More on this book
Community
Kindle Notes & Highlights
It was really great, because I had Ed to learn from, and he was already a very successful trader. He was basically a trend follower, who utilized classic trading principles. He taught me how to cut my losses, as well as the importance of riding winners.
suggest that there is an imbalance of supply and demand, which could result in a major move. Second, the chart must show that the market is moving in the direction that the fundamentals suggest. Third, when news comes out, the market should act in a way that reflects the right psychological tone. For example, a bull market should shrug off bearish news and respond vigorously to bullish news. If you can restrict your activity to only those types of trades, you have to make money, in any market, under any circumstances.
What I am really looking for is a consensus that the market is not confirming. I like to know that there are a lot of
I study the correlation of my trades to reduce my exposure. We do a daily computer analysis to see how correlated our positions are. Through bitter experience, I have learned that a mistake in position correlation is the root of some of the most serious problems in trading. If you have eight highly correlated positions, then you are really trading one position that is eight times
The stock market has far more short-term countertrends. After the market has gone up, it always wants to come down. The commodity markets are driven by supply and demand for physical goods; if there is a true shortage, prices will tend to keep trending higher.
that risk management is the most important thing to be well understood. Undertrade, undertrade, undertrade is my second piece of advice. Whatever you think your position ought to be, cut it at least in half. My experience with novice traders is
lists risk management as the key to successful trading; he always decides on an exit point before he puts on a trade. He also stresses the need for evaluating risk on a portfolio basis rather than viewing the risk of each trade independently. This is absolutely critical when
“I place my stop at a point that is too far away or too difficult to reach easily.” In this manner, Kovner maximizes the chances that he will not be stopped out of a trade that proves correct, while at the same time maintaining rigid money management discipline. The philosophy behind this approach is that it is better to allocate the predetermined maximum dollar risk in a trade to a smaller number of contracts, while using a wider stop. This is the exact reverse of the typical trader, who will try to limit the loss per contract, but trade as many contracts as possible—an approach which usually
...more
risk management
is wrong, not at a point determined primarily by the maximum dollar amount you are willing to lose per contract. If the meaningful stop point implies an uncomfortably large loss per contract, trade a smaller number of contracts.
You don’t have that luxury off the floor, because you lose the edge when putting in the orders. Also, the judgments you make looking at prices on the screen aren’t as good as those made in the pit watching what is going on. In the pit, there are indicators that you learn subconsciously, like “these three guys are never right at market turns,” and if they all do the same thing at the same time, a light clicks on. It took me a long time to realize that those tools weren’t
hegde dad ....feel the market pulse of what is hot
If I review the results of two different traders, looking at anything less than one year doesn’t make any sense. It might be a couple of years before you can determine
I’ve certainly done it—that is, made countertrend initiations. However, as a rule of thumb, I don’t think you should do it.
Edwin Lefevre’s Reminiscences of a Stock Operator [reputedly a semifictionalized biography of Jesse Livermore, the legendary stock trader] is interesting
The market being in a trend is the main thing that eventually gets us in a trade. That is a pretty simple idea. Being consistent and making sure you do that all the time is probably more important than the particular characteristics you use to define the trend. Whatever method you use to enter trades, the most critical thing is that if there is a major trend, your approach should assure that you get in that trend.
that might depend on how I see the market reacting to news.
I could trade without knowing the name of the market. So, what you are
Yes. In our research, if a system doesn’t work for both bonds and beans, we don’t care
Well, my research on individual stocks shows that price fluctuations are closer to random than they are in commodities. Demonstrably, commodities are trending and, arguably, stocks are random.
The most important rule of trading is to play
great defense, not great offense. Every
If you are a trend follower trying to catch the profits in the middle of a move, you have to use very wide stops. I’m not comfortable doing that. Also, markets trend only about 15 percent of the time; the rest of the time they move sideways.
Because the previous Friday was a record volume day on the downside. The exact same thing happened in 1929, two days before the crash. Our
superimposed the 1980s market over the 1920s market. The two markets demonstrated a remarkable degree of correlation.
During the last half hour of trading, bonds suddenly started to turn up, and it
Everything gets destroyed a hundred times faster than it is built up. It
I know from studying history that credit eventually kills all great societies.
Trend following. The basic premise of the system is that markets move sharply when they move. If there is a sudden range expansion in a market that has been trading narrowly, human nature is to try to fade that price move. When you get a range expansion, the market is sending you a very loud, clear signal that the market is getting ready
a good trader will usually be able to outperform a good
I always believe that prices move first and fundamentals come second.
When I trade, I don’t just use a price stop, I also use a time stop. If I think a market should break, and it doesn’t, I will often get out even if I am not losing any money.
that we did well as a trading firm, while other people were hurt, because we had some knowledge. It is not that we had any unfair knowledge that other people didn’t have, it is just that we did our homework. People just don’t want to believe that anyone can break away from the crowd and rise above mediocrity.
By helping one kid, you can have an impact on his
It took a traumatic trading experience to permanently forge the importance of risk control
Bielfeldt does not believe in diversification. His trading philosophy is that you pick one area and become expert at it. For
The best thing anyone can do when starting out is to learn how a trend system works. Trading a trend system for a while will teach a new trader the principle of letting profits run and cutting losses short. If you can just learn discipline by using a trend-following system, even temporarily, it will increase your odds of being successful as a trader.
They haven’t worked as well as they used to because there are too many people using them. Whenever too many people are doing the same thing, the market will go through a period of adjustment.
The economy is definitely the single most important factor. Four other important elements are inflation expectations, the dollar, the trade balance, and the budget deficit.
The most important thing is to have a method for staying with your winners and getting rid of your losers.
The best way I know to learn discipline and patience is to think through a trade thoroughly before putting it on.
develop a plan of your strategies for various contingencies. That way, you won’t get swayed by every news item that hits the market and causes prices to move up or down. Also, it helps greatly to have a long-term objective that you have derived by really doing your homework. You combine that long-term objective with a protective stop that you move as the position goes your way. Alternatively, you could use a trend-following system to signal when you should get out of the trade. By having thought out your objective and having a strategy for getting out in case the market trend changes, you
...more
They overtrade, which
The most important is discipline—I am sure everyone tells you that. Second, you have to have patience; if you have a good trade on, you have to be able to stay with it. Third, you need courage to go into the market, and courage comes from adequate capitalization. Fourth, you must have a willingness to lose; that is also related to adequate capitalization. Fifth, you need a strong desire to win.
You should have the attitude that if a trade loses, you can handle it without any problem and come back to do the next trade. You can’t let a losing trade get to you emotionally.
judge success by what I do with the money I accumulate. One of the things that my wife and I have done is to establish a foundation so that we could share some of our success with the community by supporting various programs.
Do you think this long-term goal was an important motivation leading to your success as a trader?
you have a very strong hand—in other words, when you feel the percentages are skewed in your favor—you raise and play that hand to the hilt.
Seykota works from an office in his house, which borders Lake Tahoe. Before beginning the interview, we took a brief walk out onto the beach behind his house.
It was a cold, clear morning, and the view was idyllic. The contrast between his workplace and my own—an office in the Wall Street area, with a prominent view of an ugly building—could hardly have been more striking. I plead guilty to jealousy.
His trading is largely confined to the few minutes it takes to run his computer program which generates signals for the next day. In my conversation with Seykota,
intensity of both his intelligence and sensitivity—an odd
YV like
