Tuesday, 31 August 2021
Monday, 30 August 2021
Quote for the day
"A business is simply an idea to make other people's lives better." - Richard Branson
Sunday, 29 August 2021
The Five Phases of the Stock Market Cycle
There
are five classic and distinct phases to the stock market cycle that you
as an investor need to be aware of to minimize your risk. These are not
to be confused with the Economic Cycle. Knowing where you are in these
phases can affect your stock picking and equity allocation style.
Unfortunately most investors do not take heed of these cycles and fall
into the classic traps of investing during the wrong times and selling
during the wrong times.
However investors still need to be aware of which phase we are in to ensure they are not taking undue risk in an investment. The problem is that most investors and traders either fail to recognize that markets are cyclical or forget to expect the end of the current market phase. Another challenge is that, even when you accept the existence of cycles, it is nearly impossible to pick the top or bottom of one. But an understanding of cycles is essential if you want to maximize investment or trading returns. Here are the five major components of a market cycle and how you can recognize them:
1. The Accumulation Phase
This phase occurs after the market has bottomed and the innovators (corporate insiders and a few value investors) and early adopters (smart money managers and experienced traders) begin to buy, figuring that the worst is over. Valuations are very attractive. General market sentiment is still bearish. Articles in the media preach doom and gloom, and those who were long through the worst of the bear market have recently capitulated, that is, given up and sold the rest of their holdings in disgust. But in the accumulation phase, prices have flattened and for every seller throwing in the towel, someone is there to pick it up at a healthy discount. Overall market sentiment begins to switch from negative to neutral.
2. The Mark-Up Phase
At this stage, the market has been stable for a while and is beginning to move higher. The early majority are getting on the bandwagon. This group includes technicians who, seeing that the market is putting in higher lows and higher highs, recognize that market direction and sentiment have changed. Media stories begin to discuss the possibility that the worst is over, but unemployment continues to rise, as do reports of lay-off's in many sectors. As this phase matures, more investors jump on the bandwagon as fear of being in the market is supplanted by greed and the fear of being left out.
3. The Greed or Late Majority Phase
During this stage, the late majority jump in and market volumes begin to increase substantially. At this point, valuations climb well beyond historic norms, and logic and reason take a back seat to greed. While the late majority are getting in, the smart money and insiders are unloading. But as prices begin to level off, or as the rise slows down, those laggards who have been sitting on the sidelines see this as a buying opportunity and jump in en masse. Prices make one last parabolic move, known in technical analysis as a selling climax, when the largest gains in the shortest periods often occur. But the cycle is nearing the top of the bubble. Sentiment moves from neutral to bullish to downright euphoric during this phase.
4. The Distribution Phase
In this phase, sellers begin to dominate. This part of the cycle is identified by a period in which the bullish sentiment of the previous phase turns into a mixed sentiment. Prices can often stay locked in a trading range that can last a few weeks or even months. But the distribution phase can come and go quickly.When this phase is over, the market reverses direction. Classic patterns like double and triple tops, as well as head and shoulders top patterns, are examples of movements that occur during the distribution phase. It is here we see market breadth such as our Advance/Decline line, weakening. The distribution phase is a very emotional time for the markets, as investors are gripped by periods of complete fear, interspersed with hope and even greed as the market may at times appear to be taking off again. Valuations are extreme in many issues and value investors have long been sitting on the sidelines. No timing models are flashing BUY signals. Sentiment slowly but surely begins to change, but this transition can happen quickly if accelerated by a strongly negative geopolitical event or extremely bad economic news.
5. Mark-Down Phase
The final phase in the cycle is the most painful for those who still hold positions. Many hang on because their investment has fallen below what they paid for it, behaving like the pirate who falls overboard clutching a bar of gold, refusing to let go in the vain hope of being rescued. It is only when the market has plunged 50% or more that the laggards, many of whom bought during the distribution or early mark-down phase, give up or capitulate. Unfortunately, this is a buy signal for early innovators and a sign that a bottom is imminent. It is new investors who will buy the depreciated investment during the next accumulation phase and enjoy the next mark-up.
Conclusion
It is important to understand more or less which phase we are in, and the psychology behind each. Your investment strategy may change from one phase to another. Calling the exact beginnings and ends of these phases is difficult. Each phase becomes more dangerous and offers less margin of safety than the next. Many of us stay in the markets after all the timing signals have flashed their SELLS, to extract the last gasp returns of the bull market, but the investment style here is different as you have to have tight stop losses and monitor the markets constantly.
Source: Edited Article from powerstocks.co.za
However investors still need to be aware of which phase we are in to ensure they are not taking undue risk in an investment. The problem is that most investors and traders either fail to recognize that markets are cyclical or forget to expect the end of the current market phase. Another challenge is that, even when you accept the existence of cycles, it is nearly impossible to pick the top or bottom of one. But an understanding of cycles is essential if you want to maximize investment or trading returns. Here are the five major components of a market cycle and how you can recognize them:
1. The Accumulation Phase
This phase occurs after the market has bottomed and the innovators (corporate insiders and a few value investors) and early adopters (smart money managers and experienced traders) begin to buy, figuring that the worst is over. Valuations are very attractive. General market sentiment is still bearish. Articles in the media preach doom and gloom, and those who were long through the worst of the bear market have recently capitulated, that is, given up and sold the rest of their holdings in disgust. But in the accumulation phase, prices have flattened and for every seller throwing in the towel, someone is there to pick it up at a healthy discount. Overall market sentiment begins to switch from negative to neutral.
2. The Mark-Up Phase
At this stage, the market has been stable for a while and is beginning to move higher. The early majority are getting on the bandwagon. This group includes technicians who, seeing that the market is putting in higher lows and higher highs, recognize that market direction and sentiment have changed. Media stories begin to discuss the possibility that the worst is over, but unemployment continues to rise, as do reports of lay-off's in many sectors. As this phase matures, more investors jump on the bandwagon as fear of being in the market is supplanted by greed and the fear of being left out.
3. The Greed or Late Majority Phase
During this stage, the late majority jump in and market volumes begin to increase substantially. At this point, valuations climb well beyond historic norms, and logic and reason take a back seat to greed. While the late majority are getting in, the smart money and insiders are unloading. But as prices begin to level off, or as the rise slows down, those laggards who have been sitting on the sidelines see this as a buying opportunity and jump in en masse. Prices make one last parabolic move, known in technical analysis as a selling climax, when the largest gains in the shortest periods often occur. But the cycle is nearing the top of the bubble. Sentiment moves from neutral to bullish to downright euphoric during this phase.
