Posts Tagged ‘Professional Trader’

Seven Trading Lessons from a Legend

Seven Trading Lessons from a Legend

51T1mODeqSL._SL160_Courtesy of Quint Tatro of Tickerville, writing at Minyanville

The late Jesse Livermore is considered one of the best traders of all time. His exploits have been chronicled in several books, with the most widely read being Reminiscences of a Stock Operator (Wiley Investment Classics)by Edwin Lefevre, originally published in 1923.

Livermore was wealthy and broke several times over during his tumultuous life, which ended in his suicide. His ability to make and lose millions garnered him many lessons which the trading community have enshrined over the decades since his death. Yet these lessons and rules remain as pertinent today as they were in the early twentieth century.

We’ll take a look at several of his trading rules to remind us why we must have a plan in place before trading a dollar of our hard-earned money.

(I must give credit to the Lefevre book mentioned above, as well as Jesse Livermore: World’s Greatest Stock Trader by Richard Smitten, for the following ideas.)

Lesson Number One: Cut your losses quickly.

Nowhere is this rule more apparent than in the modern-day crash our markets experienced in the fall of 2008. For those market participants who “bought, held, and hoped,” the gut-wrenching drop left them paralyzed, disillusioned, and angry at the market. They felt like they had no control and no choice as the losses spiraled down the rabbit hole. The primary culprits of this death trap are hopeful thinking and fearful paranoia.

As a market slides lower, a trader will rationalize his losing position by either doubling down (buying more at these now-cheaper prices) or at the very least, holding on because “there’s just no way this market can go lower.” If merely this one simple rule was implemented to “cut your losses,” the vast majority of traders would be light years ahead of the crowd.

As soon as a trade is contemplated, a trader must know at what point in time he’ll be proven wrong and exit a position. If a trader doesn’t know his exit before he takes the entry, he might as well go to the racetrack or casino where at least the odds can be quantified. Trading without an exit plan is like driving a car without insurance. You might go years without a major crash, but when the crash occurs (and…
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Winning with Advanced Market, Trading, and Risk Psychology

Winning with Advanced Market, Trading, and Risk Psychology

Courtesy of Damien Hoffman at The Wall St. Cheat Sheet

This is a guest post by Denise Shull from TraderPsyches.

blue-brainIn order to really understand either what went wrong in the credit housing bubble or to improve institutional or individual risk management processes, one really needs to take a step back and rethink their thinking. We tend to believe that we know how we think or even worse, that we know the best way to think (after all didn’t we go to college to learn to think?) but given the advances in brain science in the past decade it is clear that we really don’t know how it is we think.

Thinking is germane to analysis and decisions and in turn confidence and beliefs are germane to implementing a decision. I still can think of no better way to say it than Colin Camerer of Cal-Tech and his co-authors Lowenstein and Prelec when they said “It is NOT ENOUGH (emphasis mine) to know what SHOULD be done, one must also FEEL it.” Well invert that and you get that all doing has a feeling associated with it.

Now Damasio and Bechara showed us this from The University of Iowa and USC starting in the early 1990’s but word really hasn’t hit Wall Street (or Washington either btw). Behavioral finance observations confirm that we indeed feel better when we rely purely on mathematical formulas but the real world doesn’t always fit into an equation.

And guess what – our brains (particularly on risk) know it! On the majority of days, it works fine to do it the old way. But doing well in the middle isn’t what makes you the real money or saves you from the black swans – that requires knowing what to do when things DO NOT go according to plan.

The solution lies in using our “maths” within the context of consciousness about the foundational and relevant qualitative data. Our brains are good at pattern recognition – call it implicit learning or intuition – it is the same. The problem is we don’t value that data – partially because we don’ t know how. In fact not all that long ago it wasn’t blink and Malcolm Gladwell getting $100K to talk about


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Special Macro Chart Analysis by Master Trader Fari Hamzei

Special Macro Chart Analysis by Master Trader Fari Hamzei

Courtesy of Damien Hoffman at Wall St. Cheat Sheet

Master Quant Trader Fari Hamzei was scheduled to contribute a chart to this week’s installment of Chart Junkie, however he offered us a special proprietary treat we had to bring to you all alone:

 
SPX

SPX
 

This is our coveted SP1-MoMo Chart.  We have THREE components in an extremely overbought condition screaming a SELL to us all at once.

