Friday, January 13, 2012
Thursday, January 12, 2012
Wednesday, January 11, 2012
Find a Sound Strategy and Stick With It
Most
traders hope to achieve big success in the stock market, but the fact is few do.
Over time most investors realize only mediocre results at best. There are a few
major reasons for this lack of success.
The first reason is obvious; most investors don’t have a winning plan or a good role model to begin with. They have not taken the time to study and understand what really works in the stock market, so they end up listening to someone else, usually someone who never had big success in the first place.
But, here’s the real problem: Most investors even if they had a winning plan wouldn’t follow it. Oh sure, maybe they would follow it for a while. But, eventually, if things don’t work out as expected, they give up on it.
99% of investors have unrealistic expectations; not with how much they can earn, but with how it will be achieved.
The stock market offers the opportunity for virtually unlimited reward, however, it's not easy. Therfore, you should go into trading with the attitude that it’s going to take a great deal of work over an extended period of time.
At some point, you WILL feel like quitting. At some point, you WILL feel like your strategy doesn’t work anymore. At some point, another strategy WILL entice you.
But, how could you get good at something if you quit and look for something else every time the going gets tough? No strategy works all the time. In order to be a flower that blooms in June, you can’t be a flower that blooms in May.
Have big long term goals, but realize that you must specialize if you want to be a master at something. Specialization means sacrifice.
There are always a myriad of ways to become successful and anyone of them could change your life, but you have to choose which one it will be.
Mark Minervini
The first reason is obvious; most investors don’t have a winning plan or a good role model to begin with. They have not taken the time to study and understand what really works in the stock market, so they end up listening to someone else, usually someone who never had big success in the first place.
But, here’s the real problem: Most investors even if they had a winning plan wouldn’t follow it. Oh sure, maybe they would follow it for a while. But, eventually, if things don’t work out as expected, they give up on it.
99% of investors have unrealistic expectations; not with how much they can earn, but with how it will be achieved.
The stock market offers the opportunity for virtually unlimited reward, however, it's not easy. Therfore, you should go into trading with the attitude that it’s going to take a great deal of work over an extended period of time.
At some point, you WILL feel like quitting. At some point, you WILL feel like your strategy doesn’t work anymore. At some point, another strategy WILL entice you.
But, how could you get good at something if you quit and look for something else every time the going gets tough? No strategy works all the time. In order to be a flower that blooms in June, you can’t be a flower that blooms in May.
Have big long term goals, but realize that you must specialize if you want to be a master at something. Specialization means sacrifice.
There are always a myriad of ways to become successful and anyone of them could change your life, but you have to choose which one it will be.
Mark Minervini
Tuesday, January 10, 2012
The market made an early surge early in the open and bow down till the close.
Unless you can stay overnight and trade in the Globex, you cannot catch the big move.
Most often, big moves are happening in the overnight session.
Lucky for those in the Asian and European participants, they can easily swallow the real meat that the market offers.
Unless you can stay overnight and trade in the Globex, you cannot catch the big move.
Most often, big moves are happening in the overnight session.
Lucky for those in the Asian and European participants, they can easily swallow the real meat that the market offers.
How To Be A Stock Trader In 2012
If one of your New Year's resolutions is to take control of your finances and
put some of your savings to work, you might be considering using the stock
market to do that. 2011 proved to be a tough year for even the best
institutional investor and individual traders had an equally tough time
navigating markets that saw a large amount of violent swings, both to the upside
and the downside.
If you're planning to enter the markets as a new trader this year, here are a few tips to consider as you put your money to work.
Don't Trade for Real … Yet
Before you put your hard-earned money to work, spend some time trading fake money. Many brokerages and sites like Yahoo! Finance offer virtual or paper trading accounts that allow you to get a hands-on feel for how the markets work. Just like any new skill, you probably won't do very well with your first attempts. Use virtual funds to see if your investing decisions could potentially earn you money. Once you see that you're having success, put a small amount of real money to work. Continue to use your virtual account to test new strategies. Even the pros use virtual accounts to test the waters.
Learn How to Research
It's easy to make the mistake of relying on somebody else's research for investing decisions. There are two problems with this. First, somebody else's risk tolerance, investment objective and account size aren't the same as yours. The trade may be right for them, but not for you. Second, they may tell you when to get into the trade but they likely won't tell you when to get out.
There are plenty of good resources that teach you how to research before you buy. Read books, talk to other traders and read company balance sheets, listen to conference calls and work to gain a real understanding of the markets. You can learn to excel at any endeavor through experience and study. Becoming a great money manager requires the same commitment.
Say No to the Seminars
Every big city has an endless supply of weekend-long thousand dollar or more seminars that guarantee to make you the next great trader. Don't be fooled. They may have some good information, but if becoming a high-performing, profitable trader could happen over a weekend, everybody would do it. There are better ways to spend your money.
Don't Try to Win
We've learned that in order to get ahead in this world, we have to be better than our competition. That isn't true in investing. If you're new to the markets, you aren't going to beat the professionals. Even the professionals don't always beat other professionals. There are an exceedingly small amount of professional investors who have a consistent track record of beating others in the market. Aim to invest your money in products that tend to perform in line or slightly better than the market. Later, as you gain more investing experience, you can try your hand at some of the riskier trades.
