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Analysis, Education, US Market
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From Richard Russell:

Primary trends can be likened to the power of the ocean tides. Build a sand castle against the ocean tide, and the first wave will wash your castle away. Build a cement wall against the tide, and in a matter of years the cement wall will be reduced to sand and rubble…primary trends, one way or another, go to completion. Or to put it another way, a primary trend will go to completion, no matter what..I said from the beginning, “let the bear market fully express itself.” One way or another it will express itself regardless of the wishes of Washington or the Fed or the Treasury. Interfering with the primary trend will just drag out the situation and make it worse — it will be turning a menace into a Frankenstein…According to Dow Theory, neither the depth nor the duration of a bear market can be predicted in advance. In this bear market, the Dow could fall to 4,000 or 400. I honestly don’t know the answer. In my experience, primary trend tend to carry further than anyone expects. I do know this — yesterday the following broke below their June lows — the Dow, the Transports, the NYSE Composite (which includes ALL NYSE stocks), the S&P Composite, the NASDAQ and the Russell 2000. Any way you look at it, that’s bad action. Maybe just as bad, new lows on the NYSE surged to 164. Hundreds of stocks are breaking down, and even more are hovering just above their 52-week lows. The lower depths of this market are opening up like a giant graveyard. It is said that in a big bear market, stocks return to their original homes — Wall Street.”

Can it happen? Yes. Does anyone know for sure? No. Follow trends.

9 Things-Jesse Livermore said regarding excessive trading

  
  Education
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“Money is made by sitting, not trading.”

2. “It takes time to make money.”

3. “It was never my thinking that made the big money for me, it always was sitting.”

4. “Nobody can catch all the fluctuations.”

5. “The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money everyday, as though they were working for regular wages.”

6. “Buy right, sit tight.”

7. “Men who can both be right and sit tight are uncommon.”

8. “Don’t give me timing, give me time.”

and finally, the most important thing:

9. “There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. Not many can always have adequate reasons for buying and selling stocks daily – or sufficient knowledge to make his play an intelligent play.” (more…)

Focus on You

  
  Education
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It is never the system or author writing the trading book that fails.
It is YOU! It is your lack of focus.
Focus on yourself and then you can focus on trading successfully.

Trading is at least 98% psychological. It’s a mental state of mind based upon your beliefs of what may happen. Books, systems and technical indicators can only take you so far! You must accept and understand that the market is all in your head. It is you versus the other trader. If you don’t understand YOU, how will you ever understand other traders; thus taking advantage of market moves based on their mental state of mind and their underlying beliefs.

Many investors, both novice and experienced, drift from book to book to book and system to system to system, never understanding why they produce inconsistent profits. They are confused, looking at too many things, complicating the entire process while ignoring the essentials to success.

Keep it simple.

Why complicate things when simplicity works; especially when it comes to trading? We know that trading may be the most difficult endeavor that any human may attempt to undertake.

Thousands of different systems work in the stock market so we can conclude that it is the user that ultimately fails because of lack of concentration and motivation to stay the course. Wall Street is not for drifters and most people can’t play the game profitably because they never sharpen their own mental skills while applying basic money management techniques. They focus on the wrong set of skills.

We all see people come and go every day: rags to riches to rags. They are motivated for weeks, months and sometimes years but most fizzle away after they fail and can’t figure out what they are doing wrong. Some investors copy a system from a so-called guru and may find success for a while but they don’t tailor it to their personality, integrate it with their investing style and focus on their mental state of mind, therefore, it will become obsolete and they will fail. Working hard to become successful in the market is fine but understand that working smarter will always take you further.

Our goal as traders and investors is to understand the crowd and anticipate how they will act and react based on the thoughts we had, prior to focusuing on the proper skills, when we were just one of the sheep (waiting to be slaughtered)!

Focus on what is important and the success will follow.

Stop focusing on iffy stochastics, Bollinger bands, MACD, ADX, earnings releases and bogus news stories. Yes they can aid you to success but the main focus is on you!

Personally speaking, I require specific fundamentals, price, volume and basic daily and weekly charts to succeed but they are secondary tools. They can help me make money as long as I am focusing on the overall picture which is my mental focus and my emotional balance.

