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Mark Douglas-Quotes

  
  Education
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I know it may sound strange to many readers, but there is an inverse relationship between analysis and trading results. More analysis or being able to make distinctions in the market’s behavior will not produce better trading results. There are many traders who find themselves caught in this exasperating loop, thinking that more or better analysis is going to give them the confidence they need to do what needs to be done to achieve success. It’s what I call a trading paradox that most traders find difficult, if not impossible to reconcile, until they realize you can’t use analysis to overcome fear of being wrong or losing money. It just doesn’t work!” – Mark Douglas

If you really believe in an uncertain outcome, then you also have to expect that virtually anything can happen. Otherwise, the moment you let your mind hold onto the notion that you know, you stop taking all of the unknown variables into consideration. Your mind won’t let you have it both ways. If you believe you know something, the moment is no longer unique. – Mark Douglas

To whatever degree you haven’t accepted the risk, is the same degree to which you will avoid the risk. Trying to avoid something that is unavoidable will have disastrous effects on your ability to trade successfully. – Mark Douglas

Trading Wisdom

  
  Education
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One of my favorite trading tales involves a very wise, veteran trader who, when asked his thoughts on the market, would simply respond by saying “It’s a bull market,” or “It’s a bear market.” Younger traders simply seeking out a hot tip from the seasoned pro would often leave discouraged – or even annoyed, believing they were being fed a line. JL himself didn’t understand until years later the wisdom that was actually being dispensed with those words: The veteran was simply relaying the path of least resistance, or the trend for the general market, and therefore giving the trader an incredible edge in determining one of the many variables that makes up stock trading.

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Traders should equate the general market to that of a big river with individuals stocks as floating logs. If ones objective was to ride in the general direction of the current, they would not stand on the bank looking for a log that was bucking that trend? Furthermore, even if they found one that temporarily headed in the wrong direction, more than likely it would only be a matter of time before the log reversed course and also headed in the way of all the other logs.

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Traders would be wise to understand there are 3 directions a market can travel; up, down or sideways. As long as we trade stocks, this will be true – and just as valuable as Livermore’s seasoned trading friend’s advice was then it would be today.

Markets, like rivers, don’t change courses overnight – or even in a few days. It often takes many months if not years to properly establish a trend. Simply pull back any weekly chart over the past couple years and assess where the trend is going. If you aren’t quite sure, then more than likely cash remains the place for you.

Understand this basic, yet key, principle of trading, and you will already be well ahead of most.

Respect the Trend

  
  Education
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One of my favorite trading tales involves a very wise, veteran trader who, when asked his thoughts on the market, would simply respond by saying “It’s a bull market,” or “It’s a bear market.” Younger traders simply seeking out a hot tip from the seasoned pro would often leave discouraged – or even annoyed, believing they were being fed a line. JL himself didn’t understand until years later the wisdom that was actually being dispensed with those words: The veteran was simply relaying the path of least resistance, or the trend for the general market, and therefore giving the trader an incredible edge in determining one of the many variables that makes up stock trading.

—

Traders should equate the general market to that of a big river with individuals stocks as floating logs. If ones objective was to ride in the general direction of the current, they would not stand on the bank looking for a log that was bucking that trend? Furthermore, even if they found one that temporarily headed in the wrong direction, more than likely it would only be a matter of time before the log reversed course and also headed in the way of all the other logs. (more…)

Respect the Trend

  
Analysis, Education
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One of my favorite trading tales involves a very wise, veteran trader who, when asked his thoughts on the market, would simply respond by saying “It’s a bull market,” or “It’s a bear market.” Younger traders simply seeking out a hot tip from the seasoned pro would often leave discouraged – or even annoyed, believing they were being fed a line. JL himself didn’t understand until years later the wisdom that was actually being dispensed with those words: The veteran was simply relaying the path of least resistance, or the trend for the general market, and therefore giving the trader an incredible edge in determining one of the many variables that makes up stock trading.

—

Traders should equate the general market to that of a big river with individuals stocks as floating logs. If ones objective was to ride in the general direction of the current, they would not stand on the bank looking for a log that was bucking that trend? Furthermore, even if they found one that temporarily headed in the wrong direction, more than likely it would only be a matter of time before the log reversed course and also headed in the way of all the other logs. (more…)

3 TRADING COMMANDMENTS

  
  Education
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You Learn More From Your Enemies Than You Do From Your Friends.  Make sure you take the criticism’s of others and use them to your advantage by recognizing that the more others criticize the more you value your own beliefs, trading or otherwise.

