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Tradecraft – The Early Bird Is Overrated

On March 12, 2010, In Good Articles, by ElfLord

ONE OF THE toughest aspects of trading is that in order to make money, you’ve got to be right on a number of different fronts. Risk control, position size and timing must all be taken into account if you want to profit on stock trades. Of all these elements, timing tends to stir up the most controversy.

According to a recent and widely publicized study from research firm Dalbar, most mutual-fund investors are unable to time the stock market successfully. In fact, these investors aren’t even having much luck at keeping up with the rate of inflation. But as traders (read: active investors), like it or not, timing plays a role in investment decisions. Because it’s not just enough to know what to buy — the question of when to buy is arguably even more influential to the bottom line.

Most investors worry that they’re getting in at or near the top, especially in situations where a particular stock or sector has already risen substantially. Whether it’s low self-esteem or lack or confidence, they believe that as soon as the order hits the tape the market is bound to plummet. (more…)

Thought of the Day (March 12, 2010)

On March 12, 2010, In Thought of the Day, by ElfLord

Is trading success dependent on innate skills? Or is hard work sufficient? There is no question in my mind that many of the supertraders have a special talent for trading. Marathon running provides an appropriate analogy. Virtually anyone can run a marathon, given sufficient commitment and hard work. Yet, regardless of the effort and desire, only a small fraction of the population will ever be able to run a 2:12 marathon.

Similarly, any one can learn to play a musical instrument. But again, regardless of work and dedication, only a handful of individuals possess the natural talent to become concert soloists. The general rule is that exceptional performance requires both natural talent and hard work to realize its potential. If the innate skill is lacking, hard work may provide proficiency, but not excellence.

In my opinion, the same principles apply to trading. Virtually anyone can become a net profitable trader, but only a few have the inborn talent to become supertraders. For this reason, it may be possible to teach trading success, but only up to a point. Be realistic in your goals.

– Jack Schwager, The New Market Wizards

Thought of the Day (March 11, 2010)

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

Once you learn to identify patterns and read the market, you find there are limitless opportunities to make money. But, as I’m sure you already know, there can also be a huge gap between what you understand about the markets, and your ability to transform that knowledge into consistent profits or a steadily rising equity curve.

Think about the number of times you’ve looked at a price chart and said to yourself, “Hmmm, it looks like the market is going up (or down, as the case may be),” and what you thought was going to happen actually happened. But you did nothing except watch the market move while you anguished over all the money you could have made.

There’s a big difference between predicting that something will happen in the market (and thinking about all the money you could have made) and the reality of actually getting into and out of trades. I call this difference, and others like it, a “psychological gap” that can make trading one of the most difficult endeavors you could choose to undertake and certainly one of the most mysterious to master.

– Mark Douglas, Trading in the Zone

Tradecraft – A Mind Is a Terrible Thing to Lose

On March 10, 2010, In Good Articles, by ElfLord

WATCH RUKEYSER, CAVUTO or any other investing-related television show, and you’ll notice that most prognosticators aren’t merely confident — they’re downright cocky. No matter how volatile the market might be, their forecasts are always infallible.

Although I’m usually opinionated, I’m never overconfident. In fact, I sometimes feel so completely out of touch with the market that I don’t know what to think. Sorry to disappoint you folks looking for a quick tip, but when it comes to the next move in the market, I often don’t have a clue. Considering the wild swings we’ve seen this year, perhaps in your weakest moments you can admit to the same.

As we often point out, a trader’s biggest strength isn’t necessarily finding winners, but dealing with losers. Still, feeling lost and unsure about an investment approach can be extraordinarily frustrating — and mighty expensive.

It usually starts innocently enough. A few favorite trades fall apart. Then sectors you had previously dismissed seem to spring to life virtually overnight. Your buy list gets smaller, more erratic. And the trading strategy that only a few weeks back seemed foolproof now seems foolhardy. You’re not just losing you’re lost. We’ve all been there at one point or another. (more…)

Thought of the Day (March 10, 2010)

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

Do not plunge or become overextended. This is worn-out advice, I know, but margin and capital worries warp your judgment and hamper your trading skill. When you think you have become familiar with technical action and can interpret market movements– and can take losses quickly!– not until then should you speculate with larger lines of stocks. There is no disgrace in being a small trader, and the market will remain open for business for a good many years to come.

– Humphrey Neill, Tape Reading and Market Tactics

Thought of the Day (March 9, 2010)

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

When the market gives no clear signals to buy or sell short, many beginners start squinting at their screens, trying to recognize trading signals. A good signal jumps at you from the chart and grabs you by the face– you can’t miss it! It pays to wait for such signals instead of forcing trades when the market offers you none. Amateurs look for challenges; professionals look for easy trades. Losers get high from the action; the pros look for the best odds.

– Alexander Elder, Come Into My Trading Room

Tradecraft – It’s Consistency That Counts

On March 8, 2010, In Good Articles, by ElfLord

UP UNTIL MARCH, the few fund managers who were able to keep their portfolios in the plus column were heralded as investment geniuses. But with the markets up sharply this year, anything less than double-digit returns seems embarrassingly tame. Some sectors haven’t just performed well — they’ve kicked tail. For example, Internet stocks, which we first highlighted last fall, have taken top honors with 100%-plus gains.

But while we’d all like to see our investments on the “top performers” list, what traders should strive for isn’t necessarily the biggest return, but the most consistent.

Let’s define our terms. Consistent trading doesn’t mean that every trade is a winner, or even that in every quarter one is able to achieve a positive return. It does mean, however, that over any statistically meaningful length of time — say, a rolling 18-month period — your overall investments will have gained in value.

The return doesn’t always have to be stellar, but it does have to be positive. With all due respect to Legg Mason fund manager Bill Miller, consistently beating the Standard & Poor’s 500 doesn’t mean much when the S&P declines for three straight years. You can’t spend relative performance. (more…)

ZF Capital

Tradecraft – The Early Bird Is Overrated

Thought of the Day (March 12, 2010)

Thought of the Day (March 11, 2010)

Tradecraft – A Mind Is a Terrible Thing to Lose

Thought of the Day (March 10, 2010)

Thought of the Day (March 9, 2010)

Tradecraft – It’s Consistency That Counts

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