You don't have to be unique, just execute it well.
Posted by Book Eater in Trading notes
It's been quite a long time since I last posted. I figured I really can't observe that time table of posting either before 7pm or before 9am. So just subscribe to a feed (like I do, using google reader, to be alerted whenever there are posts).
These past few days, the following concepts/quotes struck me, in order of preference and "tama"/ strikes to my heart. Most are referenced to Jesse Livermore. The rest are just from a lot of books/blogs I can't even remember where I got them.
1.) It's not the uniqueness of the idea that's the key. It's the uniqueness of your ability to implement it.
2.) Reality has a way of persisting despite our best attempts to wish it away. Embrace reality than trying to avoid it. Don't complain, don't worry, don't hope. Do something concrete to adjust to our new perception of reality.
3.) Don't lose your money. Don't lose your stake. Don't lose your line. A speculator without cash is like a store owner without inventory. Cash is your inventory, your lifeline, your best friend. Without cash, you're out of business. Don't lose your damn line- J.L
4.)Jesse Livermore's Top down trading strategies:
a.) The Market- establish overall current market direction
b.) Industry Group
c.) Tandem Trading
d.) Actual Stock - examine all factors
- Make sure lines of least resistance are in the direction of your trade before entering the trade.-
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I've read from Jeff White's blog (Stockbandit.net) that in this market environment, the strategies that somehow are working are either 1.) Contrarian investor - meaning you're gonna do suicide, buying the dips even when they were falling such as the January 22 lows. or 2) The Momentum Scalper - the one who goes in fast, gets out faster. PAX, GEO are somehow what comes in my mind.
There have been some big moves in this market for the past couple of weeks, and that means there has been no shortage of opportunities. However, the moves have been swift and violent, so they’ve catered to a certain type of trader. The contrarian is one such trader, who may have been calling for a top on the way up and initiating short positions as the market climbed. Obviously that meant some pain while the advance was underway, but now it means profits. Another type of trader who has been able to benefit from the recent conditions is the momentum scalper. They are willing to chase stocks which are already on the move, darting in and out quickly to catch snippets of the moves, adding numerous small gains together to make their day’s pay.
It seems that the strategy of trend following especially during breakouts doesn't quite match up. Breakouts are often false.(Remember GEO going higher than 1.42 and GLO going higher than 1605? Note also that volumes increased?).
The main lesson that I've been learning from these "stock greats" such as Jesse who can only be resurrected from the dead by reading their books, or their wisdom through their quotes is that:
1.) Even if I have the correct trade in mind, if I don't act as fast, or I don't execute it well. I won't earn money. How many times have I spotted a good trade? failed to act? or entered too soon?
- MEG at 2.32 comes into mind...It hurts especially when you see it going up to 2.60 the next day.
It seems that one of my weaknesses when I was in my "reflective mood" was that my main fear lies on not wanting to be left behind another rip roaring rally . This weakness makes me enter trades that may not have a very attractive risk/reward opportunity, making me lose more and more of my "inventory", my life line, my cash.
- And I don't have to be unique. Everyone can see the same chart. Everyone can have the same idea in mind. The idea doesn't, I repeat, the idea doesn't have to be unique.
We can all copy what stock to buy. The really good traders would often set us apart with their contingency plans, especially when the stock shakes us out in this volatile environment. I can remember some person telling me about business propositions. Hell, the idea doesn't have to be unique. JFC's not good in cooking chicken, it's the distribution. It's the execution of serving fast and tasty food. Dammit. But hey, of course their chicken still has to pass taste standards. The point is: Again, the idea doesn't have to be unique. I will have to be a parrot so that this one sticks to mind.
Jeff White writes :
"All in all, a very tough market where you either have to have the shortest of time frames or the very longest in order to justify much activity. Things will get easier. They always do."
The key here is that we either have to be fast momentum scalpers or wary accumulation contrarian investors.
