Michelle B submits: The Disciplined Trader by Mark Douglas sits near my trading turret in a place of honor. Following rules is very problematical for traders. Having rules, and some traders have many, is not the same as being disciplined. A disciplined trader follows his rules, while a trader who has rules may not necessarily be disciplined enough to follow them. Trading without controlling emotions often takes the form of a vicious circle--the trader becomes ensnared in a trap of his own making, and it can be nearly impossible to break this viciousness. Sometimes, in extreme cases, the only solution is to take an extended sabbatical from trading. It can take a long time to heal the psychological damage resulting from trading without discipline, so it is much better to try to prevent this damage from happening in the first place.
I have read The Disciplined Trader around ten times, roughly once for each year I have been trading. It has been only with the most recent reading I could say I have finally grasped 90% of what he is trying to teach me to do. My focusing such a long time on trying to understand and apply what Douglas is saying may appear to be silly, but that is the challenging nature of the problem facing traders, and also the degree of psychological damage I sustained by trading without discipline when I first started.
Recently, I had reduced my trading rules to three, and I proudly presented this reduced list to my husband, who often plays the role of trading counselor. He was quiet, but his eyes said, two rules too many. So I had a think, and realized that the only rule is this one: Execute perceived opportunity according to my risk parameters. When a trader is surrounded by a flurry of rules, he wastes his focus and energy on not breaking them. They are actually a hindrance and not an aid. The rebel within says, no way, I am not going to obey these rules. Many rules also assuage the gnawing doubt that one does not really have a methodology, and therefore that problem, the fact that one's methodology is non-existent, risks never getting solved.
The market is in constant flux. We cannot structure it according to our needs. We can only structure ourselves in relationship to this free flow of information and participant interaction. We are the money maker, not the market. Lack of discipline begets trading losses which beget lack of confidence which begets even deeper trading losses, etc., until your account balance is a mere shadow of its once robust self, and you are spinning within a black vortex of losses. To counter this vicious circle, one gradually replaces it with a virtuous circle, where honest recognition and acceptance of your existing skill level is the first step to take.
In the world of regular jobs, we strive to present ourselves in a favorable manner, sometimes creatively misrepresenting ourselves on our resumes, dropping names in job interviews to boost our image, and taking expensive and often useless continuing education courses so it can appear that we have an 'edge' in the job market. Our work culture encourages us not to accept and be honest about our present skill levels, not only to others, but to ourselves. If we admit our lack of perfect skill than we would be anxious we do not have what is required to compete successfully in the cut-throat job market. Not admitting this anxiety actually leads to what we fear, because we cannot increase our skill level if we are unable to identify and accept our present level so we can find out what to do in order to advance to the next level.
Douglas emphasizes listening to what the market is telling us what we need to learn in order to perceive the opportunities it is presenting, instead of listening to our preconceptions, often emotionally based. For example, a trader insists that a losing long position must return to his point of entry because it has already been there, without listening to what the market is saying about that probability. Being in hope mode means we forgo the opportunity to learn from the market, and all we do is stay locked within a lesser skilled level.
We don't expect beginning pilots to fly huge planes at high altitudes all alone, and yet we expect that we can somehow do the equivalent in trading when we are first starting out. This common perception is fueled by the fact that making money by trading appears easy. It is possible that a trader can make the amount of money in an hour or even less which had taken several days to make at his previous job. This rather exciting aspect makes him think that trading must be easy; he does not need to have years of schooling and training as a surgeon needs to do in order to move up the salary ladder. He can just jump right in and mint the coin. Instead, he gives his money back to the market, again, again, and again, completely flummoxed as to why he cannot accumulate profits. Ironically, down the road, when he does trade in a consistently disciplined manner, making money does become easy--what he first thought it would be like before it turned into a nightmarish struggle with himself and the market.
Because of books like The Disciplined Trader and because of blogs written by more experienced traders, perhaps this vicious circle will never start for some traders, only the virtuous, where basic skill begets confidence which begets more skill, and then more confidence, etc.
