Thursday, 31 October 2013

The Eight Characteristics of Successful Investors

Is there a reason why so many people make a failure in investing?

Just what IS success and how can it be obtained?

The techniques and the characteristics of the most successful investors are diverse, and there's not a guaranteed formula of success.

Nonetheless, by looking at the mindsets of certain successful investors, we can learn by following 8 of their key traits:

1. Reason:

Arguably the most important characteristic. You need to justify why you hold each company in your portfolio. You must seek out high-quality stocks that are undervalued by the market, and therefore cheap.

2. Commitment:

To exploit your strategy you have to do the research - and keep doing it - including surveying all financial data, online investment resources and company reports. Don't forget that "numbers have no prejudices."

3. Discipline:

The research process doesn't finish once you've bought a stock.You have to obsessively follow your purchases, to make sure they were sensible.

You'll need discipline, because successful investing is about running your profits and cutting your losses. The stockmarket is a rollercoaster, so you have to ride out the peaks and bottoms.

4. Flexibility:

If you're going to have rules you need to be able to break them!" The same stocks won't perform well in all markets.

5. Guts:

The best time to buy stocks is the time of "maximum pessimism" - when everyone is selling and fleeing the markets. To do this takes bravery.

6. Open Mind:

Seeking out opportunities ignored by other investors prevents prejudices coming between you and an opportunity.

7. Patience:

"Unfashionable stocks" are unlikely to turn around overnight, so you need to know when to hold on.

8. Know Your Limits:

This means accepting you won't be the next Warren Buffett. Professional investors spend their whole day researching companies, have analysts to help them, and can visit companies.

That doesn't mean you can't stock-pick successfully as an amateur ...

The best trick is to keep it simple and ...

Stick with what you know!

http://www.greekshares.com

31-Oct-2013 CSE Trade Summary


Crossings - 31/10/2013 - Top 10 Contributors to Change ASPI

Following Stocks Reached New High / Low on 31/10/2013




Net Net Working Capital: Value Investing

What is Net Net Working Capital?

Net Net Working Capital = Cash  +  Short Term Marketable Investments  +  Accounts Receivable * 75%  +  Inventory * 50%  –  Total Liabilities

“Net Net Working Capital” (NNWC) is one of the first stock valuation screening methods to be defined in the value investing world. Benjamin Graham also referred to this as Net-Current-Asset Value (NCAV).

The Net Net Working Capital formula may help identify undervalued stocks. Benjamin Graham actually used the term “Net Working Capital” but current value investors and Graham followers use the terms “net nets” or “Net Net Working Capital” interchangeably.

One value investing strategy of Graham was to purchase stocks that were trading at less than two-thirds of the Net-Current-Asset Value per Share (i.e. less than two-thirds of the Net Net Working Capital Value per Share). This type of value investing strategy could be thought of as a “liquidation value investing strategy”. In other words, Graham is proposing that the stock is so cheap that even under a situation where the business was wound down, that the investor would have a such a suitable margin of safety that a return could still be earned. Of course, Graham is not counting on a liquidation since there are costs associated with that action. Rather, Graham is satisfied that he is paying nothing for the fixed assets of the business nor is he paying anything for any potential earnings.

According to Graham, “The type of bargain issue that can be most readily identified is a common stock that sells for less than the company’s net working capital alone, after deducting all prior obligations.* This would mean that the buyer would pay nothing at all for the fixed assets—buildings, machinery, etc., or any good-will items that might exist. Very few companies turn out to have an ultimate value less than the working capital alone, although scattered instances may be found.” (Source: The Intelligent Investor by Benjamin Graham).

Of course, stocks that are trading below their NNWC may be trading at such low multiples for various reasons (e.g. pending bankruptcy, misstated financial statements, or a host of reasons why investors may be shunning a particular stock). Regardless, we present the Net Net Working Capital formula and provide further discussion.
Net Net Working Capital = Cash  +  Short Term Marketable Investments  +  Accounts Receivable * 75%  +  Inventory * 50%  –  Total Liabilities

Once the NNWC is determined, this amount divided by the number of shares outstanding will provide the NNWC per share. NNWC per share that is less than the current share price may be an indication of an undervalued stock or a deep value stock. Graham advocated buying a basket of stocks whose prices traded significantly below NNWC per share (or Net Current Asset Value per Share – NCAV per Share).

The NNWC formula considers that not all balance sheet amounts may reflect current reality. A 25% discount is applied to accounts receivable as these amounts may not actually be collectible. In addition, a 50% discount to inventory is applied given that it may be stale or obsolete. Of course, this is a first screen and potential investors should consider whether further discounts would be prudent.

The estimation or calculation of intrinsic value is as much art as science. Any investor can run a mathematical screen to identify stocks trading at various metrics that could indicate potential value. However, it must take keen business sense and deep curiosity to ask why a stock may be trading at the level it is, whether there actually is business value and how much, and what potential catalysts could emerge to unlock value. The Net Net Working Capital formula is one more value investing tool.

Net Net Working Capital Formula – Further Analysis and Discussion:

Net Net Working Capital is a subset of Graham’s Net Working Capital is a subset of Net Working Capital (also known as Working Capital).

1) Net Working Capital = Current Assets – Current Liabilities

2) Graham’s Net Working Capital = Current Assets – Total Liabilities

3) 
Net Net Working Capital = Cash  +  Short Term Marketable Investments  +  Accounts Receivable * 75%  +  Inventory * 50%  –  Total Liabilities

Note that the results of each formula are presented in a decreasing order. That is to say Net Net Working Capital will provide the lowest and hence, most conservative, value. In other words, all else being equal, of the three formulas above, a stock trading below Net Net Working Capital provides the investor with the largest margin of safety.