Don't Make Money, Manage Risk
The professionals know that if you manage risk correctly, making money will naturally follow. Having a portfolio that includes a good supply of companies with a track record of success and that pay a healthy dividend, is good risk management. Only investing in products you truly understand, without looking to get rich quick, is the mark of a mature investor. You aren't going to strike it rich by capturing short-term gains, so don't take the unnecessary risk of trying.
The Bottom Line
2012 promises to be another year of tough-to-navigate markets for even the best traders. Don't try to score the big win. Instead, use 2012 to be conservative with your money as you learn the complicated art of trading stocks.
If you're planning to enter the markets as a new trader this year, here are a few tips to consider as you put your money to work.
Don't Trade for Real … Yet
Before you put your hard-earned money to work, spend some time trading fake money. Many brokerages and sites like Yahoo! Finance offer virtual or paper trading accounts that allow you to get a hands-on feel for how the markets work. Just like any new skill, you probably won't do very well with your first attempts. Use virtual funds to see if your investing decisions could potentially earn you money. Once you see that you're having success, put a small amount of real money to work. Continue to use your virtual account to test new strategies. Even the pros use virtual accounts to test the waters.
Learn How to Research
It's easy to make the mistake of relying on somebody else's research for investing decisions. There are two problems with this. First, somebody else's risk tolerance, investment objective and account size aren't the same as yours. The trade may be right for them, but not for you. Second, they may tell you when to get into the trade but they likely won't tell you when to get out.
There are plenty of good resources that teach you how to research before you buy. Read books, talk to other traders and read company balance sheets, listen to conference calls and work to gain a real understanding of the markets. You can learn to excel at any endeavor through experience and study. Becoming a great money manager requires the same commitment.
Say No to the Seminars
Every big city has an endless supply of weekend-long thousand dollar or more seminars that guarantee to make you the next great trader. Don't be fooled. They may have some good information, but if becoming a high-performing, profitable trader could happen over a weekend, everybody would do it. There are better ways to spend your money.
Don't Try to Win
We've learned that in order to get ahead in this world, we have to be better than our competition. That isn't true in investing. If you're new to the markets, you aren't going to beat the professionals. Even the professionals don't always beat other professionals. There are an exceedingly small amount of professional investors who have a consistent track record of beating others in the market. Aim to invest your money in products that tend to perform in line or slightly better than the market. Later, as you gain more investing experience, you can try your hand at some of the riskier trades.
Don't Make Money, Manage Risk
The professionals know that if you manage risk correctly, making money will naturally follow. Having a portfolio that includes a good supply of companies with a track record of success and that pay a healthy dividend, is good risk management. Only investing in products you truly understand, without looking to get rich quick, is the mark of a mature investor. You aren't going to strike it rich by capturing short-term gains, so don't take the unnecessary risk of trying.
The Bottom Line
2012 promises to be another year of tough-to-navigate markets for even the best traders. Don't try to score the big win. Instead, use 2012 to be conservative with your money as you learn the complicated art of trading stocks.
Monday, January 9, 2012
When To Follow The Crowd And When To Go Against It
Don’t follow the crowd! You’ve been warned over and over, but few are that independent. Breaking away is harder than it looks. We are all familiar with the rebel, the person who breaks all the rules. At the other end of the spectrum, the ultra-conformist seems to follow the rules too blindly. Neither extreme is optimal for trading. It’s necessary to find the right balance. It takes a good deal of experience, soul-searching, and a concerted effort to act independently. It’s essential to develop this skill, especially in markets that seem to change from month to month.
We all have a natural tendency to follow the crowd. There is safety and comfort in numbers. As the human race developed, it learned that its survival depended on banding together and working as a group. We inherited this legacy, and it is shown in the security we feel when we follow the crowd. Without getting into individual differences or the extent to which one follows the crowd, some conform too much and others too little, most successful members of society have seen the virtues in following the crowd. Blind obedience to authority may not be beneficial, but compromise is, to be successful, to protect your self interests, and stay within the bounds of acceptable behavior. You must develop a clear and solid sense of personal values and to develop a clearly defined personal identity. You can then follow the crowd when appropriate, but effortlessly go your own way when it’s necessary to protect yourself.
Although you’ve been frequently warned about the pitfalls of following the crowd as a trader, acknowledge that it is adaptive at times. In the case of long term investing, for instance, it is wise to put your money in stocks that don’t have a great deal of volatility and by all indications, have solid fundamentals that will push the stock up on a fairly consistent basis for several years. If a large enough “crowd” believes strongly that the company will produce profits for months or years, it would be to your advantage to follow them, if you want a safe investment.
Following the crowd isn’t bad all the time, especially for those who don’t like risk. On the other hand, if you are a shorter-term trader trying to profit in markets that seem to change from week to week, as we are seeing these days, you must anticipate and profit from volatility and shorter-term trends. This requires an astute intuition about where the markets will go next. Anticipate how the movement of the masses can benefit you as a trader. The key to success is to decide when to follow the crowd and when to go against it. The crowd is usually right, until a turning point occurs.
When virtually everyone has taken the position that the market is headed up, let’s say, there are few traders left to buy and push the trend further. Soon, a countertrend initiates and moves the market down. The challenge is predicting when that turning point will occur, anticipating it, and developing a trading plan to capitalize on it. Now, this all sounds easy, but in practice, it is difficult to implement a trading strategy to capitalize, especially when they happen in the shorter-term, such as days or weeks. How can one predict the turning point? Some say it is almost impossible. All you can do is develop a sound method that works most of the time but also admit that it may fail. You must at least temporarily believe in your method, put money on the line, and work under the assumption that overall, luck will be in your favor should you make enough trades.