4. The Distribution Phase
In this phase, sellers begin to dominate. This part of the cycle is identified by a period in which the bullish sentiment of the previous phase turns into a mixed sentiment. Prices can often stay locked in a trading range that can last a few weeks or even months. But the distribution phase can come and go quickly.When this phase is over, the market reverses direction. Classic patterns like double and triple tops, as well as head and shoulders top patterns, are examples of movements that occur during the distribution phase. It is here we see market breadth such as our Advance/Decline line, weakening. The distribution phase is a very emotional time for the markets, as investors are gripped by periods of complete fear, interspersed with hope and even greed as the market may at times appear to be taking off again. Valuations are extreme in many issues and value investors have long been sitting on the sidelines. No timing models are flashing BUY signals. Sentiment slowly but surely begins to change, but this transition can happen quickly if accelerated by a strongly negative geopolitical event or extremely bad economic news.
5. Mark-Down Phase
The final phase in the cycle is the most painful for those who still hold positions. Many hang on because their investment has fallen below what they paid for it, behaving like the pirate who falls overboard clutching a bar of gold, refusing to let go in the vain hope of being rescued. It is only when the market has plunged 50% or more that the laggards, many of whom bought during the distribution or early mark-down phase, give up or capitulate. Unfortunately, this is a buy signal for early innovators and a sign that a bottom is imminent. It is new investors who will buy the depreciated investment during the next accumulation phase and enjoy the next mark-up.
Conclusion
It is important to understand more or less which phase we are in, and the psychology behind each. Your investment strategy may change from one phase to another. Calling the exact beginnings and ends of these phases is difficult. Each phase becomes more dangerous and offers less margin of safety than the next. Many of us stay in the markets after all the timing signals have flashed their SELLS, to extract the last gasp returns of the bull market, but the investment style here is different as you have to have tight stop losses and monitor the markets constantly.
Source: Edited Article from powerstocks.co.za
Quote for the day
"The difficulty lies, not in the new ideas, but in escaping from the old ones." - John Maynard Keynes
Saturday, 28 August 2021
Bernanrd Baruch's 10 Investing Rules
1. Don't speculate unless you can make it a full-time job.
2. Beware of barbers, beauticians, waiters — of anyone —
bringing gifts of "inside" information or "tips."
3. Before you buy a security, find out everything you can
about the company, its management and competitors, its earnings and
possibilities for growth.
4. Don't try to buy at the bottom and sell at the top. This
can't be done — except by liars.
5. Learn how to take your losses quickly and cleanly. Don't
expect to be right all the time. If you have made a mistake, cut your losses as
quickly as possible.
6. Don't buy too many different securities. Better have only
a few investments which can be watched.
7. Make a periodic reappraisal of all your investments to
see whether changing developments have altered their prospects.
8. Study your tax position to know when you can sell to
greatest advantage.
9. Always keep a good part of your capital in a cash
reserve. Never invest all your funds.
10. Don't try to be a jack of all investments. Stick to the
field you know best.
Quote for the day
"As the bull market goes on, people who take great risks achieve great rewards, seemingly without punishment. It's like crime without punishment or sex without sin." - Ron Chernow
Friday, 27 August 2021
Quote for the day
"Whenever the investor sold out in an upswing as soon as the top level of the previous well-recognized bull market was reached, he had a chance in the next bear market to buy back at one third (or better) below his selling price." - Benjamin Graham
Thursday, 26 August 2021
Quote for the day
"You build on failure. You use it as a stepping stone. Close the door on the past. You don't try to forget the mistakes, but you don't dwell on it. You don't let it have any of your energy, or any of your time, or any of your space." - Johnny Cash
Wednesday, 25 August 2021
Quote for the day
"I knew that if I failed I wouldn't regret that, but I knew the one thing I might regret is not trying." - Jeff Bezos
Tuesday, 24 August 2021
Quote for the day
"All men make mistakes, but only wise men learn from their mistakes." - Winston Churchill
Monday, 23 August 2021
Sunday, 22 August 2021
Quote for the day
"Design is not just what it looks like and feels like. Design is how it works." - Steve Jobs
Saturday, 21 August 2021
Quote for the day
"Image is what people think we are. Integrity is what we really are." - John C. Maxwell
Friday, 20 August 2021
Thursday, 19 August 2021
Wednesday, 18 August 2021
Quote for the day
"The key to making money in stocks is not to get scared out of them." - Peter Lynch
Tuesday, 17 August 2021
Monday, 16 August 2021
Quote for the day
"The Stock market is the story of cycles & of the human behavior that is responsible for overreactions in both directions." - Seth Klarman
Sunday, 15 August 2021
Saturday, 14 August 2021
25 Life Lessons from Warren Buffett
Discover Life and Success Lessons From The Great Investor
Lesson 1 : Lose money for the firm and I will be understanding. Lose a shred of reputation and I will be ruthless.
Lesson 2 : Choose the best who will have you.
Lesson 3 : It’s a mistake to think rationality will always hold up, even in able people. Don't expect even the very best and most considerate of people to do right all the time. It’s not human. When it happens, deal with it as you would hope someone would deal with you when in the wrong. Buffett regarded someone who had just done him wrong. It takes a special man to see the full picture.
Lesson 4 : You can always tell a man to go to hell tomorrow if it turns out to be such a good idea.
Lesson 5 : Don't worry about the fact that you’re going to fail.
Lesson 6 : You can be cheerful even if things are deteriorating.
Lesson 7 : The best defence in a tough economy is to add the most you can to society. Your money can be inflated away but your knowledge and talent cannot.
Lesson 9 : When you are exceptional you jump off the page. There really isn't that much competition there.
Lesson 10 : Do what you're passionate about. If you do this, there will be few people competing or running faster than you.
Lesson 11 : Own a business that requires very little capital to grow.
Lesson 12 : Don't be in a hurry.
Lesson 13 : Conduct yourself in life so other people trust you. It helps even more if they're right to trust you.
Lesson 14 : Think about how you want to be remembered. Act accordingly.
