think and talk at the same time.”
      Floor conversation. 
       “I’ll do it mate, you can pay me money to do it, but you’re not going to make any money out of it” (more…)

      Lose your money,but keep your discipline.

        
        Education
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      Trading is about following a method, system, or rules that give you an advantage over other market participants in the long run. There are good bets and bad bets. There are traders who follow a trading plan with discipline and others that start trading out of fear and greed after strings of losses or wins. Just because you lost money does not mean you made a mistake. Just because you made money does not mean you did not make a mistake. The goal of trading is to make money over the long term not be right every time. Losses are a part of trading. There is a big difference between a loss after following your plan versus a loss after a loss of discipline.

      Losses are simply getting out of a trade with less capital than you entered it. The question is was the loss due to your method or your lack of discipline?
      A mistake however can be many things, and mistakes can be profitable which is dangerous to the long term health of your trading account.

      1. Trading a position size so big that your risk of ruin is inevitable is a big mistake whether your individual trades are a win or a loss.
      2. Abandoning your method to start trading a different time frame or style than you have researched is a mistake because your edge is gone.
      3. Adding to a losing position is a big mistake because eventually you will be in the trade that does not revert to the mean and you lose your whole account.
      4. Believing that you are above your own trading plan and can start just trading as you wish is a death wish for your account.
      5. Trading based on beliefs instead of reality is a dangerous place to trade and is a mistake.
      6. Taking your entries a little sooner than they are triggered or an exit a little later than your stop loss is a mistake.
      7. Diversifying traded markets or stocks before doing the proper research is a mistake.
      8. Trading so big that your emotions interfere with your trading plan is a mistake.
      9. Trading when you are very sick or going through emotional personal problems is a mistake.
      10. Making trading decisions based solely on ego, fear, or greed is always a mistake whether you win or lose.

      Jim Rogers: Stocks To Be Crushed Any Day Now

        
      Analysis, Education, Global Indices
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      Governments need to tighten their monetary policies more according to Jim Rogers. Such tightening will result in stocks being crushed nevertheless.

      Bloomberg: “We’re overdue for a correction” said Rogers, chairman of Rogers Holdings, said in an interview in Hong Kong. “Stock markets around the world have been going up for the past 10 months.”

      “I don’t think anybody has tightened enough. I think everybody should tighten more,” he told Bloomberg. “We have huge amounts of money printed throughout the world. It’s going to cause currency instability. It’s going to cause more inflation. It’s going to cause higher interest rates.”

      An extended, related video of Jim Rogers with Bloomberg is below, start from 11:00 for Jim Rogers. He talks across stocks, stimulus, commodities, and gold in particular.

      One of the oddest things discussed however, toward the very end of the video, at 27:00, is how Jim Rogers is long both the U.S. dollar and gold. He’s also long the Japanese yen even though in his own words, it, like the dollar, is a ‘terribly flawed currency’.


       

       

      DENNIS GARTMAN’S -Trading Rules

        
        Education
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      1. Never, under any circumstance add to a losing position! Ever! Nothing more need be said; to do otherwise will eventually and absolutely lead to ruin!
      2. Trade like a mercenary guerrilla. We must fight on the winning side and be willing to change sides readily when one side has gained the upper hand.
      3. Capital comes in two varieties: Mental and that which is in your pocket or account. Of the two types of capital, the mental is the more important and expensive of the two. Holding to losing positions costs measurable sums of actual capital, but it costs immeasurable sums of mental capital.
      4. The objective is not to buy low and sell high, but to buy high and to sell higher. We can never know what price is too low. Nor can we know what price is too high.  Always remember that sugar once fell from $1.25/lb to 2 cent/lb and seemed cheap many times along the way.
      5. In bull markets we can only be long or neutral, and in bear markets we can only be short or neutral. That may seem self-evident; it is not, and it is a lesson learned too late by far too many.
      6. Markets can remain illogical longer than you or I can remain solvent according to our good friend, Dr. A. Gary Shilling. Illogic often reigns and markets are enormously inefficient despite what the academics believe.
      7. Sell markets that show the greatest weakness, and buy those that show the greatest strength. Metaphorically, when bearish, throw your rocks into the wettest paper sack, for they break most readily. In bull markets, we need to ride upon the strongest winds as they shall carry us higher than shall lesser ones.
      8. Try to trade the first day of a gap, for gaps usually indicate violent new action. We have come to respect gaps in our nearly thirty years of watching markets; when they happen (especially in stocks) they are usually very important.
      9. Trading runs in cycles: some good; most bad. Trade large and aggressively when trading well; trade small and modestly when trading poorly. In good times even errors are profitable; in bad times even the most well researched trades go awry. This is the nature of trading; accept it.
      10. To trade successfully, think like a fundamentalist; trade like a technician. It is imperative that we understand the fundamentals driving a trade, but also that we understand the market’s technicals. When we do, then, and only then, can we or should we, trade. (more…)

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