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Five Rules for Traders

You can avoid the emotionalism, the second guessing, the wondering, the agonizing, if you have a sound trading plan (including price objectives, entry points, exit points, risk-reward ratios, stops, information about historical price levels, seasonal influences, government reports, prices of related markets, chart analysis, etc.) and follow it. Most traders don’t want to bother, they like to ‘wing it.’ Perhaps they think a plan might take the fun out of it for them. If you’re like that and trade futures for the fun of it, fine. If you’re trying to make money without a plan-forget it. Trading a sound, smart plan is the answer to cutting your losses short and letting your profits run.

Do not overstay a good market. If you do, you are bound to overstay a bad one also.

Take your lumps, just be sure they are little lumps. Very successful traders generally have more losing trades than winning trades. They don’t have any hang-ups about admitting they’re wrong, and have the ability to close out losing positions quickly.

Program your mind to accept many small losses. Program your mind to ‘sit still’ for a few large gains.

Recognize that fear, greed. ignorance, generosity, stupidity, impatience. self-delusion, etc., can cost you a lot more money than the market(s) going against you, and that there is no fundamental method to recognize these factors.

Be Yourself

Everyone in this business will tell you how to be and what to do, but the bottom line is that you’ve got to always be yourself – flaws, emotions, stupidity, and all.

There’s a saying that the stock market is an expensive place to figure how who you really are but I completely disagree. Through the many years I’ve been trading, I’ve learned much more about myself and the way I am both good and bad than I think I would have any other way. And, for that I’m so very grateful.

It is with little doubt that my experience in the markets have in turn made me into a much better human being. For example, one who thinks before acting, one that appreciates the importance of looking at situations from different points of view, one that knows that you can do everything right but still be wrong, one that understands the influence that emotion has on decision-making, one that remembers that no matter what mistakes you and I make today – tomorrow we will have another opportunity to do better. I’ve learned a great deal more, but I think you get the point.

Speaking of which, a number of people have asked me recently that if train people to “be more like me” in my mentorship group. The truth is that I try my darndest to never do that. My goal with those who I personally mentor is to help them become who they really are and, by extension, to take full advantage of their own personality and skills whatever they may be and at whatever level they currently are. The primary problem, however, is that many of us really believe the key to success is to be more like others whether it be Warren Buffett, David Einhorn, George Soros, Doug Kass, Jim Chanos, Whitney Tilson, Jim Cramer, or whoever you admire and respect. As you know, one of the fastest growing businesses on the Internet right now is to enable you in new and exciting ways to trade and invest just like others, but in my view, that will only take you so far in your personal journey. In the markets, sooner or later, you have to find your own path!

Each of us have our own skills, strengths, weaknesses and personalities and matching those with a strategy you can use and develop over time is the closest key to your future success that I can help you with.

Bottom line – don’t be like me or anyone else for that matter, but instead just be yourself. Use this time in your life to find ways to take full advantage of your own God-given talents and skills as you develop them. While it is ok and, in fact recommended, that you try to learn as much as you can from others (I know I have), at the same time you must also understand and appreciate that to true key to success is to find your own path just like every trader and investor who you so admire right now has already done.

The Sheep and the Herd

American writers of the 20th century, that talks about the stupidity of sheep. He says “the individual sheep is stupid, but the herd is very smart. They always know the right way to go, the right thing to do (especially when guided by the dog and shepherd).

The stock market reminds me of that every time there is an earnings report of a major company. It originally does something stupid, as if the company reporting like Intel, Netflix, or Goldman $achs were the only company. But then after a proper time, it does the right thing.

There is No Such Thing as Information Overload

The information dietJust as too much junk food can lead to obesity, too much information can lead to stupidity.

Clay Johnson’s book, The Information Diet, shows you how to thrive in this information glut, but you must accept that there is no such thing as information overload.

Once we begin to accept that information technology is neutral and cannot possibly rewire our brains without our consent or cooperation, something else becomes really clear: there’s no such thing as information overload.

It’s the best “first world problem” there is. “Oh, my inbox is so full,” or “I just can’t keep up with all the tweets and status updates and emails” are common utterances of the digital elite. Though we constantly complain of it—of all the news, and emails, and status updates, and tweets, and the television shows that we feel compelled to watch—the truth is that information is not requiring you to consume it. It can’t: information is no more autonomous than fried chicken, and it has no ability to force you to do anything as long as you are aware of how it affects you. There has always been more human knowledge and experience than any one human could absorb. It’s not the total amount of information, but your information habit that is pushing you to whatever extreme you find uncomfortable. (more…)

Today I know that …

mylessonsMy lessons may have been costly ,but they brought with them a kind of undertstanding more precious than gold.

😆 Playing the market is much different from being an investor.

😆 Pride is another word for stupidity if you claim credit for profits temporarily created by a bull market run wild.

😆 Paper profits are the illision of wealth created by the myopia of greed.

😆 Margin is a secuctive temptress more enticing than Delilah-and far more dangerous.

😆 Money doesn’t make people better ;it just allows them to become kinder and more charitable.

😆 Losing money doesn’t mean you’re a fool ,just as making a fortune doesn’t prove you’re a genius.

😆 Maturity means knowing how to cope with failure-and with sucess.

😆 The market respects those who treat is seriously and research it thoroughly ;it mocks those who think its rewards are freely granted to the followers of friendly tips and exicted phone calls from “helpful” strangers.

😆 Just as in every other game of chance ,all of your winning should never be left on the table.

😆 The law of gravity was not repealed for the sake of Dalal street ;even there the rule still holds that “whatever goes up must come down .”

😆 Forgiveness is a virtue even to myself ;I can forgive the fact that I failed-because I know that Iam not a failure.

 

AN 1873 LETTER ON LUCK VERSUS SKILL

We often confuse luck with skill, especially in the stock market.  In fact, Michael J. Mauboussin has written a worthy read on separating the two in his newest book The Success Equation:  Untangling Skill and Luck in Business, Sports, and Investing.  But long before the contemporary discussions of luck versus skill, ancient speculators were enthralled by luck’s deceptive ways of making mere mortals feel godlike.  However, that sense of omniscience, just like a string of luck, is fleeting and continues to lure modern speculators into a trap today just like it did Saxon-les-Bains, a man of culture, almost 150 years ago.  In a 1873 letter to The Spectator entitled “A Study in the Psychology of Gambling” Saxon-les-Bains describes his gambling experience in Monte Carlo.

And what was my experience?  This chiefly, that I was distinctly conscious of partially attributing to some defect of stupidity in my own mind, every venture on an issue that proved a failure; that I groped about within me something in me like an anticipation or warning (which of course was not to be found) of what the next event was to be, and generally hit upon some vague impulse in my own mind which determined me: that when I succeeded I raked up my gains, with a half impression that I had been a clever fellow, and had made a judicious stake, just as if I had really moved skillfully as in chess; and that when I failed, I thought to myself, ‘Ah, I knew all the time I was going wrong in selecting that number, and yet I was fool enough to stick to it,’ which was, of course, a pure illusion, for all that I did know the chance was even, or much more than even, against me.  But this illusion followed me throughout.  I had a sense ofdeserving success when I succeeded, or of having failed through my own willfulness, or wrong-headed caprice, when I failed.  When, as not infrequently happened, I put a coin on the corner between four numbers, receiving eight times my stake, if any of the four numbers turned up, I was conscious of an honest glow of self-applause… (more…)