To be a successful trader, you have to obtain the mind set that following the rules is pleasurable and breaking the rules is painful.
– Victor Sperandeo, Trader Vic – Methods of a Wall Street Master
On September 6, 2009, In Thought of the Day, by ElfLord
On September 5, 2009, In Thought of the Day, by ElfLord
As we all know, the danger points in trading come when we’re under stress. The immediate source of stress is usually adverse price movement, and the danger is that we capitulate to internal promptings which are irrational.
It would doubtless be a worthy objective to work to vanquish stress- as much in our lives as in our trading. But in trading the more practical solution (in life too perhaps) is to take on a series of rules for action in all circumstances. This is not complicated: the only things we do in trading are to initiate positions and then close them. It’s a relatively simple matter to formulate rules for each proposition. For example, we only open positions when all the pieces fit and we only close them when the pieces cease to fit or when our stop is hit, whichever is first. OK, adhering to the rules is not as easy as formulating them. But we can get there, step by step, if we are committed to winning.
- John Percival, The Way of the Dollar
On September 4, 2009, In Good Articles, by ElfLord
WE ARE ALL dumb money. It’s just that a few of us are slightly less dumb then the rest.
Most people spend their time thinking about exactly the wrong things, and with the Nasdaq down over 50% from its high, it comes as no surprise that there are plenty of opinions on what the next move might be. Should my retirement account rest in equities and nothing but equities because Abby Joseph Cohen makes a market call? Should I be bullish just because the perpetually tan Joe Battipaglia is bullish and can lay down a line of corresponding patter in a two-minute segment on CNBC’s “Squawk Box”?
The debates are interesting — but ultimately irrelevant. As always, nobody knows the future. For every reason this might be a bottom, there are just as many signs that suggest the worst is yet to come. To that end, let us remember that there are no “right” answers, only answers that are right for your portfolio. What matters most is not your analysis of the stock, but your understanding of how the stock fits, or could potentially fit, into your overall position in the marketplace. Trading is an act of self-preservation. The real question isn’t “What’s next for the Nasdaq?” but how adding or subtracting a position in the Nasdaq might affect your overall risk exposure. (more…)
On September 4, 2009, In Thought of the Day, by ElfLord
If you’re playing for the emotional satisfaction, you’re bound to lose, because what feels good is often the wrong thing to do. Richard Dennis used to say, somewhat facetiously, ‘If it feels good, don’t do it.’ In fact, one rule we taught the Turtles was: When all the criteria are in balance, do the thing you least want to do. You have to decide early on whether you’re playing for the fun or for the success. Whether you measure it in money or in some other way, to win at trading you have to be playing for the success.
– William Eckhardt, New Market Wizard
On September 3, 2009, In Thought of the Day, by ElfLord
I think that if people look deeply enough into their trading patterns, they find that, on balance, including all their goals, they are really getting what they want, even though they may not understand it or want to admit it.
– Ed Seykota, Market Wizards by Jack Schwager
On September 2, 2009, In Thought of the Day, by ElfLord
It is far better to sell early. If you are not early, you will be late; you’ll never sell at the exact top, so stop kicking yourself when a stock goes higher after you sell. The object is to make and take worthwhile gains and not get excited, optimistic, or greedy as a stock’s price advance gets stronger!
– William O’Neil, How to Make Money in Stocks
On September 2, 2009, In Good Articles, by ElfLord
TRADING IS NOT about taking risk, but avoiding it. To that end, I am always reluctant to commit too much capital to a single position. Not because I don’t believe in my flair for stock picking, but because sometimes the best way to manage risk is not to take it in the first place.
Forget Jack Welch and Michael Dell. When you buy a stock, it isn’t the company’s management you should be focused on, but that of your own portfolio. And while security selection gets all the headlines, it’s money management — namely position size — that ultimately has the biggest impact on your bottom line.
You want to buy the dips? Or stocks making new 52-week lows? Go ahead, knock yourself out. But please do yourself a favor and keep the stakes small. Most people won’t hesitate to drop 15% or more of their portfolio into a single name at a single price. That isn’t just dangerous, it’s insane. A good portfolio should be structured like a good life. Everything in moderation. (more…)