It seems like the markets these days are changing from week to week, with weak economic news lowering prices one day and unexpected profits in key sectors raising prices the next. Only the most independent minded and perceptive traders will make a killing. But one thing is certain, in the end, going your own way is the only sure path to profits.
Sunday, January 8, 2012
Wall Street gurus find prediction game gets harder
(Reuters) - With the new year comes a new round of bold predictions for
financial markets.
Blackstone Vice Chairman Byron Wien, among Wall Street's best known prognosticators, on Tuesday unveiled his latest crop of 10 "surprises" for the coming year, such as oil prices plunging to $65 a barrel. BlackRock equity strategist Bob Doll foresees double-digit U.S. stock returns, though corporate earnings growth could lag expectations. And one well-known forecaster declared 2012 too hard to predict.
In the past -- before U.S. housing prices fell and kept falling for the first time since the Depression or the future of Euro zone was at risk -- educated guesses by these and other veteran market-watchers had a good chance of being right.
But these days, volatility is the norm and far-flung political events can send U.S. markets into a tailspin. Skeptics contend it is hard to predict what the world will look like tomorrow, let alone 12 months from now.
That led Birinyi Associates' Laszlo Birinyi, whose stock market forecasts were widely followed, to tell clients he would not be making predictions this year.
"There are too many variables which are beyond our comprehension," he wrote in a client newsletter.
Even Wien and Doll acknowledge this annual exercise has grown more difficult in recent years, as unpredictable events -- like an earthquake and tsunami in Japan, the near collapse of the euro zone and political upheaval in the Arab world -- throw Wall Street's best-known seers for a loop.
PIMCO's Bill Gross, the manager of the world's largest bond fund, kicked off 2012 saying the "new normal" of slow growth has given way to the "paranormal," an environment characterized by credit risk and "zero-bound" interest rates.
Forecasting has become "especially precarious," Doll wrote in his 2012 outlook note for clients.
Speaking to Reuters after a press briefing to review his 2012 outlook, Doll said it used to be simpler to choose between stocks or to recommend sectors of the economy, "but when it's the macro environment driving so many of these things, I do think it is more difficult."
Wien, who served as U.S. strategist at Morgan Stanley for 21 years before moving to Blackstone, and Doll, who was president of Merrill Lynch Investment Management before it merged into BlackRock, have made their annual predictions a widely anticipated event on Wall Street.
So have others, like Goldman Sachs Asset Management's James O'Neill and former Merrill Lynch strategist Richard Bernstein, who now runs a self-named investment management firm.
COIN TOSS?
But despite their experience and pedigrees, Wall Street gurus are wrong as often as they are right.
CXO Advisory Group LLC, a research firm that tracks more than 60 market "gurus," calculated the average forecaster is accurate only 48 percent of the time -- roughly the same odds as a coin toss.
"You might find them interesting for other reasons, but I wouldn't put much stock in their predictions," CXO Chief Executive Steve LeCompte said.
(To see some of the best and worst market gurus as graded by CXO, click on: link.reuters.com/buk85s)
The Federal Reserve Bank of Philadelphia's Livingston Survey, which summarizes economist forecasts, came within seven points of the year-end close of the S&P 500 once in the past six years -- essentially spot on.
But it has also been off by more than 60 points three times and, in 2008, when the banking system nearly collapsed, it was off by 147 points, or 9 percent, from the actual close.
Last year the survey predicted a close of 1298.5 points, which was 41 points, or 3 percent higher, than the actual close. The S&P 500 was flat for the year.
"I think forecasting has always been hard, but the market's volatility has made it a bit harder," said Tom Stark, who oversees the Philly Fed survey.
Wien last week told Reuters that over the years his forecasts have panned out about half the time. Lately, though, Wien has been wrong more often: in 2010, only two and a half of his 10 annual predictions came true.
He rightly said President Obama would endorse legislation favoring nuclear energy and that financial services regulatory reform would be softer on Wall Street than originally feared.
"Secular trends are much more fragile than they used to be, and that has made forecasting much more difficult," said Wien,
"Who would have predicted the Arab Spring? That took everyone by surprise," he said, referring to a wave of protests that toppled rulers in Africa and the Middle East last year.
Wien was five for 10 in his 2011 predictions, including four predictions that were "partially correct."
For example, he said the price of corn would reach $8.00, while wheat and soybeans would hit $10.00 and $16.00 respectively. Corn did hit the $8.00 mark during 2011, but soybeans and wheat fell short.
LATEST PREDICTIONS
Wien's predictions for 2012 include his view that U.S. company earnings will push the S&P 500 up 11 percent, Syria's Bashar al-Assad will lose power, and that the U.S. Congress will finally come together and tackle the deficit.
These forecasts are not a blueprint for investors, Wien said, but "are designed to get people thinking about some issues they might not be thinking about."
Doll predicts the European debt crisis will begin to ease, that the U.S. economy will muddle through and that U.S. Treasury rates will rebound.
Over the past 10 years, Doll said he has been right between 70 percent to 80 percent of the time. Among his seven right predictions in 2010, he said U.S. economic growth would exceed 3 percent.
