Pearls

[DbPhoenix 42]

A man can't spend years at one thing and not acquire a habitual attitude towards it quite unlike that of the average beginner. The difference distinguishes the professional from the amateur. It is the way a man looks at things that makes or loses money for him in the speculative markets. The public has the dilettante's point of view toward his own effort. The ego obtrudes itself unduly and the thinking therefore is not deep or exhaustive. The professional concerns himself with doing the right thing rather than with making money, knowing that the profit takes care of itself if the other things are attended to. A trader gets to play the game as the professional billiard player does -- that is, he looks far ahead instead of considering the particular shot before him. It gets to be an instinct to play for position.

 

JL

Edited April 13, 2014 by DbPhoenix

[Qiman 10]

You are off to a great start here, and I am looking forward to the series of posts. Thanks for taking the time to do this!

 

Many modern people have a very hard time with this concept, they are supposed to be keeping busy, working hard, accomplishing tasks. And a certain percentage of traders are addicted to "action."

 

I frequently keep in mind the attitude and skills required by ancient primitive hunters, who spent most of their time stalking extremely slowly in expanded awareness, or even positioned motionless next to a trail. Their modus operandi was all about high probability hunts through enormous patience and skill. They did not waste energy on targets where the chance of a net gain of energy was very low. For many modern people, such a mindset is almost incomprehensible, and so when they become traders they keep chasing prey they have almost no chance of acquiring, and the end result is less and less reserve energy over time, until they die of exhaustion . . .

[DbPhoenix 42]

RULE #2: Don't get irritated or angered by long session of folding.

 

We are all playing probability over a long run. Understand it. Accept it. Mentally prepare for it. Keeping our head makes all the difference. (William)

[DbPhoenix 42]

Observation, experience, memory and mathematics -- these are what the successful trader must depend on. He must not only observe accurately but remember at all times what he has observed. He cannot bet on the unreasonable or on the unexpected, however strong his personal convictions may be about man's unreasonableness or however certain he may feel that the unexpected happens very frequently. He must bet always on probabilities -- that is, try to anticipate them. Years of practice at the game, of constant study, of always remembering, enable the trader to act on the instant when the unexpected happens as well as when the expected comes to pass.

 

 

JL

[DbPhoenix 42]

RULE #3: If you've been folding a lot, for a long time in the game, and you're starting to think that maybe it's time you got in and played a few hands again -- that's not a good enough reason. Keep folding.

 

The level beyond this is having no desire to act inappropriately-- to be so immersed in the moment and the process that time does not exist and thus impatience does not exist.

 

Great traders have rituals they enjoy for their own sake, a method and a habit that acts as its own reason for being. When you have this mindset, impatience goes away; whatever is in front of you becomes too engaging to worry about what you aren't doing or could be doing.

 

The amount of time a trader should be willing to wait for a good trade is infinite, because with the correct mindset the trader isn't actually “waiting” in the traditional sense; being and experiencing yes, waiting no. (darkhorse)

[DbPhoenix 42]

Rarely do any of us grow up learning how to operate in an arena that allows for complete freedom of creative expression, with no external structure to restrict it in any way. In the trading environment, you will have to make up your own rules and then have the discipline to abide by them.

 

The problem is, price movement is fluid, always in motion, quite unlike the highly structured events that most of us are accustomed to. In the market environment, the decisions that confront you are as endless as the price movements you intend to take advantage of. You don't just have to decide to participate, you also have to decide when to enter, how long to stay in, and under what conditions to get out.

 

There is no beginning, middle, or end - only what you create in your own mind.

 

JL

[DbPhoenix 42]

RULE #4: Don't feel like a martyr when folding. Don't start feeling self-righteous about all this folding you are doing ... as if now it owes you (because you've been so good, so disciplined, so patient ...). This is a trap .... As you keep folding, you must feel neutral about it.

[DbPhoenix 42]

Via Addicted2Success and Barry Ritholz:

 

 

Insightful Investment Quotes

 

Warren Buffett (Net Worth $39 Billion) – “‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

 

George Soros (Net Worth $22 Billion) - ”I’m only rich because I know when I’m wrong…I basically have survived by recognizing my mistakes.”

 

 

David Rubenstein (Net Worth $2.8 Billion) – “Persist – don’t take no for an answer. If you’re happy to sit at your desk and not take any risk, you’ll be sitting at your desk for the next 20 years.”

 

Ray Dalio (Net Worth $6.5 Billion) – “More than anything else, what differentiates people who live up to their potential from those who don’t is a willingness to look at themselves and others objectively.”

 

Eddie Lampert (Net Worth $3 Billion) – “This idea of anticipation is key to investing and to business generally. You can’t wait for an opportunity to become obvious. You have to think, “Here’s what other people and companies have done under certain circumstances. Now, under these new circumstances, how is this management likely to behave?”