If in a trade, focus on if you feel uncomfortable. If so, ask yourself why. Often you will reply because you are pushing the limits of your skill level, either by trading a very demanding stock, or with too big of a lot, or too many stocks at the same time, or too deeply margined, or without a methodology, and last but not least, without money/risk management (or all of these at the same time!). If you are trading within your methodology and risk parameters, and you are accumulating profits, but you are still uncomfortable, ask yourself why. The answer probably will be that you should be doing better, making more money. You are not pleased with the level of skill that you have developed, because you want to be a jet pilot making sonic booms in the clouds, and all you are doing, is just plodding along, like a lowly snail.
Be patient, pat yourself on the back, and focus on adding to your existing skill base, instead of detracting from it by taking on more difficulty than your present skills can manage. Create a virtuous circle from the very beginning, and nurture its development at all costs, because your mental capital is as precious as your financial capital. When beginning your trading day, focus only on trading well, that is, executing perceived opportunities within your risk parameters, and not on making money. The money will follow. If you focus on making money, then you will not be focusing on what makes you money.
Bravo Michelle!
I've been saying (almost) since day one on this site that more traders should focus on all this psychological sh!t instead of trying to find that perfect indicator & whatnot.
Have you read Mark's later book, Trading in the Zone? I read that at least once a year. If you've read both, how would you compare them? Should traders read them both?
Michelle,
Great post. Very well articulated =d>. I have one quick question for you regarding "The Disciplined Trader". I have been following Mark Douglas's work very closely (Books, Seminars, etc.). "Trading in the Zone" ranks number one on my recommended reading list, and I have read this book a few times and continue to go back to it for reference. I have "The Five Fundamental Truths" and "I Am A Consistent Winner Because:" hanging in my trading room above my desk.
Unfortunately, I have only flipped briefly through "The Disciplined Trader". How does this book compare with "Trading in the Zone?" Also, any other reading recommendations?
I hear Mark Douglas is working on a new book, so definately looking forward to that.
Hi Mike, do I know you?
I have only read his earlier book. I was too busy trying to get the man to adopt me as his daughter that I did not have the time to read my father-to-be's latest. And as I still do not completely undertand the first book, I will stick with re-reading it until I understand it totally before moving on to his newer book. However, I did check out the Amazon reviews for Trading in the Zone, and apparently the two books are very similar. Though the criticisms were immensely positive, the circular language used by Douglas is not well appreciated. But what other kind of language can deal so effectively with vicious circles but a circular one, replete with redunancies, to break that entrapping circle?
Maaud, I have "I Am A Consistent Winner Because:" taped to my monitor! You just gave me an idea though, I need to print it up nicely, frame it, and put it on the wall
Muaad, check my comment to Mike. The Disciplined Trader is the only book on my shelf, besides How Charts can help you in the Stock Market by William L Jiler. The zillion others that I have bought are gathering dusty cobwebs in the basement.
Though Jiler's book was published originally in 1962, and the charts are of companies no longer around, the simplicity and the understanding of the supply and demand signals of chart patterns is the clearest I have ever encountered.
I recently bought 'Trading in the Zone' after I saw Michael mention it a few times. I am half way through the book and I already see the difference in the way I perceive the market. After having had my clock cleaned a few times in the market, I know this book is a life saver.
Awesome stuff Michelle. You really are posting amazing content. Keep up the good work.
Mike,
Although the majority is looking for the sexy stuff like indicators and holy grail, I think you are getting the right stuff to some of your readers. I have picked up a wealth of stuff from you and I'm sure others feel the same. For instance, even though I understood the general idea of probabilities and having an edge, I hadn't really studied the R concept until reading it on your site. You've helped me think through quantifying what my edge is indirectly, and I'm sure other are picking up lot's of stuff here.
DT
DT, thanks.
