News events in particular cause traders to make incorrect decisions, because they play on emotions. The urge to follow the crowd is normal. It is comforting. And in a strong bull market, it may just be correct.
But in most circumstances, letting emotions push you into making trading decisions costs traders money.
There are two kinds of traders.
1. Those who make emotional decisions based on any of the above.
2. Those who make money off of those who make emotional decisions.
In general, I find there are two kinds of traders. The first kind trades visually, from patterns that are evident on visual inspection. Those include chart patterns, oscillator patterns, Elliott waves, and the like. Their trading decisions are discretionary, in that they elect to buy, hold, and sell based upon their perception of patterns and their judgment as to their meaning.
The second kind of trader distrusts visual inspection. Such traders are more likely to buy into the behavioral finance notion that unaided human perception and judgment are subject to a variety of biases. Accordingly, these traders use some form of historical/statistical analysis and/or system development to test ideas and trade only those that test out in a promising way.
Now here’s the interesting part: The first group of traders almost universally asks me to help them tame their emotions. They have problems with impulsive trading, failing to honor risk limits, failing to take valid signals due to anxiety, etc. The second group of traders, having researched successful strategies, almost universally asks me to help them take maximum advantage of their edge. They want help taking *more* risk and trading larger positions. (more…)
Wall Street people learn nothing and forget everything.” Ben Graham
“ Buy on the cannons, sell on the trumpets.” Old French Proverb
“A stock broker is one who invests other people’s money until its all gone.” Woody Allen
“It is fortunate for Wall Street as an institution that a small minority of people can trade successfully and that many others think they can.” Ben Graham
“Wall Street indices predicted nine out of the last five recessions!” Paul Samuelson
“ There are two kinds of investors, be they large or small: those who don’t know where the market is headed, and those who don’t know that they don’t know. Then again, there is a third type of investor –the investment professional, who indeed knows that he or she doesn’t know, but whose livelihood depends upon appearing to know.” William Bernstein
“The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind.” Gordon Gekko (more…)
“Wall Street people learn nothing and forget everything.” Ben Graham
“ Buy on the cannons, sell on the trumpets.” Old French Proverb
“A stock broker is one who invests other people’s money until its all gone.” Woody Allen
“It is fortunate for Wall Street as an institution that a small minority of people can trade successfully and that many others think they can.” Ben Graham
“Wall Street indices predicted nine out of the last five recessions!” Paul Samuelson
“ There are two kinds of investors, be they large or small: those who don’t know where the market is headed, and those who don’t know that they don’t know. Then again, there is a third type of investor –the investment professional, who indeed knows that he or she doesn’t know, but whose livelihood depends upon appearing to know.” William Bernstein
“The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind.” Gordon Gekko
“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” George Soros
“October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” Mark Twain
“If past history was all there was to the game, the richest people would be librarians.” Warren Buffett
“Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.” Warren Buffett
“A market is the combined behavior of thousands of people responding to information, misinformation and whim.” Kenneth Chang
“The four most dangerous words in investing are “This time it’s different”. John Templeton
“Money can’t buy you happiness but it does bring you a more pleasant form of misery.” Spike Milligan
“If you don’t follow the stock market, you are missing some amazing drama.” Mark Cuban
“The average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think.” Jesse Livermore
“In this business if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.” Peter Lynch
“ Markets can remain irrational longer than you can remain solvent” John Maynard Keynes
“The markets will return to rationality the moment you have been rendered insolvent.” Dennis Gartman
“Risk is good. Not properly managing your risk is a dangerous leap” Evel Knievel
“Sometimes your best investments are the ones you don’t make.” Donald Trump
“The most predictable thing about the stock market is the number of experts who take credit for predicting it.” Dave Weinbaum
“I have probably purchased fifty ‘hot tips’ in my career, maybe even more. When I put them all together, I know I am a net loser.” Charles Schwab
“Money talks… but all mine ever says is good-bye.” Anon
“Don’t gamble! Take all your savings and buy some good stock and hold it ‘till it goes up, then sell it. If it don’t go up, don’t buy it.” Will Rogers
“Give me a stock clerk with a goal and I’II give you a man who will make history. Give me a man with no goals and I’II give you a stock clerk.” James Cash
“Never make forecasts, especially about the future.” Samuel Goldwin
“Stocks are bought on expectations, not facts.” Gerald M. Loeb
“Your success in investing will depend in part on your character and guts, and in part on your ability to realize at the height of the ebullience and the depth of despair alike that this too shall pass.” John Bogle
“You make most of your money in a bear market, you just don’t realize it at the time.” Shelby Davis
There are two kinds of investors, be they large or small: those who don’t know where the market is headed, and those who don’t know that they don’t know. Then again, there is a third type of investor – the investment professional, who indeed knows that he or she doesn’t know, but whose livelihood depends upon appearing to know.”
William Bernstein
Trade the market, not the money
• Always trade value, never trade price
• The answer to the question, “What’s the trend?” is the question, “What’s your timeframe?”
• Never allow a statistically significant unrealized gain to turn into a statistically significant realized loss (ATR)
• Don’t tug at green shoots
• When there’s nothing to do, do nothing
• Stop adjustments can only be used to reduce risk, not increase it.
• There are only two kinds of losses: big losses and small losses, given these choices – always choose small losses.
• Don’t Anticipate, Just Participate
• Buy the strongest, sell the weakest (RSI)
• Sideways markets eventually resolve themselves into trending markets and vice versa
• Stagger entries & exits – Regret Minimization techniques
• Look for low risk, high reward, high probability setups
• Correlations are for defense, not offense
• Drawdowns are for underleveraged trading and research
• Develop systems based on the kinds of “pain” (weaknesses) endured when they aren’t working or you’ll abandon them during drawdowns.
• Be disciplined in risk management & flexible in perceiving market behavior
