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Thought of the Day (June 4, 2010)

On June 4, 2010, In Thought of the Day, by ElfLord

In your market analysis, do not get so cerebral that you are ineffective. It doesn’t matter if the computer says so, reality is the last sale. Traders and investors have a tendency to overanalyze. One of the stages every trader (and many investors) goes through is over reliance on mechanical and computerized trading systems. These are very useful tools, but they are not answers. Many times I have seen the technical indicators say, ‘sell,’ yet the market just refuses to cooperate. It keeps trading up. The only truth is the last sale. Fight the tape and you will collapse.

– Dean Lundell, Sun Tzu’s Art of War for Traders and Investors

Thought of the Day (June 3, 2010)

On June 3, 2010, In Thought of the Day, by ElfLord

Investors with large amounts of capital obtained from a windfall or from inheritance are much more likely to suffer large losses because they are less likely to truly feel the pain of losing money. Because they did not go through the arduous process of earning it themselves, they view their capital as ‘found money.’

In comparison, the long-term trader is able to feel the pain of losing and, accordingly, takes the necessary steps to mitigate his losses and to reduce the likelihood of incurring similar losses in the future. Financial survival in the markets is very difficult without the capacity to feel pain, for pain and fear can function as a protective covering, which the psychiatrists claim allows the organism the opportunity to recover and return to a neutral state.

– Franklin Chu, The Mind of the Markets

Tradecraft – A Dollar for Your Thoughts

On June 2, 2010, In Good Articles, by ElfLord

THE WORD “CREDIT” IS derived from the Latin verb credere, meaning “to believe.” Indeed, a $100 bill has no more intrinsic value than a $1 bill — or a piece of scrap paper for that matter. The strength of a currency is contingent on a society’s belief that it will hold value.

So the fact that the decline in the U.S. dollar, which more than a year ago we called “the biggest trend in the capital markets — hands down,” continues unabated should give everyone reason for pause. It’s a sobering thought to realize that the dollars we work so hard to earn and save are simply pieces of paper that, given the markets these days, are worth less and less with each passing hour.

Yet old habits die hard. Because the dollar has long been the world’s benchmark currency, we’ve come to take it for granted that it’s a good store of value. And the absence of widespread inflation in more than a generation makes younger investors especially unaware of how debilitating it can become. Even now, as the story starts to get picked up in mainstream media, many still fail to understand that it’s not so much that the prices of gold and other commodities are rising; rather, it’s the fact that the value of the currency in which we use to purchase said commodities is falling. (more…)

Thought of the Day (June 2, 2010)

On June 2, 2010, In Thought of the Day, by ElfLord

The mature trader arrives at a stage where most trading actions have become nearly automatic. This gives you the freedom to think about strategy. You think about what you want to achieve, and less about tactics of how to achieve it. To reach that point, you need to trade for a long time. The longer you trade and the more trades you put on, the more you’ll learn. Trade a small size while learning and put on many trades. Remember, the first item on the agenda for a beginner is to learn how to trade, not to make money. Once you’ve learned to trade, money will follow.

– Alexander Elder, Come Into My Trading Room

Thought of the Day (June 1, 2010)

On June 1, 2010, In Thought of the Day, by ElfLord

Dieting provides an apt analogy for trading. Most people have the necessary knowledge to lose weight– that is, they know that in order to lose weight you have to exercise and cut your intake of fats. However, despite this widespread knowledge, the vast majority of people who attempt to lose weight are unsuccessful. Why? Because they lack the emotional discipline.

– Victor Sperandeo, The New Market Wizards by Jack Schwager

Thought of the Day (May 31, 2010)

On May 31, 2010, In Thought of the Day, by ElfLord

Many traders who report emotional problems in the market are experiencing their diffuculties because they have not found a good fit between their trading styles and their personalities. Tolerance for risk is, in part, a traitlike personality variable. The issue isn’t so much one of which approach to trading is best. Rather, it is important to find the proper fit between the trader and the trading.

– Brett Steenbarger, The Psychology of Trading

Tradecraft – Think Young

On May 31, 2010, In Good Articles, by ElfLord

CERTAIN INVESTMENT APPROACHES have stood the test of time. As I always like to point out, what matters most to the bottom line is technique. To that end, I believe that one’s actions in the market — the discipline by which assets are marshaled, positions taken and trades handled — should be approached with an “old” perspective. Cutting losses and letting winners run are two of the many eternal truths that never go out of style.

But while one’s actions should follow age-old guidelines, when it comes to market analysis it’s imperative to think young. Integral to successful investing is an open and imaginative mind. Believe it or not, analyzing investments is one of those rare times when the ignorance of youth can be an asset and not a liability.

A painful experience can easily cloud investors’ judgment over future trades. Think about it. There are plenty of experienced people who won’t even consider gold after getting burned on the sector in the early 1980s. Others swear off biotech after having lost money on the industry in the early 1990s, or technology stocks in the early 2000s. “Once burned, twice shy” is an old, jaded and rather closed-minded way to walk through life. (more…)

ZF Capital

Thought of the Day (June 4, 2010)

Thought of the Day (June 3, 2010)

Tradecraft – A Dollar for Your Thoughts

Thought of the Day (June 2, 2010)

Thought of the Day (June 1, 2010)

Thought of the Day (May 31, 2010)

Tradecraft – Think Young

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