Lesson 15 : Reduced expectations is the best defence an investor has.
Lesson 16 : The problem with rules is people break them.
Lesson 19 : Don’t give your kids the idea they’re special just because their parents are rich or powerful.
Lesson 20 : Someone has to be the exemplar of not grabbing all that he can.
Lesson 21 : Reading fast is a huge advantage.
Lesson 22 : Learn to communicate.
Lesson 23 : Send letters to people you respect.
Lesson 24 : Never trade something you have and need for something you don’t have and don’t need, even if you really want it.
Lesson 25 : Continuous learning is absolutely required to have any significant achievement in the world.
We can all stand to learn and be better people from what they are willing to share. Take these lessons to heart. There will likely not be another Warren for a very long time. Take advantage of the education while you can. Do so and feeling success and fulfilment will come naturally. Thank you Warren. We owe you a great deal.
To most people's surprise, this is not simply another dry talk on investing and business. It’s far from it. The great majority of the meeting revolves around lessons in life, relationships, education and career decisions. Ideally you should be a shareholder but there are plenty of other ways to get into the meeting if you’d like.
Here are 25 life lessons from Warren Buffett :
Lesson 1 : Lose money for the firm and I will be understanding. Lose a shred of reputation and I will be ruthless.
Money and things can always be replaced and recovered. Reputation cannot. There is no price worth trading down in what others think of you. This is reiterated every year. If ever in doubt, imagine whatever you do will be reported by an informed reporter the following day in your local newspaper for your family, children and closest friends to read. Should make actions a little more obvious.
Lesson 2 : Choose the best who will have you.
In other words, marry up! But it doesn't stop at finding a husband or wife. Take this approach with every one of your relationships-business partners, friends, employers, teachers. Time and relationships are precious. Aim high and don’t accept anyone who doesn't make you better.
Lesson 3 : It’s a mistake to think rationality will always hold up, even in able people. Don't expect even the very best and most considerate of people to do right all the time. It’s not human. When it happens, deal with it as you would hope someone would deal with you when in the wrong. Buffett regarded someone who had just done him wrong. It takes a special man to see the full picture.
Lesson 4 : You can always tell a man to go to hell tomorrow if it turns out to be such a good idea.
Why risk being distasteful today if you don’t have to? I bet there's a better way to handle it. Do your best to avoid making decisions when angry.
Lesson 5 : Don't worry about the fact that you’re going to fail.
If you're not failing here and there, you’re likely not giving the world all you have. It’s going to happen. Allow it to make you better.
Lesson 6 : You can be cheerful even if things are deteriorating.
It's on you to find the things that inspire and motivate you. Warren is about as rationally optimistic as they come. He recalls how he was born in the heart of the Great Depression. Keep your focus where it belongs. This generally means seeing the big long-term picture, not just what's in front of your face. As in investing is in life.
Lesson 7 : The best defence in a tough economy is to add the most you can to society. Your money can be inflated away but your knowledge and talent cannot.
No matter the external circumstances, you are always in control of your talent, learning and passion for life. “There will always be opportunities for talent” as Warren says.
Lesson 8 : We get worried when people start to agree with us.
The best fruit is found out on the limbs. The road less travelled makes all the difference. Make a rule to always stay on the side of the minority in your life's path and you will likely be greatly rewarded and you'll certainly experience a lot more excitement.
Lesson 9 : When you are exceptional you jump off the page. There really isn't that much competition there.
Be your own best competitive advantage. Then it doesn't make a difference what others are doing. You are in control.
Lesson 10 : Do what you're passionate about. If you do this, there will be few people competing or running faster than you.
The best way to be exceptional is with passion! As Tony Robbins says every day of his life, “Live with Passion!” And trust me, life is a lot more fun this way.
Lesson 11 : Own a business that requires very little capital to grow.
A business that requires very little money to grow is better than one that requires a ton. Simple enough right? But very few companies end up qualifying. Imagine what would be involved in Walmart doubling their current store base from 9,000 to 18,000? It's a fantastic business, but talk about a headache. Stick with simple businesses that don't cost much to run. You'll have a lot more hair ten years from now.
Lesson 12 : Don't be in a hurry.
Whether you're starting a business or learning a new skill, you never want to be in too big of a rush. You may miss something important and you'll surely miss some of the fun. Entrepreneurs are notorious for this (I know I am). Always wanting to get to the next spot. Goals and milestones are great but they are not meant to wish away today. Remember to slow down.
Lesson 13 : Conduct yourself in life so other people trust you. It helps even more if they're right to trust you.
It's a simple process. Do one then the other. No other asset is more powerful than others having unconditional trust in you. Takes a lifetime to build and an instant to erase.
Lesson 14 : Think about how you want to be remembered. Act accordingly.
For Charlie it's “A fortune fairly won and wisely used.” For Warren it's “A teacher”. Possibly the understatement of the year.
Lesson 15 : Reduced expectations is the best defence an investor has.
This goes for anything in life. Most anger, disappointment and frustration comes from poorly managed expectations. Charlie jokingly said “I'm big on lowering expectations – that's how I got married, my wife lowered hers.” Expect everything of yourself and nothing of the world and you will always be pleasantly surprised.
Lesson 16 : The problem with rules is people break them.
The spirit of rules extends beyond them. They are not meant to be danced around. You know when you're doing something you shouldn't. You have to self regulate.
Lesson 17 : We're here to go to bed a little wiser than when we woke up.
Warren reminded us how he spent 4 or 5 years of his life in the Omaha Public Library until he was about 10. Hearing things like this make it a little more obvious why he's where he is. If you enjoy learning it, regard it as important and soak in all you can.
Lesson 18 : It's more fun to create partnerships with people to do meaningful things than try to outsmart other people out of money.
With most things we work on, there's room for others. Create a community around the success you intend on producing. Share it with others. They'll share back.
Lesson 19 : Don’t give your kids the idea they’re special just because their parents are rich or powerful.
Don't encourage them to outdo their parents in a field their parents are best at. If your child feels entitled to something, you're probably the one at fault, not them. Kids who are very interested in learning will continue working regardless of how rich or privileged they are.
Lesson 20 : Someone has to be the exemplar of not grabbing all that he can.
