Thought of the Day (November 23, 2009)

Although the cheetah is the fastest animal in the world and can catch any animal on the plain, it will wait until it is absolutely sure it can catch its prey. It may hide in the bush for a week, waiting for just the right moment. It will wait for a baby antelope, and not just any baby antelope, but preferably one that is also sick or lame. Only then, when there is no chance it can lose its prey, does it attack. That, to me, is the epitome of professional trading.

– Mark Weinstein, Market Wizards by Jack Schwager

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Tradecraft – The Bottom-Fisher’s Tackle Box

THE MARKET’S WEAKNESS over the last two years has been chalked up to everything from election jitters to energy prices, the economy to Enron (ENRNQ). Likewise, in the early 1970s, there was an equally daunting list of fundamental factors, from Vietnam to Watergate, Cambodia to communism that got blamed for dragging stocks down.

On May 21, 1973, U.S. News & World Report featured an enthusiastic cover story called “Brighter Days Ahead for Stock Market?”

“Conditions are shaping up for a sustained rise in stock-market prices,” the magazine suggested, citing analysis from a number of then well-known pundits, who almost universally expected better times ahead. “The market is ready to move up” predicted Ian Cramer of Kohnmeyer and Co. “We are buying stocks.” Pundits, it turns out, have been missing the boat for years.

The Dow, which at 900 had already been in a trading range for the better part of six years, went on to drop another 35%, hitting new bear-market lows and, for a period, trading at levels that hadn’t been seen since the late 1950s. The recently introduced Nasdaq went on to drop 50%. (more…)

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Thought of the Day (November 22, 2009)

It takes a man a long time to learn all the lessons of all his mistakes. They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side. It took me longer to get that general principle fixed firmly in my mind than it did most of the more technical phases of the game of stock speculation.

– Jesse Livermore, Reminiscences of a Stock Operator

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Thought of the Day (November 21, 2009)

A trade does not end when you close out your position. You must analyze it and learn from it. Many traders throw their confirmation slips into a folder and go looking for the next trade. They miss an essential part of growing to become a professional trader– review and self-analysis.

Have you identified a good trade? Which indicators were useful and which did not work? How good was your entry? Was the initial stop too far or too close? Why and by how much? Did you move your stop to a breakeven level too early or too late? Were your protect-profit stops too loose or too tight? Did you recognize the signals to exit a trade?

What should you have done diffeently? What did you feel at the various stages of the trade? This analysis is an antidote against emotional trading.

Ask yourself these and other questions and learn from your experiences. A cool, intelligent analysis does you more good than gloating about profits or wallowing in regrets.

– Alexander Elder, Trading for a Living

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