Secrets of Market Wizards

Jesse Livermore: The Greatest Stock Market Wizard?

LEARN FROM GENERALS OF THE MARKETS - PART 10

“Trading is a skill. You were not born a great trader.” - Mike Bellafiore

Jesse Livermore lived from July 1877 until November 1940. He made (and also lost) millions of dollars of fortunes by going short when the markets crashed in 1907 and 1929. In 1907, he went short when he noticed a bearish trend in the market. As a result of this, he made three million dollars. He later gave away ninety per cent of that fortune because of some bad trading styles. This made him fell into debt. Later, he regained his fortune during the Second World War, and began to live an affluent life. In 1929, he saw price patterns and fundamental developments that were like the ones that occurred in 1907. Almost everybody lost their portfolios as the markets crashed that year, but Jesse ultimately made one hundred million dollars because he went short during the crash. Unfortunately, his personal life was filled with divorces, eventual failures in the markets, and lost fortunes. Sadly enough, he ended his own life by committing suicide.

Jesse Livermore is considered by many speculators as the greatest trader that has ever walked on this planet. He blazed unique trails in the trading world. His valid and winning principles have been explained in details in some books that were published about him.

Lesson
In spite of his success and failure, we can learn good lessons Jesse:

A. The majority aren’t always right. So, don’t be afraid to be different. Jesse Livermore made fortunes because he followed the line of the least resistance, i.e. he followed the flow of the markets. The markets were crashing, but many people were holding onto their long positions. That was suicidal. Holding your positions against the trends while hoping that the markets would turn in your favor is definitely not a good thing.

B. Jesse couldn’t safeguard his fortunes, but we can do that. If he knew this and followed it, he mightn’t have lost those fortunes. There are effective risk control principles that can guarantee our everlasting success in the markets. However, this is another topic in my future articles.

C. Was Jesse really the greatest stock market wizard? To me, I think the greatest thing a trader can do is to focus on losing as little money as possible. We’ll always give back part of our profits, but we want to give back as little as possible. Those who suffer minor roll-downs find it easy to recover when the markets become favorable.


Conclusion: There are no problems in the markets. There are no problems with trading portfolios. The problems lie with traders and investors. You need to be versatile in the markets. You need to know the principles that can guarantee the permanent safety of your capital in the markets. You must get proper education. If you’ve bad trading styles, they’d ruin your prospects prior to the time you really move ahead. The key is to speculate on what the markets are showing instead of what you want the markets to show. Really, pecuniary gain isn’t the most important thing, since it comes when it isn’t thought of as much.”

This article is ended by quotes from Jesse:

1. "As I said before, a man does not have to marry one side of the market until death do them part.”

2. "The professional concerns himself with doing the right thing rather than with making money, knowing that the profit takes care of itself if the other things are attended to… It never was my thinking that made big money for me. It was always my sitting. Got that? My sitting tight!"

 

Peter and Serge Milman: Manage Your Portfolios Successfully

LEARN FROM GENERALS OF THE MARKETS - PART 11

"My philosophy is that all stocks are bad. There are no good stocks unless they go up in price. If they go down instead, you have to cut your losses fast... Letting losses run is the most serious mistake made by most investors." - William O'Neil

Peter and Serge Milman live in New York. A few years ago, they, with other traders managed only their own money as a proprietary trading group. But now, they manage a hedge fund for their investors. The most impressive thing about Milman brothers is their track record in terms of annual returns. They’ve succeeded in beating the markets on annual basis and this has been going on for many years. The track record, which was made public on their former website may, unfortunately, not be accessed by anyone who’s not a registered member at their new website (MilmanCapital.com). The story of their trading career is quite interesting, and more about them can be found in TRADERS’ issue of June 2010 (Tradersonline-mag.com). Some of their quotes are shown below.