DT, glad I could help.
michelle: another great post
michael: i think your next project should be a book written by the two of you...you complement each other well
just wait until I announce that "Michelle" is actually just my feminine side expressing itself (%)
hehe...of course she did mention her husband (nttiawwt)
Michelle - you are one of the best writers among the trading blog authors - you always make your point and make it well. I enjoy your posts - thank you.
Enjoyed your post Michelle. Sometimes those 2-3 day sabbaticals do wonders when I'm not positively visualizing my trading opportunities.
Michelle,
Wow. Your post really hit home today because I took another stupid loss because I was undisciplined and failed to sell when necessary. I don't think I'm ready for your 1 rule list of rules. I still need several rules, but at the top has to be rigorous loss control. Hard, good-to-cancel stops on every trade> enforced discipline. This trading shit is tough and hats off to those of you who are taking money out of the markets consistently. That said, I will be joining you all VERY SOON.
Excellent post.
john w, thank you very much for your kind words, and it is a pleasure writing for an audience who wants to hear the more mundane details of trading.
mrmike, way to go! Encourage yourself to break from trading often if you feel a need for it.
Michelle: Wow, what an eye opening read -- new and experienced traders alike should find great value in your thoughts. Having had a difficult day myself, I felt energized and focused after your article. You have excellent control of the English language, which makes your content all the more powerful and accessible. I look forward to your next installment.
Mike: Thanks again for hosting such a great (and influential) site. If it were not for your blog (and Trader-X's blog), I may still be sitting in the cube farm that was my depressing existence just a mere six months ago. And for that, I owe you many thanks!
Brad, I agree, because at one time I had about 10 rules. As my confidence and skills grew, one by one the rules became unnecessary as they became embedded within my growing ability to perceive and execute opportunities.
Since using hard stops is the backbone of your discipline at this stage, read everything you can about the topic of hard losses, starting here at this site regarding how to calculate the amount of your account you are willing to risk on each trade and choosing the correct lot size. Perhaps even dip your toes in the controversal waters of R multiples.
Regard yourself a trader even though you are not accumulating profits, so there is no future joining in any club, you are already a member. All traders are constantly learning, in fact, you learn more and more as the years go by.
Estocastica, I am very happy that my post was able to have a positive effect on you when you needed it.
I adore writing, and I really adore blogging.
Michelle:
As a newbie trader, I can only appreciate the importance of your message, as I constantly grapple with it every day. Unfortunately, as much as it be nice to start on the "virtuous" cycle right away (Mark Douglas' "Trading in the Zone" was the first trading book I ever read) , I think our true appreciation for the value of discipline only comes when we've felt how really vicious the market can be sometimes. It's just part of the dues we've got pay.
Mike:
Your blog has been the light at the end of a very long, dark and lonely tunnel in my quest to become hopefully one day a full-time professional trader. Thanks for the fantastic content.
Estocastica and Walter -- You're welcome & I thank you for the kind words. I had no idea where this site was headed back when I decided to start a blog in 2003. I'm especially glad that some of this timeless stuff -- as opposed to me picking stocks or posting daily recaps & watchlists -- has been useful to people.
Walter,
There's a reason why so many of us keep re-reading Mark Douglas' books. It's a never ending battle. Every time I read the book I get something different out of it. You'll appreciate it much more after your first year or so!
Great blog Michelle. Thanks to Mike I picked up "Trading in the Zone". Because of that book and a few really good blogs out there including this one, I have been able to understand a few really import things every newbie has to know:
1. Create a simple system.
2. Stick with easy to trade time frames.
3. Learn at least 1 great setup inside/out (may take months) (thanks Maoxian & Trader X).
4. Start small and trade it with confidence.
5. Limit the number of trades per day (thanks to Taleof thetape.net).
I think way too many people don't want to start small and be disciplined. I still fight urges to scalp and do dumb stuff. So far I resisted 90% of them and I put curbs to limit the other 10%. I have a loooooooooooooong way to go, but at least I'm not like some of my friends who've managed to loose $60K because they've done none of what you've written about. On the other hand I've done maybe 10% of what you written about, but it's that 10% that has prevented much pain and is helping me trade without fear.
