Successful Trading
- Thread starter rs7
- Start date
If someone is having difficulty letting winners ride, reviewing the day's chart can help put price movement in perspective. The "collapse" of a stock in the first 15 minutes usually winds up looking like a small jiggle on the 2-min by the close.
Granted, all charts are much easier to trade in retrospect, but I don't see how anyone trades off them without studying them in the first place. The purpose is not to point to the day's low and high and assume that's what your ideal profit would have been; scroll through charts (use different stocks than what you traded for max objectivity) as they would appear in real-time, familirizing yourself with setups that have best risk/reward. Jot down a list of intraday news events as they occur as a template to flesh out the charts beyond pure technicals if that's your style. Do as much as you can to visualize what your reaction would be the next time you see a similar pattern forming.
In my opinion, if you're going to review charts, study as many as you can in the sector/market cap that you specialize in; going over only the stocks you did trade with a fine-toothed comb and adjusting your strategy from what you "should have done" is counterproductive. It's all about odds and percentages, and the greater the pool of examples the more accurate your study becomes. JMO
Granted, all charts are much easier to trade in retrospect, but I don't see how anyone trades off them without studying them in the first place. The purpose is not to point to the day's low and high and assume that's what your ideal profit would have been; scroll through charts (use different stocks than what you traded for max objectivity) as they would appear in real-time, familirizing yourself with setups that have best risk/reward. Jot down a list of intraday news events as they occur as a template to flesh out the charts beyond pure technicals if that's your style. Do as much as you can to visualize what your reaction would be the next time you see a similar pattern forming.
In my opinion, if you're going to review charts, study as many as you can in the sector/market cap that you specialize in; going over only the stocks you did trade with a fine-toothed comb and adjusting your strategy from what you "should have done" is counterproductive. It's all about odds and percentages, and the greater the pool of examples the more accurate your study becomes. JMO
it's about knowing yourself and your emotional hot buttons, too (if you have any).
What you said about a 'collapse' is so true. The way my short term charts are scaled early on, a .25 move on a stock can look huge. Then, after the stock has moved a point, and your chart rescales itself, you see that it was nothing (in the big picture).
I guess watching larger time frame charts can help alleviate that.
What you said about a 'collapse' is so true. The way my short term charts are scaled early on, a .25 move on a stock can look huge. Then, after the stock has moved a point, and your chart rescales itself, you see that it was nothing (in the big picture).
I guess watching larger time frame charts can help alleviate that.
John Maynard Keynes, a famous economist, beauracrat, author and speculator stated:
"By 'uncertain' knowledge....I do not mean merely to distinguish what is known for certain from what is only probable. The game of roulette is not subject, in this sense, to uncertainty...The sense in which I am using the term is that in which the prospect of a European war is uncertain, or the price of copper and the rate of interest twenty years hence, or the obsolescence of a new invention...About these matters, there is no scientific basis on which to form any calculable probablility whatever. We simply do not know!"
This statement contains the essence of the markets, for although in our modern day we bask in the glow of our number-crunching supercomputers, and take great pride in our scientific accomplishments the truth is that the world is ruled by uncertainty. What traders do, and what great traders do very well, is to capitalize on this uncertainty by harnassing the power of the markets through participation. It is by participating, that is actually risking capital, that the difficulty begins.
The job of the trader places 2 of our most beloved possessions at risk: our opinion and our money. What Keynes knew, and something that many academics do not know, is that since the world is so uncertain then it must follow that many of our opinions are wrong. Lacking a need to be right then becomes a tremendously valuable asset, it makes one malleable and able to adapt. Combining this with the ability to take a position in the markets, one which risks our capital, yet to simultaneously maintain the ability to allow ourselves to be proven wrong thereby risking our opinions, is the key to successful speculation. As commisso says, "Hold on tightly, let go lightly," it is the conviction to participate and the ability to quickly and graciously accept defeat which separates the multitudes from the few.
"By 'uncertain' knowledge....I do not mean merely to distinguish what is known for certain from what is only probable. The game of roulette is not subject, in this sense, to uncertainty...The sense in which I am using the term is that in which the prospect of a European war is uncertain, or the price of copper and the rate of interest twenty years hence, or the obsolescence of a new invention...About these matters, there is no scientific basis on which to form any calculable probablility whatever. We simply do not know!"
This statement contains the essence of the markets, for although in our modern day we bask in the glow of our number-crunching supercomputers, and take great pride in our scientific accomplishments the truth is that the world is ruled by uncertainty. What traders do, and what great traders do very well, is to capitalize on this uncertainty by harnassing the power of the markets through participation. It is by participating, that is actually risking capital, that the difficulty begins.
The job of the trader places 2 of our most beloved possessions at risk: our opinion and our money. What Keynes knew, and something that many academics do not know, is that since the world is so uncertain then it must follow that many of our opinions are wrong. Lacking a need to be right then becomes a tremendously valuable asset, it makes one malleable and able to adapt. Combining this with the ability to take a position in the markets, one which risks our capital, yet to simultaneously maintain the ability to allow ourselves to be proven wrong thereby risking our opinions, is the key to successful speculation. As commisso says, "Hold on tightly, let go lightly," it is the conviction to participate and the ability to quickly and graciously accept defeat which separates the multitudes from the few.
