ZF Capital > 2009 December

Tradecraft – When the Buyers’ Strike Becomes a Fire Sale

On December 21, 2009, In Good Articles, by ElfLord

A FEW MONTHS back, we outlined some of the basic logical fallacies that can lead your investment thinking astray. One that I’ve been hearing quite a bit of lately is that of false attribution. In trader talk, it’s putting the ass in assume.

Even among experienced professionals, there’s a rather surprising ignorance of the factors that really move markets. Every high-school economics class starts with the basic law of supply and demand, but pundits, media commentators and even market professionals who should know better choose to focus on just one side of that irrefutably important concept.

Turn on any newscast and you’ll hear the same shockingly ignorant analysis: If the market drops, it’s because investors sold their shares. If the market rallies, it’s because everybody bought. After all, buyers make a stock go up; sellers force a stock’s price down, right?

But while most commentators are quick to interpret a market trend as the result of some action of investors, it’s often their inaction that’s ultimately responsible for the move. (more…)

Thought of the Day (December 21, 2009)

On December 21, 2009, In Thought of the Day, by ElfLord

Tips! How people want tips! They crave not only to get them but to give them. There is greed involved, and vanity. It is very amusing, at times, to watch really intelligent people fish for them. And the tip-giver need not hesitate about the quality, for the tip-seeker is not really after good tips, but after any tip. If it makes good, fine! If it doesn’t, better luck with the next.

– Jesse Livermore, Reminiscences of a Stock Operator

Thought of the Day (December 20, 2009)

On December 20, 2009, In Thought of the Day, by ElfLord

You must dedicate a certain amount of time to the markets each day. Amateurs and gamblers make a typical mistake. When markets are inactive, they stop watching and lose touch. They wake up after hearing the news of a runaway move. By that time, the markets are running– the amateurs have missed yet another train and now they chase it, hoping to hop aboard a runaway trend.

An organized trader tracks his markets, whether he trades them at the moment or not. He notices when a listless range starts, rubbing against a resistance, buys early, and when amateurs start piling into the rally, he takes profits, selling to lazy latecomers. a serious trader is ahead of the game because he does his homework day in and day out.

– Alexander Elder, Come Into My Trading Room

Thought of the Day (December 19, 2009)

On December 19, 2009, In Thought of the Day, by ElfLord

Before you make any trade, it is absolutely essential that you know your objective and how you intend to reach it. This means not only identifying the risk/reward, but also defining all possible courses the market might take and then defining your response. In other words, you have to know, before you ever enter the trade, all possible outcomes. Confusion is your biggest enemy during a trade; it will cause you anguish and emotional turmoil as the trade progresses. But confusion, by definition, comes from ignorance, from not understanding what is going on or how to respond to it.

– Victor Sperandeo, Trader Vic – Methods of a Wall Street Master

Tradecraft – Don’t Be a Fashion Victim

On December 18, 2009, In Good Articles, by ElfLord

I’M A CHILD OF the 1980s, and while I’m no Mr. Blackwell, I can safely say that the mullet haircut, Izod shirts and The New Kids on the Block aren’t terribly representative of today’s popular style.

Knowing that styles come in and out of fashion over time, most of us buy clothes on a rolling basis. We don’t get a whole new wardrobe every year, but rather a garment or two every few months that reflect the contemporary look. The same approach should be taken within an investment portfolio, where asset allocation should be viewed as an ongoing process, not a one-time affair.

Come January of each year, media outlets from Business Week to Barron’s publish their “Where to Invest” issues. And although the past few years have demonstrated just how much the world can change in a short amount of time, many people go right ahead and dump their assets into the hot strategist du jour’s top 10 picks come Jan. 1. One year later, they see how they’ve done and roll the dice again.

That isn’t investing it’s a carnival ride. (more…)

Thought of the Day (December 18, 2009)

On December 18, 2009, In Thought of the Day, by ElfLord

The first step on the road toward getting your mind and the market in sync is to understand and completely accept the psychological realities of trading. This step is where most of the frustrations, disappointments, and mysteriousness associated with trading begin. Very few people who decide to trade ever take the time or expend the effort to think about what it means to be a trader. Most people who go into trading think that being a trader is synonymous with being a good market analyst.

As I have mentioned, this couldn’t be further from the truth. Good market analysis can certainly contribute to and play a supporting role in one’s success, but it doesn’t deserve the attention and importance most traders mistakenly attach to it.

– Mark Douglas, Trading in the Zone

Thought of the Day (December 17, 2009)

On December 17, 2009, In Thought of the Day, by ElfLord

The best trading systems are crude and robust. They are made of a few elements. The more complex the systems, the more elements that can break. Traders love to optimize their systems using past data. The trouble is, your broker won’t let you trade the past. Markets change, and the ideal parameters from the past may be no good today. Try to de-optimize your system instead– check how it would have performed under bad conditions. A robust system holds up well when markets change. It is likely to beat a heavily optimized system in real world trading.

– Alexander Elder, Trading for a Living

ZF Capital

Tradecraft – When the Buyers’ Strike Becomes a Fire Sale

Thought of the Day (December 21, 2009)

Thought of the Day (December 20, 2009)

Thought of the Day (December 19, 2009)

Tradecraft – Don’t Be a Fashion Victim

Thought of the Day (December 18, 2009)

Thought of the Day (December 17, 2009)

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