1. Buying a weak stock is like betting on a slow horse. It is retarded.
Archives of “Wisdom” tagrss
“Nothing you can do – talking, thinking, reading, imagining- is more effective in building skill than executing the action, firing the impulse down the nerve fiber, fixing errors, honing the circuit.”
This explanation reveals why it is impossible to transfer trading prowess from one person to another. You can’t talk, think, read, or imagine your way to elite performance. The key lies in the “doing”, going through the motions. Now that’s not to say talking or reading about trading isn’t helpful. It is. I pick up tons of insight from talking with other investors and traversing the trading blogosphere. I’m like a hungry orphan hiding below the tables of successful traders just hoping they’ll drop a few morsels of wisdom I can chew on. Yet it’s not a substitute for “executing the action”. Nothing replaces sitting in front of my computer, monitoring positions, assessing potential trades and most importantly pulling the trigger. (more…)
Dickson Watts (PDF) has been dead for decades, but his wisdom never dies. Some fine lines:
“Many lean, few lift.”
“The man who conforms never transforms.”
“Rest with descending wave; mount with the ascending wave.”
“There is many a slip between the cup and the lip, but only one slip between the cup and the ground.”
“The unpardonable sin — not to make money.”
“Some men are alive after they are dead; others are dead while still alive.”
1. Buying a weak stock is like betting on a slow horse. It is retarded.
2. Stocks are only cheap if they are going higher after you buy them.
3. Never trust a person more than the market. People lie, the market does not.
4. Controlling losers is a must; let your winners run out of control.
5. Simplicity in trading demonstrates wisdom. Complexity is the sign of inexperience.
6. Have loyalty to your family, your dog, your team. Have no loyalty to your stocks.
7. Emotional traders want to give the disciplined their money.
8. Trends have counter trends to shake the weak hands out of the market.
9. The market is usually efficient and can not be beat. Exploit inefficiencies.
10. To beat the market, you must have an edge.
11. Being wrong is a necessary part of trading profitably. Admit when you are wrong.
12. If you do what everyone is doing you will be average, so goes the definition.
13. Information is only valuable if no one knows about it.
14. Lower your risk till you sleep like a baby.
15. There is always a reason why stocks go up or down, we usually only learn the reason when it is too late.
16. Trades that make a lot of intellectual sense are likely to be losers.
17. You do not have to be right more than you are wrong to make money in the market.
18. Don’t worry about the trades that you miss, there will always be another.
19. Fear is more powerful than greed and so down trends are sharper than up trends.
20. Analyze the people, not the stock.
21. Trading is a dictators game; you can not trade by committee.
22. The best traders are the ones who do not care about the money.
23. Do not think you are smarter than the market, you are not.
24. For most traders, profits are short term loans from the market.
25. The stock market can not be predicted, we can only play the probabilities.
26. The farther price is from a linear trend, the more likely it is to correct.
27. Learn from your losses, you paid for them.
28. The market is cruel, it gives the test first and the lesson afterward.
29. Trading is simple but it is not easy.
30. The easiest time to make money is when there is a trend.
Mind: The key to winning is inside the Mind. As Master of your mind, you have to manage and understand your emotions very well. It is extremely important to understand not just the individual’s psychology, but also the crowd psychology of the markets. To become a successful trader, you must have sheer perseverance and discipline.
Method: There is no Holy Grail in the search for the perfect method to trade. Follow the wisdom of ‘Plan your Trade and Trade your Plan’. A good trading plan should cover your entry, exit and position sizing requirements. My method consists of discretionary trading techniques that combine both fundamental and technical analysis, in addition to my own proprietary automated trading system. Coming up with a good trading plan requires lots of market experience, as you modify, conquer and solidify your trading techniques. Don’t be duped by charming salesmen selling get-rich-quick-without-effort secret recipes.
Money: Overall profit/loss depends on money management. The first goal of money management is capital preservation. If you lose 10% of your capital, you have to make 11% just to break even. If you lose 40%, you need to make 67%, and if you lose 50%, guess what? You have to make 100% just to recover! So before you think about making big money, first you got to think about not risking your capital unnecessarily. Money management is too important to be overlooked.
A Book of Five Rings (or Go Rin No Sho) was written by the samurai legend, Miyamoto Musashi, in 1645. I read this text several years ago and while the central theme is ‘strategy’, the lessons that left a lasting impression concerned ‘true understanding’ and the importance of practice; of practising one’s arts, one’s discipline, one’s techniques. Practising until third nature becomes second nature, becomes first nature. In this age, when knowledge is plentiful and experience lacking, I believe there is much to be learned from Musashi’s wisdom:
The Kendo student practises furiously, thousands of cuts morning and night, learning fierce techniques of horrible war, until eventually sword becomes “no sword”, intention becomes “no intention”, a spontaneous knowledge of every situation. The first elementary teaching becomes the highest knowledge, and the master still continues to practise this simple training, his everyday prayer.
Study this book; read a word then ponder on it. If you interpret the meaning loosely you will mistake the Way.
If you merely read this book you will not reach the Way of strategy. Absorb the things written in this book. Do not just read, memorise or imitate, but so that you realise the principle from within your own heart, study hard to absorb these things in to your body.
“To know the times” means to know the enemy’s disposition in battle. Is it flourishing or waning? By observing the spirit of the enemy’s men and getting the best position, you can work out the enemy’s disposition and move your men accordingly. You can win through the principle of strategy, fighting from a position of advantage.
…the way to understand is through experience.
You must bear this in mind.
Practise this well.
You must research this well.
You must appreciate this.
You must train constantly.
You must consider all this carefully.
Study this well.
You must train hard to understand it.
With detailed practice you should be able to understand it.
If you train well enough you will be able to strike accordingly.
You must train repetitively.
Learn this well.
If you are a trader, you will relate
When an archer is shooting for nothing . . . he has all his skill.
Many books have been written by and about Mr. Livermore. He was a fascinating individual who reportedly made $100 million in a single day in the 1929 crash.
Legend has it that during the crash J.P. Morgan personally walked over to the N.Y. Stock exchange to ask Jesse Livermore to stop selling and start buying in order to save the markets.
He was an expert at following the right trend, with the exception of marriage. His wife was married about four times prior to marrying him, and all four husbands killed themselves, as did Jesse eventually. Not quite marriage counselor material, he is nonetheless one of the greatest wells of trading wisdom from which I have quenched my thirst in the past.
I am a much better trader because of Jesse Livermore. Every time I get stuck in a trading rut, I review my notes on his trading philosophies, which I would like to share with you below. (more…)
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…)