On the DAILY S&P-500 Cash Index (SPX) Chart (above), we see:

1) CI Diff, in the lowest subgraph, is now RED (crossed below 0);

2) CI reading is 27.5 !! This is an extremely high reading.  This is due to a very high ramp-up rate the market has traded at since Meredith Whitney woke us on that faithful Monday (July 13th) to remind us all that “in GS she trusts” — at least for this quarter; and,

 
SP1

SP1
 

3) Divergence between long-term [modified] Advance-Decline Line on the subgraph SP1 (above) and its short-term sister MoMo.  THESE DIVERGENCES always work out.  Note the previous three divergences: two bullish and one bearish, in mid-June, early March, and late November.

Bottom line: A pause is in order. In our humble opinion, at minimum to 954 (38% retracement) or down to the 937 area (50% retracement).

Good Trading to All!

 


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Demystifying High Frequency Trading

Demystifying High Frequency Trading

Courtesy of Damien Hoffman at Wall St. Cheat Sheet

High Frequency TradingThe media recently flipped the floodlights on the new black box de jour: High Frequency Trading (HFT). Only a handful of people who work closely with the exchanges truly understand HFT, so I asked for some color from my friend and top pro quant trader Fari Hamzei from Hamzei Analytics.

Damien: Fari, why is High Frequency Trading one of the hottest new topics in the financial media?

Fari: HFT firms deploy co-located servers at the exchanges/ECNs and Dark Pools. As a result, they take advantage of seeing some of the order flow using very high speed computers with very low latency. The computers execute trades ahead of both retail and institutional orders. The execution times are in milliseconds due to co-location.

HFT is an extremely profitable business — over a $20 billion run rate now. These days, HFT can account for up to 60% of the volume in certain equity names. HFT firms also get liquidity rebates from exchanges/ECNs for their order flow they provide to the exchange — about $0.005/share.

However, this is not market making. Rather, this is artificial volume creation. As evidence for this fact, please look at share trading volumes in Citigroup (C), Bank of American (BAC), and CIT Group (CIT). On some days their combined volume is 10% of all US equities! That’s unbelievable! We have three stocks out of over 5000 names with a constant bid/ask present in the three to five cents range!In addition to seeing the order flow mentioned above, HFT computers can see institutional flash orders.

The Associated Press reported that, “So-called flash orders allow certain members of Direct Edge, Nasdaq and BATS exchanges access (for a fee) to buy and sell order information for milliseconds prior to that information being made available to the public. High-speed computer software can take advantage of that brief period to allow those members to trade ahead of those orders — at better prices — and therefore profit from advanced knowledge of buying and selling activity.” Sen. Charles Schumer is fuming about this issue.

Damien: Is HFT the mystical black box de jour, or a fundamental change in the auction process?

Fari: HFT is a trading strategy, not a necessary component of the auction process. HFT is all high-speed algorithmically…
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Chart School

Weekly Market Recap May 18, 2019

Courtesy of Blain.

China – U.S. trade talk continued to dominate the week.   A heavy selloff Monday was followed by 3 up days, with Friday moderately down.

On Monday, Chinese officials announced retaliatory tariffs against the U.S., hitting $60 billion in annual exports to China with new or expanded duties that could reach 25%.

Then on Wednesday:

The Trump administration plans to delay a decision on instituting new tariffs on car and auto part imports for up to six months, according to media reports.

...

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Zero Hedge

Wall Street's Most Bearish Analyst Asks "What Did I Miss"

Courtesy of ZeroHedge. View original post here.