I know I am getting all “Dr. Perruna” on you but it is true.

Once your conscious mind understands how the beliefs of the crowd work, your subconscious mind takes over and intuition kicks in and you start making some of the best decisions of your life by flawlessly following your system.

As Jesse Livermore said:

“Wall Street never changes, the pockets change, the stocks change, but Wall Street never changes, because human nature never changes”

Why? Because humans never change!

Once you understand this and learn to trade other humans, you will become successful. Yes, you will need some of the tools mentioned above but don’t focus your attention in this area. Focus when investing by mastering the beliefs of the crowd and you will always be one step ahead.

6 Random Thoughts

  
  Education
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1) Everyone needs a “mental break” from trading once in a while. The best time to take one is during corrective markets. It helps you protect capital and confidence.

2) If you have a -50% loss, it takes a +100% gain to get it back. In other words, CUT YOUR LOSSES!

3)  If you have trouble with discipline and staying away from the market, turn off your computer and get out of your chair. If you sit in the barbershop long enough, you’ll eventually get a haircut.

4) The “fear of missing out” is the downfall of most traders.

5) Whoever said that money doesn’t buy happiness clearly didn’t know where to shop.

6) “There is nothing new on Wall Street. What has happened in the past will happen again and again and again. This is because human nature does not change, and it is human emotion that always gets in the way of human intelligence. Of this I am sure.” — Jesse Livermore

Donchian rules

  
  Education
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Richard Donchian is known as the father of trend following. His original trend following ideas form the basis for all trend following success that has followed. Below in an excerpt from an article written in 1995 about his 5 and 20 day moving average system:

Title: Donchian’s five- and 20-day moving averages. 
Author: Richard Donchian
Publication: Futures (Cedar Falls, Iowa) (Magazine/Journal)
Date: November 15, 1995
Publisher: Oster Communications, Inc.
Volume: v24 Issue: n13 Page: p32: ISSN: 0746-2468

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On Wall Street there are two conflicting adages:
1. “You’ll never go broke taking a profit.”

2. “Cut your losses short and let your profits ride.”

Experience has shown that in commodities trading, the first of these “old saws” is dangerous and misleading, while the second may well be regarded as the one lesson the inexperienced commodity trader should learn if he wishes to have a better-than-even chance to come out ahead.

Every well-designed, trend-following, loss-limiting method for trading in futures (or stocks) rests on the basic principle that a trend in either direction, once established, has a strong tendency to persist, at least for a time. Among the many trend-following approaches now in use are the Dow Theory, point-and-figure chart techniques, swing methods (other than the Dow Theory), trendline methods, weekly-rule methods and moving average methods. We’ll focus on moving average methods and, in particular, the comparatively simple five- and 20-day moving average method.

The Method (more…)

legendary speculator Jesse Livermore

  
  Education
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legendary speculator Jesse Livermore on LETTING YOUR WINNERS RUN

(Chapter V) … “I think it was a long step forward in my trading education when I realized at last that when old Mr. Partridge kept on telling the other customers, “Well, you know this is a bull market!” he really meant to tell them that the big money was not in the individual fluctuations but in the main movements – that is, not in reading the tape but in sizing up the entire market and its trend.”

In all of “Reminiscences” this crucial idea that the Really Big Money is always earned by prudently riding the large trends over time and not in day trading every minute fluctuation is one of the central themes of the book.

“be right and sit tight”

(Chapter V) … “And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying and selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine – that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.” (more…)

9 Lessons From The Greatest Trader Who Ever Lived

  
  Education
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One of the good guys (for me, at least) has always been Jesse L. Livermore. He’s considered by many of today’s top Wall Street traders to be the greatest trader who ever lived.
Leaving home at age 14 with no more than five bucks in his pocket, Livermore went on to earn millions on Wall Street back in the days when they still literally read the tape.
Long or short, it didn’t matter to Jesse.
Instead, he was happy to take whatever the markets gave him because he knew what every good trader knows: Markets never go straight up or straight down.
In one of Livermore’s more famous moves, he made a massive fortune betting against the markets in 1929, earning $100 million in short-selling profits during the crash. In today’s dollars, that would be a cool $12.6 billion.
That’s part of the reason why an earlier biography of his life, entitled Reminiscences of a Stock Operator, has been a must-read for experienced traders and beginners alike.
A gambler and speculator to the core, his insights into human nature and the markets have been widely quoted ever since.
Here are just a few of his market beating lessons: 

On the school of hard knocks:

The game taught me the game. And it didn’t spare me rod while teaching. It took me five years to learn to play the game intelligently enough to make big money when I was right.

