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Ituglobal
Registered: Jun 2010
Posts: 178 |
08-25-12 05:42 AM
Timeless Traits of Victorious Market Wizards - Part 5
“I do not care if it is a white cat or a black cat. It is a good cat as long as it catches mice.” - Deng-Xiaoping
The message borne by the articles in this series is that permanently successful traders have certain common traits. We’ve a lot to learn from them. One of them is Mark Minervini, who started speculating in the early 1980s. After several years of very poor trading results, he began to trade successfully, especially after he’d gone through a book titled: Superperformance Stocks (by Richard Love). This book wasn’t popular, but it brought about the breakthrough Mark needed in his trading career. It highlighted what winning stocks have in common. Mark sharpened his trading skill and made compounded yearly profits of 220%, in a period of 66 months. That’s we can say that he turned $10,000 to $3,300,000, according to an estimate. He’s become adept at risk control, as losing streaks don’t have any significantly adverse effects on his portfolios anymore. Roughly 15 years ago, he won a trading competition in the United States when he made 155% profit. He was one of the interviewees in the popular book titled: Stock Market Wizards (by Jack Schwager). He was also interviewed in TRADERS’ (July 2012). A few of his quotes end this article.
Traits of Successful Market Wizards
17. Victorious market wizards neither water weeds nor uproot flowers: As old as this saying may be: Cut your losses short and let your profits run, it’s a timeless truth in the markets. It makes a perfect logical and rational sense. Sadly, many traders cut their profits (for the fear that they might go negative) and run their losses (for the hope that they might go positive). This is counter-intuitive. Losses are weeds on your portfolios while profits are flowers. You shouldn’t uproot the flowers and water the weeds. Allowing negative positions to run is like watering weeds. Victorious market wizards do exactly the opposite, reversing the wrong mindset. If one of their positions is performing well and going as expected, they allow it to run for as far as possible. When a position doesn’t go in a forecasted direction, they quickly cut it short, and patiently search for another trade setup, based on their rules. You must never widen your stop loss under any circumstances, even if a position is moving against you. The price mayn’t come back to your entry level again and this would have an adverse effect on your portfolio.
18. Victorious market wizards acknowledge that profits will take care of themselves: You can’t force the markets to give you profits. You just need to do what’s right; profits will come naturally. You’d seldom trade flawlessly, though you can carry out your trading plan flawlessly. Neophytes care more about huge profits than flawless execution of their trading plans. Majority of speculators are opinionated against the realities in the markets - they feel they are correct in their opinions. It’s one of the reasons many of them don’t use stops. They want to be right. Neophytes tend to buy one new trading system after the other, instead of sticking to a particular system. If the new system experiences a losing streak (something normal for all strategies under heaven), they abandon it and go for another new system. They are just under illusion. Neophytes prefer instant gratification while brushing aside important aspects of trading victory. I realize that no matter how much you warn people, they’ll still prefer to do wrong things. Unless checked by grim consequences, the human mind isn’t wired to do right things. For example, some traders will continue to trade without stops, some traders will continue to use big position sizes in the markets that they cannot predict with an utmost certainty, etc. You need rock-solid discipline to follow time-tested trading principles that can guarantee your permanent success. You need courage too. You just need to be courageous in doing what’s right when using your trading approach
19. Victorious market wizards can pinpoint high probability and low risk entries: Winning trading methods enable speculators to enter the markets at better prices. Victorious market wizards buy low and sell high, but they do it right. This means that they buy low in an uptrend, and sell high in a downtrend. Even if one is to sell an all time high, or buy an all time low, it’ll be after there’s a confirmation that the trend has really changed. Market wizards have various methods they use to achieve this.
20. They know where they will exit for a loss and where they will take their profit: For every trade they open, market wizards know where they’ll exit if it does not go in their direction. They also know where they’ll take their profits and pat themselves on the back, if they’re right. Every trade ought to be open with hard, physical stop loss level and take profit level, while the loss from a stop trigger would be smaller than the reward from a take profit trigger. Speculation has to do with making average winners that are bigger than average losers, and doing that consistently. Successful traders have a deep love for trading, and as a result of this, they press on, even in a difficult market condition.
Conclusion: This is the concluding article in this series. As from next week, I’ll begin to feature renowned super traders the world over. Their strengths, weaknesses, trading beliefs and lifestyles would be discussed. This would encourage you; goading you towards your financial aims and ambitions. Instead of allowing dread to paralyze your potential, do something to move forward. Don’t be discouraged by dread. Rise up and become the master of your own destiny. Ponder about victorious market wizards and sack you fear. If you allow yourself to be discouraged from trading and investing, you might realize that the outside world is harder than you think, and you’ll forfeit the opportunities that markets offer you. Those who stay in their comfort zones aren’t going anywhere. Discouragement and dread would only leave you with no achievements. According to Dr. Janice Dorn, if… you begin to move in the direction of your fears - slowly and steadily - you will find that they have less and less power over you. Your world begins to expand. You understand that fear is really False Evidence Appearing Real (F.E.A.R.). You begin to see that you have the power within you to face these fears and to control them. They are real only if you allow them to be real.