Edited article from http://deepvalueinvestor.com/

Quote for the day

"Try a thing you haven't done three times. Once to get over the fear of doing it. Twice to learn how to do it. And a third time to figure out whether you like it or not." - Joyce Meye

Wednesday, 30 October 2013

Quote for the day

“No matter what the activity — be it music, art, sports, a profession or trade — there is a state of achievement wherein it becomes so perfected through practice and a certain mental attitude, that it seems to function independently of the performer.” - Arthur Sokolo

30-Oct-2013 CSE Trade Summary


Crossings - 30/10/2013 - Top 10 Contributors to Change ASPI

Following Stocks Reached New High / Low on 30/10/2013
 




20 Ways To Decide It's Time To Sell

Bolton, Lynch, Woodford, Buffett and Graham tell you when to sell.

I'm considering what tips they'd give you for when to sell. Some of the advice is a little contradictory, but the common theme is to step back from what everyone else is doing, so that you can make your own mind up.

Anthony Bolton might advise:
* Don't sell when the market looks at its absolute worst, because that will probably be the bottom.
* Ride out volatility, don't dip in and out of the market. It's too difficult to call.
* When the market's booming, the share price of your investment has followed and commentary is focused completely on the positive aspects of the company, you need to be at your most wary.
* Above all, sell when you see that the share is fully valued.

Peter Lynch would say:
* Don't sell because the economy looks bad. Always stay invested, because your profits do not depend on the economy as a whole.
* Sell your steadier holdings when their PEGs reach about 1.2 to 1.4 or when the long-term growth rate starts to slow.
* Sell fast growers when there appears to be no further scope for expansion or when expansion starts to produce disappointing sales and profits growth, or when the PEGs reach about 1.5 to 2.0.
* Sell asset plays when they are taken over, or when assets that are sold off fetch lower-than-expected prices.

Neil Woodford might recommend:
* You shouldn't try to make too many course changes. It's cheaper to hold shares for five or six years, on average...
* ...I said 'on average'. Don't ignore poor performers. Identify them and deal with them accordingly.
* Sell when the stock, which you bought because it was out of favour, becomes the darling of the market once more.
* In troubled economic times, stick with the companies that are financially sound. The market goes through periods where it believes in economic recovery and anticipates that by bidding up cyclical shares at the expense of defensive stocks. Don't be led by the market.

Warren Buffet would quip:
* The ideal holding period for a stock is forever. That doesn't happen very often in practice, but many good businesses stay fair value for ages, so you can hold for a considerable time.
* Consider selling when everyone is being greedy, not when they're fearful.
* Don't try to predict the direction of the stock market, the economy, interest rates or elections. It just distracts you from buying and holding good companies.
* Just because the crowd is selling it doesn't mean you should. You should sell when your data and reasoning say so.

Benjamin Graham might suggest:
* Don't be dictated to by Mr. Market. Sell when your holdings become way overvalued.
* Consider selling shares you've held more than two years, shares that have risen more than 50%, shares where dividends have been stopped, and shares where profits have dropped enough to make it over-priced by 50% based on earnings yield.
* Don't panic and sell shares as prices slide in a bear market -- consider buying more.
* If you're confident about what you're doing, you should hardly ever be forced to sell, nor should you care about the current price. You should act upon it just to the extent that it suits you.

By Neil Faulkner
www.fool.co.uk

Tuesday, 29 October 2013

Quote for the day

“There are three classes of people: those who see, those who see when they are shown, those who do not see.” - Leonardo da Vinci

29-Oct-2013 CSE Trade Summary


Crossings - 29/10/2013 - Top 10 Contributors to Change ASPI

Following Stocks Reached New High / Low on 29/10/2013




The Graham Number

The Graham number or Benjamin Graham number is a figure used in securities investing that measures a stock's so-called fair value. Named after Benjamin Graham, the founder of value investing, the Graham Number can be calculated as follows:



Alternative calculation
Earnings per share is calculated by dividing net income by shares outstanding. Book value is another way of saying shareholders' equity. Therefore, book value per share is calculated by dividing equity by shares outstanding. Consequently, the formula for the Graham number can also be written as follows:




This is one of the ways to estimate the intrinsic value of business based on their book value and their earnings power.

Unlike valuation methods such as DCF or Discounted Earnings, the Graham number does not take growth into the valuation. Unlike the valuation methods based on book value alone, it takes into account the earnings power. Therefore, the Graham Number is a combination of asset valuation and earnings power valuation.

In general, the Graham number is a very conservative way of valuing a stock. It cannot be applied to companies with negative book values.

Graham value is applicable only to the companies that have positive earnings and positive tangible book value.

The final number is, theoretically, the maximum price that a defensive investor should pay for the given stock.Put another way, a stock priced below the Graham Number would be considered a good value, if it also meet a number of other criteria.

The complete Graham selection procedure is much more elaborate. No decision should be made based on this number alone.

When applying any of those valuation methods, you need to be aware of their limitations. Please keep these in mind:

1. Graham Number does not take growth into account. Therefore it underestimates the values of the companies that have good earnings growth. We feel that if the earnings per share grows more than 10% a year, Graham Number underestimates the value.

2. Graham Number punishes the companies that have temporarily low earnings. Therefore, an average of earnings makes more sense in the calculation of Graham Number.

3. Graham Numbers underestimates companies that are light with book.

Source: Edited articles from Wikipedia and http://www.forbes.com

Monday, 28 October 2013

Quote for the day

“I think there's a natural progression that everyone goes through. The older you get, the more you'll realize that a quality life is one that has an extraordinary balance in it.” - Paul Tudor Jones

28-Oct-2013 CSE Trade Summary


Crossings - 28/10/2013 - Top 10 Contributors to Change ASPI

Following Stocks Reached New High / Low on 28/10/2013


 



The Safer Way To Average Down

If a share price falls, do you have a plan?

Many novice investors, and some experienced ones, have a tendency to "average down" on a stock that falls in price, on the basis that they are picking up additional shares at an "even better price". Yet most professional traders regard averaging down as a cardinal sin, amounting to throwing good money after bad.

The irony is that the trading (in the form of spread betting) method of betting "per point" can lead us in the direction of a safer way for investors to average down.

The lure of averaging down
If you buy £10,000 worth of a stock at 100p-per-share and it falls by 50%, you will need a subsequent 100% rise in order to take you back to break-even.

