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Tradecraft – The Hot Seat

On March 22, 2010, In Good Articles, by ElfLord

AT NEW YORK’S Four Seasons Hotel, you’ll pay around $700 a night for a room with a city view. And while dining at the exclusive Le Cirque, the chef’s “degustation” menu will set you back a cool $105 — drinks and caviar (at a mere $75 an ounce) not included.

Although there are plenty of lesser-priced options, the truth is that you tend to get what you pay for. So while you could save money by opting for a meal at McDonald’s (MCD) and a bed at the Red Roof Inn, the experience just wouldn’t be the same. In a free economy, the hottest spots command the highest prices.

In the markets these days, the hottest seat in town isn’t for stocks or options, but for commodities, several of which continue a historically significant, yet strangely underdiscussed, bull market. As regular Tradecraft readers know, we’ve been espousing the virtues of hard assets for years now. Just a few weeks back, we made the case that commodities were still cheap relative to stocks using ratio analysis. Now, by examining recent trends in exchange membership prices, we can observe more evidence that hard assets like energy and metals continue to be where the action is in today’s markets. (more…)

Thought of the Day (March 22, 2010)

On March 22, 2010, In Thought of the Day, by ElfLord

The most important reason to analyze your mistakes is that mistakes and failures are always the best teachers; they reinforce the fact that you should always follow the rules. If you can truly and honestly identify the reasons you make a mistake, then your chances of making it again are much less.

Most often, mistakes are rooted not in ignorance, but fear: fear of being wrong, fear of feeling humiliated, and so forth. To trade well, you have to conquer fear; and to conquer fear, you first have to admit having it, which means admitting your mistakes and analyzing them.

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

Thought of the Day (March 21, 2010)

On March 21, 2010, In Thought of the Day, by ElfLord

Charts do not say anything; rather, on them are traced the results of human opinions. Charts do not cause movements in stock prices, but are aids by which trained minds may judge what will be the effect of previous moves.

– Humphrey Neill, Tape Reading and Market Tactics

Thought of the Day (March 20, 2010)

On March 20, 2010, In Thought of the Day, by ElfLord

All you need to reach your profitability goals is a replicable edge in the markets, a pattern to trade that tilts the odds in your favor. Once you’ve found that, the rest is consistency– doing over and over what works. Many traders with whom I have talked despair that they have not discovered more patterns to give them an edge. They buy books and attend seminars in the desperate hope of accumulating more sources of edge. That climb up the trading mountain face, however, must be tackled one step at a time, beginning with a single toehold. It is far better to internalize success from a single pattern than mixed results from many patterns.

– Brett Steenbarger, The Psychology of Trading

Tradecraft – No Thanks for the Memories

On March 19, 2010, In Good Articles, by ElfLord

BETWEEN THE NEW York, Nasdaq and American exchanges, there are literally thousands of stocks available to trade. It’s a good thing there are so many to choose from, because like an old lover or ex-spouse, certain stocks carry memories that will never go away. And just as emotions can wreck havoc on good judgment, having a history with a particular investment can be particularly debilitating to your bottom line.

The fact is that those who dwell on the past often live there as well. The problem having vivid memories about a stock’s history is that it often clouds any analysis of its future. And while we often point out that trends tend to persist, none last forever. Yesterday’s chopped liver is often today’s filet mignon. So when the market’s fashions change, you’ve got to be flexible enough to change along with them.

For example, consider technology stocks. Over the past five years or so, we’ve seen technology stocks go from red hot (1998-2000) to ice cold (2000-03) to red hot again (2003-?). There’ve been opportunities to trade both long and short — but only if you’ve been able to keep an open mind.

Yet many people still remember getting burned on technology or dot-com stocks, which is exactly what has made them so difficult to get back into over the past few months. If you got taken to the cleaners on Cisco (CSCO) during the boom, for instance, it’s darn near impossible to consider owning it again, even at a significantly lower price. Losing money hurts, and when it comes to a particular sector it’s often once bitten, twice shy. (more…)

Thought of the Day (March 19, 2010)

On March 19, 2010, In Thought of the Day, by ElfLord

This counsel may be the most important I can suggest: trade alone. Close your mind to the opinions of others; pay no attention to outside influences. Disregard reports, rumors, and idle board-room chatter. If you are going to trade actively, and are going to employ your own judgment, then, for heaven’s sake, stand or fall by your own opinions.

If you wish to follow someone else, that is all right; in that case, follow him and do not interject your own ideas. He must be free to act as he thinks best; just so must you when trading on your own initiative.

– Humphrey Neill, Tape Reading & Market Tactics

Thought of the Day (March 18, 2010)

On March 18, 2010, In Thought of the Day, by ElfLord

A tactic I used when I first started playing the market was to keep a diary. I strongly suggest you do likewise. In this diary enter only your losing trades. Winners always take care of themselves. While it’s nice to have both your pocketbook and ego enhanced, winning teaches you nothing. Losing can be the greaest teacher of all, if properly analyzed. In the final analysis, losing can actually lead to far more winning trades.

Write down the date that you bought your losing position and your reason for buying, and be honest with yourself as to why it didn’t turn out. If it was merely a whipsaw, say so. but if upon later examination you realize that either the volume was inadequate, or the relative strength was lacking, or the group was negative, or you were influenced by a rumor, write down that error. After several months look for a common denominator in your losses.

We all have psychological patterns. When you see what your particular destructive pattern is, it will be easy for your to retrain yourself and deal with it so your investing will become even more profitable.

– Stan Weinstein, Secrets for Profiting in Bull and Bear Markets

ZF Capital

Tradecraft – The Hot Seat

Thought of the Day (March 22, 2010)

Thought of the Day (March 21, 2010)

Thought of the Day (March 20, 2010)

Tradecraft – No Thanks for the Memories

Thought of the Day (March 19, 2010)

Thought of the Day (March 18, 2010)

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