By Definition November 26, 2007

Gary Kaltbaum on his radio show today:

“We open up strong – we get destroyed into the close. That is the definition of bearish action in the stock market. You need to know this. I’ve told you this a hundred times in the past years, I’m going to say it again: In bullish markets, you get bad opens and great closes, in bearish markets, you get big opens and bearish closes. Today was the definition of that.”

“The fact that we can only go up for one day, and now just turn down badly and break those lows today, is the definition of a bear. And when you cannot bounce when you are oversold and extended to the downside, it tells you how weak things are. Let’s do the opposite: in bull markets, you’re up 500 points on the Dow and it won’t pull back 10 points. That tells you how strong things are, regardless that things are extended to the upside. So we’re getting the opposite here.”

Here’s the link to the mp3 file of today’s show if you’re interested in hearing it all.

Lessons from the Wizards November 11, 2007

The Big Picture passes along some great trading advice this weekend. Here’s Barry:

One of the first books I read in this business oh-so many years ago was Stock Market Wizards. It had a profound impact on my thinking about trading, psychology, risk, capital preservation, etc.

Sometime ago, I came across a good discussion of the lessons from the book at Simply Options Trading. What follows is my edited adaptation of those rules he derived from Stock Market Wizards:

1. All successful traders use methods that suit their personality; You are neither Waren Buffett nor George Soros nor Jesse Livermore; Don’t assume you can trade like them.
2. What the market does is beyond your control; Your reaction to the market, however, is not beyond your control. Indeed, its the ONLY thing you can control.
3. To be a winner, you have to be willing to take a loss; (The Stop-Loss Breakdown)
4. HOPE is not a word in the winning Trader’s vocabulary;
5. When you are on a losing streak — and you will eventually find yourself on one — reduce your position size;
6. Don’t underestimate the time it takes to succeed as a trader — it takes 10 years to become very good at anything; (There Are No Shortcuts)
7. Trading is a vocation — not a hobby
8. Have a business/trading plan; (Write This Down)
9. Identify your greatest weakness, Be honest — and DEAL with it
10. There are times when the best thing to do is nothing; Learn to recognize these times (Nothing Doing)
11. Being a great trader is a process. It’s a race with no finish line.
12. Other people’s opinions are meaningless to you; Make your own trading decisions (The Wrong Crowd)
13. Analyze your past trades. Study what happened to the stocks after you closed the position. Consider your P&L game tapes and go over them the way Vince Lombardi Bill Parcells reviewed past Superbowls
14. Excessive leverage can knock you out of the game permanently
15. The Best traders continue to learn — and adapt to changing conditions
16. Don’t just stand there and let the truck roll over you
17. Being wrong is acceptable — staying wrong is unforgivable (I liked this one! – BMB)
18. Contain your losses (Protect Your Backside)
19. Good traders manage the downside; They don’t worry about the upside
20. Wall street research reports are biased
21. Knowing when to get out of a position is as important as when to get in
22. To excel, you have to put in hard work
23. Discipline, Discipline, Discipline !

The links in parentheses are part of The Apprenticed Investor series I did for the Street.com.

Good stuff.

Patience November 6, 2007

Sometimes the market allows you to be aggressive, and at other times, you might be better off sitting on your hands. Quint Tatro discusses how “Patience is part of the cycle”:

As a trader it is inevitable that we will go through challenging times. Regardless of what anyone says it is also these times which will lead to the next great opportunities, but we must successfully navigate the rough spots in order to enjoy and participate when the environment improves. There are times when less is more and this is one of those times.