If you pick up another £10,000 worth of the stock at the lower 50p-per-share, you are holding £15,000 worth of stock which cost you £20,000. So you need only a 33.33% recovery to take you back to break-even on your combined holding.

This is why investors like averaging down, and when it comes to pound-cost-averaging into an index tracker... it might just work.

The problems of averaging down
The first problem of averaging down in this way is that, when making your second investment, you doubled your value-at-risk from £10,000 to £20,000.

The second problem of averaging down (specifically on a single stock) is that a share that has fallen by 50% can easily fall by another 50%; so then you have to do it again, and this particular stock becomes a magnet for funds that might be better deployed elsewhere.

Each time you invest an additional £10,000, it's another £10,000 that you stand to lose entirely when the company goes bust -- and lately, quite a few seem to do just that!

Pounds-per-point averaging down
If you place a £100-per-point spread bet on a stock priced at 100p-per-share, you are risking £10,000 as in the investment case. If subsequently you average down by placing the same size £100-per-point spread bet on the same stock, when it has fallen to 50p-per-share, you are risking only £5,000 the second time around. If it falls by 50% again, and you place another same size bet, this time you are risking only £2,500 more.

Personally I wouldn't go betting £100-per-point on a 100p stock, but it mirrors the investment case and demonstrates that pound-per-point averaging down incurs less additional risk at each turn.

Equal shares averaging down
What I've demonstrated, using the spread betting analogy, is the equivalent of investing in an equal number of shares (rather than making an equal monetary investment) at each turn.

With the stock at 100p-per-share, an investor can buy 10,000 shares for £10,000. When the price falls to 50p-per-share, the investor can average down on another 10,000 shares for just £5,000... and so on. The more the price falls, the less additional risk you are taking when you average down... if you purchase the same number of shares each time.

The downside of the upside
This is no Holy Grail, of course, because you are taking on less downside risk at the expense of lower upside potential.

Assuming just one round of averaging down, you will have bought 20,000 shares (now worth £10,000) for £15,000, so you'll need a 50% recovery to take you back to break-even rather than the 33.33% recovery required in the equal-value-invested averaging down.

The safer way to average down
So what if your profit potential is not so great? You still have more profit potential than if you hadn't averaged down at all, and by the third round I personally would rather have a total of £17,500 at risk than a total of £30,000 at risk. I would also rather have scaled into the position in this way than to have invested the full £17,500 at the original higher price.

The equal-number-of-shares (or equal pounds-per-point) approach to averaging down is an example of an anti-Martingale strategy, which is safer than the equal-value-invested approach to averaging down, and which in turn safer than the Martingale strategy of averaging down ever bigger amounts at each turn. I do hope you weren't considering the latter, as it can require infinitely deep pockets!

Foolish bottom line
Scaling into a position by averaging down can be more beneficial and less risky than investing all in one go. It can be made even less risky by purchasing equal numbers of shares rather than making equal-size investments in each round. This comes at the expense of lower profitability, but I did tell you that this was the safer way to average down and not the more profitable way.

I prefer the safety-first approach to looking after the downside and letting the upside look after itself. Why? Because companies can (and do) go bust, and then you've lost the lot!
BY Tony Loton
http://www.fool.co.uk/news/investing/2011/12/07/the-safer-way-to-average-down.aspx

Saturday, 26 October 2013

40 Gems for Traders and Investors

01. There are only three kinds of investors – those who think they are geniuses, those who think they are idiots, and those who aren't sure.

02. One of the clearest signals that you are wrong about an investment is having the hunch that you are right about it.

03. Investors who focus on price levels earn between five and ten times higher profits than those who pay attention to price changes.

04. The only way to be more certain it’s true is to search harder for proof that it is false.

05. Business value changes over time, not all the time. Stocks are like weather, altering almost continually and without warning; businesses are like the climate, changing much more gradually and predictably.

06. When rewards are near, the brain hates to wait.

07. The market isn't always right, but it’s right more often than it is wrong.

08. Often, when we are asked to judge how likely things are, we instead judge how alike they are.

09. Most of what seem to be patterns in stock prices are just random variations.

10. In a rising market, enough of your bad ideas will pay off so that you’ll never learn that you should have fewer ideas.

11. The more often people watch an investment heave up and down, the more likely they are to trade in and out over the short term – and the less likely they are to earn a high return over the long term.

12. Investing is not you versus “Them”. It’s you versus you.

13. The single greatest challenge you face as an investor is handling the truth about yourself.

14. Hindsight bias keeps you from feeling like an idiot as you look back – but it can make you act like an idiot as you look forward.

15. Ignorance of our own ignorance haunts our financial judgments.

16. Investing requires taking a stand on at least some of the uncertainties that the future holds. So your goal is to be as sure as possible that you don’t think you know more than you really do. How much you know is less important than how clearly you understand where the borders of your ignorance begin. It’s not even a problem to know next to nothing, as long as you know you know next to nothing.

17. Being part of the herd is fun while it lasts, but it’s seldom lucrative for very long, and it’s impossible to predict when the herd will change its “mind.” If you want to make more money than other people, you can't invest like other people.

18. Knowing, or even imagining, that someone else is relying on your advice can make you feel more accountable, forcing you to go beyond your gut feelings and fortify your opinions with factual evidence.

19. Find out who has a negative view and give this devil’s advocate a full hearing.

20. Whether you should take a risk depends not just on the probability that you are right but also on the consequences if you are wrong. You must always weigh how right you think you are against how sorry you will be if you turn out to be mistaken.

21. We are often most afraid of the least likely of dangers, and frequently not worried enough about the risks that have the greatest chances of coming home to roost.

22. When an intangible feeling of risk fills the air, you can catch other people’s emotions as easily as you can catch a cold.

23. Overreacting to raw feelings “blinking” in the face of risk is often one of the riskiest things an investor can do.

24. There’s safety in numbers only when there’s nothing to be afraid of.

25. Many of the world’s best investors have mastered the art of treating their own feelings as reverse indicators. Excitement becomes a cue that it’s time to consider selling, while fear tells them that it may be time to buy.