Douglas' book "Trading in the Zone" is a must for every trader. One question I did have was that he did mention that he went broke trading early on and then started consulting traders as a result of this painful experience. I wonder if he's since been a sucesful trader? No matter, the message is what's important.
Mike -- you site is awesome as it is but with the addition of Michelle's writing.. you just took it to another level. Good job.
Michelle -- bow down to your article.. as a newbie myself, i am constantly struggling to remind myself to be discipline and to follow my stop but time and time again i find myself lost in chasing the opportunities without regard for the risk. I feel like from the time the market is open I am in a race against time to trade and to make money…it is this emotional handicap that cause my mind to think in a tunnel vision that only focus on where I think the stop will go next or how much money I can make. is it only at the end of the day, after I am proven wrong with a big lost that i am able to see and think clearly again. Sadly this vicious cycle keeps repeating itself everyday. My question is if you have been where I’m at right now (or maybe not ïŠ), how did you cross the line to being award of your risk? what inspiring moment that made you woke up to the reality. How do you keep yourself from being excited about the trade and to think and act rationally? Your input will be greatly appreciated. Thanks
-Andrew
Great post, and timely too. Today's market action was tricky enough to flummox the most experienced traders.
LONG RESPONSE WARNING
Andrew,
From one newbie to another...I've invested in the past with some degree of success but I've am quickly learning that Daytrading is just flat out hard. When I paper traded, I experienced much of what you've been experiencing, lots of trades (overtrading) make or loose big money...right before I started trading for real I came across taleofthetape.net and he limits himself to 2 trades per day whether it's good, great or horrible.
Since it's only 2, it has to be the best damn 2 trades you can make (not that this happens). What happens here is that, it slows you down. I added another criteria; not to trade more than 500 shares. You start seeing things happen, you get a better feel for the markets, and it limits stupidity.
This is my third week of trading. During the first week, I used up my 2 trades by 9:45 or 10 at the latest. After reviewing my journal and all these great blogs, I realized that I was rushing everything as if the train left the station before 10. I read Mike's blog about how he switched it up and Trader X's blog and realized that most of their trades took place after 10:30 everyday. And these guys are flat out good. It dawned on me that if the good ones wait for the noise to die down, why shouldn't a worm like me wait.
In week 2, is passed on the early bird special and almost erased my losses from the first week. I'm still down but less than 1%. Don't go to the trades, let them come to you. Find the stocks you like, pinpoint where your entries and exits are, size you position based on entry/exit risk, wait patiently for the opportunity to present itself and then execute your trade. I trade the 30 minute charts now, sometimes the 15. But never less than that cause I'm too stupid to be any faster. In my first 7 trades, I had 1 win and 6 losses. As of today, I have 8 wins and 9 losses. My first 7 trades, I lost $700 + commissions. Since then I've made $400 - commissions. My commissions are smaller as I trade few shares and I've cut my risk down as well. I look at technicals to decide my risk vs. saying I will only risk 1% on this trade.
For example, in my first week I said I will only loose $320 per trade. But it doesn't make sense, the risk parameters for RIMM ($110) vs SIRF ($25). In week 2, I started looking into my entries and exits. My stop is now the high or low of the previous bar since it will technically invalidate my thought process. Ex. I shorted RIMM today below the lows of the 3rd bar (15 min charts). The market was weak and the stock was weak. The 3rd bar high was 109.25 and the low 108.55. I decided the stop would be at 109.26, thus invalidating my thought process. The difference between the high/low was .71 cents of pure potential pain (sorry I'm a newbie). I decided my max loss would be $250 (less than 1R). This meant that I could buy 350 shares. Since RIMM is volatile, I opted to get short only 200 shares, max risk of $142. I put on a fib extension on RIMM and my target was $107.35 or below a share. But it stalled at $108.01. I should have sold but I was trying to be greedy, instead of make about $100, I settled for $14. It paid for my trade. I really need to work on this aspect as it's preventing me from making real money (good traders have it down pat). Basically I would have made over $3000 big ones over the past three weeks, if I were patient enough, instead of being down $300. However, the past week of trading with reduced risk, few trades and longer time frames have helped me get out of the red and make better decisions. The only advice I can share of any worth is; slow it down and tweak your Risk reward parameters (Risk of Ruin...traders calm blog). You will be calmer and more composed to make better decisions.