 

T. Boone Pickens (Net Worth $1.4 Billion) - “The older I get, the more I see a straight path where I want to go. If you’re going to hunt elephants, don’t get off the trail for a rabbit.”

 

Charlie Munger (Net Worth $1 Billion) – “If you took our top fifteen decisions out, we’d have a pretty average record. It wasn’t hyperactivity, but a hell of a lot of patience. You stuck to your principles and when opportunities came along, you pounced on them with vigor.”

 

David Tepper (Net Worth $5 Billion) – “This company looks cheap, that company looks cheap, but the overall economy could completely screw it up. The key is to wait. Sometimes the hardest thing to do is to do nothing.”

 

Benjamin Graham – “The individual investor should act consistently as an investor and not as a speculator. This means that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money’s worth for his purchase.”

Louis Bacon (Net Worth $1.4 Billion) – “As a speculator you must embrace disorder and chaos.”

 

Paul Tudor Jones (Net Worth $3.2 Billion) - “Were you want to be is always in control, never wishing, always trading, and always, first and foremost protecting your butt. After a while size means nothing. It gets back to whether you’re making 100% rate of return on $10,000 or $100 million dollars. It doesn’t make any difference.”

 

Bruce Kovner (Net Worth $4.3 Billion) - ” My experience with novice traders is that they trade three to five times too big. They are taking 5 to 10 percent risks on a trade when they should be taking 1 to 2 percent risks. The emotional burden of trading is substantial; on any given day, I could lose millions of dollars. If you personalize these losses, you can’t trade.”

 

Rene Rivkin (Net Worth $346 Million) - “When buying shares, ask yourself, would you buy the whole company?”

 

Peter Lynch (Net Worth $352 Million) – “I think you have to learn that there’s a company behind every stock, and that there’s only one real reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies.”

 

John Templeton (Net Worth $20 Billion)- “The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell.”

 

John (Jack) Bogle (Net Worth $4 Billion) - “If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.”

[tupapa 10]

RULE #2: Don't get irritated or angered by long session of folding.

 

We are all playing probability over a long run. Understand it. Accept it. Mentally prepare for it. Keeping our head makes all the difference. (William)

 

Hence;

 

The outcome of a particular trade is irelevant, if we followed our trading plan flawlessly but our stop gets hit, there is no reason to rationalize much less analyze the loss.

[DbPhoenix 42]

RULE#5: Sometimes others get to play and you don't.... But the most important thing is this: you must be comfortable with this - welcome it. Make peace with this idea. Cross your arms and sit back.

 

It is silly to try to catch every swing or worry about missing a move. There are thousands of markets out there and we are missing a play ALL THE TIME. The objective is to execute the business plan with precision over a long run. Precision = Speed. Marginal, wild, random trading will only bring chaos into the statistical equation.

 

There are also internal reasons not to play. The poker adage H.A.L.T (Hungry, Angry, Lonely, Tired) basically says that if you can't play with a smile, don't play at all.

And scared money rarely wins. (William)

[MightyMouse 12]

RULE #3: If you've been folding a lot, for a long time in the game, and you're starting to think that maybe it's time you got in and played a few hands again -- that's not a good enough reason. Keep folding.

 

The level beyond this is having no desire to act inappropriately-- to be so immersed in the moment and the process that time does not exist and thus impatience does not exist.

 

Great traders have rituals they enjoy for their own sake, a method and a habit that acts as its own reason for being. When you have this mindset, impatience goes away; whatever is in front of you becomes too engaging to worry about what you aren't doing or could be doing.

 

The amount of time a trader should be willing to wait for a good trade is infinite, because with the correct mindset the trader isn't actually “waiting” in the traditional sense; being and experiencing yes, waiting no. (darkhorse)

 

In practice, if you wait to play only high value hands, you will be hard pressed to win money if you are playing against high quality players. If is best to play junk from time to time and show that you have played junk so that you do not get pegged as a tight player.

 

The odds in poker are pretty simple and most decent local non transient players understand them. When you are playing with people who understand the odds, you are playing at best in a negative sum game since there is a rake and a toke. To win, you need to learn how each player acts or reacts when they are in a hand. If you play with the same people long enough, you can come pretty close to guessing their 2 cards (in texas hold'em) they are holding almost down to the exact suit, just as often as you can complete your best friend's or spouse's statement before he or she does or know what he or she is going to say before they say it. You learn to read individual facial, body, breathing, and hand gestures which tell you if he has a good hand or and if you should call or raise or fold.

 

The odds are important, but you make money by learning to play the players and you need to keep the other players confused about the way you play.

 

The odds in poker are much more objective than they are in trading; therefore, traders are disadvantaged to poker players since there are no "nuts" in trading, arbitrage trading aside. The back testers believe that they can approximate the odds, but back testing is a systematic statistical misinterpretation.

