Now you have a system, you’ve learned money management rules, you know the psychological rules for cutting losses. Now you must trade. Can you?Traders try to weasel out of making this decision. They papertrade for years, buy automatic trading systems, and so on. Several traders have even asked me to hypnotize them. These games must end. It is time to make an effort of will!
– Alexander Elder, Trading for a Living
In the last analysis, it may be stated that charts are aids, to be used by the intelligent trader or investor, along with many other important means, as guides to market sentiment.
On the other hand, charts are full of dynamite and can cause crushing losses, if blindly followed by the inexperienced who do not realize that, inasmuch as human nature is not constant, there can be no system which is infallible.
Mechanical forecasting will never take the place of intelligent judgment.
– Humphrey Neill, The Art of Contrary Thinking
I USED TO BELIEVE that being a good trader meant that I’d always be correct in my analysis of the market. Now, after trading everything from stocks on the screen to futures on the floor, I know better. As I’ve learned, just about anybody — from pundits to politicians to portfolio managers — is willing to chime in with an opinion of where the economy or the stock market might be heading which is all well and good. But while the talking heads will yak for hours about corporate scandals and Saddam Hussein, they are conspicuously silent about the act of trading itself. There’s a reason.
Trading isn’t black and white, it can’t be bundled up into a nice package, and it rarely makes for a good sound bite. Let’s be frank, no matter what size account you’ve got, trading it is filled with uncertainty. But while investors might hate uncertainty, markets can’t exist without it, plain and simple. Although we attempt to put the odds a little bit in our favor through diligent analysis, we can never eliminate the risk involved in any investment decision. After awhile, even when you’re right, it can really start to get on your nerves.
Up until a couple of years ago, the biggest risk in the market seemed not to be losing money, but losing out on the seemingly limitless upside of growth stocks. Like a roller coaster, many were expecting a bumpy, albeit ultimately profitable, ride. Then the bubble burst and the major averages nose-dived. Reality reared its ugly head in a painful reminder of the market’s inherent uncertainty. (more…)
Great opportunities occur every year in America. Get yourself prepared and go for it. You will find that little acorns can grow into giant oaks. Anything is possible with persistence and hard work. It can be done, and your own determination to succeed is the most important element.
– William O’Neil, Market Wizards by Jack Schwager
All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical (technical) formations and patterns recur on a constant basis.
– Jesse Livermore, Reminiscences of a Stock Operator
Traders come to the markets with great expectations, but few make profits and most wash out. The industry hides good statistics from the public, while promoting its Big Lie that money lost by losers goes to winners. In fact, winners collect only a fraction of the money lost by losers. The bulk of losses goes to the trading industry as the cost of doing business– commissions, slippage, and expenses– by both winners and losers. A successful trader must hop over several high hurdles– and keep hopping. Being better than average is not good enough– you have to be head and shoulders above the crowd. You can win only if you have both knowledge and discipline.
– Alexander Elder, Come Into My Trading Room
FROM MUNICIPAL BONDS to futures, options and warrants, there are literally thousands of financial instruments that can be traded on a daily basis. Whether you’re an aggressive trader gunning for capital gains or a lower-volatility investor looking for income, there are many choices out there besides money-market funds and Standard & Poor’s 500 index funds.
Like a four-star film, a successful trade is carefully planned, meticulously researched and delicately executed. And when it comes time to put money on the line, investors should not only like the trade, but also the product they’re trading. Making the right trade at the right time using the right product well, it feels like heaven on earth.
Despite the paternalistic tone coming from nervous regulators these days, new investment products continue to be developed at a speedy clip. Keeping abreast of the latest innovations is critical so that, like Batman, you can pull them out of your utility belt at just the right time.
Some products are outright flops. Folios have been moribund since their much-heralded inception a few years back. The same goes for the Chicago Mercantile Exchange’s bankruptcy futures and the Chicago Board Options Exchange’s options on mutual funds, neither of which gained sufficient volume to justify their existence. (more…)
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