For 2011, Doll predicted accelerating economic growth, double-digit stock growth, 3 million new jobs and a record high for corporate earnings. While fourth-quarter results are pending, the S&P 500 is on pace to set a new high in earnings.
But his S&P 500 forecast was too optimistic by 100 points, growth slowed in 2011 and by November only 1.45 million new jobs had been created.
Doll on Thursday said that his forecasts are intended to help organize the way investors assess the markets.
"I don't have a monopoly on right answers," he said. "Hopefully I have a perspective that can add some value to people as they think through what they need to do."
CXO Advisors, which gives Doll an above-average accuracy rating of 54 percent, says his predictions focus on broad trends but are light on specifics.
"It is relatively difficult to assess the accuracy of Mr. Doll's market projections because of conditionalities and vagueness," the firm said.
(Editing by Jennifer Merritt and Walden Siew)
Blackstone Vice Chairman Byron Wien, among Wall Street's best known prognosticators, on Tuesday unveiled his latest crop of 10 "surprises" for the coming year, such as oil prices plunging to $65 a barrel. BlackRock equity strategist Bob Doll foresees double-digit U.S. stock returns, though corporate earnings growth could lag expectations. And one well-known forecaster declared 2012 too hard to predict.
In the past -- before U.S. housing prices fell and kept falling for the first time since the Depression or the future of Euro zone was at risk -- educated guesses by these and other veteran market-watchers had a good chance of being right.
But these days, volatility is the norm and far-flung political events can send U.S. markets into a tailspin. Skeptics contend it is hard to predict what the world will look like tomorrow, let alone 12 months from now.
That led Birinyi Associates' Laszlo Birinyi, whose stock market forecasts were widely followed, to tell clients he would not be making predictions this year.
"There are too many variables which are beyond our comprehension," he wrote in a client newsletter.
Even Wien and Doll acknowledge this annual exercise has grown more difficult in recent years, as unpredictable events -- like an earthquake and tsunami in Japan, the near collapse of the euro zone and political upheaval in the Arab world -- throw Wall Street's best-known seers for a loop.
PIMCO's Bill Gross, the manager of the world's largest bond fund, kicked off 2012 saying the "new normal" of slow growth has given way to the "paranormal," an environment characterized by credit risk and "zero-bound" interest rates.
Forecasting has become "especially precarious," Doll wrote in his 2012 outlook note for clients.
Speaking to Reuters after a press briefing to review his 2012 outlook, Doll said it used to be simpler to choose between stocks or to recommend sectors of the economy, "but when it's the macro environment driving so many of these things, I do think it is more difficult."
Wien, who served as U.S. strategist at Morgan Stanley for 21 years before moving to Blackstone, and Doll, who was president of Merrill Lynch Investment Management before it merged into BlackRock, have made their annual predictions a widely anticipated event on Wall Street.
So have others, like Goldman Sachs Asset Management's James O'Neill and former Merrill Lynch strategist Richard Bernstein, who now runs a self-named investment management firm.
COIN TOSS?
But despite their experience and pedigrees, Wall Street gurus are wrong as often as they are right.
CXO Advisory Group LLC, a research firm that tracks more than 60 market "gurus," calculated the average forecaster is accurate only 48 percent of the time -- roughly the same odds as a coin toss.
"You might find them interesting for other reasons, but I wouldn't put much stock in their predictions," CXO Chief Executive Steve LeCompte said.
(To see some of the best and worst market gurus as graded by CXO, click on: link.reuters.com/buk85s)
The Federal Reserve Bank of Philadelphia's Livingston Survey, which summarizes economist forecasts, came within seven points of the year-end close of the S&P 500 once in the past six years -- essentially spot on.
But it has also been off by more than 60 points three times and, in 2008, when the banking system nearly collapsed, it was off by 147 points, or 9 percent, from the actual close.
Last year the survey predicted a close of 1298.5 points, which was 41 points, or 3 percent higher, than the actual close. The S&P 500 was flat for the year.
"I think forecasting has always been hard, but the market's volatility has made it a bit harder," said Tom Stark, who oversees the Philly Fed survey.
Wien last week told Reuters that over the years his forecasts have panned out about half the time. Lately, though, Wien has been wrong more often: in 2010, only two and a half of his 10 annual predictions came true.
He rightly said President Obama would endorse legislation favoring nuclear energy and that financial services regulatory reform would be softer on Wall Street than originally feared.
"Secular trends are much more fragile than they used to be, and that has made forecasting much more difficult," said Wien,
"Who would have predicted the Arab Spring? That took everyone by surprise," he said, referring to a wave of protests that toppled rulers in Africa and the Middle East last year.
Wien was five for 10 in his 2011 predictions, including four predictions that were "partially correct."
For example, he said the price of corn would reach $8.00, while wheat and soybeans would hit $10.00 and $16.00 respectively. Corn did hit the $8.00 mark during 2011, but soybeans and wheat fell short.
LATEST PREDICTIONS
Wien's predictions for 2012 include his view that U.S. company earnings will push the S&P 500 up 11 percent, Syria's Bashar al-Assad will lose power, and that the U.S. Congress will finally come together and tackle the deficit.
These forecasts are not a blueprint for investors, Wien said, but "are designed to get people thinking about some issues they might not be thinking about."
