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Jesse Livermore Wisdom

1. The stock market is never obvious. It is designed to fool most of the people, most of the time.

2. Play the market only when all factors are in your favor. No person can play the market all the time and win. There are times when you should be completely out of the market, for emotional as well as economic reasons.

3. Do not use the words “Bullish” or “Bearish.” These words fix a firm market direction in the mind for an extended period of time. Instead, use “Upward Trend” and “Downward Trend” when asked the direction you think the market is headed. Simply say: “The line of least resistance is either upward or downward at this time.” Remember, don’t fight the tape!

4. The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.

5. The only thing to do when a person is wrong is to be right, by ceasing to be wrong. Cut your losses quickly, without hesitation. Don’t waste time. When a stock moves below a mental stop, sell it immediately.

6. Emotional control is the most essential factor in playing the market. Never lose control of your emotions when the market moves against you. Don’t get too confident over your wins or too despondent over your losses.

7. All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical formations and patterns recur on a constant basis.

8. Watch the market leaders, the stocks that have led the charge upward in a bull market. That is where the action is and where the money is to be made. As the leaders go, so goes the entire market. If you cannot make money in the leaders, you are not going to make money in the stock market. Watching the leaders keeps your universe of stocks limited, focused, and more easily controlled.

9. Failure to take advantage of a serendipitous act of good luck in the stock market is often a mistake.

10. There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly build into human nature, that always gets in the way of human intelligence. Of this I am sure.

Note: Read more.

Life’s a Bet

One of my favorite bits of wisdom from trading legend Larry Hite:

Life is nothing more than a series of bets and bets are really nothing more than questions and their answers. There is no real difference between, “Should I take another hit on this Blackjack hand?” and “Should I get out of the way of that speeding and wildly careening bus?” Each shares two universal truths: a set of probabilities of potential outcomes and the singular outcome that takes place. Everyday we place hundreds if not thousands of bets–large and small, some seemingly well considered and others made without a second thought. The vast majority of the latter, life’s little gambles made without any thought, might certainly be trivial. “Should I tie my shoes?” Seems to offer no big risk, nor any big reward. While others, such as the aforementioned “speeding and wildly careening bus” would seem to have greater impact on our lives. However, if deciding not to tie your shoes that morning causes you to trip and fall down in the middle of the road when you finally decide to fold your hand and give that careening bus plenty of leeway, well then, in hindsight, the trivial has suddenly become paramount.

Larry sees it.

Ray Dalio’s Words Of Wisdom That Sound Trend Following-Like

Some feedback:

Michael, congratulations on your work to date. I have your books and they are wonderful resources but I must say your work in the podcast is truly undervalued and trades way below fair value (one for the Ben Grahamites). I have noted you discussing the possibilities of Bridgewater/Dalio actually being the biggest trend followers on the planet. Clearly they don’t openly admit to this but there is plenty of anecdotal evidence to strongly suggest it. Anyway I found the following direct quotes from Dalio that firmly made my mind up. I’m sure you and your followers will also decipher them accordingly.

“Bad opinions can be very costly. Most people come up with opinions and there’s no cost to them. Not so in the market. This is why I have learned to be cautious. No matter how hard I work, I really can’t be sure. I wrestled with my realities, reflected on the consequences of my decisions, and learned and improved from this process.”

Keep up the truly outstanding efforts. More than appreciated.

Regards
Steven

Nice find Steven. When people wonder how some hedge funds might really trade they should consider the film Argo. Subterfuge ain’t a new concept. I don’t know Dalio’s exact strategy, but it is my understanding he calls it a mechanical no discretion all fundamental approach. Well…

Rapid shifts are the hallmark of climate change, epileptic seizures, financial crises, and fishery collapses…

From SEED:

Nonlinear systems, however, are not so well behaved. They can appear stationary for a long while, then without anything changing, they exhibit jumps in variability—so-called “heteroscedasticity.” For example, if one looks at the range of economic variables over the past decade (daily market movements, GDP changes, etc.), one might guess that variability and the universe of possibilities are very modest. This was the modus operandi of normal risk management. As a consequence, the likelihood of some of the large moves we saw in 2008, which happened over so many consecutive days, should have been less than once in the age of the universe.

Our problem is that the scientific desire to simplify has taken over, something that Einstein warned against when he paraphrased Occam: “Everything should be made as simple as possible, but not simpler.” Thinking of natural and economic systems as essentially stable and decomposable into parts is a good initial hypothesis, current observations and measurements do not support that hypothesis—hence our continual surprise. Just as we like the idea of constancy, we are stubborn to change. The 19th century American humorist Josh Billings, perhaps, put it best: “It ain’t what we don’t know that gives us trouble, it’s what we know that just ain’t so.”

Wisdom.

Mark Rosenberg of SSARIS: ‘Deal with It’ Wisdom

Back in the mid-nineties I met Mark Rosenberg for the first time in his office in Stamford, CT. Rosenberg was/is a trend following trader. Recently, I caught this line from him describing John W. Henry:

“In 1980, Henry told me, ‘I’m going buy the St. Louis Cardinals.’ I told him, ‘You don’t have any money,’ but he always believed he would.”

Such a good piece of wisdom. Well, Henry did not end up with the Cardinals, but the Boston Red Sox were a nice consolation prize!

Fun story about Rosenberg? When I first met him he shared a great trading/entrepreneurial ‘way’ that always stuck with me. Sitting in his private office, and I still remember the book Future Shock prominently displayed, Rosenberg talked about the ups and downs of trading along with the mental outlook needed to excel. He told me that when the down times came, those losing money times, he would always come home and tell his wife that it was back to “franks and beans”. Meaning, he adjusted. He was pragmatic. He always cut back until trends came back.

Dickson Watts: He Never Goes Stale

Dickson Watts (PDF) has been dead for decades, but his wisdom never dies. Some fine lines:

“Many lean, few lift.”

“The man who conforms never transforms.”

“Rest with descending wave; mount with the ascending wave.”

“There is many a slip between the cup and the lip, but only one slip between the cup and the ground.”

“The unpardonable sin — not to make money.”

“Some men are alive after they are dead; others are dead while still alive.”

Nice.

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