Lesson
There are great lessons to be learned from Peter and Serge Milman. Some of them are these:

1. Beginner traders are bound to make errors. But once you comprehend the reasons behind your poor performance in the markets, you’ll improve and move towards competence in trading. Just make sure you don’t repeat your trading errors.

2. If the markets aren’t doing great, you mayn’t trade at that time. At times, the most desirable position is to stay out of the markets. Speculation is a game of patience. You require patience, patience, patience.

3. Trading is no science, because nothing can be guaranteed. Yet if you could find a trading setup that works constantly for you, you need to take it as your edge in the markets.

4. Finding the stocks that are hot right now is the key to profitable trading. Since you can’t see everything in the market yourself, you’ll benefit yourself by belonging to a group of successful traders. Trading experts belong to great groups.

5. Peter tries never to chase and always waits for levels to show themselves. This really limits his bad trades and if a stock starts going thru a level he likes, generally he likes to play, lets it ride unless it gets back to his price. This is called a retest and they’re very dangerous. At a point of retest he generally limits his risk.

6. He also advised that if people can’t get employed at a hedge fund or prop trading firm, and are forced to trade their own money, then it’s recommended that they’ve enough savings to live two years without any stress. That’s generally how long it takes to know if you should continue trading as a career choice. For anyone can make money any given day, but to be consistent, that’s the hard part - to cut your losses quickly, to let your winners ride, to not get trapped in bad positions, to trade only if you’ve great reasons, etc.

7. When you’ve open positions, remember that you’re at the mercy of the market and you must have your stop losses set.

Conclusion: Actually, we needn’t know everything in the world of trading before we can find nice setups or profitable entry levels. We showcase perfectionism when we feel that our prediction or decision in the markets must be valid or correct. Therefore, when an observation is made in the markets, we prefer it to transpire as we think. Whenever there’s a bias, we’d want to find all evidence and information that support the bias. Believe me, we’ll always find evidence to support our views, even if the markets prove us wrong.

This article is concluded by some quotes from Milmans:

“…The upshot is that I get to recoup all my losses and still make a significant profit.” - Serge

“It was the wildest back then and I only wish I knew then what I know now. I’ve become a technical addict, a charting expert. They reveal the secrets of the stock market.” - Peter

 

Jesse Livermore is my model. I always think he is the greatest trader ever.

his final failure is he is not displinced enough to cut loss in a losing trade. another thing is he is not good at money managemnet.

he did not have a good master of at each stage of wealth, how to keep growing and sustain profit. just like who wants to be millionarire, someone climbs to 200k, out, or 100k, out, those guys knows the game must be played strategically, not scientifically. I think they are smart.

when you has little money, foucs on trading is the right thing to do. but when you have 10m, 100m, the focus is not trading anymore, most will be put on maintaining. just like you built a mansion, after finishing, you enjoy it, in the process, time from time, some problems of the mansion come out, the job is maintan/manage it, kepp it at best condition, but not build.

 

That's exactly what I feel nowadays about the stock market, ie. another big crash is on the way...

 

Hello,

People with out experience just like a unfilled cup. So I think first we want to get knowledge. Then we can plan what to do. Next we can invest small amount as experiment. When we found best way to earn money from it, We can invest much money and We will receive huge profit.

Thanks.

 

Good point

 

George Soros: How He Broke the Bank of England

LEARN FROM GENERALS OF THE MARKETS - PART 12

George Soros, born in August 12, 1930, is one of the wealthiest and one of the most successful traders in his generation. He’s the chairman of Soros Fund Management and a notable humanitarian. He’s given away about eight billion dollars for humanitarian purposes. Earlier this year, an apex magazine ranked him as the twenty-second wealthiest individual on earth – the seventh wealthiest American. He’s an estimated fortune of twenty billion dollars.

Why is George Soros called, “the man who broke the Bank of England?” How did he do it? In September 16, 1992, he shorted ten billion pounds as the British government either dithered over an interest rate hike or failed to float the pound. The British government’s action resulted in a devaluation of the pound, thus enabling George to realize a gain of one billion pounds. This happened on Wednesday of that month (the notorious Black Wednesday).

