There are numerous similarities between the serious trader and the serious gambler. In the casino, the difference between the winner and the loser is that the former leaves the table when he has reached his goal for the session, and the latter leaves when he has lost his stake. Most gamblers, like many traders, don’t realize that the only way they can stop gambling is by losing.
– Franklin Chu, The Mind of the Markets
It is not given to any man to know it all. When he thinks he’s the smartest man in the world, he puts himself in a class we call fools.
– Roy Longstreet, Viewpoints of a Commodity Trader
GO AHEAD AND SPEND hours analyzing the Fed or counting cars in the Home Depot (HD) parking lot. It’s your time and money. But to me these are exercises in futility. You see, I don’t have opinions — I have positions. And this allows me to focus on the best use of capital, especially important considering that we live in a world of scarce resources. The desire to buy an investment, yet lacking the available capital to execute the trade, is an altogether familiar occurrence to the active investor.
I grew up a bit the day that I began to think in terms of trading positions rather than stocks. It’s an important distinction, even more important if cash is in short supply. That’s when the tough choices are made. It’s crucial to maintain even the slightest advantage that puts the odds in your favor.
The best position to be in, without a doubt, is to have an open winning trade. That’s the strongest hand. As I mentioned just last week, profits come from winning trades. These are the lifelines of a portfolio, so winners must be the absolute last option to consider when looking to raise cash. I know it’s fun to take a profit, but it’s almost always better to maintain a winning position rather than liquidate it for the sake of buying something new. (more…)
You should either make a business of trading or else not try to be a trader.
– Richard Wyckoff, How I Trade and Invest in Stocks and Bonds
It took me over a decade to figure out my natural direction. I’d suggest that you take the time to seriously ponder whether the path you are on is the one you want to be on. Perhaps your journey will then be shortened.
– Jack Schwager, The New Market Wizards
It was not that all I needed to learn was not to take tips but follow my own inclination. It was that I gained confidence in myself and I was able finally to shake off the old method of trading. That Saratoga experience was my last haphazard, hit-or-miss operation. From then on I began to think of basic conditions instead of individual stocks. I promoted my self to a higher grade in the hard school of speculation.
– Jesse Livermore, Reminiscences of a Stock Operator
WE’VE ALL SEEN A baby scream and cry when he wants a toy or a piece of candy. Without hesitation, he prepares to throw a full-scale temper tantrum in the aisle of the store in order to get it. A baby doesn’t care if the candy will spoil his appetite, or if his parents can actually afford the toy he so desperately desires. A baby wants what he wants.
You can’t blame him, of course, because children haven’t yet learned to look beyond the scope of immediate gratification and consider the future. Grown-ups, however, do comprehend that life exists beyond the here and now. While the future can’t be predicted, most mature adults understand the need to delay gratification at times. They accept that with a bit of foresight, an even higher level of happiness can be found than by simply giving into immediate whims.
This ability to delay instant gratification and stick with a longer-term focus is especially important when it comes to the markets. As human beings, we operate on a relatively short time frame. But the market, whether it’s bullish, bearish or trending nowhere at all, has all the time in the world. An astute investor needs the patience to think ahead, learning to operate on the market’s schedule instead of attempting to cram it into his own. (more…)
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