Wednesday, April 23, 2014

From Adam Hamilton's series on Wisdom of Jesse Livermore

We see it every day. The speculators (locals) blaming their losses or lower profitability on every reason rather than being accountable on their actions. They blame their shortcomings on (for example fkli futures) to "The manipulators are controlling the order book  using algorithms, causing us to lose money" "The market is manipulated; the govt is using epf and khazanah to manipulate the index" "It used to be easy, as the index moves more every minute. Previously the minimum bids were 5 sen, 10 sen 25 sen, now they have changed it ot 0.01 bids, the lack of volatility makes trading difficult"

Blame unsuccessful speculation on any reason rather than one's own shortcomings.

Chapter V) …
"The customers, who were all eager to be shoved and forced into doing things so as to lay the blame for failure on others..."


In a wonderfully entertaining narrative about a battle-hardened and wealthy old speculator named Mr. Partridge, Jesse Livermore exposes one of the most dangerous character flaws a speculator can have, a lack of absolute personal accountability and responsibility.  Unless a speculator takes full personal responsibility for all of the trades that he chooses to make, win, lose, or draw, he will never achieve great success.


Just as today, the majority of speculators back in Mr. Livermore's time wanted to congenitally blame others for their own trades that turned sour.  Rather than accepting the full weight of their own decisions, they desperately wanted their brokers or advisors to push them into trades so these speculators could avoid accepting the responsibility themselves for failed trades.  Elsewhere Livermore talks about speculators perpetually blaming external manipulation for their own bad bets, another way of refusing to accept full responsibility for the fruits of their own actions.


Just like a child who never learns to be responsible, a speculator who cannot fully accept any possible outcome on any trade that he freely chose to make is doomed to immature mediocrity.  If you or I use our own God-given brains and decide to execute on a particular trade, we cannot blame anyone else but ourselves if the trade doesn't work out.  It doesn't matter where the information came from that led to the trade, it is ultimately the responsibility of the individual speculator who decided to execute on this information regardless of the outcome.


So before you freely choose to launch a trade, while you are gathering information and running reconnaissance, realize that you most hold yourself absolutely accountable for your own decision.  If you win, great, congratulations and many kudos on another successful trade!  If you lose however, the loss is your fault alone and your responsibility alone since you freely chose to make the trade.


Every speculator must always be ready to win or lose on each and every trade, and to fully accept responsibility for their own decisions always.  Losses are simply part of this grand game and just have to be accepted, since no one but God can see the future before it happens.  When you freely choose to pull the trigger on your own trade, the outcome is always 100% your own responsibility and no one else's.  If you cannot accept this truth, then you shouldn't be speculating.


(Chapter V) … "I think it was a long step forward in my trading education when I realized at last that when old Mr. Partridge kept on telling the other customers, "Well, you know this is a bull market!" he really meant to tell them that the big money was not in the individual fluctuations but in the main movements – that is, not in reading the tape but in sizing up the entire market and its trend."


In all of "Reminiscences" this crucial idea that the Really Big Money is always earned by prudently riding the large trends over time and not in day trading every minute fluctuation is one of the central themes of the book.  Livermore hammers this again and again, attacking it from countless angles and spicing up all of his amazing lessons with his own enthralling personal experiences.


This old and successful speculator that Livermore mentions, Mr. Partridge, would always politely tell the younger speculators who asked him trading questions that it was a bull market.  The young speculators were always eager to trade, but Partridge was old and battle-scarred enough to know that no mere mortal could even hope to catch every individual fluctuation so the wisest strategy was just to ride the major trends.  His simple reply, which would annoy the youngsters since they couldn't yet perceive the deep wisdom in it, was to subtly advise them to just ride the primary trend and not worry about rapid-fire trading.


If a particular market happens to be in a primary bull trend, then just be long and don't worry about trying to interpret and trade upon the essentially random day-to-day market noise.  If a particular market is in a primary bear trend, then either sit out in cash or stay short and wait for the trend to fully mature and run its course.  Don't try to frantically outguess the primary trend everyday, just accept it and trade with it and you will win in the end.


And this leads into what is perhaps the most famous quotation out of the entire book, Jesse Livermore's legendary "be right and sit tight" wisdom!  While a long quotation, I just have to offer this entire paragraph in its original shining unedited brilliance…


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"There is the plain fool who does the wrong thing at all times anywhere, but there is the Wall Street fool who thinks he must trade all the time."J Livermore Manchester City FCl Crude Palm Oil


From Dragons and Bulls by Stanley Kroll
Intro and Foreword
The Importance of an Investment Strategy
5 The Art of War, by Sun Tau (circa 506 BC) and The Art of Trading Success (circa AD 1994)
That's the way you want to bet/a>
Long-term v Short term trading
Technicals v Fundamentals
Perception v Reality
Part 1: Winners and Losers
Part 2: Winners and Losers
Sun Tzu: The Art of War
Those who tell don't know, those who know don't tell
Why there is no such thing as a "bad market"
The Secret to Trading Success
The Experts, do they know better?
Risk control and money management
Good advice
The 'good bets' business by Larry Hite
Don't lose your shirt
Ed Sykota's secret trend trading system