26. A mistake that stems from an action hurts worse than a mistake that results from inaction.

27. Once you have a handful of options, adding even more choices will lower you odds of making a good decision and increase your chances of regretting whatever decision you do make.

28. The harder the choice feels, the less people want to choose. Yet, the threat of having less choice almost always disturbs us.

29. The closer you come to hitting your target, the more regret you are apt to feel if you miss it.

30. The human brain is a brilliant machine for comparing the reality of what is against the imagination of what might have been.

31. There’s no end to the roads not taken.

32. Investors probably hurt themselves more by avoiding risks they imagine they might regret than by taking risks they really do end up regretting.

33. Instead of making judgments one at a time, you should follow policies and procedures that put your investing decisions on autopilot.

34. The more you can automate your investing, the easier it should be to control your emotions.

35. The pleasure you expect tends to be more intense than the pleasure you experience.

36. We often find out that what we thought we wanted before we got it is no longer what we really want once we have it.

37. There are two tragedies in life. One is to lose your heart’s desire. The other is to gain it.

38. Your memory of what was is shaped largely by what is.

39. If you focus too narrowly on the task at hand, you may never use your peripheral vision.

40. Chance favors the prepared mind.
Source:http://www.anirudhsethireport.com
_________________

Friday, 25 October 2013

Quote for the day

“Fools try to prove that they are right. Wise men try to find when they are wrong.” - Dickson G. Watts

25-Oct-2013 CSE Trade Summary


Crossings - 25/10/2013 - Top 10 Contributors to Change ASPI

Following Stocks Reached New High / Low on 25/10/2013
 




The Ten Most Foolish Things a Trader Can Do

In no particular order of foolishness.

01. Try to predict the future movement of a stock, and stay in it no matter what.

02. Risk your entire account on one trade with no stop loss plan.

03. Have a winning trade but no exit strategy to get out, no trailing stop or exhaustion top signal.

04. Ask for and follow the advice of others instead of trading with your own trading plan, method, rules, and system.

05. Trade your emotions instead of signals: buy when you are greedy and sell when you are afraid.

06. Trade your opinions, not a quantified method.

07. Do not bother to do your homework on trading, just jump in and trade, you are smart, you will figure it out.

08. Short the best and most expensive stocks in the stock market and buy the cheapest junk stocks.

09. Put on trades you are 100% sure are winners so you do not even need a stop loss or risk management.

10. Buy more of a trade that you are losing money in and sell your winners quickly to lock in small profits.
Source:http://newtraderu.com

Thursday, 24 October 2013

Quote for the day

“The best way to stop a losing streak is to stop! Stop the losses, stop the bleeding. Take time off and let your intellect take charge of your emotions; the market will be there when you return.” - Marty Schwartz

24-Oct-2013 CSE Trade Summary


Crossings - 24/10/2013 - Top 10 Contributors to Change ASPI

Following Stocks Reached New High / Low on 24/10/2013

 




Wednesday, 23 October 2013

Quote for the day

"Human emotion is a big enemy of the average investor and trader. Be patient and unemotional. There are periods where traders don't need to trade." - James P. Arthur Huprich

23-Oct-2013 CSE Trade Summary

 

Crossings - 23/10/2013 - Top 10 Contributors to Change ASPI


Following Stocks Reached New Low on 23/10/2013



Are You A Bull Or A Bear?

Casual acquaintances who come to learn know I trade for a living (something I rarely volunteer without being asked) will always ask whether I’m a bullish or bearish on the market or economy. My reply often irritates them when I say “I'm neither one – I'm just an opportunist.”

What I mean by that is that I go out of my way to avoid placing myself into a neat and tidy category that can influence my analysis of the markets and the stocks I trade. Although I'm far from perfect and sometimes let my opinions cloud my judgment (I am human after all), I do really try to do everything I can to look for opportunities on both sides of the market.

Many investors and also traders try to fit themselves into one neat category based on their opinions or of others who've they have come to respect. Even worse, those views are frequently tainted by how their portfolio is currently positioned (people want to be right after all) which can be both dangerous and quite unprofitable.

Believe it or not, some of the most profitable trades I've taken have been ones that run contrary to my personal views.

Case in point, I know several traders who are struggling now because they are very bearish about the market. While in principle I agree many of their views, I cannot let those views cloud both my analysis and trading. While I'm fairly certain there will be a time when their views will be proven correct, in this business timing is everything. Opinions after all, don't pay the bills – only profitable trades do!

As you'll soon learn if you haven't already, there is no difference between being “early” and “wrong” in this market. Likewise, it pays to remember there were lots of hedge funds that went broke prior to March of 2000 because they shorted all of the Internet and tech stocks. These guys were proven to be right on the money much later on, but in reality they never were able to take full advantage of it because they lost so much money before the bear returned.

Remember thisin trading it isn't about who is right or wrong. Instead it is all about who can make money and take advantage of the most opportunities in the present. Opinions are terrific things, but in most cases, you would be wise to set them aside and trade the market you see rather than the market you think you should or want to see.
By Charles E. Kirk
http://www.kirkreport.com

Tuesday, 22 October 2013

Quote for the day

“Dealings should be in the active stocks. In order to make a profit, a stock must move. A great deal of money and many opportunities are lost by traders who keep themselves tied up in stocks which are sluggish in their action. In a commercial line you would not carry goods on your shelves indefinitely -- you would keep your stock moving. In trading, keep on moving stocks!” -  Richard D. Wyckoff

22-Oct-2013 CSE Trade Summary


Crossings - 22/10/2013 - Top 10 Contributors to Change ASPI

Following Stocks Reached New High / Low on 22/10/2013




Nine Lessons From The Greatest Trader Who Ever Lived

The stock market has certainly produced its share of heroes and villains over the years. And while villains have been many, the heroes have been few.

One of the good guys (for me, at least) has always been Jesse L. Livermore. He's considered by many of today's top Wall Street traders to be the greatest trader who ever lived.