 

The parallel "reading traders" in trading may seem like it is harder to do than it is in a poker game where the players are visually inspectable, but it is possible to understand what the other traders are doing by understanding the patterns that present themselves at particular places and times and understanding how you can tell if trader a, b, c is present.

 

When you understand who may be trading at a particular pattern, then you may decide to, for example, fade that fib pull back short instead of taking it long like you normally would have done. Or, you may decide to short the low at support instead of buying the low and expecting support to hold. Learning who you are trading against and how to trade with or against them will magnify your success.

[DbPhoenix 42]

RULE #6: To win at poker you must embrace the idea of breaking even.... A distaste for breaking even can lead us into the valley of pressing and overplaying and other wrongful activity.

 

We have to have a positive mindset for the long run. But one-sided expectation for a short performance interval is just going to chew us up. Breaking even or a loss is just one of the natural outcomes in a statistical run. This is the way our trading plan supposed to work given the nature of the game... it is not broken. The reason we have a plan in place is to help us focus on executing sound decisions under fire. Do not make it difficult by outsmarting our own plan. Pressing at the last hour to meet some number in our head is just out of place.

 

When you have a glass of muddy water, you can't make it clear by stirring it. You can't make the mind clear by forcing it one way or the other. Don't force your expectations on your trading; let the Law of Large Numbers do its work in peace. (William)

[DbPhoenix 42]

RULE #7: Regard patience as a central pillar of your game and strategy.... Don't assign it a secondary or lesser role.

"Although the cheetah is the fastest animal in the world and can catch any animal on the plains, it will wait until it is absolutely sure it can catch its prey. It may hide in the bush for a week waiting for just the right moment. It will wait for a baby antelope, and not just any baby antelope, but preferably one that is also sick or lame. Only then, when there is no chance it can lose its prey, does it attack. That, to me, is the epitome of professional trading." (Mark Weinstein)

[DbPhoenix 42]

RULE #8: Keep plugging away. Expect nothing.... There will be times when you play tight, keep playing tight, and keep on playing tight, and it still does no good...the bad cards just keep coming.... You may have to just keep doing it until the end, with no reward at all.

 

 

When there is no expectation, there is no fear of the outcome. (William)

[DbPhoenix 42]

RULE #9: Don't fall into the "Now Trap." Players want to win now, today. Results must happen now, in this hand, the one right in front of us.... We assign a little more importance to where we are. We make it bigger, more important.... But we do this timewise , too -- we assign things more importance because they are happening in the present moment.... Yet giving greater importance to the present in the game of poker allows us to imagine marginal hands into good hands and good hands into great hands.

[DbPhoenix 42]

RULE #10: The long run is longer than you think.... Playing only the best hands can be frustrating.... Anger and irritability can arise. The emotions can be severely tested. This is where Zen comes in.

 

The only way to turn the corner is to get rid of marginal trades. It is ALREADY a very fine balance. If one injects a few marginal trades into the picture, he quickly screws up the Profit/Loss equation. Making the matter worse, doing so will create chaos in both one’s equity curve and one’s head. Just get rid of marginal trades, don't stare the monitor the whole day, and learn to maximize profits WHEN appropriate.

 

If we fail to take the responsibility for getting rid of marginal trades, we lose the privilege to trade. Provided one does have a good method, it’s meaningless to try to fix things any other way.

 

Trade LESS, make more. (William)

[DbPhoenix 42]

RULE #11: Don't defend patience too strongly.... You can't make yourself go to sleep through sheer strength of will. It is not about the strength of commitment -- it is more of a gentler thing -- a letting go.

 

We have to be aware and allow space for our ego's demands. Let the ransom demands be heard yet be objective in the moment, knowing we are still in the driver's seat -- we are not being kidnapped and the threats are baseless. Be compassionate and forgiving to the feeble ego -- that is how we give it space.

 

Since the neurotic fixations are held by tensions, relax your arms and legs and be aware. As the Zen saying goes: "When you eat, eat. When you sleep, sleep." May I add: "When you wait, wait. When you trade, trade." (William)

[Kiwi 16]

Rules 10 and 11 speak to areas addressed by zen and forms of mindfulness meditation. Also, modern psychology combines mindfulness with cognitive-behavioral approaches in an approach called "Surfing the Urge".

 

What works for giving up smoking can also be a valuable tool for the trader.

[DbPhoenix 42]

RULE#12: Don't be impatient about patience.... Your brain is telling you to play patiently while your emotions are saying, "What's taking so long?" These two must be in alignment.