Warren's salary is still $100k. Many bankers out of college get paid more. He's also pledged his $40+ billion net worth to charity. He could do anything he wants with his wealth. Anything. He's decided to share it. Don't be greedy just because you can. Don't give back just because it looks good. Do it because it matters. It's all of our job to set an example.
Lesson 21 : Reading fast is a huge advantage.
Do all you can to enhance this skill. Warren didn't know much about speed reading programs but he suggested finding the most effective one out there and taking it. Learn the best techniques young. Tony Robbins did the same thing. Then he read over 700 books on psychology and became the leader in a field he never officially went to school for.
Lesson 22 : Learn to communicate.
Warren said the best diploma he has is from a Dale Carnegie public speaking course he took in 1951 for $100. The return he's gotten on it is incalculable. How can you not take a course like this with an endorsement like that? The world revolves around personal connection. That starts with communication. Toastmasters is also worth a look.
Lesson 23 : Send letters to people you respect.
A new investment manager, Todd Combs, was recently hired for Berkshire to help take over when Warren and Charlie are gone. Todd simply wrote him a letter. Few people step out and try to contact people they admire. So many of us assume everyone else is doing it that in reality few people are. Start writing letters and create world-class connections.
Lesson 24 : Never trade something you have and need for something you don’t have and don’t need, even if you really want it.
We get tempted to buy all kinds of crap hundreds of time a day. As a result much of the western world has ended up in debt and a lot of trouble all for an extra room or two in their house. Most things you think you ‘need’ are actually wants in disguise. Know the difference and don't overextend. This goes as much for debt as it does for relationships and all else. Greed is dangerous.
Lesson 25 : Continuous learning is absolutely required to have any significant achievement in the world.
Warren and Charlie are some of the best teachers the world has seen. Few people are more open and generous with their life philosophies, successes and failures. They do it all for free. All you have to do is want to listen. It's never too early and it's never too late. All that matters is you start. Warren and Charlie, thank you both for the ongoing education of a lifetime.
We can all stand to learn and be better people from what they are willing to share. Take these lessons to heart. There will likely not be another Warren for a very long time. Take advantage of the education while you can. Do so and feeling success and fulfilment will come naturally. Thank you Warren. We owe you a great deal.
Source: http://www.slideshare.net/
Quote for the day
"A smart investor is excited about the returns one gets from a bull market, and super excited about low cost investment one makes in a bear market. Its a win-win both ways ! Volatility is an investor's best friend !" - Manoj Arora
Friday, 13 August 2021
Quote for the day
"Investing involves risk (something that's inevitable and can only be controlled not extinguished). Being financially uneducated is risky." - Robert T. Kiyosaki
Thursday, 12 August 2021
Quote for the day
"Wide diversification is only required when investors do not understand what they are doing." - Warren Buffett
Wednesday, 11 August 2021
Quote for the day
"If you fully believe you will be successful and can visualize yourself being successful, you will succeed" - Tom Platz
Tuesday, 10 August 2021
Quote for the day
"Patience is the support of weakness; impatience the ruin of strength." - Charles Caleb Colton
Monday, 9 August 2021
Quote for the day
"We can only reason from what is; we can reason on actualities, but not on possibilities." - Thomas Paine
Sunday, 8 August 2021
Quote for the day
"The man who does things makes mistakes, but he doesn't make the biggest mistake of all-doing nothing." - Benjamin Franklin
Saturday, 7 August 2021
Capital Maharaja Group (CMG) - The journey across nine decades
Since opening it's doors nine decades ago, CMG has become an integral thread in the fabric of Sri Lankan life. CMG's numerous partners and subsidiaries supply a diverse array of products and services ranging from PVC piping to Ceylon Tea. CMG's media arm, the nation's first total entertainment solution, provider touches the lives of everyone in our island nation. Gammadda, CMG's CSR programme, is unique in being the most comprehensive initiative of its kind.
Here's the 90 year journey of CMG, through the generations, the innovations and the courage to be different.
Here's the 90 year journey of CMG, through the generations, the innovations and the courage to be different.
Source:www.youtube.com
.
Aiming for the Right Target in Trading
By Walter T. Downs
When trading goes right, it can be a great feeling. When trading goes wrong it can be a nightmare. Fortunes are made in a matter of weeks and lost in a matter of minutes. This pattern repeats itself as each new generation of traders hit the market. They hurl themselves out of the night like insane insects against some sort of karmic bug-light; all thought and all existence extinguished in one final cosmic "zzzzzzt". Obviously, for a trader to be successful he must acknowledge this pattern and then break it. This can be accomplished by asking the right questions and finding the correct answers by rational observation and logical conclusion.
This article will attempt to address one question: "What is the difference between a winning trader and a losing trader?"
What follows are eleven observations and conclusions that I use in my own trading to help keep me on the right track. You can put these ideas into table form, and use them as a template to determine the probability of a trader being successful.
OBSERVATION # 1
The greatest number of losing traders is found in the short-term and intra-day ranks. This has less to do with the time frame and more to do with the fact that many of these traders lack proper preparation and a well thought-out game plan. By trading in the time frame most unforgiving of even minute error and most vulnerable to floor manipulation and general costs of trading, losses due to lack of knowledge and lack of preparedness are exponential. These traders are often under-capitalized as well. Winning traders often trade in mid-term to long-term time frames. Often they carry greater initial levels of equity as well.
CONCLUSION:
Trading in mid-term and long-term time frames offers greater probability of success from a statistical point of view. The same can be said for level of capitalization. The greater the initial equity, the greater the probability of survival.
OBSERVATION # 2
Losing traders often use complex systems or methodologies or rely entirely on outside recommendations from gurus or black boxes. Winning traders often use very simple techniques. Invariably they use either a highly modified version of an existing technique or else they have invented their own.
CONCLUSION:
This seems to fit in with the mistaken belief that "complex" is synonymous with "better". Such is not necessarily the case. Logically one could argue that simplistic market approaches tend to be more practical and less prone to false interpretation. In truth, even the terms "simple" or "complex" have no relevance. All that really matters is what makes money and what doesn't. From the observations, we might also conclude that maintaining a major stake in the trading process via our own thoughts and analyses is important to being successful as a trader. This may also explain why a trader who possesses no other qualities than patience and persistence often outperforms those with advanced education, superior intellect or even true genius.