Leaving home at age 14 with no more than five bucks in his pocket, Livermore went on to earn millions on Wall Street back in the days when they still literally read the tape.

Long or short, it didn't matter to Jesse.

Instead, he was happy to take whatever the markets gave him because he knew what every good trader knows: Markets never go straight up or straight down.

In one of Livermore's more famous moves, he made a massive fortune betting against the markets in 1929, earning $100 million in short-selling profits during the crash. In today's dollars, that would be a cool $12.6 billion.

That's part of the reason why an earlier biography of his life, entitled Reminiscences of a Stock Operator, has been a must-read for experienced traders and beginners alike.

A gambler and speculator to the core, his insights into human nature and the markets have been widely quoted ever since.

Here are just a few of his market beating lessons:

On the school of hard knocks:

The game taught me the game. And it didn't spare me rod while teaching. It took me five years to learn to play the game intelligently enough to make big money when I was right.

On losing trades:

Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight. But being wrong - not taking the loss - that is what does the damage to the pocket book and to the soul.

On trading the trends:

Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the fluctuations. In a bull market the game is to buy and hold until you believe the bull market is near its end.

On sticking to his plan:

What beat me was not having brains enough to stick to my own game - that is, to play the market only when I was satisfied that precedents favoured my play. There is the plain fool, who does the wrong thing at all times everywhere, but there is also the Wall Street fool, who thinks he must trade all the time. No man can have adequate reasons for buying or selling stocks daily - or sufficient knowledge to make his play an intelligent play.

On speculation:

If somebody had told me my method would not work, I nevertheless would have tried it out to make sure for myself, for when I am wrong only one thing convinces me of it, and that is, to lose money. And I am only right when I make money. That is speculating.

On respecting the tape:

A speculator must concern himself with making money out of the market and not with insisting that the tape must agree with him. Never argue with it or ask for reasons or explanations.

On human nature and trading:

The speculator's deadly enemies are: Ignorance, greed, fear and hope. All the statute books in the world and all the rule books on all the Exchanges of the earth cannot eliminate these from the human animal.

On riding the trend to the big money:

Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.

On the nature of Wall Street:

Wall Street never changes, the pockets change, the suckers change, the stocks change, but Wall Street never changes, because human nature never changes.

So, what ever happened to Jesse L. Livermore?

He didn't die a poor man - not by any stretch of the imagination.

But he did take his own life, believing he was "a failure," which proves once again that money can't buy happiness.
http://moneymorning.com/

Monday, 21 October 2013

Quote for the day

“Rather than targeting a desired rate of return, even an eminently reasonable one, investors should target risk.” - Seth Klarman

21-Oct-2013 CSE Trade Summary


Crossings - 21/10/2013 - Top 10 Contributors to Change ASPI

Following Stocks Reached New High / Low on 21/10/2013




Self-Belief - Inspiration Poem - 'The Man Who Thinks He Can'

In the constant battle for success in trading, there are many qualities needed to overcome the many hurdles put up by both the market and ourselves. People may possess these qualities in varying measures and differing degrees, however there is one quality which all people need to possess: 'Self belief'. - Without this, you are almost certainly beaten already, and when you lose this, the perils are many.

'Self-Belief' is a quality shared by winners across all fields, from sports, to business, to trading. There is a wonderful poem, written about 100 years ago, which nicely captures and summaries this point. - I advise many of my trading clients to print this poem off and keep it close to hand:

The Man Who Thinks He Can.
By Walter D.Wintle 

If you think you are beaten, you are
If you think you dare not, you don't,
If you like to win, but you think you can't
It is almost certain you won't.

If you think you'll lose, you're lost
For out of the world we find,
Success begins with a fellow's will
It's all in the state of mind.

If you think you are outclassed, you are
You've got to think high to rise,
You've got to be sure of yourself before
You can ever win a prize.

Life's battles don't always go
To the stronger or faster man,
But soon or late the man who wins
Is the man WHO THINKS HE CAN!

Sunday, 20 October 2013

The 4 Levels Of Trading Mastery

In everything you do, you'll find yourself confronted with a standard ladder of mastery.

Trading is no exception.

The 4 levels are:
Unconscious Incompetent – when you have no knowledge and no experience

Conscious Incompetent – you achieve this level once you’ve gathered some bit of knowledge, and can now recognize you still have a lot to learn and experience.

Conscious Competent – when you have the knowledge and know how to use it, at this point you are starting to see great progress and results.

Unconscious Competent – The last level of mastery at which point you perform the task with a crystallized behaviour and you no longer think about it, you just do it right and comfortably well.


A fair example of this ladder would be in driving.

When we start, we are unconscious and incompetent, as we don’t know the Highway Code and don’t know how to operate a car.

Then we learn the code and the basics of how to drive a car and become aware of what we have yet to achieve. We therefore passed to be conscious and incompetent.As we try to gather experience we have the knowledge but we are letting the car stall, braking too hard etc.

With further experience, we then progress to conscious competent, where we know the code and how to drive the car. However, we still are thinking and focusing on these tasks.

And then we finally achieve the last level of mastery where we become unconscious and competent, we no longer need to think about driving we just do it well. We don't need to look to the gearbox anymore, pedals etc.

The unconscious competent level of mastery can be linked to the psychological state known as “flow” where you possess a very high skill level and you feel perfectly comfortable, with contained emotions, and can handle changes with ease.

The flow state is the state you want to achieve whilst trading in order for you to be relaxed and successful.

This is all about you, so don't focus on the others and how much they're making and how well they are doing, instead focus on yourself. Be able to humbly recognize and pinpoint accurately where you stand in the learning process, embrace it and focus on your progress.

So what is your level of mastery?
http://www.leadingtrader.com

The 21 Absolutely Unbreakable Laws of Money

The Laws

1. The Law of Cause and Effect:
Everything happens for a reason; there is a cause for every effect.

2. The Law of Belief:
Whatever you truly believe, with feeling, becomes your reality.

3. The Law of Expectations:
Whatever you expect, with confidence, becomes your own self-fulfilling prophecy.

4. The Law of Attraction:
You are a living magnet; you invariably attract into your life the people, situations and circumstances that are in harmony with your dominant thoughts.