Michelle,
Your writing is awesome! Ever considered writing a book on trading?
I'm looking forward to the day when I can cut down my trading rules to the bare minimum, becos when I can achieve that, it means that these rules are so well embedded in me that they are part of me & I no longer think of them as rules!
Mike: Thanks for inviting such a great lady to write on your blog
Wait. I think I can improve upon your already sublime all-encompassing market operations maxim...
Execute DEFINED opportunity according to my risk parameters.
What say you, Michelle?
Cleary, with phrasing like:
"..until your account balance is a mere shadow of its once robust self, and you are spinning within a black vortex of losses"
your prose leave no room for improvement.
Well done!
As a former stockbroker & later a futures floortrader, i've always said "It's very easy to spot a bad trader from a good trader. A bad trader bought XYZ at 20 and still owns it at 10. A good trader bought it at 20 & sold it at 19 or even 18." Not only does he/she have their financial capital they also have their emotional capital for the next opportunity. The hardest thing for human beings to admit is a mistake. When you complicate that by involving money, admitting a mistake paralyzes many. And i'm not talking about admitting a mistake to others but EVEN to themselves.
LP – Thanks for your input. I’m trying very hard to control myself and do what you are doing. It is reassuring to see that others have gone through what I’m going through. You are dead right.. I don’t think I have ever encountered anything as hard as daytrading especially so much time and money have been invested with no end in sight. I admire anyone who is successfully trading for a living. You guys are a master of yourself and the market. I can only fantasize that I’ll be like you guys someday.
How do you fight the urge to break your rules and even remember your rules in my case. I totally understand what all the successful traders are saying and have written down the trading systems, the dos and don’ts but once the market opens and you are staring at the charts, some how you don’t take in consideration the rules you told yourself numerous times and the countless times you swear that you will never do again after suffering huge loses. I understand that psychology is probably 90% of trading and there are hundreds of blogs out there talking about it but there’s not a lot that teaches you how to overcome those barriers. How do you guys overcome it? What are the steps/methods? It always easy to point out a problem but much harder coming up with a solution.
LP – if you don’t mind having an IM chat buddy during market hours my screename is “badandy4you” on aim/yahoo.
-Andrew
Walter, the market is neither vicious nor benign, it just is, a constantly flowing entity. The embracing and nurturing of your own brand (make it as custom-made as it is possible) of a virtuous circle is how you structure your interacting with this reality.
Vicious circles are very easy to get going, but almost impossible to break, while virtuous circles are hard to get going but are easy to maintain with its quality improving as time goes on. Which is the better investment of your time and energy?
Vicious circles result in such pain that we are willing to ditch them for something harder to do at the beginning but which becomes so easy to keep going that we are amazed that we did not see this aspect sooner.
Psychologically, we often are only able to change, if our behavior is painful enough for us to break our habitual behavior for something better. Humans, understandably, gravitate towards doing action that appears to bring the most gain with the least effort.
Even if you do start virtuously, the shadow of a vicious circle is usually lurking close by!
LP, I don't know Douglas personally (My request for him to adopt me as his daughter fell on deaf ears!). However, in The Disciplined Trader, he writes that he blew his trading account and lost some substantial assets. Fortunately, he still had his Merrill Lynch Commodities account executive job, his apartment, and some clothes.
He had already lost his trading capital twice before that. So his personal pain level was sufficient enough and coupled with the fact that he did not lose his job meant that he did not run out of time/money to try to figure out what he was doing wrong. He figured it out, begin to trade successfully, but not in the super successful way that we often think traders do (one of the amazing revelations to me was Douglas commenting that most professionals do not trade profitably, consistently).