Lesson
We can learn some lessons from George Soros. Here are some of them:

A. George has successful trading strategies that have made him victorious for about two decades. He made around thirty per cent profits per annum (sometimes gaining more than that per annum). On the contrary, most newbies believe that the real issue is in making hundreds of percentage per month. Even the best traders in the world don’t double their accounts always. A skilled fund manager may make ten, fifteen, twenty, twenty-five, thirty, thirty-five per cent or whatever (or more or less) per year. If someone makes an annual profit of fifty per cent on his one thousand dollar account, no-one would take him serious. But if a giant hedge fund manager makes twenty-five per cent profits per annum on a twenty billion dollar account, he’ll be celebrated throughout the world. Most traders would put an exceedingly small amount of money in their trading accounts and expect to live a luxurious life out of that. No wonder many end up getting frustrated.

B. George wasn’t always right. He was right less than half of the time, yet he enjoyed permanent success as a market speculator. He experienced a successful career (retiring in 2000). He himself said that it's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong. Despite the perpetual unpredictability in the markets, there are winning trading styles and strategies that can ensure that one continues to be victorious in the markets. Loss trades and uncertainty aren’t a threat to our trading career unless we allow them to be a threat.

C. George is very rich and fulfilled because he managed other people’s money successfully. There are highly skilled and victorious funds managers who manage money for rich individuals. These victorious funds managers have good long-term track records. If you can manage your own account successfully for some years, you may be able to do so for others. So try to find winning trading strategies that also guarantee the safety of portfolios.

This article is concluded with a quote from George:

“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected… Markets are designed to allow individuals to look after their private needs and to pursue profit. It's really a great invention and I wouldn't under-estimate the value of that, but they're not designed to take care of social needs.”

 

I'm quoting this so everybody can see what a dumbass you are. You act just like oilfxpro- a jerk who says trading is a losers game.

Risk after the fact- lol........

 

Brett N. Steenbarger: Survive the Market Uncertainty

LEARN FROM GENERALS OF THE MARKETS - PART 13

“Discipline is the bridge between goals and accomplishment.” - Jim Rohn

Dr. Brett N. Steenbarger, who holds a PhD in Clinical Psychology, began to get involved with the markets in the late 1970s. He’s an expert in the field of psychology and its importance in trading. This brilliant expert has written 2 wonderful books about trading: Enhancing Trader Performance and Psychology of Trading. He worked with professional traders at Kingstree Trading, and also coordinated their training programs for new traders. Lately, he’s served as a presenter in some training programs sponsored by the Chicago Mercantile Exchange and other futures exchanges.

Living in Naperville, IL, Dr. Steenbarger is a happy husband and a proud father. One source says that he’s now working as a hedge fund manager. He’s also written numerous articles about trading and trading psychology. According to him, a trader is one who actively speculates on market movement, drawing on research and/or discretionary judgment to anticipate changes in prices. I can tell you that you’ll gain a lot of helpful insight into successful trading if you can read some of those articles on his website. You can access them at Brettsteenbarger.com. In September 2008, TRADERS’ magazine (www.traders-mag.com)* was able to interview this bright mind. Some of what he said was mentioned below.

Lesson
Dr. Brett definitely has much helpful information to pass across to traders – beginners and experienced. Here are some of what he’s to say:

1. Like any performance field, it takes years (not weeks or months) to become successful at trading. People like to neglect this reality and learn their lesson the hard way. Would you like to develop the necessary knowledge and skill before you put your capital at risk? Successful trading requires hard work (contrary to what others might say). Dr. Brett believes that highly successful traders are no deferent than very successful physicians and athletes. They’re highly dedicated, work long hours and constantly upgrade their knowledge and skills.