Be Careful Who You Get Into Bed With.  Although not a trading rule per se, keeping good, solid company outside the charts, can help you be the best trader inside the charts.  “Trust and integrity between two people are the most important variables in life and in business” 

Never Operate From a Position of Fear.  “If you are fearful in the markets, either as a result of taking a recent loss or some other mistake, or even as a result of being nervous about the level of risk you are taking, then you are putting yourself in the position of making and unclear and hence incorrect decision”

7 Lessons for Traders

  
  Education
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1. You always have to have cash, especially when no one else has it. (John Burbank of Passport Capital has said the same: “Cash is most valuable when others don’t have it.”)
2. No free lunch- it’s not free, or it’s not lunch.
3. You can’t change people! You can change yourself, but not others.
4. You only see reality under extreme stress- you want to get to know someone, you need to see them under extreme stress. 
5. Volatility is not risk!
6. Always assume you will have bad luck.
7. Few variables to win. Once you have to think about more than 3 variables, your odds of winning are low.

CONCENTRATE ON EXECUTION

  
  Education
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Trade execution is very important.  It is the same in sports – you can have a good team, a very talented team that you put on the field.  But if they don’t execute the plays like they’re trained to, the team will probably not win.  It’s a simple fact of life.  You’ve got to be able to execute.  Tiger Woods can have a game plan when he hits that course, but if he doesn’t execute and follow through his game plan, no matter how talented he is, the competition is going to beat him.  This is a very important factor in trading a portfolio of technical or priced based strategies that is grossly overlooked. You need to get the execution of trades correctly day in and day out, because there’s just one or two missed opportunities which get away that could have made your month or there can be mistakes that can take away weeks and weeks of profitable work.  This is where the use of good automated trading software can control some of these variables. 

Always Remember

  
  Education
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One must always remember Slansky’s admonition which is that you have to take account of whether you’re a winner or loser, and what your average rate of win is relative to the distribution of losses. If you’re a good player, never accept a bet with a small edge if it might subject you too close to gambler’s ruin, or getting stopped out of you position even if you have an edge. Many a good player doesn’t call bets in one’s favor if it has too high a variability relative to his bank roll. Many a t-grade should not be taken when the variables like an announcement put the normal tit and tat into jeopardy. I hate to force a weaker player, (assuming I might ever have that luxury again) into making a good shot. Board players are the same way. They can sometimes create a crisis, a tension where if the weaker player makes the rite move, he might pull out a draw or victory. Much better to grind the poor sinner or market into oblivion.

Don't be tempted

  
  Education
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One of the easiest things to do is to over think. There are so many possible outcomes and our little minds love to run through all of those that it encounters or can dream up and try to assign likelihoods to each of them. I agree the human mind is an amazing thing but seriously, what’s the odds that you are going to 1) identify all the variables and 2) assign proper weighting to their probable outcomes and 3) realize the implications of the interactions between them all. It just isn’t going to happen so don’t be tempted.

Sure, you can think you have it figured out and if it goes your way you’ll pat yourself on the back and reinforce the thought that you have got the answer when all you have is a tiger by the tail. It will turn on you before you know it.

All you can do is map out what you believe will happen based on qualified trends and trend trading set-ups, put your stops in and let it rip. Of course you monitor and adjust as needed but you can only control risk and once you realize that the tiger’s tail seems a lot less frightful.

Paul Counsel-Trading Wisdom

  
  Education
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Successful trading has absolutely nothing to do with making money and everything to do with trading successfully. Making money will only ever be a by-product of successful trading. Successful trading is not a by-product of making money. When you attach trading to money and money to emotions and emotions to money you’ll have taken your first loss but you won’t know it yet.

Trading has everything to do with personal psychology, rules, systems, discipline, focus and skill. Like anything else that’s skill based, once you start it takes time and practice to become skilful.Ultimately trading is about making decisions between two choices, to buy or sell. As simple as these two choices are the variables that effect the decisions surrounding them can be as complex as the human mind can make them.

As a trader your central focus should be on your system. You should know your system inside out, its strengths and weaknesses. Your system should be comprised of a set of rules that ultimately guide you in making either of two decisions, to buy or sell. You should be able to read your system with respect to market conditions and base your trading choices on what your system is telling you.

As a trader you must understand that you’re the weakest link in the system because the complexity will reside with you. Good systems are simple. They are nothing more than a series of instructions called trading rules. The primary thought that should be central in your mind is that it’s the system that makes the money, not you. The more skilled you become at reading market conditions and marrying these conditions to your system the better a trader you’ll be.

Wealth creation is an uncertain activity for most people and, to do something without certainty of outcome, takes courage. It takes courage to do what the majority is not doing. It takes courage to overcome scepticism and cynicism. It takes courage to deal with fear and overcome fear barriers.

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