Whether he continued to trade and also counsel traders is something I do not know. But in any case, I am postive even if he is not still actively trading, he has never lost the potential to mint the coin, that potential is just lying dormant until he decides to actuate it.
(The 'Why I wrote this book' chapter, btw, is worth the price of the book.)
Andrew, Consider taking off some time from trading, a week or so. The market will still be there, and your market knowledge and skills (and even more important the wonderful potential of your increasing your knowledge and skill base) will still be there.
A very good trader buddy of mine had to stop trading recently, because he ran out of time and money. He is looking for a regular job at the moment, that is his focus now and it is the correct one, no matter how painful it is. He needs to do what is right for him and his family.
But I do remind him that despite his not actively trading for the moment, that he is a trader in his heart, and that the knowledge and skill resulting from the time and effort he has put into trading still resides within, ready to be relied upon and added to, if and when he ever does resume trading.
As for myself, I was fortunate enough not to run out of money (though we had some lean years while I was learning) or time, and finally, since I never gave up, I began to consistently accumulate profits. The 'magic moment' did not feel magical when it happened, but so natural that it took a few months for me to recognize what happened!
But on the way, it was so painful at times, that I did come close to giving up (I did take a 3 month hiatus from trading) even though I never ran out of time or money.
If you can hook up with a trading buddy with whom you are compatible, do it. But my suggestion is for you and your buddy not to abuse IMing. Work out some agreement when you will be actively IMing, especially during premarket, regular hours, and after hours, when you need to be focusing on identifying potential trading candidates, and managing trades.
Your recognition of the form of your particular vicious circle is sufficient for you to start replacing it with a virtuous one of your own making. I will post concerning how to tame trading gremlins that reside within us, that feed our vicious circles, so creative mental energy is feed up for us to create virtuous ones.
Simply Options Trader, thanks for the compliment. Though I am an avid reader, I find most of my reading being done via the Net. Books being churned out nowadays seem SO yesterday with their static, stale content-- the book publishing business may not be dying, but certainly looks pretty ill to me.
So no desire to write a book at this stage, unless it is an offer we can't refuse!
SuperEliteProffessional, It is wonderful to hear from people who enjoy my style of writing.
I had a creative huddle with my husband, the 'trading counselor', and we both agreed that DEFINED could be problematic in the sense of encouraging the trader to be closed to opportunities that are freshly arising because they have not been previously defined. Opportunities can be a mix of methodologies, and it the skill and knowledge of the trader to PERCEIVE that, and then execute the perceived opportunities via his risk parameters.
Here a definition of perception:
1. Recognition and interpretation of sensory stimuli based chiefly on memory.
2. The neurological processes by which such recognition and interpretation are effected.
3. Insight, intuition, or knowledge gained by perceiving.
4. The capacity for such insight.
Perception and intuition have been bandied about so carelessly that they may have been given a bum rap.
However, my live-in 'trading counselor' suggests perhaps substituting the word potential as in: Executing potential opportunities according to my risk parameters. But I still prefer perceived in the manner of the above definition.
Garfield, excellent comment! You fat wallstreet cat, you.
All of these comments are great--encouraging further discussion, and the creation of a supportive, intelligent, dynamic community of people with similar motives but coming from many different viewpoints, knowledge and skill bases, and last but not least, of some terrific and often humorous personalities.
KEEP 'EM COMING!
Andrew,
I would strongly consider Michelle's advice. It took me 2 months of following the markets and paper trading every day before I put a single dollar of my own money. I developed what I though was a system, rules and curbs to prevent myself from being in a vegas frame of mind. Let your money collect 5.5% while you figure out how to do this thing right. I don't have IM and for a reason, but feel free to email me lloydphilip (at gmail). Remember, anything I say is newbie talk, you have to do your research.
LP
Almost sounds like I need to bring the discussion forums back. :-?