Doll predicts the European debt crisis will begin to ease, that the U.S. economy will muddle through and that U.S. Treasury rates will rebound.
Over the past 10 years, Doll said he has been right between 70 percent to 80 percent of the time. Among his seven right predictions in 2010, he said U.S. economic growth would exceed 3 percent.
For 2011, Doll predicted accelerating economic growth, double-digit stock growth, 3 million new jobs and a record high for corporate earnings. While fourth-quarter results are pending, the S&P 500 is on pace to set a new high in earnings.
But his S&P 500 forecast was too optimistic by 100 points, growth slowed in 2011 and by November only 1.45 million new jobs had been created.
Doll on Thursday said that his forecasts are intended to help organize the way investors assess the markets.
"I don't have a monopoly on right answers," he said. "Hopefully I have a perspective that can add some value to people as they think through what they need to do."
CXO Advisors, which gives Doll an above-average accuracy rating of 54 percent, says his predictions focus on broad trends but are light on specifics.
"It is relatively difficult to assess the accuracy of Mr. Doll's market projections because of conditionalities and vagueness," the firm said.
(Editing by Jennifer Merritt and Walden Siew)
Why You Will Fail
Posted by Quint in Just Because on Dec 30th, 2011
Over the last decade I have concluded that most individuals approaching the stock market whether it be in a passive or active manner, will fail miserably and so will you. This is nothing against you as a person, but simply the truth as I have seen it play out. I have been trading stocks and managing money successfully in some capacity for the last ten years. I measure this success by a steadily rising equity curve, nothing more. Through this time period I have seen countless traders come and go, some who simply choose a different path but more often than not their departure is due to losing too much in the market and being forced out or maybe not making enough to stay. This is not isolated to the active participant however I have worked with clients that always make the wrong move as they allow emotions to dictate their actions. So here we are, concluding another year where you find yourself making little to no progress in the stock market, or maybe another year of losses. You wonder why and unfortunately no one has the courage to tell you the truth, until now. Keep on reading and as painful as it may be, learn the reasons behind your insanity before it is too late.
#1 Pride – Most of you are just too darn prideful to make money in the stock market. You may confuse this pride with confidence but what exactly are you confident of? That you can lose money consistently? Most who have discretionary money in the first place have made it due to their intelligence in another area. You approach the stock market in this same demeanor only to realize that the stock market makes no sense at all. In fact, some of the smartest people in the world are the worst traders of all. You refuse to accept the fact that you don’t know what you are doing and approach the stock market as if it is a rational beast which should act as you believe it should. These are the folks who have believed in the inflation trade to the point of getting annihilated in Gold, Silver or a host of other commodity type stocks that should rise due to Big Ben’s money printing ways. You’re so arrogant that you refuse to accept the fact that you are wrong and you throw good money after bad. Even right now, when someone attempts to point out the obvious, your anger rages and you are furious at the thought that someone is saying you are prideful and arrogant. There is only one way to approach the stock market and it is through 100% humility. If you approach the market knowing that you do not know, you will immediately be much better off than most in the game. Rather than spout off what you think to be true, keep quiet and listen. Find someone, somewhere who makes consistent money in the market and humbly observe their actions.
#2 Skepticism – After losing time and again you begin to feel, no you know for sure that the game is rigged. Maybe its the Government, the Federal Reserve, the ‘machines’ the computers, or heck maybe its Big Ben himself. Regardless of who it is you feel it is impossible to make money on a consistent basis in the stock market because surely it is a sucker’s game. Well guess what? It is rigged, it’s designed for suckers and so what. If you know this going in, and resolve to not be the greater fool but rather accept the fact you are playing a game with twisted rules then immediately there is no conflict. If you will accept the fact that things are not what they seem you will soon start looking for an edge in a different place. Maybe just maybe when you stop whining about the game itself and rather learn to understand its rules, you’ll start to make money.
#3 Patience – Do not confuse this type of patience with a consistent losing strategy, holding garbage stocks that won’t ever come back. The patience I am referring to only applies to a strategy that has been proven and tested over the years, yet not only takes time to master, but will also go through countless periods of losing trades. Over the years I have seen dozens upon dozens of traders hop from one strategy to the next. They’ll move from one guru to another or one newsletter to another all in hopes of finding that sure thing. When they move it is no question during a time when the strategy is going through a corrective period and they become too impatient with its results. Rather than ride it out they simply hop to another strategy which at the time is doing well. There impatience results in yet another failed attempt at finding success. Let me clue you in on something. First of all, if you have a strategy it means you can in fact write it down on paper. You can articulate it in an educated manner to your friend or spouse. You can quantify your strategy and point to its proven success. If you cannot do this, let’s be honest. All you are doing is gambling. A strategy is NOT saying “I think stock XYZ will do this because so and so said that” it is NOT shorting the S&P because your buddy lost his job and surely the market will crumble. If you do not have a quantified strategy it is literally the equivalent of going on a treasure hunt without a map. Now, assuming you do have a quantified strategy (some of you need to stop right now and go get one) you must have the patience to stick with it. No, this does not mean for a few days or weeks. This means for years. People who actually do this thing for a living have more than likely pursued a similar path until they finally found a strategy they can stick with, live with, and own. They make it part of themselves and it becomes who they are. If you are going to follow someone or a some strategy make a commitment to learn it, master it and own it. This is one reason Tickerville has been such a success. Most traders within our chat room have been trading together since the site started in 2007. In fact, several dozen of us traded together on another site starting two years before that. That’s 6 years that many of us have been trading together, following a consistent strategy. Now that’s patience!
