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October 13 - November 14, 2020
a rule-based trading approach that became known as trend following.
was incredibly inspiring. Although most people associate Livermore with the book Reminiscences of a Stock Operator, I gravitated to his pragmatic work
My own trading relies on charting to the extent that I would never bet on my fundamental ideas alone without confirmation from the actual price action of the underlying stock. First, I utilize charts to establish the prevailing trend of a stock’s price. In other words, technical analysis enables me to qualify candidates for my watch list. Then I use charts to time the entry of my trades.
If you want to maximize compounding, you want to be where the action is and take advantage of momentum.
I never go against the long-term trend.
The main role that VCP plays is establishing a precise entry point at the line of least resistance.
As a trader using a stop loss, you are a weak holder. The key is to be the last weak holder; you want the other weak holders to exit the stock before you buy.
A stock making a new 52-week high during the early stages of a fresh bull market could be a stellar performer in its infancy.
The only way a stock can become a superperformer, moving from, say, $20 to $80, is for that stock to make a series of new highs repeatedly, all the way up.
In the stock market, what is too obvious seldom works.
When a stock breaks through the line of least resistance, the chances are the greatest that it will move higher in a short period of time.
have two basic rules about winning in trading as well as in life: (1) If you don’t bet, you can’t win. (2) If you lose all your chips, you can’t bet. —Larry Hite
If you succeed, when you look back on your career, you will see that an instrumental difference between you and them was discipline.
discipline is not merely a principle of trading but a principle of greatness.
Discipline leads to habit.
Good trading is boring; bad trading is exciting and makes the hair on the back of your neck stand up. You can be a bored rich trader or a thrill-seeking gambler. It’s entirely your choice.
The best anyone can do is to manage risk through sensible planning. The only way to control risk when investing in stocks is through how much we buy and sell, when we buy and sell, and how we prepare for as many potential events as possible.
When we’re not prepared, we’re vulnerable.
missing opportunity because of emotion is as amateurish.
You have no control over how much a stock goes up, but you can, however, control the amount you lose on each trade. You should base that amount of loss on the average mortality of your gains.
always keep your risk at a level that is less than that of your average gain.
A rule of thumb could be to cut your losses at a level of one-half of your average gain.
rule of thumb that the amount of loss should be no more than one-half the amount of expected gain based on one’s real-life trading results.
also suggest that most investors, no matter how large their average gains, not allow any stock to fall more than 10 percent before selling.
You just carry out your plan; you should write down your sell price before you buy each stock. Put it on a Post-it and attach it to your computer screen.
If your trading is causing you difficulty or stress, something is wrong with your criteria or timing or you’re trading too large.
Second, I strive for consistent profitability by balancing my risk relative to the accumulated profits or losses. Consistency is far more important than making lots of money.
increasing my bet size after, and only after, periods of high profitability. In other words, if I have had a particularly profitable
The key to building wealth is to preserve capital and wait patiently for the right opportunity to make extraordinary gains.
If you’re not profitable at 25 percent or 50 percent invested, why move up to 75 percent or 100 percent invested or use margin?
By pyramiding up when you’re trading well and tapering off when you’re trading poorly, you trade your largest when trading your best and trade your smallest when trading your worst. This is how you make big money as well as protect yourself from disaster.
Move your stop up when your stock rises by two or three times your risk,
It would be fair to assume that in difficult trading periods your batting average is likely to fall below 50 percent.
“Maybe I should have given the stock more room to fluctuate; I’d still be in it.” This is just the opposite of what you should do.
In the words of Warren Buffett, “Risk comes from not knowing what you’re doing.”
diversification does not protect you from losses.
I made my money by picking up the phone and paying hefty
I’ve always felt that smart people learn from their mistakes but really smart people learn from other people’s mistakes.
