Market Insight
Market Wizards
Marty Schwartz - Champion Trader
"Schwartz spent a decade losing money on his trading before he found his stride as a remarkably successful professional trader. During his earlier years, he was a well-paid securities analyst, who, as he describes it, was always broke because of market losses. Eventually, he changed his trading methodology, in the process of transforming himself from a repeated loser to an amazingly consistent winner. Not only has Schwartz scored enormous percentage gains in every year since he turned full-time trader in 1979, but he has done so without ever losing more than 3 percent of his equity on a month-end to month-end basis."
Trading Recipe
Take the obvious, add a cupful of brains, a generous pinch of imagination, a bucketful of courage and daring, stir well and bring to a boil.
Bernard Baruch
Never Chase A Trade
You never need to chase a trade. The market has plenty of opportunities. The money runs out before the opportunities do.
John Saleeby
Exiting Too Late
If you beat yourself up about exiting too early, you set yourself up to exit future trades too late.
David Nassar
True Acceptance Of Risk
When you've achieved a state of mind where you truly accept the risk, you won't have the potential to define and interpret market information in painful ways.
Mark Douglas
A Peculiar Balance
Good trading is a peculiar balance between the conviction to follow your ideas and the flexibility to recognize when you have made a mistake.
Michael Steinhardt
Swallow Your Pride And Get Out
The best traders have no ego. To be a great trader, you have to have a big enough ego in the sense that you have confidence in yourself. You cannot let ego get in the way of a trade that is a loser; you have to swallow your pride and get out.
Tom Baldwin
Emotional Makeup Is More Important
I haven't seen much correlation between good trading and intelligence. Some outstanding traders are quite intelligent, but a few aren't. Many outstanding intelligent people are horrible traders. Average intelligence is enough. Beyond that, emotional makeup is more important.
William Eckhardt
Respect But Not Fear
It's important to distinguish between respect for the market and fear of the market. While it's essential to respect the market to assure preservation of capital, you can't win if you're fearful of losing. Fear will keep you from making correct decisions.
Howard Seidler
The Current Risk/Reward
Always understand the risk/reward of the trade as it now stands, not as it existed when you put the position on.
Bill Lipschutz
For Psychological Reasons
The real reason so few succeed in trading is because the traits required for success are almost exclusively psychological.
Gary Smith
A Wonderful Company At A Fair Price
It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Warren Buffett
Stay With Your Winners
If you don't stay with your winners, you are not going to be able to pay for the losers.
Michael Marcus
The Future Is Never Clear
You know the prose: "Maintain buying reserves until current uncertainties are resolved" etc. Before reaching for that clutch, face up to two unpleasant facts: the future is never clear; you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long term values.
Warren Buffett
Selling Too Soon
I never buy at the bottom and I always sell too soon.
Baron Rothchild
Behave Rationally
The market is there only as a reference point to see if anybody is offering to do anything foolish. When we invest in stocks, we invest in businesses. You simply have to behave according to what is rational rather than according to what is fashionable.
Warren Buffett
Don't Get Emotionally Attached
If you feel too good when things are going well, then inevitably you will feel too bad when they are going poorly.
Richard Dennis
High Probability Trades
Never confuse high probability with infallibility.
Darryl Guppy
Purely Academics
To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In our view, though, investment students need only two well-taught courses - How to Value a Business, and How to Think About Market Prices.
Warren Buffett
Follow Your Rules
As a trader it is more important to know that you will always follow your rules than it is to make money, because whatever money you make, you will inevitably lose back to the markets if you can't follow your rules.
Mark Douglas
Cutting Back Size When In Losing Streak
When you are in a losing streak, your ability to properly assimilate and analyze information starts to become distorted because of the impairment of the confidence factor, which is a by-product of a losing streak. You have to work very hard to restore the confidence, and cutting back trading size helps to achieve the goal.
Bill Lipshutz
Personal thought
I know that people like to spend the majority of their time focusing on perfect entries, and timing their exits... usually too early. However, here's a nice challenge for those who are struggling, and feel helpless with their current situation.