5. The Law of Correspondence:
Your outer world is a reflection of your inner world and corresponds with your dominant patterns of thinking.

6. The Law of Abundance:
We live in an abundant universe in which there is sufficient money for all who really want it and are willing obey the laws governing its acquisition.

7. The Law of Exchange:
Money is the medium through which people exchange their labor in the production of goods and services for the goods and services of others.

8. The Law of Capital:
Your most valuable asset, in terms of cash flow,is your physical and mental capital, your earning ability.

9. The Law of Time Perspective:
The most successful people in any society are those who take the longest time period into consideration when making their day-to-day decisions.

10. The Law of Saving:
Financial freedom comes to the person who saves ten percent or more of his income throughout his lifetime.

11. The Law of Conservation:
Its not how much you make, but how much you keep, that determines your financial situations.

12. Parkinson’s Law:
Expenses rise to meet income.

13. The Law of Three:
There are three legs to the stool of financial freedom: savings, insurance and investment.

14. The Law of Investing:
Investigate before you invest.

15. The Law of Compound Interest:
Investing your money carefully and allowing it to grow at compound interest will eventually make you rich.

16. The Law of Accumulation:
Every great financial achievement is an accumulation of hundreds of small efforts and sacrifices that no one ever sees or appreciates.

17. The Law of Magnetism:
The more money you save and accumulate, the more money you attract into your life.

18. The Law of Accelerating Acceleration:
The faster you move toward financial freedom, the faster it moves toward you.

19. The Law of the Stock Market:
The value of a stock is the total anticipated cash flow from the stock discounted to the present day.

20. The Law of Real Estate:
The value of a piece of Real Estate is the future earning power of that particular piece of property.

21. The Law of the Internet:
The Internet is a tool for rapid communication of information of all kinds.

To read the elaborate article, please follow the below link.
http://mikenation.net/files/21-laws-of-money.pdf

Saturday, 19 October 2013

Pessimistic Vs Optimistic Investing Attitudes

One major thing that all the investors must learn is that attitude really matters. In fact, in investing it is simply amazing how much difference an attitude can make!

There is a basic and consistent feature among investors that are successful: Positive Attitude!

An investor with a positive (optimistic) attitude is more likely to make money than one with a negative (pessimistic) attitude.

An investor with a pessimistic attitude is more likely to give up hope and abandon a successful system and invest on emotions.

He is more likely to focus on bad investments rather than good ones.

He is more likely to think he is always right, rather than learn from others.

He is more likely to lose money, given the same recommendations than someone who has a positive attitude.

He is more likely to be mad or upset or stressed out at the end of the day and more likely to bring that back the next morning.

On the other hand, the investor with an optimistic attitude realizes that not all choices are winners, that over the long run, with patience and discipline, he will make money.

He sets aside his pride and lets himself learn valuable investing lessons.

He understands that everyone makes mistakes, including himself and realizes that if you learn from a mistake, it can be a good thing.

He is more likely to make money, given the same recommendations than someone who has a negative attitude.

He is more likely to be happy at the end of each day, and more likely to start investing with a positive attitude the next day.

These cycles continue on and on and on ...

That is why most successful people are optimists and most unsuccessful people are pessimists.

Investors must learn the value of this quality and always look on the bright side of life!


Source:http://www.greekshares.com

Friday, 18 October 2013

38 Steps To Becoming A Better Trader

Here is an excellent article I read some time ago and recently rediscovered. It accurately describes the process most traders go through on their long and winding path to success.

In my own experience, not all traders go through every step, and not every step is met in the order presented here. In fact, this can be quite an iterative process with the trader getting stuck in a loop and repeating certain steps time and again until they either realize the problem for themselves, or are given a nudge from a more experienced hand.

01. We accumulate information – buying books, going to seminars and researching.
02. We begin to trade with our ‘new’ knowledge.
03. We consistently ‘donate’ and then realise we may need more knowledge or information.
04. We accumulate more information.
05. We switch the commodities we are currently following.
06. We go back into the market and trade with our ‘updated’ knowledge.
07. We get ‘beat up’ again and begin to lose some of our confidence.

Fear starts setting in.

08. We start to listen to ‘outside news’ and to other traders.
09. We go back into the market and continue to ‘donate’.
10. We switch commodities again.
11. We search for more information.
12. We go back into the market and start to see a little progress.
13. We get ‘over-confident’ and the market humbles us.
14. We start to understand that trading successfully is going to take more time and more knowledge than we anticipated.

MOST PEOPLE WILL GIVE UP AT THIS POINT, AS THEY REALISE WORK IS INVOLVED.

15. We get serious and start concentrating on learning a ‘real’ methodology.
16. We trade our methodology with some success, but realise that something is missing.
17. We begin to understand the need for having rules to apply our methodology.
18. We take a sabbatical from trading to develop and research our trading rules.
19. We start trading again, this time with rules and find some success, but over all we still hesitate when we execute.
20. We add, subtract and modify rules as we see a need to be more proficient with our rules.
21. We feel we are very close to crossing that threshold of successful trading.
22. We start to take responsibility for our trading results as we understand that our success is in us, not the methodology.
23. We continue to trade and become more proficient with our methodology and our rules.
24. As we trade we still have a tendency to violate our rules and our results are still erratic.
25. We know we are close.
26. We go back and research our rules.
27. We build the confidence in our rules and go back into the market and trade.
28. Our trading results are getting better, but we are still hesitating in executing our rules.
29. We now see the importance of following our rules as we see the results of our trades when we don’t follow the rules.
30. We begin to see that our lack of success is within us (a lack of discipline in following the rules because of some kind of fear) and we begin to work on knowing ourselves better.
31. We continue to trade and the market teaches us more and more about ourselves.
32. We master our methodology and our trading rules.
33. We begin to consistently make money.
34. We get a little over-confident and the market humbles us.
35. We continue to learn our lessons.
36. We stop thinking and allow our rules to trade for us (trading becomes boring, but successful) and our trading account continues to grow as we increase our contract size.
37. We are making more money than we ever dreamed possible.
38. We go on with our lives and accomplish many of the goals we had always dreamed of.
Source: http://www.tradingsimulation.com
The original article was published in 'CTCN' by "Anonymous Trader".

