Thought of the Day (April 8, 2010)

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

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Tradecraft – Listen Up!

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…)

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Thought of the Day (April 7, 2010)

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

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Thought of the Day (April 6, 2010)

Most fields of human endeavor have rules, yardsticks and professional bodies to enforce discipline. No matter how independent you feel, there is always some agency looking over your shoulder. If a doctor in private practice starts writing too many prescriptions for pain killers, he’ll soon hear from the health department.

Markets impose no restrictions, as long as you have enough equity. Adding to losing positions is similar to overprescribing narcotics, but nobody will stop you. As a matter of fact. other market participants want you to be undisciplined and impulsive. That makes it easier for them to get your money. Your defense against self-destructiveness is discipline. You have to set up your own rules and follow them in order to prevent self-sabotage.

Discipline means designing, testing, and following your system. It means learning to enter and exit in response to predefined signals rather than jumping in and out on a whim. It means doing the right thing, not the easy thing.

– Alexander Elder, Come Into My Trading Room

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