2. Don’t forget that you’ll always be a student of the markets. Don’t ever think you know what you’re doing. Overconfidence is what ruins most traders (like using too big position sizes because we feel the market ‘must’ move in our favor or we feel a negative order would eventually turn positive even if we don’t use stop orders).

3. Dr. Brett risks a fixed small size of his portfolio on each trade. He stops trading temporarily if he loses more than a target amount (something that’s usually small). He raises his size if he trades well, but reduces it if he goes out of sync with the market. He makes sure that he never goes down more than 5%. He goes for small but consistent profits, not jackpots. He doesn’t believe that everyone should trade like that (but the discipline has worked for him so well).


4. You can’t win the game if you don’t stay in the game. You can only start making money if you stop losing it. The only way to stay in the trading game is to focus on risk management, which, according to Dr. Brett, is perhaps the most important ingredient in all successful trading, especially as far as permanent success is concerned.

Conclusion: As a trader, would you like to always approach the markets with positive thoughts? This is exactly what trading psychologists like Dr. Brett N. Steenbarger promise you (there are many famous trading psychologists out there). Are you interested in knowing how you could always trade with calm – no matter what the markets do? Continue to follow the articles in this series.

This piece is concluded with a quote from Dr. Brett N. Steenbarger:

“Greatness is more than being good at something: it’s when a career becomes a calling and skills become expertise… Competence is doing things conventionally well; expertise is doing things uncommonly well.”


*For current TRADERS’ issues, please visit www.tradersonline-mag.com.

 

Edward Seykota: Simple Strategies Make a Big Difference

LEARN FROM GENERALS OF THE MARKETS - PART 14

“Profits take care of themselves (hold that thought though), losses never do.” – Dirk Vandycke

Born in August 7, 1946, in Netherlands, Edward Seykota attended a high school in Den Haag. His family migrated to the USA later, where he learned some lessons about the markets from his father. He got to know Richard Donchian, and he read an article from him. He developed interest in the markets, started various market-related careers, and had a series of experiences. He developed the earliest auto trading strategies. According to one source, Ed increased the capital of his clients by 250 000% between 1972 and 1988. He achieved this with relatively simple trading systems. Ed Seykota always stuck to the systems through all ups and downs of the markets. During this period and thereafter, he braved the uncertainty of the markets triumphantly. His website is Seykota.com.

Lesson
Ed Seykota declared that the biggest secret about success is that there isn’t any big secret about it. The most robust strategies in the markets are the simplest strategies. I’m a witness to this fact. Complicated trading systems can’t be profitable in the long run without the components below.

1. Ride your winners! Ed is a trend-follower.

2. Cut your losses! You should know when you’d go out of the market if a position is going against you.

3. Manage your risk! Only market wizards that can mange risk adroitly can expect to enjoy happy and permanently successful career.

4. Use stops! Stop loss is one of the basic risk control tools. It’s our life insurance policy in the markets.

5. Stick to the system! When you’ve a trading system that works, stick to it. You should know when the strategy works and when it doesn’t. You should know when you’ve to trade and when you shouldn’t.

6. File the news! That has to do with fundamentals, and it pays to pay attention to that.

Conclusion: You should always remember that the future is uncertain, knowing your limitations and being aware that you can’t control the market prices. It pays to realize that you can’t be sure of the next direction of the markets, yet you can control what happens to your account. You’re the master of your fate in the markets. While the market movement is out of your control, the losses and profits in your account are within your control.

This article is concluded with some quotes from Ed:

(a). “Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money… Fundamentalists and anticipators may have difficulties with risk control because a trade keeps looking ‘better’ the more it goes against them.”

(b). “John (Bollinger) tells me audiences can sit for hours and listen to him describe his famous, and simple, equation. They cannot, however, stand to listen to advice about risk management or sticking with a system.”

(c). “Embracing the moment, celebrating the pain, and finding the positive intention, tends to transform pain into wisdom. Trying to avoid the bad stuff only tends to institutionalize it, and miss it’s positive intention.”