Read the new book Fortune’s Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street by William Poundstone. See my podcast interview with Poundstone here.
Blog
Kelly Formula, Bell Labs, Data Transmission and Optimal Bet Size
Speed vs. Impact Risk Matrix for Trading
Van Tharp Wisdom on the Michael Covel Trend Following Podcast
Dr. Van K. Tharp speaks to a “state of mind”:
“Many traders start out using a state of mind that focuses on “having.” Rather than focus on how to trade in concert with the markets, they are obsessed with profits, and what they can purchase with those profits. The main goal is to make money, money that can be used to purchase objects of desire, such as a shiny red sports car, a spacious, luxurious home, or a large wardrobe of fine clothes. They believe that great financial success will be the solution to all their problems. Trading isn’t just a job; it’s their salvation. Although many traders are motivated by money, there’s a downside to focusing on what you can have as a result of your profits. When traders focus solely on accumulating wealth, on “having,” they tend to act greedy and may take risks in an effort to win. There is a blind and unrealistic focus on trading at a high level of performance. Unless they trade at a high level of performance, they can’t possibly “have” what they desire. But a novice trader can’t achieve a high level of performance, and so, there is a mismatch between skills and goals. Traders in a “having” state of mind often feel frustrated that their trading efforts fall short of their expectations. And when they feel frustrated, they have difficulty concentrating on their ongoing experience. They tend to make trading errors, which intensify their feelings of anger and frustration. In addition, they are tempted to give up easily and avoid putting in their best effort. They tend to think, “Why should l even try? I’ll never achieve the level of success I desire.” At some point, a trader’s state of mind moves from “having” to “doing.” In a “doing” state of mind, a trader focuses on learning trading methods, and on when these methods work and when they don’t. According to Dr. Tharp, however, traders in the “doing” state of mind still tend to focus on performance issues. They ask the question, “What can this trading method do for me?” They are concerned with how the method can make them rich. Rather than become engaged with the markets, trading in the “doing” state of mind is about evaluating the method, wondering if it is “working.” Trading, however, is not a simple matter of choosing a particular method and arbitrarily applying it. Becoming a winning trader requires honing your trading skills. It is vital that you develop your intuition by trading with a variety of methods under a wide range of market conditions, and finding ways that the proper method dovetails with optimal market conditions. Although it doesn’t tend to lead to enduring profitability, trading in a “doing” state of mind is a vital step on the way to mastery of the markets. During this stage, you gain the experience you need to trade intuitively and in a peak performance mindset. The ultimate state of mind for profitable trading is the “being” state of mind. Rather than focusing on outcomes, a trader in the “being” state of mind is fully in tune with the markets. He or she trades in synchrony with the market action. A firm commitment is made to trading the market and accepting it on its own terms. When a trader works to trade in the moment, he or she intuitively sees profitable setups and effortlessly trades them. It may not happen over night, but with enough practice and experience, you can trade with a “being” state of mind.”
Listen to Van Tharp on my podcast.
Earl Weaver: Moneyball and the Three Run Home Run Has Always Been the Key
From the Washington Post today comes a story about the “bunt debate” in baseball:
Earl Weaver
“As a future Hall of Fame outfielder in Baltimore, Robinson played for four seasons under Manager Earl Weaver (himself a Hall of Famer), who is widely considered the father of the anti-bunt movement. In his book, “Weaver On Strategy,” the legendary skipper lists his “laws” of managing, the fourth of which is, “Your most precious possessions on offense are your 27 outs.” Weaver’s Fifth Law is a corollary: “If you play for one run, that’s all you’ll get.” “I hated playing for one run,” Weaver said recently. “But I didn’t always take my own advice. I never bunted with Frank Robinson or Boog Powell or Eddie Murray at the plate, of course. But I did it with [Mark] Belanger and [Paul] Blair, two real good players. I think I bunted them too much.”
Isn’t that a great line? Play for one run and that’s all you will get. There it is in black and white the “secret” to baseball or trading success. I also used a great line about Earl Weaver in my book Trend Following:
“Earl Weaver designed his offenses to maximize the chance of a three-run homer. He didn’t bunt, and he had a special taste for guys who got on base and guys who hit home runs.”
Trend following is always about the home runs. Think there is more safety in hitting singles (or short-term trading’s small gains), think again.
Price, Price, Price: The Trend Following Rallying Cry
A recent trend following take from Michael Covel.
Thoughts from the Old Pro
Suggestions for trading from the old pro and founder of Commodities Corporation Amos Hostetter:
1. Experience must teach. Follow it invariably.
2. Observation gives the best tips of all. Observe market behavior and experience shows how to profit.
3. Buying on a rising market is the comfortable way. The point is not so much to buy as cheap as possible or go short at the top prices, but to buy as & sell at the right time.
4. Remember a market is never too high for you to begin buying or too low to begin selling. Let your tape reading show you when to begin. After the initial transaction don’t make a second unless the first shows a profit.
5. There is a great deal in starting right in every enterprise.
6. When something happens on which you did not count when your plans were made, it behooves you to utilize the opportunity.
7. In a bear a market it is always wise to cover if complete demoralization develops suddenly.
8. Stick to facts only and govern your actions accordingly.
9. What is abnormal is seldom a desirable factor in a traders calculations. If a market doesn’t act right, don’t touch it.
Commodities Corporation was the original trading mentor long before Richard Dennis and the Turtles. Commodities Corporation, as noted in my book, taught or funded many of the great market wizard trading pros.
More wisdom and thoughts from old Pro Traders, can be found here.
Bill Dunn: A Good Listen
This presentation (audio) once given by Bill Dunn is interesting. It goes along with the charts in the book “Trend Following”.
More.
How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.
Also jump in:
• Trend Following Podcast Guests
• Frequently Asked Questions
• Performance
• Research
• Markets to Trade
• Crisis Times
• Trading Technology
• About Us
Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.