Thought For The Day

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"The market can stay irrational longer than you can stay solvent."

- John Maynard Keynes

 

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"The typical trader will do most anything to avoid creating definition and rules because he does not want to take responsibility for the results of his trading. If he knows exactly what he is going to do and under what conditions, then he would have something by which to measure his performance, thus making himself accountable to himself. This is exactly what most traders don't want to do, preferring instead to keep their relationship with the market somewhat mysterious.

"This creates a real psychological paradox for traders, because the only way to learn how to trade effectively is to make oneself accountable by creating structure: but, with accountability comes responsibility."

Mark Douglas, trader and author: The Disciplined Trader: Developing Winning Attitudes

 

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"Never, ever, follow conventional wisdom in the market. You have to learn to go counter to the markets. You have to learn how to think for yourself; to be able to see that the emperor has no clothes."

James B. Rogers, Jr., as quoted in Market Wizards, by Jack Schwager

 

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"To a very large extent people fail because they want to fail. They want to punish themselves for one reason or another. Subconsciously, there are people who do not want to win."

Alpesh B. Patel, Financial Times columnist and author, The Mind of a Trader

 

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The man who makes no mistakes does not usually make anything.


Bishop W. C. Magee

 

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"First, I would say that risk management is the most important thing to be well understood. Undertrade, undertrade, undertrade is my second piece of advice. Whatever you think your position ought to be, cut it at least in half. My experience with novice traders is that they trade 3 to 5 times too big. They are taking 5 to 10 percent risks on a trade when they should be taking 1 to 2 percent risks."

- John Percival, trader and author: The Way of the Dollar

 

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"Each individual trader creates his own experience of the markets based on this picking and choosing process and the decisions that result. If you accept this concept as valid, then the implications are that you will never have a valid reason to blame the markets for your unsatisfying results. The markets don't owe you anything (regardless of how hard you work to be successful) because every other trader participating is doing so to take your money away. You and you alone are completely responsible for whatever you end up with. The sooner you accept that responsibility (if you haven't already), the easier it will be to identify what skills you need to learn to interact with the markets more successfully. Even if you can't identify the mental components responsible for what you ended up with, at least by assuming that you are responsible, you will be opening yourself up to find out."

- Mark Douglas, trader and author: The Disciplined Trader: Developing Winning Attitudes

 

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"Do you want to know why we make so much money? It's because we're smarter."

Greg Hawkins, of Long Term Capital Management (before its demise!)

 

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"By the time the market 'confirms' what you suspected, it is TOO LATE. By the time the market passes or fails a 'test', it is too late. To be paid, you must act upon your suspicions before they are manifested.
- Donald Worden, author: Trader's Manifesto

 

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I feel there is a great deal of wisdom in many of these posts and surprisingly little encouragement for the traders who swear by TA and those who carefully follow charts. Some of it seems to suggest acting on impulse and trusting to luck. Looking back, my biggest gains have come from taking a risk and being lucky rather than clever. Patience and time can bring unexpected rewards as well.

 

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"So many people want the positive rewards of being a successful trader without being willing to go through the commitment and pain. And there's a lot of pain."

Bill Lipschutz, as quoted in The New Market Wizards, by Jack Schwager

 

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"It's quite tempting to bend your rules to make your current trades work, ... Two of the cardinal sins of trading - giving losses too much rope and taking profits prematurely - are both attempts to make current positions more likely to succeed..."

William Eckhardt, as quoted in The New Market Wizards, by Jack Schwager

 

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"The belief in miracles that all men cherish is born of immoderate indulgence in hope. There are people who go on hope sprees periodically and we all know the chronic hope drunkard that is held up before us as an exemplary optimist. Tip-takers are all they really are."

Edwin Lefevre, author: Reminiscences of a Stock Operator

 

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"The average man doesn't wish to be told that it is a bull or a bear market. What he desires is to be told that specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn't even wish to have to think."


Edwin Lefevre, author: Reminiscences of a Stock Operator

 

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" ...maybe a better question about confidence - financial and otherwise - is not why people are overconfident to begin with, but why they stay overconfident. You see, the problem with overconfidence is not the innate bias toward optimism that most people seem to possess. That's a good thing, it keeps the world moving forward. The problem is the inability to temper optimism as a result of prior experience. Frankly, we don't learn well enough from our mistakes. Consider: If overconfidence is as big a problem as we say it is, it should be a short-term problem at worst. The learning process would ideally go something like this: We think highly of ourselves, the world and events show us who is the boss, and we become less confident and more realistic about our knowledge and skills. Yet in the main, this does not happen."

Belsky & Gilovich, authors: Why Smart People Make Big Money Mistakes

 

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"Traders, like athletes and artists, need to create a certain state of mind in which to successfully practice their craft. The best traders recognize the psychological paradoxes inherent in trading."

F. J. Chu, author: The Mind of the Markets

 

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"The essential element is having a core philosophy. Without a core philosophy you're not going to be able to hold on to your positions or stick with your trading plan during really difficult times."
Jack Schwager, author: The New Market Wizards

 

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"In a winning trade, the fear of losing will cause us to focus our attention on information that the market is going to take our profits away, compelling us to get out early. In a losing trade we will focus our attention on just the opposite information-anything other than that which would indicate the trade is a loser. Fear causes us to act without a perception of choice. When we are afraid to confront certain categories of market information, it drastically limits the choices that we perceive as available. Cutting a loss isn't a choice if we systematically block from our awareness any information that would indicate that we are in a losing trade. Staying in a winner isn't a choice if we are consumed with the fear that the market is going to take away our money... To prevent these blind spots in our perception, we have to learn to trade without fear."

Mark Douglas, trader and author: The Disciplined Trader: Developing Winning Attitudes

 

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"According to folklore, greed and fear drive financial markets. But this is only partly correct. While fear does play a role, most investors react less to greed and more to hope."

Hersh Shefrin, author: Beyond Greed and Fear

 

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"Consistency in day trading will come from sticking to a money management plan. The market can be extremely humbling. Many traders take all the credit when they are successful and blame the market when they are not. The reality is that, with few exceptions, your trades will never really change the market. Your 1000 shares of Intel have almost nothing to do with the stock's next move. The market will function with you or without you. It doesn't matter if you made millions for the last 10 years straight - it is essential to define what you are willing to risk now and stick with it. The main reason that most traders fail after great successes is that their egos drag them down. They get full of themselves."

Friedfertig and West, authors: Electronic Day Traders' Secrets