Thursday, 17 October 2013

Quote for the day

“The beginning of a price move is usually hard to trade because you're not sure whether you're right about the direction of the trend. The end is hard because people start taking profits and the market gets very choppy. The middle of the move is what I call the easy part.” - Randy McKay

17-Oct-2013 CSE Trade Summary


Crossings - 17/10/2013 - Top 10 Contributors to Change ASPI

Following Stocks Reached New High / Low on 17/10/2013




Wednesday, 16 October 2013

Ed Seykota - Quotes Collection

Ed Seykota’s Trading Style
  • My style is basically trend following, with some special pattern recognition and money management algorithms.
  • In order of importance to me are: (1) the long-term trend, (2) the current chart pattern, and (3) picking a good spot to buy or sell. Those are the three primary components of my trading. Way down in very distant fourth place are my fundamental ideas and, quite likely, on balance, they have cost me money.
  • I consider trend following to be a subset of charting. Charting is a little like surfing. You don't have to know a lot about the physics of tides, resonance, and fluid dynamics in order to catch a good wave. You just have to be able to sense when it’s happening and then have the drive to act at the right time.
  • Common patterns transcend individual market behavior (my note: i.e. price patterns are similar across different markets).
Overall Rules
  • Trade with the long-term trend.
  • Cut your losses.
  • Let your profits ride.
  • Bet as much as you can handle and no more.
Buying on Breakouts
  • If I were buying, my point would be above the market. I try to identify a point at which I expect the market momentum to be strong in the direction of the trade, so as to reduce my probable risk.
  • I don’t try to pick a bottom or top.
  • If I am bullish, I neither buy on a reaction, nor wait for strength; I am already in. I turn bullish at the instant my buy stop is hit, and stay bullish until my sell stop is hit. Being bullish and not being long is illogical.
Only Exit When Stops are Hit and Set Stops Immediately
  • I set protective stops at the same time I enter a trade. I normally move these stops in to lock in a profit as the trend continues. Sometimes, I take profits when a market gets wild. This usually doesn't get me out any better than waiting for my stops to close in, but it does cut down on the volatility of the portfolio, which helps calm my nerves. Losing a position is aggravating, whereas losing your nerve is devastating.
  • Before I enter a trade, I set stops at a point at which the chart sours.
Learn to Get Back In
  • Getting back in is an essential part of trend following.
Hold Your Position Until the Trend is Invalidated, Do Not Let Go of Your Position. Be Willing to Experience Your Anxieties
  • Maintaining a commitment is particularly important when it comes up for a test.
  • Somewhere along the line of keeping your commitment you may get a feeling that you don't like.
  • If you are willing to experience the feeling, it can transform into an AHA that supports your commitment.
  • If you are unwilling to experience the feeling, you might abandon your commitment to try to make the feeling go away. That only results in having to feel the feeling after all.
  • The more you are willing to experience the feeling of bumping into walls, the less you have to bump into walls.
  • Trading requires skill at reading the markets and at managing your own anxieties.
  • People have a Conscious Mind and Fred. Fred wants to communicate feelings to CM so CM can experience them and gain experience and share it with Fred so Fred can learn how to react. This is how we manufacture wisdom. When we don’t like our feelings we tie them in k-nots and do not experience them. This interrupts the wisdom manufacture process, and draws drama into our lives.
  • K-nots, protect us from truth and keep our lives in drama. To untie k-nots, fully experience whatever appears in the moment.
  • When you keep your eye on the prize and are willing to experience all the feelings that arise, the prize soon becomes yours.
Do Not Shut Out or Ignore Your Fear
  • The positive intention of fear is risk control.
  • People who are unwilling to experience fear tend to take big risks and wind up in big drama in which the risk materializes.
  • People with poor risk control tend to bet heavy. So they tend to outperform others in good markets, and underperform them in poor ones.
  • Risk is the uncertain possibility of loss. If you could quantify risk exactly, it would no longer be risk.
  • Risk control has to do with your willingness to allow your stop to do its job.
Risk Below 5% of Equity Per Trade
  • I intend to risk below 5% on a trade, allowing for poor executions. Occasionally I have taken losses above that amount when major news caused a thin market to jump through my stops.
  • Risk no more than you can afford to lose, and also risk enough so that a win is meaningful. If there is no such amount, don’t play.
  • Speculate with less than 10% of your liquid net worth. Risk less than 1% of your speculative account on a trade. This tends to keep the fluctuations in the trading account small, relative to net worth. This is essential as large fluctuations can engage Fred and lead to feeling-justifying drama.
  • Betting more boldly produces more volatility. Good traders are familiar with both and keep their trading well within their tolerances.
  • I use a rule of thumb that you place less than 10% of your liquid net worth at risk and that you stop your losses at 50% of that – so you have net exposure of 5% of your liquid net worth. If you have a net worth of 1.5 million, you might have liquid net worth (cash, stocks, bonds, etc) of, say, about 500,000 (a wild guess). Then you might place $50,000 of that at risk and cut your loss if you lose $25,000.
  • The idea is to keep the venture below your threshold of financial importance, so nominal ups and downs do not trigger your emotional uncle point and motivate you to abandon the venture during drawdowns.
What Trend Trading Is (Ignore Fundamentals)
  • Reliance on Fundamentals indicates lack of faith in trend following.
  • For Trend Traders, understanding the markets is typically optional, often counter-productive.
  • When an up-trend happens, the price is moving up.
  • Trend Traders get a signal and pull the trigger without regard to the result of any individual trade.
  • Playing for comfort and searching for meanings are both counterproductive to Trend Following.
  • Trend Following systems do not speak about entry and exit prices.
  • Trend systems do not intend to pick tops or bottoms. They ride sides.
  • I don’t implement momentum; I notice it and align my trading with it.
  • There is no such thing as THE trend. Some of the shorter indicators are down while some of the longer ones are still up.
You Don’t Need to Get Caught Up in Intraday Market Movements / Do Not Day Trade
  • Having a quote machine is like having a slot machine on your desk— you end up feeding it all day long. I get my price data after the close each day.
  • Day Trading is an exercise in limiting profits while continuing to pay normal transaction costs. Day trading may provide a way to cover up deep feelings that the trader does not wish to face.