On losing trades:

Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocket book and to the soul.

On trading the trends:

Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the fluctuations. In a bull market the game is to buy and hold until you believe the bull market is near its end. (more…)

Observation, Experience, Memory and Mathematics

  
  Education
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“Observation, experience, memory and mathematics – these are what the successful trader must depend on. He must not only observe but remember at all times what he has observed. He cannot bet on the unreasonable or the unexpected, however strong his personal convictions may be about man’s unreasonableness or however certain he may feel that the unexpected happens very frequently. He must bet always on probabilities – that is, try to anticipate them. Years of practice at the game, of constant study, of always remembering, enable the trader to act on the instant when the unexpected happens as well as when the expected comes to pass.

“A man can have great mathematical ability and an unusual power of accurate observation and yet fail in speculation unless he also possesses the experience and the memory. And then, like the physician who keeps up with the advances of science, the wise trader never ceases to study general conditions, to keep track of developments everywhere that are likely to affect or influence the course of the various markets. After years of the game it becomes a habit to keep posted. He acts almost automatically. He acquires the invaluable professional attitude that enables him to beat the game – at times! This difference between the professional and the amateur or occasional trader cannot be overemphasized. I find, for instance, that memory and mathematics help me very much. Wall Street makes its money on a mathematical basis. I mean, it makes its money by dealing with facts and figures.” (more…)

11 Things I’ve Learned About Markets

  
  Education
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1. “There is no such thing as easy money”

2. Events that you think are affected by cardinal announcements like the employment numbers at 8:30 am on Friday are often known to many participants before the announcement

3. It’s bad to try to make money the same way several days in a row

4. Markets that have little liquidity are almost impossible to profit from.

5. When the stock market is way down, policy makers take notice and do what they can to remedy the situation.

6. The market puts infinitely more emphasis on ephemeral announcements that it should.

7. It is good to go against the trend followers after they have become committed.

8. The one constant, is that the less you pay in commissions, and bid asked spread, the more money you’ll end up with at end of day. Too often, a trader makes a fortune on the prices showing when he makes a trade, and ends up losing everything in the rake and grind above.

9. It is good to take out the canes and hobble down to wall street at the close of days when there is a panic.

10. A meme about the relation between today’s events and those of x years ago is totally random but it is best not to stand in the way of it until it is realized by the majorit of susceptibles

11. All higher forms of math and statistics are useless in uncovering regularities.

Secrets of Jesse Livermore

  
  Education
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1. Money Management:
    * “I trade on my own information and follow my own methods.”
    * “The desire for constant action irrespective of underlying conditions is responsible for many losses on Wall Street, even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.”

2. Business of Investing:
    * “I believe that anyone who is intelligent, conscientious, and willing to put in the necessary time can be successful on Wall Street.  As long as they realize the market is a business like any other business, they have a good chance to prosper.”
3. The Investor Self:
    * “My satisfaction always came from beating the market, solving the puzzle.  The money was the reward, but it was not the main reason I loved the market.  The stock market is the greatest, most complex puzzle ever invented – and it pays the biggest jackpot…it was never the money that drove me.  It was the game, solving the puzzle, beating the market that had confused and confounded the greatest minds in history.  For me, that passion, the juice, the exhilaration was in beating the game, a game that was a living dynamic riddle…”
4. Market Analysis:
    * “What beat me was not having the brains enough to stick to my own game – that is, to play the market only when I was satisfied that precedents favored my play.”
    * “It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind.”
5. Routines:
    * “It is what people actually did in the stock market that counted – not what they said they were going to do.”
    * “The game of speculation is the most uniformly fascinating game in the world.  But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer.  They will die poor.” (more…)
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