OBSERVATION # 3
Losing traders often rely heavily on computer-generated systems and indicators. They do not take the time to study the mathematical construction of such tools nor do they consider variable usage other than the most popular interpretation. Winning traders often take advantage of the use of computers because of their speed in analyzing large amounts of data and many markets. However, they also tend to be accomplished chartists who are quite happy to sit down with a paper chart, a pencil, protractor and calculator. Very often you will find that they have taken the time to learn the actual mathematical construction of averages and oscillators and can construct them manually if need be. They have taken the time to understand the mechanics of market machinery right down to the last nut and bolt.
CONCLUSION:
If you want to be successful at anything, you need to have a strong understanding of the tools involved. Using a hammer to drive a nut in to a threaded hole might work, but it isn't pretty or practical.
OBSERVATION # 4
Losing traders spend a great deal of time forecasting where the market will be tomorrow. Winning traders spend most of their time thinking about how traders will react to what the market is doing now, and they plan their strategy accordingly.
CONCLUSION:
Success of a trade is much more likely to occur if a trader can predict what type of crowd reaction a particular market event will incur. Being able to respond to irrational buying or selling with a rational and well thought out plan of attack will always increase your probability of success. It can also be concluded that being a successful trader is easier than being a successful analyst since analysts must in effect forecast ultimate outcome and project ultimate profit. If one were to ask a successful trader where he thought a particular market was going to be tomorrow, the most likely response would be a shrug of the shoulders and a simple comment that he would follow the market wherever it wanted to go. By the time we have reached the end of our observations and conclusions, what may have seemed like a rather inane response may be reconsidered as a very prescient view of the market.
OBSERVATION # 5
Losing traders focus on winning trades and high percentages of winners. Winning traders focus on losing trades, solid returns and good risk to reward ratios.
CONCLUSION:
The observation implies that it is much more important to focus on overall risk versus overall profit, rather than "wins" or "losses". The successful trader focuses on possible money gained versus possible money lost, and cares little about the mental highs and lows associated with being "right" or "wrong".
OBSERVATION # 6
Losing traders often fail to acknowledge and control their emotive processes during a trade. Winning traders acknowledge their emotions and then examine the market. If the state of the market has not changed, the emotion is ignored. If the state of the market has changed, the emotion has relevance and the trade is exited.
CONCLUSION:
If a trader enters or exits a trade based purely on emotion then his market approach is neither practical nor rational. Strangely, much damage can also be done if the trader ignores his emotions. In extreme cases this can cause physical illness due to psychological stress. In addition, valuable subconscious trading skills that the trader possesses but has no conscious awareness of may be lost. It is best to acknowledge each emotion as it is experienced and to view the market at these points to see if the original reasons we took the trade are still present. Further proof that this conclusion may have validity can be seen in even highly systematic traders exiting a trade for no apparent reason, and pegging a profitable move almost to the tick. Commonly, this is referred to as being "lucky" or being "in the zone".
OBSERVATION # 7
Losing traders care a great deal about being right. They love the adrenaline and endorphins rushes that trading can produce. They must be in touch with the markets almost twenty-four hours a day. A friend of mine once joked that a new trader won't enter a room unless there is a quote machine in it. Winning traders recognize the emotions but do not let it become a governing factor in the trading process. They may go days without looking at a quote screen. To them, trading is a business. They don't care about being right. They focus on what makes money and what doesn't. They enjoy the intellectual challenge of finding the best odds in the game. If those odds aren't present they don't play.
CONCLUSION:
It is important to stay in synch with the markets, but it is also important to have a life outside of trading. It is a rare individual who can do anything to excess without suffering some form of psychological or physical degradation. Successful traders keep active enough to stay sharp but also realize that it is a business not an addiction.
OBSERVATION # 8
When a losing trader has a bad trade he goes out and buys a new book or system, and then he starts over again from scratch. When winning traders have a bad trade they spend time figuring out what happened and then they adjust their current methodology to account for this possibility next time. They do not switch to new systems or methodologies lightly, and only do so when the market has made it very clear that the old approach is no longer valid. In fact, the best traders often use methodologies that are endemic to basic market structure and will therefore always be a part of the markets they trade. Thus the possibility of the market changing form to the extent that the approach becomes useless, is very small.
CONCLUSION:
The most successful traders have a methodology or system that they use in a very consistent manner. Often, this revolves around one or two techniques and market approaches that have proven profitable for them in the past. Even a bad plan that is used consistently will fair better than jumping from system to system. This observation implies that stylistic foundations of a trader's market approach must be in place before consistent profitability can occur.
OBSERVATION # 9
Losing traders focus on "big-name" traders who made a killing, and they try to emulate the trader's technique. Winning traders monitor new techniques that come on the trading scene, but remain unaffected unless some part of that technique is valuable to them within the framework of their current market approach. They often spend much more time looking at how the market seeks and destroys other traders or how traders destroy themselves. They then trade with the market or against other traders as these situations arise.
CONCLUSION:
Once again, we can note that the individuality of a trader and his comfort level and knowledge regarding his system are far more important than the latest doodad or Market guru.
OBSERVATION #10
Losing traders often fail to include many factors in the overall trading process that affects the probabilities of overall profit. Winning traders understand that winning in the markets means "cash flow". More cash must come in than goes out, and anything that effects this should be considered. Thus a winning trader is just as thrilled with a new way to reduce his data-feed costs or commissions as he is with a new trading system.
CONCLUSION:
ANYTHING that affects bottom line profitability should be considered as a viable area of study to improve performance.
OBSERVATION #11
Losing traders often take themselves quite seriously and seldom find humour in market analysis or the trading environment. Successful traders are often the funniest and most imaginative people you will ever meet. They take joy in trading and are the first to laugh or relate a funny story. They take trading seriously, but they are always the first to laugh at themselves.
CONCLUSION:
Its no wonder that one of the first things psychiatrists test for when treating a patient is whether or not the patient has any sense of humor about his affliction. The more serious the tone of the individual, the more likely that insanity has set in.
SUMMARY OF CONCLUSIONS AND OBSERVATIONS
Both winning and losing traders consider trading a game. However, winning traders take the game not as a diversion but as a vocation which they practice with an intensity and dedication that rivals the work ethic of a professional athlete. Since the athletic metaphor seems appropriate, I will sum up on that note.