That is for sure, true believers always wind up poor. George Soros is known for his ability to turn on a dime and freak out his colleagues. Warren Buffett, known as the master of conservative buy and hold value investing, was selling massive positions in the S&P 500 futures recently. They are rich and all the people on the yahoo message boards who still are true believers in buy and hold investing, a la Peter Lynch, are poor.
go to http://snagit.com/ they also have video capture tool, free trial, you can't go wrong with that
Don't Panic Over Five-Year Low
By James Carlisle (TMFJimmyC)
July 4, 2002
Unless you've been in the Big Brother house, you'll know by now that when the stock market opened this morning, the FTSE 100 was at the lowest it's been for five years. The media makes a meal of this sort of thing, ourselves included I guess, precisely because its so unusual. We can see how unusual by looking at CSFB's indices for the total returns for the London stock market. The figures show that, on average (and taking the figures from 31 December each year), shares have delivered negative returns in just five of the 128 five-year periods since 1869.
The most recent, and by far the nastiest, occurrence was when the stock market crashed in 1974 leaving shares with a return of -41% since 1969 (equivalent to -10% per year). For those that held on through 1975, though, things worked out okay. In 1975, shares had their best year ever, with a return of 149%, giving a return of 47% (or 6.7% per year) for the period 1969-1975. By 1980, shares were more than six times their 1974 lows.
Going back from 1974, we get to the back-to-back negative periods of 1935-1940 and 1936-1941. In each of these periods, shares would have lost you a little less than 10% of your money (around 2% per year). Again, though, for both these periods, holding for the sixth year would have got you out of trouble. 1941 and 1942 both individually returned about 20% to give overall returns for the six-year periods ending in those years of about 10% (or just less than 2% per year).
Surprisingly, the five-year period ending 1929 produced a positive return thanks to a strong run in the late 1920s. Yet, despite the crash in 1929, 1930 and 1931 were further down years, giving shares a negative return of 7% (1.4% per year) for the period 1926-1931. Once more, however, the sixth year came to the rescue, with a positive return of 35% in 1932, making a total of 26% (or 4% per year) for 1926-1932. By 1936, shares were at three times their 1931 levels, before moving into the slow 1936-1941 patch we just looked at.
The only other five-year losing period is the one ending in 1903. In a period of very low inflation (in fact, prices actually fell between 1869 and 1914), shares would have lost you a measly 1% of your money between 1898 and 1903. Hardly a great disaster and, you'll have got used to this by now, 1904 solved the problems with a bounce of 9%.
So what's the conclusion from all of this? Probably not a great deal. We're dealing with so few occurances that there's not really enough data to go on. We can say, though, that negative five-year returns have been very unusual and, on the few occasions we have seen them, a little patience would have sorted you out. The five years following each of the bad periods would have generated positive annual returns of 2.2%, 25%, 14%, 13% and 36%.
Of all the periods, the economic environment now is perhaps most like the period at the turn of the last century, with all but no inflation. In that period, the stock market was one big snore, with not much happening either way. So perhaps we'll be in for a slow and steady period. That seems unlikely, though, given the excitement of the last two years. But what has really produced the biggest dramas in the past is a sudden burst of inflation. That's what happened in the late seventies and seeing it coming is what caused the carnage in 1974. So long as Steady Eddie and his chums do their job of controlling inflation, patience is likely to pay off again.
By James Carlisle (TMFJimmyC)
July 4, 2002
Unless you've been in the Big Brother house, you'll know by now that when the stock market opened this morning, the FTSE 100 was at the lowest it's been for five years. The media makes a meal of this sort of thing, ourselves included I guess, precisely because its so unusual. We can see how unusual by looking at CSFB's indices for the total returns for the London stock market. The figures show that, on average (and taking the figures from 31 December each year), shares have delivered negative returns in just five of the 128 five-year periods since 1869.
The most recent, and by far the nastiest, occurrence was when the stock market crashed in 1974 leaving shares with a return of -41% since 1969 (equivalent to -10% per year). For those that held on through 1975, though, things worked out okay. In 1975, shares had their best year ever, with a return of 149%, giving a return of 47% (or 6.7% per year) for the period 1969-1975. By 1980, shares were more than six times their 1974 lows.
Going back from 1974, we get to the back-to-back negative periods of 1935-1940 and 1936-1941. In each of these periods, shares would have lost you a little less than 10% of your money (around 2% per year). Again, though, for both these periods, holding for the sixth year would have got you out of trouble. 1941 and 1942 both individually returned about 20% to give overall returns for the six-year periods ending in those years of about 10% (or just less than 2% per year).
Surprisingly, the five-year period ending 1929 produced a positive return thanks to a strong run in the late 1920s. Yet, despite the crash in 1929, 1930 and 1931 were further down years, giving shares a negative return of 7% (1.4% per year) for the period 1926-1931. Once more, however, the sixth year came to the rescue, with a positive return of 35% in 1932, making a total of 26% (or 4% per year) for 1926-1932. By 1936, shares were at three times their 1931 levels, before moving into the slow 1936-1941 patch we just looked at.
The only other five-year losing period is the one ending in 1903. In a period of very low inflation (in fact, prices actually fell between 1869 and 1914), shares would have lost you a measly 1% of your money between 1898 and 1903. Hardly a great disaster and, you'll have got used to this by now, 1904 solved the problems with a bounce of 9%.
So what's the conclusion from all of this? Probably not a great deal. We're dealing with so few occurances that there's not really enough data to go on. We can say, though, that negative five-year returns have been very unusual and, on the few occasions we have seen them, a little patience would have sorted you out. The five years following each of the bad periods would have generated positive annual returns of 2.2%, 25%, 14%, 13% and 36%.
Of all the periods, the economic environment now is perhaps most like the period at the turn of the last century, with all but no inflation. In that period, the stock market was one big snore, with not much happening either way. So perhaps we'll be in for a slow and steady period. That seems unlikely, though, given the excitement of the last two years. But what has really produced the biggest dramas in the past is a sudden burst of inflation. That's what happened in the late seventies and seeing it coming is what caused the carnage in 1974. So long as Steady Eddie and his chums do their job of controlling inflation, patience is likely to pay off again.