  • Short Term Trading is one good way to realize your intention of reducing account equity.
  • Intraday trading is tough since the moves are not as big as for long-term trading and there is no comparable reduction in transaction cost. In general, short-term trading systems succumb to transaction costs and execution friction. You might simulate your system over historical data and notice how sensitive it is to assumptions about where you get your fills.
  • The shorter the term, the smaller the move. So profit potential decreases with trading frequency. Meanwhile, transaction costs stay the same. To compensate for profit roll-off, short-term traders have to be very good guessers. To improve guessing skills, you can practice dealing cards from a standard deck, one at a time. When you become very good at it you might be able to make money with short term trading.
Prudent Money Management is the Key to Longevity
  • The key to long-term survival and prosperity has a lot to do with the money management techniques incorporated into the technical system. There are old traders and there are bold traders, but there are very few old, bold traders.
  • The manager has to decide how much risk to accept, which markets to play, and how aggressively to increase and decrease the trading base as a function of equity change. These decisions are quite important—often more important than trade timing.
  • I have incorporated some logic into my computer programs, such as modulating the trading activity depending on market behavior. Still, important decisions need to be made outside the mechanical system boundaries, such as how to maintain diversification for a growing account when some positions are at position limit or when markets are too thin.
  • I tend to alter my activity depending on performance. I tend to be more aggressive after I have been winning, and less so after losses.
Longevity is the Key to Success
  • The profitability of trading systems seems to move in cycles. Periods during which trend-following systems are highly successful will lead to their increased popularity. As the number of system users increases, and the markets shift from trending to directionless price action, these systems become unprofitable, and undercapitalized and inexperienced traders will get shaken out. Longevity is the key to success.
Do Not Pyramid Aggressively
  • Aggressive pyramiding, and other forms of accumulating monster positions are good ways to lose big money, even in a bull market.
The Trader and the Trading System Must Meet
  • Systems don’t need to be changed. The trick is for a trader to develop a system with which he is compatible.
  • My original system was very simple with hard-and-fast rules that didn't allow for any deviations. I found it difficult to stay with the system while disregarding my own feelings. I kept jumping on and off—often at just the wrong time. I thought I knew better than the system.
  • Also, it seemed a waste of my intellect and MIT education to just sit there and not try to figure out the markets.
  • Eventually, as I became more confident of trading with the trend, and more able to ignore the news, I became more comfortable with the approach. Also, as I continued to incorporate more “expert trader rules,” my system became more compatible with my trading style.
  • As I keep trading and learning, my system (that is the mechanical computer version of what I do) keeps evolving.
  • Over time, I have become more mechanical, since (1) I have become more trusting of trend trading, and (2) my mechanical programs have factored in more and more “tricks of the trade.” I still go through periods of thinking I can outperform my own system, but such excursions are often self-correcting through the process of losing money.
  • I don't think traders can follow rules for very long unless they reflect their own trading style. Eventually, a breaking point is reached and the trader has to quit or change, or find a new set of rules he can follow. This seems to be part of the process of evolution and growth of a trader.
  • A trading system is an agreement you make between yourself and the markets.
Embrace Whipsaws
  • Trading Systems don’t eliminate whipsaws. They just include them as part of the process.
Do Not Predict Or Anticipate
  • A computer can follow a system and place orders without making predictions or feeling anticipation. Predictions and anticipations are objects you create. These objects may interfere with sticking to your system.
Take Care of Your Emotions
  • Sometimes I trade entirely off the mechanical part, sometimes I override the signals based on strong feelings, and sometimes I just quit altogether. The immediate trading result of this jumping around is probably break even to somewhat negative.
  • However, if I didn't allow myself the freedom to discharge my creative side, it might build up to some kind of blowout. Striking a workable ecology seems to promote trading longevity, which is one key to success.
  • Gut feel is important. If ignored, it may come out in subtle ways by coloring your logic. It can be dealt with through meditation and reflection to determine what’s behind it.
  • One of the best ways to increase profits is to do goal setting and visualizations in order to align the conscious and subconscious with making profits. I have worked with a number of traders in order to examine their priorities and align their goals. I use a combination of hypnosis, breathing, pacing, visualization, gestalt, massage, and so forth. The traders usually either (1) get much more successful, or (2) realize they didn't really want to be traders in the first place.
  • A fish at one with the water sees nothing between himself and his prey. A trader at one with his feelings feels nothing between himself and executing his method.
Cut Your Losses
  • The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can
    follow these three rules, you may have a chance.
Don’t Play “Catch Up” After a Losing Streak
  • I handle losing streaks by trimming down my activity. I just wait it out. Trying to trade during a losing streak is emotionally devastating. Trying to play “catch up” is lethal.
Take a Break If Necessary
  • Sometimes I get to a personal breakpoint. When that happens, I just get out of the markets altogether and take a vacation until I feel that I am ready to follow the rules again.
A Winning Mindset is Required To Succeed
  • A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself. That’s the kind of thing winning traders do.
  • The winning traders have usually been winning at whatever field they are in for years.
  • It is a happy circumstance that when nature gives us true burning desires, she also gives us the means to satisfy them. Those who want to win and lack skill can get someone with skill to help them.
  • The “doing” part of trading is simple. You just pick up the phone and place orders. The “being” part is a bit more subtle. It’s like being an athlete. It’s commitment arid mission. To the committed, a world of support appears. All manner of unforeseen assistance materializes to support and propel the committed to meet grand destiny.
  • In your recipe for success, don’t forget commitment – and a deep belief in the inevitability of your success.