If trading were a game like basketball perhaps novice traders would realize more readily that what appears as effortless ease of the professional trader in sinking three-point shots is in fact the product of endless hours spent shooting hoops in deserted back yards and empty playgrounds. As in sports, the governing factors are internal and external. We deal with the market and ourselves. Both are like weapons and they can be used pro-actively or destructively. Each and every trade should be taken with professional care and planning In order to bring these observations home in an even more compelling form, lets add an element of ultimate risk to life and limb and say that our "sport" is more like target practice with a handgun. While it is certainly important to hit the target, it is more important to make sure the gun isn't pointed directly at ourselves when we pull the trigger.
Minute differences in how we take aim in the markets can have amazing impact on the final outcome. The difference is clear: One method is accurate target practice. The other is Russian Roulette.
Walter Downs is a professional trader and market consultant. He is president of CIS Trading Cos., a firm dedicated to the research and development of innovative market techniques. Source: http://www.dacharts.com/
When trading goes right, it can be a great feeling. When trading goes wrong it can be a nightmare. Fortunes are made in a matter of weeks and lost in a matter of minutes. This pattern repeats itself as each new generation of traders hit the market. They hurl themselves out of the night like insane insects against some sort of karmic bug-light; all thought and all existence extinguished in one final cosmic "zzzzzzt". Obviously, for a trader to be successful he must acknowledge this pattern and then break it. This can be accomplished by asking the right questions and finding the correct answers by rational observation and logical conclusion.
This article will attempt to address one question: "What is the difference between a winning trader and a losing trader?"
What follows are eleven observations and conclusions that I use in my own trading to help keep me on the right track. You can put these ideas into table form, and use them as a template to determine the probability of a trader being successful.
OBSERVATION # 1
The greatest number of losing traders is found in the short-term and intra-day ranks. This has less to do with the time frame and more to do with the fact that many of these traders lack proper preparation and a well thought-out game plan. By trading in the time frame most unforgiving of even minute error and most vulnerable to floor manipulation and general costs of trading, losses due to lack of knowledge and lack of preparedness are exponential. These traders are often under-capitalized as well. Winning traders often trade in mid-term to long-term time frames. Often they carry greater initial levels of equity as well.
CONCLUSION:
Trading in mid-term and long-term time frames offers greater probability of success from a statistical point of view. The same can be said for level of capitalization. The greater the initial equity, the greater the probability of survival.
OBSERVATION # 2
Losing traders often use complex systems or methodologies or rely entirely on outside recommendations from gurus or black boxes. Winning traders often use very simple techniques. Invariably they use either a highly modified version of an existing technique or else they have invented their own.
CONCLUSION:
This seems to fit in with the mistaken belief that "complex" is synonymous with "better". Such is not necessarily the case. Logically one could argue that simplistic market approaches tend to be more practical and less prone to false interpretation. In truth, even the terms "simple" or "complex" have no relevance. All that really matters is what makes money and what doesn't. From the observations, we might also conclude that maintaining a major stake in the trading process via our own thoughts and analyses is important to being successful as a trader. This may also explain why a trader who possesses no other qualities than patience and persistence often outperforms those with advanced education, superior intellect or even true genius.
OBSERVATION # 3
Losing traders often rely heavily on computer-generated systems and indicators. They do not take the time to study the mathematical construction of such tools nor do they consider variable usage other than the most popular interpretation. Winning traders often take advantage of the use of computers because of their speed in analyzing large amounts of data and many markets. However, they also tend to be accomplished chartists who are quite happy to sit down with a paper chart, a pencil, protractor and calculator. Very often you will find that they have taken the time to learn the actual mathematical construction of averages and oscillators and can construct them manually if need be. They have taken the time to understand the mechanics of market machinery right down to the last nut and bolt.
CONCLUSION:
If you want to be successful at anything, you need to have a strong understanding of the tools involved. Using a hammer to drive a nut in to a threaded hole might work, but it isn't pretty or practical.
OBSERVATION # 4
Losing traders spend a great deal of time forecasting where the market will be tomorrow. Winning traders spend most of their time thinking about how traders will react to what the market is doing now, and they plan their strategy accordingly.
CONCLUSION:
Success of a trade is much more likely to occur if a trader can predict what type of crowd reaction a particular market event will incur. Being able to respond to irrational buying or selling with a rational and well thought out plan of attack will always increase your probability of success. It can also be concluded that being a successful trader is easier than being a successful analyst since analysts must in effect forecast ultimate outcome and project ultimate profit. If one were to ask a successful trader where he thought a particular market was going to be tomorrow, the most likely response would be a shrug of the shoulders and a simple comment that he would follow the market wherever it wanted to go. By the time we have reached the end of our observations and conclusions, what may have seemed like a rather inane response may be reconsidered as a very prescient view of the market.
OBSERVATION # 5
Losing traders focus on winning trades and high percentages of winners. Winning traders focus on losing trades, solid returns and good risk to reward ratios.
CONCLUSION:
The observation implies that it is much more important to focus on overall risk versus overall profit, rather than "wins" or "losses". The successful trader focuses on possible money gained versus possible money lost, and cares little about the mental highs and lows associated with being "right" or "wrong".
OBSERVATION # 6
Losing traders often fail to acknowledge and control their emotive processes during a trade. Winning traders acknowledge their emotions and then examine the market. If the state of the market has not changed, the emotion is ignored. If the state of the market has changed, the emotion has relevance and the trade is exited.
CONCLUSION:
If a trader enters or exits a trade based purely on emotion then his market approach is neither practical nor rational. Strangely, much damage can also be done if the trader ignores his emotions. In extreme cases this can cause physical illness due to psychological stress. In addition, valuable subconscious trading skills that the trader possesses but has no conscious awareness of may be lost. It is best to acknowledge each emotion as it is experienced and to view the market at these points to see if the original reasons we took the trade are still present. Further proof that this conclusion may have validity can be seen in even highly systematic traders exiting a trade for no apparent reason, and pegging a profitable move almost to the tick. Commonly, this is referred to as being "lucky" or being "in the zone".
