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Thought of the Day (March 27, 2010)

On March 27, 2010, In Thought of the Day, by ElfLord

The market is, by its nature, a most merciless judge. Every day, the efficiency of your judgment goes on trial, and when the gavel comes down with the closing bell, your sentence is automatically reflected on your ledger sheets. If your judgment is good, then you’ll consistently make money. But if your judgment is bad, then your survival depends on lady luck who, at best, will usually serve you for only a little while.

Being under such relentless and continual pressure can be an enormous psychological and emotional burden. The constant stress and tension of trading can take a tremendous toll on you, both physically and emotionally. But only if you let it. To avoid paying the price of mental and/or physical exhaustion requires an exceptional level of integrity in thought, emotions, and actions.

– Victor Sperandeo, Trader Vic II: Principles of Professional Speculation

Tradecraft – I’m So Bored With the U.S.A.

On March 26, 2010, In Good Articles, by ElfLord

IN THE MARKETS, we’re all dumb money. But the dumbest among us constitute “the herd,” the mass of slow-moving sheep that always seem to buy too late and sell too early.

My strategy has always been to watch the markets and steer clear of the herd. While I’m certainly not profitable in all of my trades, the herd rarely gets it right. So when it comes to choosing investment strategies, my goal is to find out where the herd is, and go somewhere else.

Generally speaking, the biggest component of the herd is probably mutual-fund investors. While there are plenty of razor sharp individuals out there using mutual funds, as a group they tend to have less-than-perfect timing. For example, as we’ve pointed out before, the biggest net inflow into equity mutual funds came in the first quarter of 2000, just around the time the Nasdaq began its historic decline. (more…)

Thought of the Day (March 26, 2010)

On March 26, 2010, In Thought of the Day, by ElfLord

You get a sense of control with entry signals because the point at which you choose to enter the market is the point at which the market is doing exactly what you want it to do. As a result, you feel like you have some control, not just over your entry, but over the market. Unfortunately, once you are in a position in the market, the market is going to do whatever it wants to do– you no longer have any control over anything except your exits.

– Van Tharp, Trade Your Way to Financial Freedom

Thought of the Day (March 25, 2010)

On March 25, 2010, In Thought of the Day, by ElfLord

Many traders believe that the aim of a market analyst is to forecast future prices. The amateurs in most fields ask for forecasts, while professionals simply manage information and make decisions based on probabilities. Take medicine, for example. A patient is brought to an emergency room with a knife sticking out of his chest– and the anxious family members have only two questions: “Will he survive?” and “When can he go home?” They ask the doctor for a forecast.

But the doctor is not forecasting– he is taking care of problems as they emerge. His first job is to prevent the patient from dying from shock, and so he gives him pain-killers and starts an intravenous drip to replace lost blood. Then he removes the knife and sutures damaged organs. After that, he has to watch against infection. He monitors the trend of a patient’s health and takes measures to prevent complications. He is managing– not forecasting. When a family begs for a forecast, he may give it to them, but its practical value is low.

To make money trading, you do not need to forecast the future. You have to extract information from the market and find out whether bulls or bears are in control. You need to measure the strength of the dominant market group and decide how likely the current trend is to continue. You need to practice conservative money management aimed at long-term survival and profit accumulation. You must observe how your mind works and avoid slipping into greed or fear. A trader who does all of this will succeed more than any forecaster.

– Alexander Elder, Trading for a Living

Tradecraft – Out of Their Flocking Minds

On March 24, 2010, In Good Articles, by ElfLord

THERE ARE PLENTY of investors who in 1996 swore they’d never buy a tech stock — only to end up owning Cisco Systems (CSCO), Sun Microsystems (SUNW) and Qualcomm (QCOM) near the Nasdaq peak in March 2000. And there are just as many investors who promised they’d stay in it “for the long haul” only to end up puking their positions and abandoning stocks a few months back. The market tends to test our resolve both on the way up and on the way down.

Our mantra here at Tradecraft: Technique is everything. That is, it’s not so much what you trade, but rather how you trade that ultimately makes a difference. And because the market will test your biases, it seems the best move is to not develop them in the first place. Without an open mind, even the best stock pickers won’t bend in the wind — they’ll break.

That’s why I think too much formal education in the markets is dangerous. As we wrote a few months back, the most educated traders tend not to think, but to assume. Yet the real challenge sometimes is to be able to forget history as easily as you remember it. In the market, anything can happen. (more…)

Thought of the Day (March 24, 2010)

On March 24, 2010, In Thought of the Day, by ElfLord

Many men cannot afford to take monetary losses in the market. Not because of the money itself so much as because of their over-sensitive, poorly trained “selves.” The humiliation would be unbearable. It would hurt too much. The only way that occurs to such men to prevent such painful situations is to strive to be “always right” or nearly always right. If by study and extreme care they could avoid “making mistakes,” they would not be exposed to the hard necessity of having to take humiliating losses over and over again.

And so? And so, too often, rather than settle for a relatively minor loss, our friend will stand firmly on the deck of his first judgment, and will go down with the ship. The history of Wall Street (and of LaSalle Street, too) is studded with the stories of men who refused to be wrong; and who ended up ruined, with only the tattered shreds of their false pride left to them for consolation.

– John Magee, The General Semantics of Wall Street

Thought of the Day (March 23, 2010)

On March 23, 2010, In Thought of the Day, by ElfLord

A man must believe in himself and his judgment if he expects to make a living at this game. That is why I don’t believe in tips. If I buy stocks on Smith’s tip I must sell those same stocks on Smith’s tip. I am depending on him. Suppose Smith is away on a holiday when the selling time comes around? No, sir, nobody can make big money on what someone else tells him to do. I know from experience that nobody can give me a tip or a series of tips that will make more money for me than my own judgment.

– Jesse Livermore, Reminiscences of a Stock Operator

ZF Capital

Thought of the Day (March 27, 2010)

Tradecraft – I’m So Bored With the U.S.A.

Thought of the Day (March 26, 2010)

Thought of the Day (March 25, 2010)

Tradecraft – Out of Their Flocking Minds

Thought of the Day (March 24, 2010)

Thought of the Day (March 23, 2010)

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