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When a stock that has been moving up starts consolidating, you want to see volume dry up. You should see a downtrend in volume. Then when volume starts picking up again, it usually means the stock is ready to blast off.
that your success ratio is a lot higher on lower P/E ratio stocks.
So if the S&P 500 is at fifteen times earnings, you should try to buy stocks with P/E ratios between 15 and 30. Once you start going much beyond double the S&P 500 P/E ratio level, your timing has to be more exact. You are bound to make a few more mistakes on higher P/E ratio stocks.
The most profitable situation is when you find a stock with a strong earnings trend that is trading at a P/E ratio in line with the broad market ratio.
Has the basic market behavior stayed the same in the 1980s versus the 1970s and the 1960s? Yes, the same types of stocks work time after time. It hasn’t changed at all. We can take one of the greatest winning stocks from 1960 and line it up with one of the best stocks in 1980 and they are going to
good point
Do you have any thoughts on the subject
The stock should be losing relative strength, breaking uptrends, and starting to hit new lows.
I have five or six stocks in a row that get stopped out, a caution flag goes up.
Divergence between the Dow and the daily advance/decline line [a graph of the cumulative net difference between the number of New York
because I have established a very defined set of principles that will provide the foundation for successful trading for years to come. Also, I plan to never stop learning.
There is still the same satisfaction of knowing you found
reviewing his past entries has helped him avoid repeating similar trading mistakes.
He also believes in focusing on the very best stocks as opposed to diversifying his portfolio. One important
He is proud of the fact that he has no employees. Solitary traders of this type, no matter how successful, are usually unknown
People seem to know how to handle failure because they can produce it themselves.
almost becomes a negative cause and effect cycle, whereby they produce it, they know how to handle it, and they wallow in it.
always knew I wanted to work for myself, have no clients, and answer to no one. That, to me, was the ultimate goal. I had been brooding for years, “Why wasn’t I doing well when I was groomed to be successful?” I decided it was now time to be successful.
His basic theory was that the market spent the same amount of time going up as going down. Only the amplitude was different.
The point you use to measure the time element is not the price high, but an oscillator high, which precedes the price high.
used fundamentals for nine years and got rich as a technician.
only problem was that it was a Friday. Usually a down Friday is followed by a down Monday.
One of the tactics in the Marine Corps officer’s manual is either go forward or backward. Don’t just sit there if you are getting the hell beat out of you.
Whenever there is a really rough period, I try to play defense, defense, defense. I believe in protecting what you have.
What are your thoughts about program trading? [See Appendix 1 for definition.] I hate it. There used to be a natural ebb and flow in the market, but program trading killed it. Those firms doing program trading wield extraordinary power to move the market, and the locals have simply become accomplices. I’m not just paranoid, because I’ve adjusted to
The great thing about being a trader is that you can always do a much better job. No matter how successful you are, you know how many times you screw up. Most people, in most careers, are busy trying to cover up their mistakes.
always check my charts and the moving averages prior to taking a position. Is the price above or below the moving average? That works better than any tool I have. I try not to go against the moving averages; it is self-destructive.
After a successful period, take a day off as a reward. I’ve found it difficult to sustain excellent trading for more than two weeks at a time. I’ve had periods where I can be profitable for twelve days in a row, but eventually you just get battle fatigue. So, after a strong run of profits, I try to play smaller rather than larger. My biggest losses have always followed my largest profits.
[Generally speaking, a price above its moving average implies a price uptrend, while the reverse
When your worst fears aren’t realized, you probably should increase your position.
When he wants to quit, it will be more difficult because he’ll have their lives in his hands. I don’t want that kind of pressure.
“Think that you might become more successful than you ever dreamt, because that’s what happened to me.” I have the freedom I always wanted, both financially and structurally. I can go on vacation at any moment. I live in Westhampton Beach half of the year and in New York the other
The most important thing in making money is not letting your losses get out of hand. Also, don’t increase your position size until you have doubled or tripled your capital. Most people make the mistake of increasing their bets as soon as they start making money. That is a quick way to get wiped out.
The key lesson is that each trader must find his or her own best approach.
he became successful when his desire to win took precedence over his desire to be right.
One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do.
I wait for a situation that is like the proverbial “shooting fish in a barrel.”
“I really can’t tell you why all the bullish arguments are wrong; all I know is that I’m shorting hysteria.” How do you pick the time to go against the hysteria? I wait until the market starts moving in gaps.
like your terminology—the “fingerprint” of hysteria. Just about every time you go against panic, you will be right if you can stick it out.
What kind of things do you look at in deciding which scenario will happen first: deflation or inflation? Money supply, government deficits, trade deficits, inflation figures, the financial markets, and government policy. I look at all those things for the U.S. and key foreign countries as well. It is one big, three-dimensional puzzle. However, if you had a three-dimensional puzzle, you could eventually put it together. But this puzzle is not one in which you can spread out the pieces on a great big table and put them all together. The picture is always changing. Every day some pieces get taken
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Generals always fight the last war. Portfolio managers always invest in the last bull market.
Since then—I don’t like to say this kind of thing—I have made very few mistakes. I learned quickly not to do anything unless you know what you are doing. I learned that it is better to do nothing and wait until you get a concept so right, and a price so right, that even if you are wrong, it is not going to hurt you.
don’t see how you can invest in American steel without understanding what is going on in Malaysian palm oil. As I explained before, it is all part of a big, three-dimensional puzzle that is always changing.
I start by finding the anomalous years in a long-term historical chart. When I see a picture like the 1861 cotton market, I ask myself, “What caused that? Why did that happen?” Then I try to figure it out. From that, you learn an enormous amount.
My instructions are for them to tell me what one could have known at the time to see the big move
The course gives them historical perspective across a broad spectrum of markets and teaches them how to analyze.
It should be written down as an axiom that you always invest against the central banks. When the central banks try to prop up a currency, go the other way.
What is the biggest public fallacy regarding market behavior? That the market is always right. The market is nearly always wrong. I can assure you of that.
The biggest mistake I made was having a specific target of what I wanted out of the trade.
that you will almost always get a signal before the market is about to do something.
have done extremely well trading the indexes, because before I ever traded index futures, I had become a very experienced trader of stocks and options.