Between the two, I think I am better off doing the contrarian investing. It's too difficult to scalp. I realized after studying my GEO trades that i'm winning 60% of the time, and losing 40% of the time. However, my main mistakes have been being scared of shakeouts that I take my profits too early, and keep on buying at high prices when my trades are right. The only thing right about my GEO trades, was that I do respect my supports and cut my losses whenever they are violated. Overall, I'm still in the negative territory.
Trading success does not come easy - we have to earn it. That includes putting in the week-to-week effort, but it also means controlling our emotions and urges in such a way that we stick with our game plan. At times those plans may need altering, but that generally comes after a prolonged period of having something else work better.
Have you actually studied your trades? I just started mine. It really helps.
Every one of us has a choice of how to manage our trading business. We can throw caution to the wind and hope that we get lucky, or we can be methodical in our approach and choose a path which improves our odds of survival at all times. Choosing the latter keeps us in the game, allowing us opportunity to collect profits when conditions do cater to our specific style.
Great discipline will keep you winning in markets that suit you, and it will keep you in the game in markets that aren't your favorite. Great discipline will help you to respond to the multitude of curve balls the market will inevitably throw in your direction. Great discipline will even help to keep your attitude on track, no matter what kind of luck you've faced. The key is to include in your trading plan some "safety nets" that circumvent your own weaknesses and embrace your personal strengths. It requires a great deal of internal honesty with yourself.
So while it can be at times frustrating to miss out on a great move, sticking with your game plan and letting your discipline guide you will over time pay off very nicely. The occasional stock will laugh in your face and you will at times feel crazy for having let it go without you, but good trading will involve missing out on some moves. Put the odds in your favor as often as possible, and only trade when the conditions suit your style.
Irresponsible trading is in many ways a byproduct of choices we make outside of market hours. One very common way to trade irresponsibly is by failing to do your own homework. However, even worse is when you are not keeping close enough tabs on your trading account.
I remember that there's a very popular basketball quote being used by Nike. Just to paraphrase, it says something that the real game is in the practice. It's in the practice hours. It's not during the game. The game inside the court is only a manifestation of what you've really put in outside of "game hours".
The concept is quite novel for me. Irresponsible trading doesn't happen just during trading hours. It happens also after our trading hours, and these are more crucial.
Always begin with the end in mind. Remember that good trading involves missing out on big moves. Let the trading intention become a trading action. Plan it ahead of time. Be honest, know your strengths and weaknesses. Championships are won by great defenses. We are here to minimize our risks and not to maximize our profits. Profits take care of themselves, losers never do.
Timothy Sykes (Timothysykes.com) writes in one certain trade of his that "There’s simply too much overhead resistance, and that usually crushes the price within days. Kinda like a midget trying to hold up a basketball player for very long."
His analogy makes me picture the charts of GEO (mainly because I've been trading this stock a lot of times.) But maybe it can be similar to a lot of charts as well. URC perhaps. Don't trade false breakouts. I've done it twice, with no good risk management, and I've been bruised. I'm still nursing my wounds.
He also said that
"It feels good to be the underdog. Makes me work harder."
How many of us can actually say that this "short term bear market" does not tire us? that it only makes us stronger?
Jeff White(Stockbandit.net) cautioned me further as well on my overleveraging.
"When you're in a hole, don't dig deeper."
Remember to approach everything by way of risk management.
Protecting your clarity of mind is the byproduct of containing the downside, and it will leave you with a tradable edge for as long as you are willing to cut those losses quickly.
Being “ready” to trade larger doesn’t simply boil down to having a bigger account which allows more buying power - it really comes down to your ability to accept increased levels of risk.
Opportunities will surface on a regular basis though, regardless of your trading style. A big part of becoming a consistently profitable trader lies in the recognition of those circumstances, so it doesn’t simply boil down to selecting a strategy. The proper implementation of your strategy is what matters most, and if you aren’t seeking to learn that then the market won’t hesitate to teach you.
Next time you pay your tuition fee to the market, I hope I become the receiver instead of the giver.
Byee.:)
will talk about stock picks in a different post.
- Nix