OBSERVATION # 7
Losing traders care a great deal about being right. They love the adrenaline and endorphins rushes that trading can produce. They must be in touch with the markets almost twenty-four hours a day. A friend of mine once joked that a new trader won't enter a room unless there is a quote machine in it. Winning traders recognize the emotions but do not let it become a governing factor in the trading process. They may go days without looking at a quote screen. To them, trading is a business. They don't care about being right. They focus on what makes money and what doesn't. They enjoy the intellectual challenge of finding the best odds in the game. If those odds aren't present they don't play.
CONCLUSION:
It is important to stay in synch with the markets, but it is also important to have a life outside of trading. It is a rare individual who can do anything to excess without suffering some form of psychological or physical degradation. Successful traders keep active enough to stay sharp but also realize that it is a business not an addiction.
OBSERVATION # 8
When a losing trader has a bad trade he goes out and buys a new book or system, and then he starts over again from scratch. When winning traders have a bad trade they spend time figuring out what happened and then they adjust their current methodology to account for this possibility next time. They do not switch to new systems or methodologies lightly, and only do so when the market has made it very clear that the old approach is no longer valid. In fact, the best traders often use methodologies that are endemic to basic market structure and will therefore always be a part of the markets they trade. Thus the possibility of the market changing form to the extent that the approach becomes useless, is very small.
CONCLUSION:
The most successful traders have a methodology or system that they use in a very consistent manner. Often, this revolves around one or two techniques and market approaches that have proven profitable for them in the past. Even a bad plan that is used consistently will fair better than jumping from system to system. This observation implies that stylistic foundations of a trader's market approach must be in place before consistent profitability can occur.
OBSERVATION # 9
Losing traders focus on "big-name" traders who made a killing, and they try to emulate the trader's technique. Winning traders monitor new techniques that come on the trading scene, but remain unaffected unless some part of that technique is valuable to them within the framework of their current market approach. They often spend much more time looking at how the market seeks and destroys other traders or how traders destroy themselves. They then trade with the market or against other traders as these situations arise.
CONCLUSION:
Once again, we can note that the individuality of a trader and his comfort level and knowledge regarding his system are far more important than the latest doodad or Market guru.
OBSERVATION #10
Losing traders often fail to include many factors in the overall trading process that affects the probabilities of overall profit. Winning traders understand that winning in the markets means "cash flow". More cash must come in than goes out, and anything that effects this should be considered. Thus a winning trader is just as thrilled with a new way to reduce his data-feed costs or commissions as he is with a new trading system.
CONCLUSION:
ANYTHING that affects bottom line profitability should be considered as a viable area of study to improve performance.
OBSERVATION #11
Losing traders often take themselves quite seriously and seldom find humour in market analysis or the trading environment. Successful traders are often the funniest and most imaginative people you will ever meet. They take joy in trading and are the first to laugh or relate a funny story. They take trading seriously, but they are always the first to laugh at themselves.
CONCLUSION:
Its no wonder that one of the first things psychiatrists test for when treating a patient is whether or not the patient has any sense of humor about his affliction. The more serious the tone of the individual, the more likely that insanity has set in.
SUMMARY OF CONCLUSIONS AND OBSERVATIONS
Both winning and losing traders consider trading a game. However, winning traders take the game not as a diversion but as a vocation which they practice with an intensity and dedication that rivals the work ethic of a professional athlete. Since the athletic metaphor seems appropriate, I will sum up on that note.
If trading were a game like basketball perhaps novice traders would realize more readily that what appears as effortless ease of the professional trader in sinking three-point shots is in fact the product of endless hours spent shooting hoops in deserted back yards and empty playgrounds. As in sports, the governing factors are internal and external. We deal with the market and ourselves. Both are like weapons and they can be used pro-actively or destructively. Each and every trade should be taken with professional care and planning In order to bring these observations home in an even more compelling form, lets add an element of ultimate risk to life and limb and say that our "sport" is more like target practice with a handgun. While it is certainly important to hit the target, it is more important to make sure the gun isn't pointed directly at ourselves when we pull the trigger.
Minute differences in how we take aim in the markets can have amazing impact on the final outcome. The difference is clear: One method is accurate target practice. The other is Russian Roulette.
Walter Downs is a professional trader and market consultant. He is president of CIS Trading Cos., a firm dedicated to the research and development of innovative market techniques. Source: http://www.dacharts.com/
Quote for the day
"Common sense without education, is better than education without common sense." - Benjamin Franklin
Friday, 6 August 2021
Thursday, 5 August 2021
Wednesday, 4 August 2021
Quote for the day
"Good decisions come from experience. Experience comes from making bad decisions." - Mark Twain
Tuesday, 3 August 2021
Quote for the day
"f you don't read the newspaper, you're uninformed. If you read the newspaper, you're mis-informed." -
Mark Twain
Mark Twain
Monday, 2 August 2021
Quote for the day
Participation in the stock market is not limited to the experienced, the conservative, nor even the intelligent. It is a game at which any number of people may play. And as the market level rises, the quantity of players grows rapidly and their quality diminishes somewhat in proportion." - Benjamin Graham
Sunday, 1 August 2021
Dennis Gartman's Trading Rules
1. Never, under any circumstance add to a losing position.... ever! Nothing more need be said; to do otherwise will eventually and absolutely lead to ruin!
2. Trade like a mercenary guerrilla. We must fight on the winning side and be willing to change sides readily when one side has gained the upper hand.
3. Capital comes in two varieties: Mental and that which is in your pocket or account. Of the two types of capital, the mental is the more important and expensive of the two. Holding to losing positions costs measurable sums of actual capital, but it costs immeasurable sums of mental capital.
4. The objective is not to buy low and sell high, but to buy high and to sell higher. We can never know what price is "low." Nor can we know what price is "high." Always remember that sugar once fell from $1.25/lb to 2 cent/lb and seemed "cheap" many times along the way.
5. In bull markets we can only be long or neutral, and in bear markets we can only be short or neutral. That may seem self-evident; it is not, and it is a lesson learned too late by far too many.
6. "Markets can remain illogical longer than you or I can remain solvent," according to our good friend, Dr. A. Gary Shilling. Illogic often reigns and markets are enormously inefficient despite what the academics believe.
7. Sell markets that show the greatest weakness, and buy those that show the greatest strength. Metaphorically, when bearish, throw your rocks into the wettest paper sack, for they break most readily. In bull markets, we need to ride upon the strongest winds... they shall carry us higher than shall lesser ones.