 

The gatekeeper of our subconscious keeps us from constant behavioral modifications, which means that if you are not a patient type, there is probably more work then just telling yourself to be patient. I think one might have a chance in two ways:

 

1) If you are an enlightened kind of guy, you can tap into your own innate essence for power. The power comes from your strong awareness. All your subtle self-talk and make-believes and all the games your ego plays will evaporate in the expanse of your wisdom. Just like an old man watching children play.

 

2) Change your internal self-talk. Bypass the gatekeeper and do some behavioral modification. There are two ways to bypass the gatekeeper: use sheer will and persistence, and keep changing your self-talk on the conscious level. Eventually you will nag your gatekeeper to death. (William)

[DbPhoenix 42]

RULE #13: Occupy yourself while you are not playing.... It is critical that you learn to enjoy yourself in the cardroom in ways other than in the game itself -- by constantly staying, and playing.... The fact is, if you are playing correctly, you are going to be doing a lot of folding. So you need to think of ways to fill this time. If you hate this period of time -- when you're not playing , and some do -- it will have the effect of throwing your game out of kilter.

 

I can only trade for so many hours. This is another reason look for ways to trade more effortlessly so my energy level can be better maintained throughout the day. There are times when I find myself constantly in the market and that is a very BIG red light that "I AM GAMBLING" because the market is random most of the time and if I am in it all the time then I am not playing the highest probability play. (William)

[DbPhoenix 42]

RULE #14: Begin by playing tight, but don't forget to stay tight.... The important thing is not who possesses the control and discipline at the start of the game, but who possesses it at the middle, the end, and all points throughout.

 

It is easy to have faith in yourself and have discipline when you're a winner, when you're number one. What you've got to have is faith and discipline when you're not yet a winner. (Vincent Lombardi)

 

Stick to a plan despite what happened before and what will happen after. It is less about fighting and more about surrendering. (William)

[DbPhoenix 42]

RULE #15: Discipline your game...it is more like patience -- pacing yourself (especially emotionally) for the length of the game. It is different than mere patience, however. It comes from a larger and longer-term view of things -- one that steps back and sees things as a whole.

1) There is a parallel between meditation and trading according to plan: we tend to create chaos by imposing our will into the processes because we want to "improve" the processes to match our preconceived expectation. Are our expectations realistic? Probably not...especially if they come right out of trading books. Let the process of either trading (according to plan) or meditation take its natural course -- stop the tampering.

 

2) The performance of actions [should be] in accord with the natural flow of changes rather than one's self-interest. Retire one's ambitions. Act non-coercively. Stop fixating on one's own agenda.

 

3) Conserve one's vitality by getting in tune and acting according to what the situations naturally call for instead of one's own will or contrivance. (William)

 

I've said it before, and I'm going to say it again, because it cannot be overemphasized; the most important change in my trading career occurred when I learned to DIVORCE MY EGO FROM THE TRADE. Trading is a psychological game. Most people think that they're playing against the market, but the market doesn't care. You're really playing against yourself. You have to stop trying to will things to happen in order to prove that you're right. Listen only to what the market is telling you now. Forget what you thought it was telling you five minutes ago. The sole objective of trading is not to prove you're right, but to hear the cash register ring. (Marty Schwartz)

[DbPhoenix 42]

RULE #16: The true journey of mastery is in each moment... Writer George Leonard, in his book Mastery, refers to this as the "goalless journey". In other words, there is no finish line; the journey itself is the destination.... According to Leonard, mastery lives within itself and the practice of itself -- doing a thing for its own sake; not just reaching the goal, but each hour, each moment, every day is the goal.

 

Fulfill one's role as a trader each moment -- a trader's actions should be in tune with the ever-changing market instead of one's own agenda. There is no need to call for perfection in the maneuvers as long as one never deviates from the focus in fulfilling that role. Winning streak can make a trader focus on the numbers rather than be in touch with his role. So is losing streak. (William)

[DbPhoenix 42]

You cannot teach a man anything; you can only help him to find it within himself.

 

--Galileo

[DbPhoenix 42]

RULE #17: You cannot apply the principles of Zen until you know the game perfectly -- inside and out.

 

Having the proper attitude of Zen calm and confidence does no good if you do not know the game. Zen will not make up for, or offset, incorrect ... play. As a result, there is a certain amount of ordinary, old-fashioned work involved in mastering the game -- a certain amount of sweating the white beads before the days of tranquility come along.

 

The most important thing to know, above all things, is exactly how to play the game. No outlook, attitude, or philosophy is as important as this.

 

Good [trading] is not a "mood", it is a series of individual decisions. It does not occur by "Buddhistically" meditating ourselves into some dreamlike mental state, but rather by knowing the game well and being in synch with it -- by inserting ourselves correctly into the flow of what is going on in front of us.

 

No Zen attitude will make up for this lack. You may be quite Zen-like and have all the attributes of Zen calm, but if you play incorrectly, the result is that you will get destroyed. Practice, and long hours at the table, are indispensable.