Archives of “strength and weakness” tag

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DENNIS GARTMAN’S NOT-SO-SIMPLE RULES OF TRADING

  
  Education
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1. Never, Ever, Ever, Under Any Circumstance, Add to
a Losing Position… not ever, not never! Adding to losing positions is
trading’s carcinogen; it is trading’s driving while intoxicated. It will lead to
ruin. Count on it!

2. Trade Like a Wizened Mercenary Soldier: We
must fight on the winning side, not on the side we may believe to be correct
economically.

3. Mental Capital Trumps Real Capital: Capital
comes in two types, mental and real, and the former is far more valuable than
the latter. Holding losing positions costs measurable real capital, but it costs
immeasurable mental capital.

4. This Is Not a Business of Buying Low and Selling
High; it is, however, a business of buying high and selling higher.
Strength tends to beget strength, and weakness, weakness.

5. In Bull Markets One Can Only Be Long or
Neutral, and in bear markets, one can only be short or neutral. This may
seem self-evident; few understand it however, and fewer still embrace it.

6. “Markets Can Remain Illogical Far Longer Than You
or I Can Remain Solvent.” These are Keynes’ words, and illogic does often
reign, despite what the academics would have us believe. (more…)

How to Treat Delusional Disorder

  
  Education
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This market is delusional!  I’ve heard it several times, but I am still unsure exactly what this means.  Given what I’ve seen and heard on this trading desk over the past several weeks I can begin to hypothesize about the true nature of this ubiquitous exclamation.  First, strength and weakness in the market has not necessarily translate to strength and weakness in individual names.  Dean’s portfolio has been the best barometer of this divergence.  His long cash book has felt the slings and arrows of a declining market while under performing on up days; the perfect shitstorm.  Strong balance sheets and superior management have failed to translate into upward price action.  On the other side of the coin, Moskowitz’s technical strategy has also struggled in the face of this “delusional” market.  Daily levels of support and resistance, moving averages, and pivot points have been broken, traversed, and forsaken.  Familiar setups have failed to produce familiar results.  Finally, after reviewing the charts of Schwartz’s portfolio, we came to the conclusion that the tenets of relative strength and relative weakness have been all but abandoned.  Names have shown massive intraday reversals that suck away P&L without warning.

Given the “delusional” nature of the market, there is only one strategy that guarantees success; get small.  The fact that strategies have lacked their usual effectiveness does not imply they are obsolete; however, given the unusual action we have witnessed lately, it is advisable to limit one’s exposure to the bizarre action.  Eventually the market will begin to look like its old self and when that time comes, the heavens will open and the money gods will reappear.  In the meantime, remember the old axiom: “The market can remain delusional longer than you can remain solvent.”

True False Questions

  
  Education
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True or False

  1. The big money in trading is made when one can get long at lows after a big downtrend.
  2. It’s good to average down when buying.
  3. After a long trend, the market requires more consolidation before another trend starts.
  4. It’s important to know what to do if trading in commodities doesn’t succeed.
  5. It is not helpful to watch every quote in the markets one trades.
  6. It is a good idea to put on or take off a position all at once.
  7. Diversification is better than always being in 1 or 2 markets.
  8. If a day’s profit or loss makes a significant difference to your net worth, you are overtrading.
  9. A trader learns more from his losses than his profits.
  10. Except for commission and brokerage fees, execution costs for entering orders are minimal over the course of a year.
  11. It’s easier to trade well than to trade poorly.
  12. It’s important to know what success in trading will do for you later in life.
  13. Uptrends end when everyone gets bearish.
  14. The more bullish news you hear the less likely a market is to break out on the upside.
  15. For an off-floor trader, a long-term trade ought to last 3 or 4 weeks or less.
  16. Other’s opinions of the market are good to follow.
  17. Volume and open interest are as important as price action.
  18. Daily strength and weakness is a good guide for liquidating long term positions with big profits.
  19. Off-floor traders should spread different markets of different market groups.
  20. The more people are going long the less likely an uptrend is to continue in the beginning of a trend.
  21. Off-floor traders should not spread different delivery months of the same commodity.
  22. Buying dips and selling rallies is a good strategy.
  23. It’s important to take a profit most of the time.
  24. Of 3 types of orders (market, stop, and resting), market orders cost the least skid.
  25. The more bullish news you hear and the more people are going long the less likely the uptrend is to continue after a substantial uptrend.
  26. The majority of traders are always wrong.
  27. Trading bigger is an overall handicap to one’s trading performance.
  28. Larger traders can muscle markets to their advantage.
  29. Vacations are important for traders to keep the proper perspective.
  30. Undertrading is almost never a problem.
  31. Ideally, average profits should be about 3 or 4 times average losses.
  32. A trader should be willing to let profits turn into losses.
  33. A very high percentage of trades should be profits.
  34. A trader should like to take losses.
  35. It is especially relevant when the market is higher than it’s been in 4 and 13 weeks.
  36. Needing and wanting money are good motivators to good trading.
  37. One’s natural inclinations are good guides to decision making in trading.
  38. Luck is an ingredient in successful trading over the long run.
  39. When you’re long, limit up is a good place to take a profit.
  40. It takes money to make money.
  41. It’s good to follow hunches in trading.
  42. There are players in each market one should not trade against.
  43. All speculators die broke
  44. The market can be understood better through social psychology than through economics.
  45. Taking a loss should be a difficult decision for traders.
  46. After a big profit, the next trend following trade is more likely to be a loss.
  47. Trends are not likely to persist.
  48. Almost all information about a market is at least a little useful in helping make decisions.
  49. It’s better to be an expert in 1-2 markets rather than try to trade 10 or more markets.
  50. In a winning streak, total risk should rise dramatically.
  51. Trading stocks is similar to trading commodities.
  52. It’s a good idea to know how much you are ahead or behind during a trading session.
  53. A losing month is an indication of doing something wrong.
  54. A losing week is an indication of doing something wrong.
  55. One should favor being long or being short – whichever one is comfortable with.
  56. On initiation one should know precisely at what price to liquidate if a profit occurs.
  57. One should trade the same number of contracts in all markets.
  58. If one has $10000 to risk, one ought to risk $2500 on every trade.
  59. On initiation one should know precisely where to liquidate if a loss occurs.
  60. You can never go broke taking profits.
  61. It helps to have the fundamentals in your favor before you initiate.
  62. A gap up is a good place to initiate if an uptrend has started.
  63. If you anticipate buy stops in the market, wait until they are finished and buy a little higher than that.

These 16 Rules Will Make You A Better Trader

  
  Education
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1. Never, Ever, Ever, Under Any Circumstance, Add to a Losing Position… not ever, not never! Adding to losing positions is trading’s carcinogen; it is trading’s driving while intoxicated. It will lead to ruin. Count on it!

 2. Trade Like a Wizened Mercenary Soldier: We must fight on the winning side, not on the side we may believe to be correct economically.16

3. Mental Capital Trumps Real Capital: Capital comes in two types, mental and real, and the former is far more valuable than the latter. Holding losing positions costs measurable real capital, but it costs immeasurable mental capital.

4. This is Not a Business of Buying Low and Selling High: It is, however, a business of buying high and selling higher. Strength tends to beget strength, and weakness, weakness.

5. In Bull Markets One Can Only Be Long or Neutral, and in bear markets, one can only be short or neutral. This may seem self-evident; few understand it, however, and fewer still embrace it. 

6. “Markets Can Remain lllogical Far Longer Than You or I Can Remain Solvent.” These are Keynes’ words, and illogic does often reign, despite what the academics would have us believe. (more…)

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