A Harvard professor once asked his students to do a special report on fish. His scholars went to the library, read books about fish, and then wrote their expositions The students were shocked when, after turning in their papers, the professor tore them up and threw them in the waste basket. When they asked what was wrong with the reports, the professor said, ‘If you want learn anything about fish, sit in front of a fish bowl and look at fish.’
– William O’Neil
THE MARKET DOESN’T slit our throats — we do it to ourselves. The Martingale, gambling lingo for what experienced traders call “doubling down,” is perhaps the quickest means to a bloody end. I got my first gray hair the day I understood why the Martingale system, despite all its attractions, simply doesn’t work.
The gambling system, which dates back to a London gaming house in the late 1700s, is completely irrational, yet incredibly seductive. The thinking: If you keep doubling your losing bets, eventually a winning trade will make up for the losses. Like making a deal with the devil, the Martingale system will always comes back to haunt you — and often more quickly than you might expect. (For a more detailed history of the Martingale, I’d recommend Nicholas Dunbar’s wonderful book, “Inventing Money.”)
Unlike Jim Cramer or Arch Crawford, I don’t give out a list of stock picks each week. My philosophy is that trading technique, not security selection, is what ultimately determines success. We of the Tradecraft prefer not to give a man a fish so that he may eat for a day, but to teach a man to fish so that he may eat everyday. (more…)
You do not have to be more intelligent than other traders – only better disciplined.
– Alexander Elder
We have to understand that all stock market decisions– each and every one, including doing nothing– involve risk. Some people believe they can minimize their risk by relying on the cop-out “risk/reward ratio” cliche: “Ten points potential reward compared to 5 points potential downside” becomes “okay to trade” without even the slightest consideration of what the chances are that the stock will actually move in the undesired direction.
It is the risk itself that needs to be analyzable, not the potential reward. The stock might already have moved extensively; the reason might already be known; support underneath might be flimsy; the stock hasn’t moved yet even though the market is already up a lot; and so on. Not until we grasp the extent of and kind of risk should we consider the degree of reward. Hope has never kept a stock up when it doing things wrong.
– Justin Mamis, The Nature of Risk
THE CIRCUS CAME to Chicago last week — not Ringling Brothers, but a colorful band of anticapitalist protesters armed with megaphones, placards and enough eco-unfriendly pamphlets to papier-mache the Sears Tower.
Protesting capitalism, mostly outside meetings by corporate leaders or the WTO, is ultra-chic among the alternative crowd these days. Last week, their target was the Trans-Atlantic Business Dialogue, an annual meeting of corporate and government officials from the U.S. and Europe working to ease trade restrictions. The event just happened to be held in my hometown.
Although I enthusiastically support the right of peaceful assembly, I’m of the mind that capitalism shouldn’t be protested, but rather celebrated. While “greedy executives” always make an easy target for disaffected youth, the reality is that nothing better exemplifies our national spirit than American business — the thousands of corporations big and small that benefit us all.
First off, let’s not forget just how “big business” gets so big. As Ayn Rand writes in her book “Capitalism: The Unknown Ideal,” “The sole means by which a government can grow big is physical force; the sole means by which a business can grow big, in a free economy, is productive achievement.” (more…)
You need to base your trades on a carefully prepared trading plan and not jump in response to price changes. I pays to write down your plan. You need to know exactly under what conditions you will enter and exit a trade. Do not make decisions on the spur of the moment, when you are vulnerable to being sucked into the couwd.
You can succeed in trading only when you think and act as an individual. The weakest part of any trading system is the trader himself. Traders fail when they trade without a plan or deviate from their plans. Plans are created by reasoning individuals. Impulsive trades are made by sweaty group members.
– Alexander Elder, Trading for a Living
A doctor can evade the truth that he or she made a mistake and tell the relatives of a deceased patient, “I did my best, but….” A lawyer can drink too much the night before his final address to the jury, and when he loses, convince himself and his client that the jury was biased. But a trader has no one to convince, no one to lie to. The market is the final judge, and it issues its verdict every day. I therefore think that understanding how the false pride system works can be crucially important to a successful and lasting career as a trader, speculator or investor.
– Victor Sperandeo, Methods of a Wall Street Master
Use the form below to search the site:
Still not finding what you're looking for? Drop a comment on a post or contact us so we can take care of it!
A few highly recommended friends...
All entries, chronologically...
