Journeys of a Bumbling Trader

I ended my last post with quotes from Warren Buffett’s latest annual letter to Berkshire’s shareholders. I figured its better to put them in a separate post here. HOW BUFFETT INVESTS Estimate Long-Term Earnings, Buy with a Margin of Safety When Charlie and I buy stocks – which we think of as small portions of … Continue reading →

One of the mistakes I used to do is to exit a winning trade early at what I thought to be a “good price”, i.e. a price at or higher than the Ask (for longs), or a price at or lower than the Bid (for shorts). The Process Here is how it usually went: I … Continue reading →

This post examines the psychology of impulsively taking countertrend trades in violation of one’s trading plan, as opposed to the psychology of adhering to a logical trading plan to take countertrend trades. Types of Countertrend Trades During my trading journey, there are two types of countertrend trades that I find myself taking that I logically … Continue reading →

I came across a very entertaining TED talk by Dan Gilbert, titled The Surprising Science of Happiness (watch the video here). The point made in the talk, I believe, contributes to a common trading problem of taking countertrend trades. I’ll write a bit more about that in my next post. Some quick points from the talk: The prefrontal … Continue reading →

Here’s some quick points on trading breakouts / breakdowns and failed breakouts / breakdowns. For this article, when I write ‘breakout’, most of the time it applies to both breakouts and breakdowns. H, L = Swing High, Swing Low. HH, HL = Higher High, Higher Low. LH, LL = Lower High, Lower Low. Trading Breakouts … Continue reading →

Many people have no problems identifying the trend with their own methods, yet they have difficulties in pulling the trigger to capitalize on that trend. Why is that? And for those with no problems in pulling the trigger, they find themselves exiting too early (too early = earlier than what their trading plan dictates). Again, … Continue reading →

Eric Barker has a new article (link here) on how to win every argument. The article had a point which made me think whether the same situation happens in trading. So it quoted an experiment by psychologist Drew Westen, which showed to supporters, footage of their favorite candidates completely contradicting himself. The experiment found that … Continue reading →

Why People Chase Prices Many times, you know that you should not be chasing after runaway prices, you know that you are far away from a logical stop, you know that the further price has run the worst the risk/reward, and you logically know from experience that you tend to enter at the worst time just … Continue reading →

Almost by definition, the only sure way of telling whether a range (sideways market) is a distribution range or an accumulation range is when there is a conclusive breakout or breakdown from the range. The range is where the battles took place, and whoever emerges from the battle is the victor. When there is a … Continue reading →

As I was trading and thinking over my trading plan, one thing that cropped up was whether my entries should be anticipatory or confirmatory. Some of the considerations that I had were the following: The Benefits of Each ‘Style’ The benefit of anticipatory entries is that you enter earlier, your risk is tighter, but it … Continue reading →

Last week while I was trading, I hit my day stop during the morning because I neglected to put a stop and wanton selling spiked the market down. I knew that I should stop trading, but my limbic system took over the steering wheel and I did 4 more trades, losing more money, before I … Continue reading →

Recently I have been hearing a lot of stories about traders who blew up their accounts. Many of these traders have been successful full-time traders trading for many years and even decades. Most of the stories go like this: A first mistake was made with a rule violation Holding a position overnight (for an intraday … Continue reading →

I was just thinking about the pros of cons of trailing a tight stop vs. a swing stop in the context of intraday trend following for stock index futures. Let’s say that the market has just made a significant up move and it starts retracing. HIGH-LEVEL SCENARIO ANALYSIS Scenario #1: Market Retraces and Trend Continues … Continue reading →

I recently read this superb article on willpower by Eric Barker, with points from his interview with Dr. Roy Baumeister. I find it very relevant to trading, especially intraday trading. Much of successful trading has to do with having the discipline, the willpower, to follow the trading plan. And much of a good trading plan … Continue reading →

I just want to share some of the market breadth indicators that I monitor for my own trading. The links to these indicators can be found under the Market Check section of the links on the front page of my blog. % of Stocks Above Their 50-Day Moving Average I look at the corresponding ones … Continue reading →

The Basics First, check the direction the train is travelling. It must be clear to all professional train catchers. If it is unclear, that means that if you board the train, you have no good idea where you’re going. Why board the train at all? Wait at a safe platform to hop on board the train. … Continue reading →

Markets don’t ‘gap around’ as what you might expect to find in a perfectly efficient market. When price moves from A to B, it seldom moves in a straight line either. To get from A to B, price moves in that direction, retraces a little, moves in that direction again (more than the retracement), retraces, … Continue reading →

I wanted to review the mistakes that I have been making in my intraday futures trading. The difficulty for me in intraday futures trading is not in reading the market action, but in not succumbing to taking irrational trade actions due to emotional impulses generated while watching every tick of the action. I think it … Continue reading →

