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Trading Wisdom – Andrew Gordon

  
  Education
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Legendary stock trader Jesse Livermore had it right: The big money is in the big moves … and the trick to making the big money is knowing how to sit tight and ride the trend for all it’s worth. As obvious as that may seem, many investors have trouble doing it.

They are, as cognitive psychologists like Daniel Kahneman and Amos Tversky would say, “risk-averse.” The pain they experience in losing money is far greater than the pleasure they experience in making it. As a result, these investors typically sell their investments too soon for fear of incurring a real or even a paper loss.

To profit the most from an investment, you need to be able to wait long enough for it to achieve its full potential. So if you’re “risk-averse” by nature, it might be a good idea for you to avoid paying too much attention to the news. If you’re watching television and the nightly business report comes on, change the channel. Set aside the business section of the paper to read on a rainy day. Ignore cocktail chatter about investing. That way, you’re more likely to stick to your trading plan instead of letting your emotions overpower your better judgment. 

Words to live by

  
Education, Life
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1. Do not argue with an idiot. He will drag you down to his level and beat you with experience.
2. The last thing I want to do is hurt you. But it’s still on my list.
3. Light travels faster than sound. This is why some people appear bright until you hear them speak.
4. If I agreed with you, we’d both be wrong.
5. We never really grow up, we only learn how to act in public.
6. War does not determine who is right – only who is left.
7. Knowledge is knowing a tomato is a fruit. Wisdom is not putting it in a fruit salad.
8. Evening news is where they begin with ‘Good Evening,’ and then proceed to tell you why it isn’t.
9. To steal ideas from one person is plagiarism. To steal from many is research.
10. A bus station is where a bus stops. A train station is where a train stops. On my desk, I have a work station.
11. I thought I wanted a career. Turns out I just wanted paychecks.
12. Whenever I fill out an application, in the part that says, ‘In case of emergency, notify:’ I put ‘DOCTOR.’
 
13. I didn’t say it was your fault, I said I was blaming you.
14. Women will never be equal to men until they can walk down the street with a bald head and a beer gut, and still think they are sexy.
15. Behind every successful man is his woman. Behind the fall of a successful man is usually another woman.
16. A clear conscience is the sign of a fuzzy memory.
17. I asked God for a bike, but I know God doesn’t work that way. So I stole a bike and asked for forgiveness.
18. You do not need a parachute to skydive. You only need a parachute to skydive twice.
19. Money can’t buy happiness, but it sure makes misery easier to live with.
20. There’s a fine line between cuddling and holding someone down so they can’t get away.
21. I used to be indecisive. Now I’m not so sure.
22. You’re never too old to learn something stupid.
23. To be sure of hitting the target, shoot first and call whatever you hit the target.
24. Nostalgia isn’t what it used to be.
25. Change is inevitable, except from a vending machine.
26. Going to church doesn’t make you a Christian any more than standing in a garage makes you a car.
27. A diplomat is someone who tells you to go to hell in such a way that you look forward to the trip.
 
28. Hospitality is making your guests feel at home even when you wish they were.
 
29. I always take life with a grain of salt. Plus a slice of lemon, and a shot of tequila.
30. When tempted to fight fire with fire, remember that the Fire Department usually uses water. 

Truth and Trading

  
  Education
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Recently I’ve been listening to The Teaching Company CD’s while I work out. I was particularly intrigued by a discussion of Meditations by Marcus Aurelius, a Roman Emperor who had always wanted instead to be a philosopher. His philosophy could be summarized in this way: Get out of bed, do your duty, and appreciate things along the way. Not bad.

He believed in certain absolute values for living, and chose the values of Socrates which are truth, justice, courage, moderation, and wisdom.

Asking myself how these values impact trading I came up with some new insights. But first let’s look at how Marcus Aurelius defined these values. Professor J Rufus Fears, who teaches the course on “Books That Have Made History: Books That Can Change Your Life” explained it the following way:

1. Truth: Truth is an absolute value. Some things are true in all places and times. Resisting evil, for example, is always right.

2. Justice: Justice consists of treating others as one would wish to be treated. “Do unto others as you would have them do unto you” summarizes this concept of justice.