Pick from one of the hundreds of systems on this site (if you don't already have one of your own), and focus on losing trades. That's right... focus, hope, and wish for losing trades. Picture in your mind the trade that you just put on turning into a loser. Imagine that when it gets to a certain price level, you see yourself closing it, or your stop loss getting triggered. Anticipate it, build a desire for it to occur. Basically make yourself believe that the aim of you method is to close out small loses. Now, I'm not saying go short when your system signals a long, I'm saying go long and forget that there is a profit to be made. Simply focus on how great it's going to feel to close out the position with a small/reasonable loss. I think within a week or two most will realize that their account equity has mysteriously grown!!! How ironic?
More Personal Thoughts
The 3 Reasons why traders fail:
1. Not closing out losing positions.
A trade that is closed at a predefined "loss" level is not called a "loss", but rather a business expense. One of the hardest challenges in trading is to bury one's ego. The ego will never admit to wrong doing, however, this becomes very expensive. When you have a set limit (maximum expense amount) affixed to every trade, you train your ego to accept small losses as "expenses". This allows for closing out of money positions and makes it the "right thing" to do. This action creates a positive reinforcement for the ego, and allows the trader to preserve their account capital without having to do battle with the "self".
2. Picking tops and bottoms (trading against the trend).
For some unexplainable reason, most individuals look at a 100 pip move and say to themselves,"the move must be over, I'm placing an order in the opposite direction". However, they quickly come to realize that the move is not over, as the price extends another 150 pips. Trends can be relentless. If you fight them... they will destroy you. A quick solution to this is to have a definition of a trend. By this I mean, select a time frame and define the exact specifics of the trend. Never trade against your definition. An example would be:
30 min TF, when 5 and 10 EMA is crossed.
So if by definition you happen to be in a down trend, then you may only sell. If by chance, you feel that the trend is coming to an end after that 100 pip move... that's fine, just don't take a trade until you have an up trend (as defined by your definition). This is what they mean by the saying "stand on the sideline if you do not see an opportunity to trade".
3. Money Management.
The fact is that price action is as random as a woman's mood swings. If a trader is convinced that they can guess these changes most of the time, they may have a tendency to up their risk exposure per each trade. This is a losing proposition. If one does in fact find that their predictability factor is high, then that's great. There is no need to risk 50% of your account on a single trade. You will still become rich, it will take a bit longer, but you'll still get there. Any strategy/trader will find themselves in situations where their 85% accurate method starts looking more like 35% accurate. It's at these times that over sized positions will quickly claim your previous profits. One must understand that the earning potential in the markets has no ceiling, but it take years to build an empire. Slow down, size down, and enjoy the journey.
When the above 3 issues are resolved - you become profitable.
I like Sun Tzu (The Art of War).Complete genius. The guy should have been a trader....
"The general who wins a battle makes many calculations in his temple before the battle is fought. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory, and few calculations to defeat: how much more no calculation at all! It is by attention to this point that I can foresee who is likely to win or lose."
"The quality of decision is like the well-timed swoop of a falcon which enables it to strike and destroy its victim."
"Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat."
"The good fighters of old first put themselves beyond the possibility of defeat, and then waited for an opportunity of defeating the enemy."
"Know your enemy and know yourself and you can fight a hundred battles without disaster."
----Sun Tzu- The Art of War
Gramski,
Thanks for the add on. If you replace the word "fight" with "trade"... then you've got yourself some nice tidbits there.
Gramski, Thanks for the add on. If you replace the word "fight" with "trade"... then you've got yourself some nice tidbits there.
Exactly right. Replace "fighting" with "trading"...and "enemy" with "market" and the analogy fits.
Not that I necessarily think war is the perfect analogy. Replace 'war' with getting in sync.
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I'm starting a thread which I hope will be of benefit to many TSD members (myself included). In this thread there will be no discussion regarding indicators, EA's, pairs, or price. There is already a handful of threads which contain more than enough content to go around for an entire trading career. Instead, I am inviting everyone to post useful text which may shed a bit of wisdom about the markets. It can be from a book or an article which you've recently read, or pro trader quotes, or maybe just some personal insight... but please, lets refrain from using proverbs. I find them too vague, and applicable to just about everything. Let's specifically focus the postings to trading.
Alright, if you've got 'em, post 'em.
MM