Authored by Wall Street's most bearish sellside strategist, Morgan Stanley's Michael Wilson

As a macro strategist, my job is to try to make a very complex world easier to understand – something that’s very difficult to do. In an era of financial repression and seemingly elevated political uncertainty, the level of complexity has felt elevated too. This has created great opportunities for the past several years as a macro strategist – first to be more bullish than the consensus in 2016-17 when markets were overly worried about the outcomes, and then last year to b...



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Phil's Favorites

What's going on with Blue Apron?

By Ilene 

The Blue Apron business model appears, perhaps, flawed. While the service is convenient, I think it would appeal mostly to very busy people who don't have time to shop for food -- but enjoy cooking -- and have enough money that the trade off between paying for food delivery vs. spending time shopping is worth it. Here's the unfortunate stock chart and some numbers from Yahoo:

The company has been losing money, and is projected to lose money again next year. Revenue is projected to decrease in 2019 from the 2018 level, but pick up again in 2020, though still below 2018's revenue. Maybe a larger company that could integrate APRN's services into its existing infrastructure should acquire APRN and save it from its apparent...



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Digital Currencies

Cryptocurrencies are finally going mainstream - the battle is on to bring them under global control

 

Cryptocurrencies are finally going mainstream – the battle is on to bring them under global control

The high seas are getting lower. dianemeise

Courtesy of Iwa Salami, University of East London

The 21st-century revolutionaries who have dominated cryptocurrencies are having to move over. Mainstream financial institutions are adopting these assets and the blockchain technology that enables them, in what ...



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Kimble Charting Solutions

Banks Sending Bearish Message To Stocks, Says Joe Friday

Courtesy of Chris Kimble.

Quality bull markets prefer to see Banks stronger than the broad markets or at least keeping up with it. Concerns often crop up when banks reflect relative weakness compared to the S&P.

This chart looks at the Bank Index (BKX) over the past few years, reflecting a falling channel of lower highs and lower lows has taken place inside of falling channel (1). This falling channel has now been in play for the past 15-months.

The index hit the bottom of the channel in December of 2018 and a counter-trend rally took place. The rally off the December lows saw the index hit the top...



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Insider Scoop

Analyst: US Sanctions 'May Not Kill Huawei'

Courtesy of Benzinga.

President Donald Trump signed an executive order Wednesday that limits how "foreign adversaries" conduct business with U.S. companies.

What Happened

The Department of Commerce said China's Huawei and 70 related companies will be included in the "Entity ...



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Biotech

DNA as you've never seen it before, thanks to a new nanotechnology imaging method

Reminder: We are available to chat with Members, comments are found below each post.

 

DNA as you've never seen it before, thanks to a new nanotechnology imaging method

A map of DNA with the double helix colored blue, the landmarks in green, and the start points for copying the molecule in red. David Gilbert/Kyle Klein, CC BY-ND

Courtesy of David M. Gilbert, Florida State University

...



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ValueWalk

More Examples Of "Typical Tesla "wise-guy scamminess"

By Jacob Wolinsky. Originally published at ValueWalk.

Stanphyl Capital’s letter to investors for the month of March 2019.

rawpixel / Pixabay

Friends and Fellow Investors:

For March 2019 the fund was up approximately 5.5% net of all fees and expenses. By way of comparison, the S&P 500 was up approximately 1.9% while the Russell 2000 was down approximately 2.1%. Year-to-date 2019 the fund is up approximately 12.8% while the S&P 500 is up approximately 13.6% and the ...



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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Mapping The Market

It's Not Capitalism, it's Crony Capitalism

A good start from :

It's Not Capitalism, it's Crony Capitalism

Excerpt:

The threat to America is this: we have abandoned our core philosophy. Our first principle of this nation as a meritocracy, a free-market economy, where competition drives economic decision-making. In its place, we have allowed a malignancy to fester, a virulent pus-filled bastardized form of economics so corrosive in nature, so dangerously pestilent, that it presents an extinction-level threat to America – both the actual nation and the “idea” of America.

This all-encompassing mutant corruption saps men’s souls, crushes opportunities, and destroys economic mobility. Its a Smash & Grab system of ill-gotten re...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

...

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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