3. Courage: Courage means standing up for justice.

4. Moderation: Nothing should be carried to excess.

5. Wisdom: Wisdom enables a person to know what justice is, to recognize when courage is required, and to do what is right.

So how do these values play out in our trading? In this column, let’s explore truth as it applies to your trading. (more…)

The Education of a Speculator – Victor Niederhoffer (Quotes )

  
Analysis, Education
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The negatives are that the book is a very tough read with unconventional style of writing, perhaps way over most people heads, and you need some background on how markets work. However, you can feel that he has a lot of energy, wisdom/knowledge and is very competitive. He focuses on his mistakes (this was before his blowup), his upbringing, victories and moments of elation.

I always mark possible quotations when reading a book. This book is so full of them! Here are some random excerpts:

  • “Risk taking…is positively correlated with how well we feel about ourselves.” (page 113)
  • “One thing is for sure. Among the emotionally charged, you will not find one single long-term winner. Where are they? According to Bacon: “These quiet professionals are quite inconspicuous unless you look for them, because there are so many careless gamblers, crazy amateurs, jumping from one crackpot idea to another betting on hope and fear”. I show this passage to any trader in my office who is showing color or palpitation.” (206)
  • I find that Chinese handball has much to teach me about market practices. A limit order is a good tactic for Chinese trading, but a market order works best for handball trading. The direct market order against a quickly moving target frequently leads to a fast rebound against. The game is then over before it starts….I use limits orders. I don’t win fast, but the losses are a lot slower in coming.” (397)
  •  “…chain smoking, temper tantrums, screaming…these expressions of emotion have within them the seeds of destruction. I enforce a ban against all jocularity and temper tantrums.” (207)
  • “Offering advice without expertise is aggressive ignorance.” (188)
  • “With the increasing specialization in modern times, born losers are commonplace.” (85)
  • “During the 10 years I traded for George Soros, I never heard him speak about a winning trade. To hear him talk, you’d think he had nothing but losers. Conversely, listening to the biggest losers, you’d think they had nothing but winners.” (95)
  • “Do not follow the mentally lazy habit of allowing a newspaper or a broker or a wise friend to do our security market thinking.” (114)
  • “The best opportunities come out of the clear blue.” (129)
  • “The exchange is a market ecosystem.” (353)
  • “Oracles, forecasts, and prophecies are a business. They should be evaluated with the same skepticism and savvy that would be applied to a used-car dealership.” (64)
  • “The only newspaper I read is the National Enquirer. I don’t own a television, don’t follow the news, don’t talk to anyone during the trading day, and don’t like to read books less than 100 years old.” (ix – preface)
  • “My resistance to conformity has been the bedrock of my speculative persona.” (110)
  • “…institutional learning, like the Harvard Colleges and Lincoln High Schools of Life – the kind that prepares most of us to become good soldiers, true believers, and conformists.” (110)
  • “An incapability of relying on oneself and faith in others are precisely the conditions that compel brutes to live in herds.” A quote from Niederhoffer’s intellectual hero, Francis Galton (136)

They are endless! If you are just to by one trading book, this is it. Enjoy!

Respect the Trend

  
  Education
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respect-21One 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. (more…)

Trading Wisdom

  
  Education
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“The market can stay irrational longer than you can stay solvent” – The way the market reacts to certain news or events may not seem rational at times, but there is no sense in trying to fight the market – it moves where it moves and does not care one bit about your opinion.

“A fool and his money are soon parted” – If you are not smart about where you put your money, you will most likely lose it.

“The trading rules I live by are: (a) Cut losses, (b) Ride Winners, (c) Keep bets small, (d) Follow the rules without question, and (e) Know when to break the rules.” – Rules are important, but following them blindly does not necessarily lead to success. Know which conditions produced those rules in the first place, so that when the conditions change, the rules can too.

“Amateurs Focus On Rewards. Professionals Focus on Risk.” – Experienced traders think first about how much they can lose on a trade, base their calculations on that, and then see if they are happy with the potential reward the trade offers. Novices usually do the opposite, blinded by the allure of quick riches.