This article is ended with quotes from Mark Minervini:
1. “I dropped out of school in the eighth grade to work as a musician playing the drums in the studio and performing live… Early on, I made every mistake you can think of. For about five or six years I did not make any money trading; in fact I was at a net loss. If there is such a thing as a natural born trader, then I was an unnatural. Although I had trades go my way from time to time, it was how I handled the trades that went against me that created a problem and hurt my performance.”
2. “I do not avoid a trade based on the time of day. I make a trade when the stock is set up and starts to move in the direction of my trade… Probably the most important turning point was when I started religiously cutting my losses short, keeping them very small. I really started to focus on not losing as my Number One goal. This is the most important area of speculation regardless of style or strategy. To be successful, you simply must keep your losses smaller than your gains… I am always thinking risk management first. I would rather have a small position than no position or a position that I cannot get out of easily… My goal is to control my drawdown and equity curve.”
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Ituglobal
Registered: Jun 2010
Posts: 178 |
09-01-12 10:30 AM
LEARN FROM MARKET WIZARDS - PART 1
Irving Kahn, who was born on December 19, 1905, is an American investor and funds manager. He was educated in New York and later served as a teaching assistance to Benjamin Graham at Columbia Business School. Graham himself was credited as being the creator of value investing methodology. Benjamin Graham had influence on Kahn and others who eventually became investors. One of them is Warren Buffet.
Kahn has had numerous experiences in many fields. He’s a Chartered Financial Analyst, a former director, a former president of an institution and a trustee emeritus of a foundation. He’s still Chairman of Kahn Brothers Group, Inc. Kahn started his career in 1928 and has remained active till now. So he’s currently the oldest funds manager the world over. His first trade in 1929 was a short position, which was made shortly prior to the notorious market crash in October that year. On December 19, 2011, Irving Kahn became 106 years old. He said he still derives pleasure from speculation, though he told CNN Money (money.cnn.com) that he no longer watches the stock market zealously even though he’s a streaming terminal on his desk. He still watches the 20 stocks he is holding. Kahn has witnessed much technological advancement, apart from changes in the financial industry since the beginning of his career.
Lesson
One of the peerless benefits in trading and investing is that there’s no compulsory retirement age (unlike most other professions).
Trading and investing is a journey of a lifetime, not a short stint.
It’s a marathon, not a sprint.
Besides, the older you become, the more skilled, the more experienced, the more relevant, and the more judicious you’ll be as a trader or investor. There’s indeed financial freedom in trading, but it’s a long-term objective. Things that would last usually come slow and steady. Irving Kahn is a living proof that permanent success can be derived from trading and investing. We’ll always be inspired by successful traders. If they can do it, we can do it too. There are trading styles that lead to abortive trading careers, and there are trading styles that lead to permanently successful trading careers. Those who quit trading have really not found the secrets of everlasting triumph in the markets - no matter what they claim to be (or to have been).
Conclusion: Another permanently successful market wizard would be featured next week. This article is ended with a quote from Irving; it’s what he said in an interview:
“Well when I got to the Street in ’28/’29 it was much more of a rich man's game – not that I was rich, but I mean it was designed for banks, insurance companies, railroads or public utilities. It is no longer a rich man’s business. It’s a business for everybody.”
By Azeez Mustapha
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intradaybill
Registered: Feb 2008
Posts: 2962 |
09-01-12 10:47 AM
"Victorious market wizards can pinpoint high probability and low risk entries: Winning trading methods enable speculators to enter the markets at better prices."
Generalities for the most part. Jim Rogers has been saying the same for years. Risk is known only after the fact. Probability is unknown. What are these people talking about?
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logic_man
Registered: Oct 2010
Posts: 1489 |
09-01-12 01:35 PM
Quote from intradaybill:
"Victorious market wizards can pinpoint high probability and low risk entries: Winning trading methods enable speculators to enter the markets at better prices."
Generalities for the most part. Jim Rogers has been saying the same for years. Risk is known only after the fact. Probability is unknown. What are these people talking about?
I don't know that risk is only known "after the fact".
Consider a trading strategy where items A,B,C and D must be present in order to trigger a trade and, if they are present, they require that an initial stop be set at "Price X" because if price reaches "Price X" in the course of that trade, then the signal given by the simultaneous existence of items A,B,C and D was false.
In that case, isn't the risk exactly the distance between the entry price and "Price X"? So, the probability of "Price X" being hit is unknown, but the amount of risk associated with that probability is known. This assumes a certain amount of liquidity and the absence of a gap over "Price X", but there are many markets that meet these criteria.
Then, what if you have thousands of examples of this scenario and know from them that "Price X" gets hit 40% of the time? Can you say that it is likely that the probability of "Price X" getting hit is 40%? Or, at least can you say that it is not 100%? And is it really possible that a scenario which has failed at a 40% rate over 1000 or more iterations can fail at a 75% rate, or even a 60% rate, for the next 1000? Are the probabilities in the market really that unstable?
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intradaybill
Registered: Feb 2008
Posts: 2962 |
09-01-12 02:54 PM
Quote from logic_man:
I don't know that risk is only known "after the fact".
There is a difference between expected risk and real risk. If the market crashes at the open below your stop, then you get a taste of what real risk is. Small account traders and paper traders do not have a real feeling of what is like to expect 1% risk and end up with a 5% loss on a 100 million account in just one day. When you get to trade big money you will understand that you can only hope and pray you know your risk.
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