#4 Work Ethic – Like patience this is not a problem in the typical sense. Rarely will someone who approaches trading adopt a lazy attitude. Similar to applying intellegence, most who approach this game are willing to put in the hours and the time, outworking most others who just show up. Unfortunately it isn’t the quantity of hard work that is the problem, but the quality and the lack of direction. When I was a child I thought I could dig in my back yard for treasure. I once saw an old Twilight Zone where a character found some fascinating small box while digging in their garden. I was convinced if I put in the work, digging around my back yard endless treasures of years gone by would be mine. After what seemed like hundreds of hours over one summer I was left with absolutely zilch. Once you have a quantified strategy it should come with a set of steps one must take to find their given edge. Whatever the strategy is, it is critical you follow these steps each and every day. I’m a pattern recognition trader which mandates I go through thousands of charts per day to find patterns that may give me an edge. If I don’t go through charts, I cannot trade. I do this each and every day without fail. I often encounter traders who say they are fundamental value investors. When I ask them how many annual reports they read per day or how long it takes them to recreate a company’s financial statements they often glaze over. I know immediately that they are full of crap. If you don’t put in the work you will not find the goods.
#5 Noise – Put down all the crap that is not helping you make money. Ask yourself what good has come from reading and digesting all the content on ZeroHedge? Why even bother with the radio, television or news reports? Does it consistently give you an edge or does it simply increase your biased views? Most people when they are wrong and losing money search out others with like minded ideas to comfort their misery. It is much easier to lose money consistently with a view point that is reinforced by certain people or certain websites. With others sharing your money losing strategy there is hope that at some point you will be proven right. If nothing else its a virtual community from which you can whine and complain and again seek to blame the game rather than your moves and lack of disciplined strategy. My rules for outside noise is as follows. 1.) If it gives me any bias whatsoever I avoid it like the plague. Ya, that pretty much eliminates most content out there but leaves me with a small sample set of content I do take in which observes the market action only with a complete open minded view. Cut out the noise and start taking responsibility.
#6 Tuition – Stop being so freakin’ cheap and pony up some cash for real tuition. Sure you may have been taken advantage of by some multi-thousand dollar scam that promises to produce consistent winning results with a software system telling you when to buy or sell. Did you honestly believe that would work? No, what I am talking about here is picking up some reading material by real traders who have taken it upon themselves to actually try and educate hard headed stubborn traders. I have published a book through a major publishing company and can tell you that the amount of money made through books sales doesn’t even come close to the amount of money made trading. I chose to do this for my children so that they would be able to pick something off the shelf in our home and learn my strategy. I made 10x as much as I did publishing that book on my recent short of Gold. Sure there are scam artists out there but through all the garbage there are quality traders who have put out quality material to help you learn. Stop looking for a get rick quick scheme and pony up some cash to learn. Start with a few books. If you find someone that fits your personality send them a note. See if they have a service. Join them, follow them, absorb what they know. You will not be sorry.
As 2012 rolls around make it the year to stop being insane. If you find yourself running around in circles trying to make money in a game that you feel is rigged and certainly only for suckers, do yourself a favor and either give it up completely or start following the above steps to improve. Make it your goal this year, and get started today!
Over the last decade I have concluded that most individuals approaching the stock market whether it be in a passive or active manner, will fail miserably and so will you. This is nothing against you as a person, but simply the truth as I have seen it play out. I have been trading stocks and managing money successfully in some capacity for the last ten years. I measure this success by a steadily rising equity curve, nothing more. Through this time period I have seen countless traders come and go, some who simply choose a different path but more often than not their departure is due to losing too much in the market and being forced out or maybe not making enough to stay. This is not isolated to the active participant however I have worked with clients that always make the wrong move as they allow emotions to dictate their actions. So here we are, concluding another year where you find yourself making little to no progress in the stock market, or maybe another year of losses. You wonder why and unfortunately no one has the courage to tell you the truth, until now. Keep on reading and as painful as it may be, learn the reasons behind your insanity before it is too late.
#1 Pride – Most of you are just too darn prideful to make money in the stock market. You may confuse this pride with confidence but what exactly are you confident of? That you can lose money consistently? Most who have discretionary money in the first place have made it due to their intelligence in another area. You approach the stock market in this same demeanor only to realize that the stock market makes no sense at all. In fact, some of the smartest people in the world are the worst traders of all. You refuse to accept the fact that you don’t know what you are doing and approach the stock market as if it is a rational beast which should act as you believe it should. These are the folks who have believed in the inflation trade to the point of getting annihilated in Gold, Silver or a host of other commodity type stocks that should rise due to Big Ben’s money printing ways. You’re so arrogant that you refuse to accept the fact that you are wrong and you throw good money after bad. Even right now, when someone attempts to point out the obvious, your anger rages and you are furious at the thought that someone is saying you are prideful and arrogant. There is only one way to approach the stock market and it is through 100% humility. If you approach the market knowing that you do not know, you will immediately be much better off than most in the game. Rather than spout off what you think to be true, keep quiet and listen. Find someone, somewhere who makes consistent money in the market and humbly observe their actions.