Trading Wisdom – Jesse Livermore

  
  Education
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“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. Livermore hammers this again and again, attacking it from countless angles and spicing up all of his amazing lessons with his own enthralling personal experiences.

This old and successful speculator that Livermore mentions, Mr. Partridge, would always politely tell the younger speculators who asked him trading questions that it was a bull market. The young speculators were always eager to trade, but Partridge was old and battle-scarred enough to know that no mere mortal could even hope to catch every individual fluctuation so the wisest strategy was just to ride the major trends. His simple reply, which would annoy the youngsters since they couldn’t yet perceive the deep wisdom in it, was to subtly advise them to just ride the primary trend and not worry about rapid-fire trading.

If a particular market happens to be in a primary bull trend, then just be long and don’t worry about trying to interpret and trade upon the essentially random day-to-day market noise. If a particular market is in a primary bear trend, then either sit out in cash or stay short and wait for the trend to fully mature and run its course. Don’t try to frantically outguess the primary trend everyday, just accept it and trade with it and you will win in the end.

Trading Wisdom Via Linda Raschke

  
  Education
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It’s important as a trader to always be studying and sharpening your skills. Here is a short video jammed packed with concepts from Linda Raschke that all traders can use in their trading plan.
Key concepts from the video:

  • The fewer decisions that you can make during the trading day, the better off you will be.
  • All exit strategies should be based of your initial entry.
  • 75% of trades test out best by taking your profits quickly.
  • Shorter the time frame, the less justification for trailing stops.
  • Trend followers often pay up to ensure they get a position.

 

Trading Wisdom Not Heard Often

  
  Education
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wisdom-
  • Buy from the scared, sell to the greedy.
  • Buy their pain, not their gain.
  • Successful traders are quick to change their minds and have little pride of opinion.
  • I made my money because I always got out too soon. (Bernard Baruch)
  • Don’t try to buy at the bottom and sell at the top. It can’t be done except by liars. (Bernard Baruch)
  • Throughout all my years of investing I’ve found that the big money was never made in the buying or the selling. The big money was made in the waiting. (Jesse Livermore)
  • The faster a stock has climbed, the quicker it will fall.
  • The more certain the crowd is, the surer it is to be wrong. (Menschel)
  • Bear markets begin in good times. Bull markets begin in bad times
  • Never confuse genius with a bull market.
  • Always sell what shows you a loss and keep what shows you a profit

Byron Wien’s 20 Rules of Investing & Life

  
Education, Life
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MUST READOutstanding list from a man who has accumulated much wisdom over the years:

 Lessons Learned in His First 80 Years

1. Concentrate on finding a big idea that will make an impact on the people you want to influence. The Ten Surprises, which I started doing in 1986, has been a defining product. People all over the world are aware of it and identify me with it. What they seem to like about it is that I put myself at risk by going on record with these events which I believe are probable and hold myself accountable at year-end. If you want to be successful and live a long, stimulating life, keep yourself at risk intellectually all the time.

2. Network intensely. Luck plays a big role in life, and there is no better way to increase your luck than by knowing as many people as possible. Nurture your network by sending articles, books and emails to people to show you’re thinking about them. Write op-eds and thought pieces for major publications. Organize discussion groups to bring your thoughtful friends together.

3. When you meet someone new, treat that person as a friend. Assume he or she is a winner and will become a positive force in your life. Most people wait for others to prove their value. Give them the benefit of the doubt from the start. Occasionally you will be disappointed, but your network will broaden rapidly if you follow this path.

4. Read all the time. Don’t just do it because you’re curious about something, read actively. Have a point of view before you start a book or article and see if what you think is confirmed or refuted by the author. If you do that, you will read faster and comprehend more.

5. Get enough sleep. Seven hours will do until you’re sixty, eight from sixty to seventy, nine thereafter, which might include eight hours at night and a one-hour afternoon nap.

6. Evolve. Try to think of your life in phases so you can avoid a burn-out. Do the numbers crunching in the early phase of your career. Try developing concepts later on. Stay at risk throughout the process. (more…)

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