I just wrote some thoughts on longer-term trading vs. short-term intraday trading in my earlier book review. I think the points are good for a standalone post, so I have pasted the content below. I have recently switched my focus from intermediate term swing trading to intra-day futures trading, and the more I delve into … Continue reading →

This is the famous book on Jesse Livermore by Edwin Lefèvre, and it is a must-read book for all traders and investors alike. This is the only book I have read so far that wrote in detail how stock manipulation is done, which I think is necessary background knowledge for appreciating price-volume action. The book … Continue reading →

The full title of this book is “The Successful Investor: What 80 Million People Need to know to invest Profitably and Avoid Big Losses” by William J. O’Neil (sometimes known as WON on the internet forums). This particular book, The Successful Investor, was published in 2004, after the stock market bottomed in the dot-com crash. … Continue reading →

This is a terrific book on tape reading, a must-read for people wanting to learn tape reading. How I found out about this book is when I read somewhere that Nicolas Darvas re-reads this book every week (and also Gerald Loeb’s Battle for Investment Survival). It seems that most if not all successful discretionary traders … Continue reading →

I first learnt about this book from David Ryan’s reading list quoted in Jack Schwager’s Market Wizards. This is a good book in many aspects: It presents simple concepts in an organized manner with lots of examples There are quiz questions at the end of each chapter to test your understanding It presents a complete … Continue reading →

This is a book review of two books, both written by Nicolas Darvas. This happens to be the first book review which covers two books at once, and the reason simply is that both books need to be read together because one book makes reference to the other book, and if you don’t read both, … Continue reading →

The full title of this book is “Unexpected Returns: Understanding Secular Stock Market Cycles” by Ed Easterling. How I came across this book in the first place was when I was looking into the relationship between stock market returns and a number of other factors, such as interest rates, inflation, earnings, dividend yield, unemployment, GDP, … Continue reading →

This is a book written by Jesse Livermore which was published in 1940, with new material added by Richard Smitten. The full title of the book is “How to Trade in Stocks: The Classic Formula for Understanding Timing, Money Management, and Emotional Control”. This is a terrific book on trading. It totally changed my view … Continue reading →

I had this book for a long time and it’s one of those books that I have been wanting to read because the concept sounds good just from the title. The full title of this book is “It’s Earnings That Count: Finding Stocks with Earnings Power for Long-Term Profits” by Hewitt Heiserman, Jr. The book … Continue reading →

I recently came across two sets of “investing rules”. I think after investing for some time, every one tends to come up with their own set of investing or trading rules. I previously wrote about John Templeton’s 16 Rules for Investment Success. This post captures one set from Bob Farrell (Merrill Lynch chief market strategist … Continue reading →

Following on from my earlier post about the dangers of owning put options without owning the stock, I would like to summarize some of the different arguments for using one vehicle over the other. General Advantages of Stocks over Options Stocks are easier to get right — For stocks you just need to get the … Continue reading →

Some risks of owning put options while not owning the stock, are typically not well highlighted in mainstream options education materials. This is beyond the standard issues with options such as needing to be right in the direction (puts or calls), timing (before expiration), and magnitude (must cover the premium) of the stock movement. If … Continue reading →

This book  “Warren Buffet and The Art of Stock Arbitrage: Proven Strategies for Arbitrage and Other Special Investment Situations” is written by the Mary Buffett & David Clark combination. Their Buffettology book was not bad, though it did not reach the popularity of Rule #1 by Phil Town (which came later and was similar to … Continue reading →

I’ve always wanted to read “You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits” by Joel Greenblatt since I knew about the book some years back, yet have somehow never managed to do so. Well, I finally dug in and I’m glad that I did. This is an … Continue reading →

I read this book “Invest Like a Dealmaker” by Christopher Mayer some time ago. It is a book on value investing, and goes through the standard value investing concepts Think about the whole business, not just the stock price. Think about cash flow, not earnings. Use EV/EBITDA to get a snapshot on value. Think about … Continue reading →

William C. Nygren of Oakmark Funds shared his investment methodology in a chapter of a book “Investing under Fire: Winning Strategies from the Masters for Bulls, Bears, and the Bewildered” by Alan R. Ackerman. A stock needs to meet 3 criteria before Oakmark will consider buying it The stock must sell at less than 60% … Continue reading →

Book: “A Concise Guide to Macroeconomics: What Managers, Executives, and Students Need to Know” by David A. Moss. Review: This is an excellent book! Can’t recommend it highly enough! This lays down clearly the basic relationships among economic variables without going into equations or formulas. It is what makes macroeconomics interesting. Key Points: Output The … Continue reading →