#2 Skepticism – After losing time and again you begin to feel, no you know for sure that the game is rigged. Maybe its the Government, the Federal Reserve, the ‘machines’ the computers, or heck maybe its Big Ben himself. Regardless of who it is you feel it is impossible to make money on a consistent basis in the stock market because surely it is a sucker’s game. Well guess what? It is rigged, it’s designed for suckers and so what. If you know this going in, and resolve to not be the greater fool but rather accept the fact you are playing a game with twisted rules then immediately there is no conflict. If you will accept the fact that things are not what they seem you will soon start looking for an edge in a different place. Maybe just maybe when you stop whining about the game itself and rather learn to understand its rules, you’ll start to make money.
#3 Patience – Do not confuse this type of patience with a consistent losing strategy, holding garbage stocks that won’t ever come back. The patience I am referring to only applies to a strategy that has been proven and tested over the years, yet not only takes time to master, but will also go through countless periods of losing trades. Over the years I have seen dozens upon dozens of traders hop from one strategy to the next. They’ll move from one guru to another or one newsletter to another all in hopes of finding that sure thing. When they move it is no question during a time when the strategy is going through a corrective period and they become too impatient with its results. Rather than ride it out they simply hop to another strategy which at the time is doing well. There impatience results in yet another failed attempt at finding success. Let me clue you in on something. First of all, if you have a strategy it means you can in fact write it down on paper. You can articulate it in an educated manner to your friend or spouse. You can quantify your strategy and point to its proven success. If you cannot do this, let’s be honest. All you are doing is gambling. A strategy is NOT saying “I think stock XYZ will do this because so and so said that” it is NOT shorting the S&P because your buddy lost his job and surely the market will crumble. If you do not have a quantified strategy it is literally the equivalent of going on a treasure hunt without a map. Now, assuming you do have a quantified strategy (some of you need to stop right now and go get one) you must have the patience to stick with it. No, this does not mean for a few days or weeks. This means for years. People who actually do this thing for a living have more than likely pursued a similar path until they finally found a strategy they can stick with, live with, and own. They make it part of themselves and it becomes who they are. If you are going to follow someone or a some strategy make a commitment to learn it, master it and own it. This is one reason Tickerville has been such a success. Most traders within our chat room have been trading together since the site started in 2007. In fact, several dozen of us traded together on another site starting two years before that. That’s 6 years that many of us have been trading together, following a consistent strategy. Now that’s patience!
#4 Work Ethic – Like patience this is not a problem in the typical sense. Rarely will someone who approaches trading adopt a lazy attitude. Similar to applying intellegence, most who approach this game are willing to put in the hours and the time, outworking most others who just show up. Unfortunately it isn’t the quantity of hard work that is the problem, but the quality and the lack of direction. When I was a child I thought I could dig in my back yard for treasure. I once saw an old Twilight Zone where a character found some fascinating small box while digging in their garden. I was convinced if I put in the work, digging around my back yard endless treasures of years gone by would be mine. After what seemed like hundreds of hours over one summer I was left with absolutely zilch. Once you have a quantified strategy it should come with a set of steps one must take to find their given edge. Whatever the strategy is, it is critical you follow these steps each and every day. I’m a pattern recognition trader which mandates I go through thousands of charts per day to find patterns that may give me an edge. If I don’t go through charts, I cannot trade. I do this each and every day without fail. I often encounter traders who say they are fundamental value investors. When I ask them how many annual reports they read per day or how long it takes them to recreate a company’s financial statements they often glaze over. I know immediately that they are full of crap. If you don’t put in the work you will not find the goods.
#5 Noise – Put down all the crap that is not helping you make money. Ask yourself what good has come from reading and digesting all the content on ZeroHedge? Why even bother with the radio, television or news reports? Does it consistently give you an edge or does it simply increase your biased views? Most people when they are wrong and losing money search out others with like minded ideas to comfort their misery. It is much easier to lose money consistently with a view point that is reinforced by certain people or certain websites. With others sharing your money losing strategy there is hope that at some point you will be proven right. If nothing else its a virtual community from which you can whine and complain and again seek to blame the game rather than your moves and lack of disciplined strategy. My rules for outside noise is as follows. 1.) If it gives me any bias whatsoever I avoid it like the plague. Ya, that pretty much eliminates most content out there but leaves me with a small sample set of content I do take in which observes the market action only with a complete open minded view. Cut out the noise and start taking responsibility.
#6 Tuition – Stop being so freakin’ cheap and pony up some cash for real tuition. Sure you may have been taken advantage of by some multi-thousand dollar scam that promises to produce consistent winning results with a software system telling you when to buy or sell. Did you honestly believe that would work? No, what I am talking about here is picking up some reading material by real traders who have taken it upon themselves to actually try and educate hard headed stubborn traders. I have published a book through a major publishing company and can tell you that the amount of money made through books sales doesn’t even come close to the amount of money made trading. I chose to do this for my children so that they would be able to pick something off the shelf in our home and learn my strategy. I made 10x as much as I did publishing that book on my recent short of Gold. Sure there are scam artists out there but through all the garbage there are quality traders who have put out quality material to help you learn. Stop looking for a get rick quick scheme and pony up some cash to learn. Start with a few books. If you find someone that fits your personality send them a note. See if they have a service. Join them, follow them, absorb what they know. You will not be sorry.
