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Thought of the Day (April 11, 2010)

On April 11, 2010, In Thought of the Day, by ElfLord

When a monkey hurts its foot on a tree stump, he flies into a rage and kicks the piece of wood. You laugh at a monkey, but do you laugh at yourself when you act like him? If the market drops while you are long, you may double up on your losing trade or else go short, trying to get even. You act emotionally instead of using your intellect. What is the difference between a trader trying to get back at the market and a monkey kicking a tree stump? Acting out of anger, fear, or elation destroys your chance of success. You have to analyze your behavior in the market instead of acting out your feelings.

We get angry at the market, we become afraid of it, we develop silly superstitutions. All the while, the market keeps cycling through its rallies and declines like an ocean going through its storms and calm periods.

– Alexander Elder, Trading for a Living

Thought of the Day (April 10, 2010)

On April 10, 2010, In Thought of the Day, by ElfLord

In many ways, large profits are even more insidious than large losses in terms of emotional destabilization. I think it’s important not to be emotionally attached to large profits. I’ve certainly made some of my worst trades after long periods of winning.

When you’re on a big winning streak, there’s a temptation to think that you’re doing something special, which will allow you to continue to propel yourself upward. You start to think that you can afford to make shoddy decisions. You can imagine what happens next. As a general rule, losses make you strong and profits make you weak.

– William Eckhardt, The New Market Wizards by Jack Schwager

Tradecraft – A New Year’s Resolution

On April 9, 2010, In Good Articles, by ElfLord

AS A COLLEGE STUDENT, I’d party until the wee hours yet still show up sharp for class the next morning. As a full-fledged adult, however, my body is slightly less resilient. These days if I’m not in bed by Leno, then I’m grumpy and yawning for a week.

The same analogy holds true in the market. Because no matter what happens with Saddam, interest rates or the election, a year from now, I promise you, we’ll all be another year older. And just as our bodies become more fragile with age, so should our tolerance for risk. We can’t be college kids forever.

The only smart risks are the ones we can afford to take. And when it comes to our portfolios, the most fundamental issue boils down to allocation — that is, what percentage of our account we pledge to any particular asset class. Students of the market are often taught the old rule of thumb that one should subtract his age from 100, with the remaining sum being the percentage of the portfolio that should be in stocks. A 40-year-old, for example, would be 60% stocks, 40% bonds and cash. (more…)

Thought of the Day (April 9, 2010)

On April 9, 2010, In Thought of the Day, by ElfLord

Because the market anticipates, the more you know, the later it is. The later it is, the greater the risk. There is no safety to buying on positive information (or shorting on bad news). Thus all information has a negative bias against the price trend.

– Justin Mamis, The Nature of Risk

Thought of the Day (April 8, 2010)

On April 8, 2010, In Thought of the Day, by ElfLord

Americans are taught to be proactive rather than reactive, and we constantly think of ways to alter our relationships and environments. If you’re dissatisfied with the color of your living room, you paint it. If you disagree with your partner, you take action to change things for the better. If your children misbehave, you ask them to redirect their actions.

The stock market flows like a river. You cannot push it in the other direction. You cannot paint it a different color. You cannot disagree with it, or demand it behave differently. You can only control yourself and your reaction to it!

Once you have that concept firmly in place, your goal is to come to the market each day, as professionals do, and regard it with positive objectivity.

– Toni Turner, A Beginners’s Guide to Day Trading Online

Tradecraft – Listen Up!

On April 7, 2010, In Good Articles, by ElfLord

I DON’T NEED to see my stocks recommended in print or talked about on message boards to be confident about their prospects. If I’m bullish on XYZ, it doesn’t matter if the analysts haven’t heard of it or if my talk-show colleagues think I’m insane for venturing off the well-beaten path of the S&P 500.

The name of the game is making money, not making friends. So when I pick stocks in this column or on TV, I don’t need email kudos or pats on the back to reinforce my professional self-esteem. When something in my portfolio is working, the profits are my payoff.

The reason it’s called speculation is that, when it comes to the market, there’s no sure thing. Yet most people won’t put money in a stock unless they have a perfectly clear reason for doing so such as an upgrade, breaking news or investment hook. But that need for certainty and assurance often trips us up, because by the time the story is out, the stock’s real move is usually over. (more…)

Thought of the Day (April 7, 2010)

On April 7, 2010, In Thought of the Day, by ElfLord

There is a great deal of hype attached to technical analysis by some technicians who claim that it predicts the future. Technical analysis tracks the past; it does not predict the future. You have to use your intelligence to draw conclusion about what the past activity of some traders may say about the future activity of other traders.

For me, technical analysis is like a thermometer. Fundamentalists who say they are not going to pay any attention to the charts are like a doctor who says he’s not going to take a patient’s temperature. But, of course, that would be sheer folly. If you are a responsible participant in the market, you always want to know where the market is– whether it is hot and excitable, or cold and stagnant. You want to know everything you can about the market to give you an edge.

Technical analysis reflects the vote of the entire marketplace and, therefore, does pick up unusual behavior. By definition, anything that creates a new chart pattern is something unusual. it is very important for me to study the details of price action to see if I can observe something about how everybody is voting. Studying the charts is absolutely crucial and alerts me to existing disequilibria and potential changes.

– Bruce Kovner, Market Wizards by Jack Schwager

ZF Capital

Thought of the Day (April 11, 2010)

Thought of the Day (April 10, 2010)

Tradecraft – A New Year’s Resolution

Thought of the Day (April 9, 2010)

Thought of the Day (April 8, 2010)

Tradecraft – Listen Up!

Thought of the Day (April 7, 2010)

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