8. Try to trade the first day of a gap, for gaps usually indicate violent new action. We have come to respect "gaps" in our nearly thirty years of watching markets; when they happen (especially in stocks) they are usually very important.
9. Trading runs in cycles: some good; most bad. Trade large and aggressively when trading well; trade small and modestly when trading poorly. In "good times," even errors are profitable; in "bad times" even the most well researched trades go awry. This is the nature of trading; accept it.
10. To trade successfully, think like a fundamentalist; trade like a technician. It is imperative that we understand the fundamentals driving a trade, but also that we understand the market's technicals. When we do, then, and only then, can we or should we, trade.
11. Respect "outside reversals" after extended bull or bear runs. Reversal days on the charts signal the final exhaustion of the bullish or bearish forces that drove the market previously. Respect them, and respect even more "weekly" and "monthly," reversals.
12. Keep your technical systems simple. Complicated systems breed confusion; simplicity breeds elegance.
13. Respect and embrace the very normal 50-62% retracements that take prices back to major trends. If a trade is missed, wait patiently for the market to retrace. Far more often than not, retracements happen... just as we are about to give up hope that they shall not.
14. An understanding of mass psychology is often more important than an understanding of economics. Markets are driven by human beings making human errors and also making super-human insights.
15. Establish initial positions on strength in bull markets and on weakness in bear markets. The first "addition" should also be added on strength as the market shows the trend to be working. Henceforth, subsequent additions are to be added on retracements.
16. Bear markets are more violent than are bull markets and so also are their retracements.
17. Be patient with winning trades; be enormously impatient with losing trades. Remember it is quite possible to make large sums trading/investing if we are "right" only 30% of the time, as long as our losses are small and our profits are large.
18. The market is the sum total of the wisdom ... and the ignorance...of all of those who deal in it; and we dare not argue with the market's wisdom. If we learn nothing more than this we've learned much indeed.
19. Do more of that which is working and less of that which is not: If a market is strong, buy more; if a market is weak, sell more. New highs are to be bought; new lows sold.
20. The hard trade is the right trade: If it is easy to sell, don't; and if it is easy to buy, don't. Do the trade that is hard to do and that which the crowd finds objectionable. Peter Steidelmeyer taught us this twenty five years ago and it holds truer now than then.
21. There is never one cockroach! This is the "winning" new rule submitted by our friend, Tom Powell.
22. All rules are meant to be broken: The trick is knowing when... and how infrequently this rule may be invoked!
Source:http://www.zerohedge.com
2. Trade like a mercenary guerrilla. We must fight on the winning side and be willing to change sides readily when one side has gained the upper hand.
3. Capital comes in two varieties: Mental and that which is in your pocket or account. Of the two types of capital, the mental is the more important and expensive of the two. Holding to losing positions costs measurable sums of actual capital, but it costs immeasurable sums of mental capital.
4. The objective is not to buy low and sell high, but to buy high and to sell higher. We can never know what price is "low." Nor can we know what price is "high." Always remember that sugar once fell from $1.25/lb to 2 cent/lb and seemed "cheap" many times along the way.
5. In bull markets we can only be long or neutral, and in bear markets we can only be short or neutral. That may seem self-evident; it is not, and it is a lesson learned too late by far too many.
6. "Markets can remain illogical longer than you or I can remain solvent," according to our good friend, Dr. A. Gary Shilling. Illogic often reigns and markets are enormously inefficient despite what the academics believe.
7. Sell markets that show the greatest weakness, and buy those that show the greatest strength. Metaphorically, when bearish, throw your rocks into the wettest paper sack, for they break most readily. In bull markets, we need to ride upon the strongest winds... they shall carry us higher than shall lesser ones.
8. Try to trade the first day of a gap, for gaps usually indicate violent new action. We have come to respect "gaps" in our nearly thirty years of watching markets; when they happen (especially in stocks) they are usually very important.
9. Trading runs in cycles: some good; most bad. Trade large and aggressively when trading well; trade small and modestly when trading poorly. In "good times," even errors are profitable; in "bad times" even the most well researched trades go awry. This is the nature of trading; accept it.
10. To trade successfully, think like a fundamentalist; trade like a technician. It is imperative that we understand the fundamentals driving a trade, but also that we understand the market's technicals. When we do, then, and only then, can we or should we, trade.
11. Respect "outside reversals" after extended bull or bear runs. Reversal days on the charts signal the final exhaustion of the bullish or bearish forces that drove the market previously. Respect them, and respect even more "weekly" and "monthly," reversals.
12. Keep your technical systems simple. Complicated systems breed confusion; simplicity breeds elegance.
13. Respect and embrace the very normal 50-62% retracements that take prices back to major trends. If a trade is missed, wait patiently for the market to retrace. Far more often than not, retracements happen... just as we are about to give up hope that they shall not.
14. An understanding of mass psychology is often more important than an understanding of economics. Markets are driven by human beings making human errors and also making super-human insights.
15. Establish initial positions on strength in bull markets and on weakness in bear markets. The first "addition" should also be added on strength as the market shows the trend to be working. Henceforth, subsequent additions are to be added on retracements.
16. Bear markets are more violent than are bull markets and so also are their retracements.
17. Be patient with winning trades; be enormously impatient with losing trades. Remember it is quite possible to make large sums trading/investing if we are "right" only 30% of the time, as long as our losses are small and our profits are large.
18. The market is the sum total of the wisdom ... and the ignorance...of all of those who deal in it; and we dare not argue with the market's wisdom. If we learn nothing more than this we've learned much indeed.
19. Do more of that which is working and less of that which is not: If a market is strong, buy more; if a market is weak, sell more. New highs are to be bought; new lows sold.
20. The hard trade is the right trade: If it is easy to sell, don't; and if it is easy to buy, don't. Do the trade that is hard to do and that which the crowd finds objectionable. Peter Steidelmeyer taught us this twenty five years ago and it holds truer now than then.
21. There is never one cockroach! This is the "winning" new rule submitted by our friend, Tom Powell.
22. All rules are meant to be broken: The trick is knowing when... and how infrequently this rule may be invoked!
Source:http://www.zerohedge.com
Quote for the day
"A large advance in the stock market is basically a sign for caution and not a reason for confidence." - Benjamin Graham
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