ZF Capital

The market is like a courtroom where you are the accused– innocent until proven guilty. That is, when you initiate a trade, you have to assume that you are right until the market proves you wrong. It proves you wrong when the price hits your stop or your mentally chosen exit point, which is as absolute as a Supreme Court ruling– no appeal is possible, your freedom to act is gone, you must close out the position.

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

Many people make the mistake of thinking that market behavior is truly predictable. Nonsense. Trading in the markets is an odds game, and the object is to always keep the odds in your favor. Like any other odds game, in order to win, you’ve got to know the rules and stick to them. Unlike other games, however, the single biggest reason rules are necessary is to keep a check on your emotions. Assuming you have the knowledge you need to take a position with confidence, the hard part is executing the trade correctly. That’s what the rules are for.

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

Having the will to execute means having the capability or power to carry through on a plan of action designed to achieve a specific goal.

It means having the ability to decide. The word decide comes from Latin roots that mean “to cut off.” When you really make a decision, your mind has concluded that no other alternative is either desirable or possible. When you achieve this state of mind, carring through your plan becomes less a matter of choice and more a matter of necessity.

The plan itself becomes a value, and if integrated into your subconscious, can actually be supported by your emotions. In this way, practicing emotional discipline not only enhances your ability to act, but also reduces the level and frequency of emotional conflict– it becomes a source of consistency in thought, actions, and feelings.

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

A compulsive desire to be rich may indeed drive you to learn about the markets and make money, but only at tremendous personal cost. A driving desire for fame usually has at its root a fundamental lack of self-confidence and self-respect, and any fame achieved on that basis will be empty and meaningless. The extent to which you are motivated solely by the desire for money and fame is the extent that you will fail as a person, and usually as a businessperson as well.

– Victor Sperandeo, Methods of a Wall Street Master

The Alligator Principle is based on the way an alligator eats: the more the victim tries to struggle, the more the alligator gets. Imagine an alligator has you by the leg; it clamps your leg in its mouth and waits while you struggle. If you put one of your arms in the vicinity of its mouth while fighting to get your leg free, it lunges and then has your arm and leg in its clutches. The more you struggle, the more the alligator takes you in.

So if an alligator ever gets you by the leg, remember that your only chance is to sacrifice the leg and drag yourself away. Translated to market terms, the principle is when you know you are wrong, close your position! Don’t rationalize, hope, pray, or anything else, just get out. Don’t change your position, hedge it, or anything else; just take the loss and get out!

– Victor Sperandeo

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