Michelle,
Will you ever post your story on how you rose from the valley to moment of brilliance and what we some of the steps you took to acheive it. We rarely ever hear stories like that and sometimes they can be inspirational. Especially considering the fact you have such a good writing style. Mike you do too!
I will be interested in reading your piece on taming the gremlins.
LP
LP, I enjoy letting out how I improved my trading through writing my posts. There were no valleys or brilliant moments, it was just slogging along for the most part. It is like Mike when he says he really does not enjoy posting most of his trades, because they are not very interesting. I am working on an interview for Stocktickr which will contain some personal background.
Mike, Why did the discussion forums end? How would they be better or worse than the discussions we have via comments after each post?
Hi Michelle,
Excellent points regarding perceptual/intuitive filtering vs. objective rule sets.
Defined entry criteria will help guard against unilateral "create your own reality" impulse trades. Intuitive/opportunistic scenario building MAY allow one to negotiate present conditions more effectively.
Hi SuperEliteProfessional,
If your skill level is only able to perceive one kind of opportunity, then the focus is to execute that perceived opportunity. If your skill level allows you see more than one kind of opportunity (and it is impossible to pigeonhole opportunities/methodologies in a box, they often come in mixed form), then execute those perceived opportunities. Identifying and accepting your skill level and trading within its limits can be the useful handle to prevent your "creating your own reality".
Virtuous circles have to be tailor-made in order to work, so if your rule(s) include the word define at this present time, then use that word as it makes sense and gives you a handle meaningful to you. Using criteria that makes sense to you will assist you in growing your skills.
Michelle,
I'm curious if you've read any books on intuition, or has this aspect of trading come as a natural process for you?
SuperEliteProfessional, The DowntownTrader (refer to this site's links for today) has decided that he will ask himself before he takes a trade, "Is there an edge". I like that approach, because he is speaking the language that a trader can understand, the trader within him will reply, and that trader with his present skill level will not "create reality".
Since intuition is involved in the recognition of patterns, and I do have a very visual artistic nature, perhaps in that way, I am a 'natural'. I have not studied intuition in depth.
i know it's coming so...
worth reading:
Malcolm Gladwell's "Blink"
for those of us who find deliberate reasoning just soooo last season.
Its not intution running the markets its emotion, sentiment is at 19yr high:
http://www.safehaven.com/article-6113.htm
Corneon,
Intuition is needed to read the charts that show emotion.
Dear Mike, I enjoyed your blogs, the posts and comments. It got me thinking, hope you don't mind if I submit some thoughts -- I work at Stillwater Capital, and was thinking about hedge funds and some of these funds blowing up, and thought that I would add my two cents and see if you had anything to add too – I hope I’m not being too off topic from your posts here, but I just wanted to say a few things after reading your last thought here… recently many investors were hurt by Amaranth and other funds, and I was thinking about the ways some of those affected are going to sort through the damage, here are some principles they may want to have in mind:
1. Sophisticated hedge funds apparently have no clue about should have basic concepts like money management, position sizing and ‘risk of ruin‘ knowledge, and should use stops or have a point where they know to exit.
2. Bennett McDowell once said that, “Money management in trading involves specialized techniques combined with your own personal judgment. Failure to adhere to a sound money management program can leave you subject to a deadly “Risk-Of-Ruin” exposure and most probable equity bust.”
3. The smaller the amount you risk for any one trade relative to your capital base the lower the risk of ruin.”
4. And of course it goes without saying that a good hedge fund investor has to pick good funds to invest in. The key, though, to success in this business, is not to choose the best performing managers, but actually to evade the frauds and blowups.
5. With both frauds and blowups, contrary to public opinion (and myth), size does NOT matter: Beacon Hill was $2 Billion, Lipper was $5 Billon, Amaranth was $9 Billion).
Suffice it to say that these should be some of the main points investors should think about as they interview and select hedge funds to entrust their dollars to.
Well, thanks for letting me get some ideas out there, I look forward to being a continued reader of your work...
Jack Doueck
Stillwater Asset Backed Strategies
Stillwater Capital