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Thought of the Day (October 3, 2009)

On October 3, 2009, In Thought of the Day, by ElfLord

Until the lens of experience focuses information, it does almost no good. No matter how much the marketing machines of the Information Age would have us think otherwise, information by itself isn’t power: knowledge is. And turning information into knowledge requires more time, experience, and effort than an afternoon spent starting at a screen full of facts.

Information is passive. To make it knowledge, you need to assimilate it. Put it in context. Understand it. Knowledge streamlines and focuses our relationship with information. Knowledge helps us avoid information we don’t want or need and leaves us with the stuff we can use.

In an age in which endless amounts of bits and bytes are always available, it’s a daunting task to spot the worthwhile stuff. It’s easy for the Net to overwhelm us or lull us into the misconception that simply having access to something is as good as knowing it.

– Michael Penwarden

Thought of the Day (October 2, 2009)

On October 2, 2009, In Thought of the Day, by ElfLord

The challenge is not the markets. The challenge is learning how to master ourselves. Once that’s done, the rest is a cakewalk.

– DbBurrows, TMF Boards

Tradecraft – Give Your Cash Some Flash

On October 2, 2009, In Good Articles, by ElfLord

OK, CASH MANAGEMENT doesn’t exactly match the adrenaline high of trading stocks. But managing your cash holdings is a challenging discipline, and a prudent and profitable way to get market experience with considerably less risk. It’s also a lot of fun — especially for less-capitalized traders who can’t afford to play in the majors just yet.

For many of us, cash comes in the form of a money-market account, usually either linked to a brokerage account, bought from a mutual-fund company or sold by a bank. Only bank-sold money-market funds come with FDIC insurance, but all suit the same general investment goals: safety and high liquidity. They are essentially savings accounts — and they’re more for peace of mind than for profit. The problem with money-market accounts is that, in exchange for liquidity and protection of principle, we forfeit the higher returns that come along with even slightly more risky investments. For example, E*Trade Group’s (ET) money fund currently yields 3.7%. Fidelity’s is in the high 2% range. Not exactly champagne wishes and caviar dreams.

But with sound cash management, you can do better. You manage a cash portfolio just as you do a stock portfolio. Using appropriate position size, money management and risk controls, you can improve results with only marginally higher levels of risk. (more…)

Thought of the Day (October 1, 2009)

On October 1, 2009, In Thought of the Day, by ElfLord

As a trader, and as a person, you have a choice. You can let emotions born of the search for glory determine your behavior while ignoring the facts; or you can recognize that you have to learn in order to grow, and with learning come mistakes. You are going to make mistakes—you’re going to win sometimes, and you’re going to lose sometimes, too. When you make a mistake, you can grow by analyzing the mistake and changing your behavior according to what you learn. This process leads to constant improvement of your skills and to a positive estimate of yourself. Practiced consistently, it will lead to self-esteem, not to mention more, and more consistent, profits from trading.

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

Thought of the Day (September 30, 2009)

On September 30, 2009, In Thought of the Day, by ElfLord

The best traders can put on a trade without the slightest bit of hesitation or conflict, and just as freely and without hesitation or conflict, admit it isn’t working. They can get out of the trade — even with a loss — and doing so doesn’t resonate the slightest bit of emotional discomfort. In other words, the risks inherent in trading do not cause the best traders to lose their discipline, focus, or sense of confidence.

If you are unable to trade without the slightest bit of emotional discomfort (specifically, fear), then you have not learned how to accept the risks inherent in trading. This is a big problem, because to whatever degree you haven’t accepted the risk is the same degree to which you will avoid the risk. Trying to avoid something that is unavoidable will have disastrous effects on your ability to trade successfully.

– Mark Douglas, Trading in the Zone

Tradecraft – Shades of Gray

On September 30, 2009, In Good Articles, by ElfLord

TO MANAGE YOUR trades, you need to manage your emotions. That’s why I forgo the fundamentals and watch price action alone. The more I know about a company, its history or new whiz-bang invention, the more likely I am to feel a personal or emotional attachment to its stock.

Emotional decisions are inevitably stupid decisions. They’re the extremist, myopic, “all-or-none” stuff that clouds your judgment and costs you money. Our emotions make us want to buy every bottom and sell every top, but in my experience the most prudent changes in allocation are the gradual ones.

What really matters isn’t whether you own a stock, but the degree to which you own it. That’s something you can easily lose sight of in all the media coverage devoted to some pundit or other’s stock picks, or on sites that rank stock pickers and analysts: They’ve mistakenly reduced trading to an all-or-nothing affair. You’re either long or short XYZ…end of story. (more…)

Thought of the Day (September 29, 2009)

On September 29, 2009, In Thought of the Day, by ElfLord

The mechanical approach (to technical analysis) relies totally on observation. The judgement approach also depends heavily on developing a keen power of observation. The difference comes in what is being observed. In the mechanical approach, the investor is observing formations. He is provided with a set of models and then told to seek out as many carbon copies as he can find. The judgemental approach begins with a set of principles. The observation that is done is aimed at finding these principles at work in the market or a particular stock. When an investor finds one or more, he responds in a prescribed manner.

At this point, there might be an inclination to say, “what’s the difference?” There is a very basic difference. A formation is a constant. If a stock does not fit one of the molds, it is eliminated. It may produce an absolutely tremendous move, but in failing to produce one of the desired formations, it is branding itself as an outcast. And yet, there is still the ever present reality, that even in fitting one of the molds perfectly there is no guarantee of the desired result.

A principle, on the other hand, is more than a constant. It is an absolute. In the case of the market, it is a statement of condition that is unequivocally true. Given a certain condition, or set of conditions, the result will always be the same. These conditions may not, and usually do not, produce carbon copy formations. It is true that there are quite often similarities, but these are only general in nature and not a primary concern. What is of utmost concern is adhering to the principle. Quite frankly, this is more difficult than looking for formations. It takes more time and requires more skill. Proficiency does not come overnight.

– Richard Wyckoff

ZF Capital

Thought of the Day (October 3, 2009)

Thought of the Day (October 2, 2009)

Tradecraft – Give Your Cash Some Flash

Thought of the Day (October 1, 2009)

Thought of the Day (September 30, 2009)

Tradecraft – Shades of Gray

Thought of the Day (September 29, 2009)

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