As 2012 rolls around make it the year to stop being insane. If you find yourself running around in circles trying to make money in a game that you feel is rigged and certainly only for suckers, do yourself a favor and either give it up completely or start following the above steps to improve. Make it your goal this year, and get started today!
Out in the market the first week of trading for a brief respite.
And the market stay idle (sideways) in the range of 12330 to 12400 after it gap up in the first trading week of 2012.
Participants are gauging the market sentiments and may play position from this range.
Below is the one hour view of the YM showing the first four trading days of 2012.
And the market stay idle (sideways) in the range of 12330 to 12400 after it gap up in the first trading week of 2012.
Participants are gauging the market sentiments and may play position from this range.
Below is the one hour view of the YM showing the first four trading days of 2012.
Wednesday, January 4, 2012
Tuesday, January 3, 2012
Sunday, January 1, 2012
Bob Farrell’s 10 rules for investing
By Prieur du Plessis, on January 1st, 2012 Wall Street “gurus” come and go, but in the case of Bob Farrell legendary status was achieved. He spent several decades as chief stock market analyst at Merrill Lynch & Co. and had a front-row seat at the go-go markets of the late 1960s, mid-1980s and late 1990s, the brutal bear market of 1973-74, and October 1987 crash.
Farrell retired in 1992, but his famous “10 Market Rules to Remember” have lived on and are summarized below, courtesy of The Big Picture and MarketWatch (June 2008). The words of wisdom are timeless and are especially appropriate at the start of a new year as investors grapple with the difficult juncture at which stock markets find themselves at this stage.
1. Markets tend to return to the mean over time
When stocks go too far in one direction, they come back. Euphoria and pessimism can cloud people’s heads. It’s easy to get caught up in the heat of the moment and lose perspective.
When stocks go too far in one direction, they come back. Euphoria and pessimism can cloud people’s heads. It’s easy to get caught up in the heat of the moment and lose perspective.
2. Excesses in one direction will lead to an excess in the opposite direction
Think of the market baseline as attached to a rubber string. Any action too far in one direction not only brings you back to the baseline, but leads to an overshoot in the opposite direction.
Think of the market baseline as attached to a rubber string. Any action too far in one direction not only brings you back to the baseline, but leads to an overshoot in the opposite direction.
3. There are no new eras – excesses are never permanent
Whatever the latest hot sector is, it eventually overheats, mean reverts, and then overshoots.
Whatever the latest hot sector is, it eventually overheats, mean reverts, and then overshoots.
As the fever builds, a chorus of “this time it’s different” will be heard, even if those exact words are never used. And of course, it – human nature – is never different.
4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways
Regardless of how hot a sector is, don’t expect a plateau to work off the excesses. Profits are locked in by selling, and that invariably leads to a significant correction eventually.
Regardless of how hot a sector is, don’t expect a plateau to work off the excesses. Profits are locked in by selling, and that invariably leads to a significant correction eventually.
5. The public buys the most at the top and the least at the bottom
That’s why contrarian-minded investors can make good money if they follow the sentiment indicators and have good timing. Watch Investors Intelligence (measuring the mood of more than 100 investment newsletter writers) and the American Association of Individual Investors Survey.
That’s why contrarian-minded investors can make good money if they follow the sentiment indicators and have good timing. Watch Investors Intelligence (measuring the mood of more than 100 investment newsletter writers) and the American Association of Individual Investors Survey.
6. Fear and greed are stronger than long-term resolve
Investors can be their own worst enemy, particularly when emotions take hold. Gains “make us exuberant; they enhance well-being and promote optimism”, says Santa Clara University finance professor Meir Statman. His studies of investor behavior show that “losses bring sadness, disgust, fear, regret. Fear increases the sense of risk and some react by shunning stocks.”
Investors can be their own worst enemy, particularly when emotions take hold. Gains “make us exuberant; they enhance well-being and promote optimism”, says Santa Clara University finance professor Meir Statman. His studies of investor behavior show that “losses bring sadness, disgust, fear, regret. Fear increases the sense of risk and some react by shunning stocks.”
7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names
This is why breadth and volume are so important. Think of it as strength in numbers. Broad momentum is hard to stop, Farrell observes. Watch for when momentum channels into a small number of stocks.
This is why breadth and volume are so important. Think of it as strength in numbers. Broad momentum is hard to stop, Farrell observes. Watch for when momentum channels into a small number of stocks.
8. Bear markets have three stages – sharp down, reflexive rebound and a drawn-out fundamental downtrend
9. When all the experts and forecasts agree – something else is going to happen
As Sam Stovall, the S&P investment strategist, puts it: “If everybody’s optimistic, who is left to buy? If everybody’s pessimistic, who’s left to sell?”
As Sam Stovall, the S&P investment strategist, puts it: “If everybody’s optimistic, who is left to buy? If everybody’s pessimistic, who’s left to sell?”
Going against the herd as Farrell repeatedly suggests can be very profitable, especially for patient buyers who raise cash from frothy markets and reinvest it when sentiment is darkest.
10. Bull markets are more fun than bear markets
Especially if you are long only or mandated to be fully invested. Those with more flexible charters might squeak out a smile or two here and there.
Especially if you are long only or mandated to be fully invested. Those with more flexible charters might squeak out a smile or two here and there.
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