Unknown Market Wizards - Jack D. Schwager

Last updated Feb 1, 2025

• Author: Jack D. Schwager
• Full Title: Unknown Market Wizards
• Category: #books

There is no such thing as being right or beating the market. If you make money, it is because you understood the same thing as the market did. (Location 45)

Every decade has its characteristic folly, but the basic cause is the same: people persist in believing that what has happened in the recent past will go on happening into the indefinite future, even while the ground is shifting under their feet. —George J. Church (Location 50)

reducing your exposure when your trading is out of sync with the markets is critical to long-term success. (Location 75)

FundSeeder.com (Location 125)

Edwards and Magee’s, Technical Analysis of Stock Trends, published in 1948. (Location 148)

his Factor market letter (Location 178)

Brandt was sleepwalking. The “chair” was actually the railing of the upper deck. He clambered past the obstacle, and the next thing he knew, he was flat on his back, unable to move. Brandt had fallen nearly 20 feet. (Location 191)

the Sonora desert, which is surprisingly verdant, having more plant species than any other desert in the world, some of which grow nowhere else, such as the iconic saguaro cactus. (Location 199)

in the late 1960s and early 1970s, US citizens were not allowed to own gold, but you could own silver coins. (Location 217)

they were high-level connections. They knew me well, and it so happened that all these major food processors had not hedged during the big bull market in commodities we had just seen. (Location 275)

“I look at the markets through the lens of History 101, Economics 101, and Psychology 101.” (Location 360)

While he was buying into weakness, he wouldn’t just put on a full position and hold it. He would probe the market for a low. He would get out of any trade that had a loss at the end of the week and then try again the next time he thought the timing was right. (Location 373)

“There are two parts to a trade: direction and timing. And, if you’re wrong about either one, you’re wrong on the trade.” (Location 379)

if you could protect your capital, you would always have another shot. But you had to protect your pile of chips. (Location 383)

when a chart pattern fails, that is a more reliable signal than the chart pattern itself. (Location 395)

I was really speaking my charts, but I was giving them my opinion in terms of fundamentals. (Location 413)

[A whipsaw market is a market in which prices swing widely back and forth, causing trend-following traders to be positioned wrong right before the market abruptly reverses direction.] (Location 433)

[A breakout is a price movement above or below a prior trading range (sideways movement in prices) or consolidation pattern (e.g., triangle, flag, etc.). (Location 438)

I used to trade any pattern I could see. I would trade 30 to 35 patterns a month. Now, I am much more selective. (Location 457)

With horizontal boundaries, you can find out much more quickly whether you are right or wrong. (Location 460)

What happens if you buy a breakout, and the market reacts enough to trigger your stop but then holds, and the longer-term pattern still looks good? I will take a second chance but never more than a second chance. And I won’t take the second chance on the same day. (Location 467)

It depends on the market. I wouldn’t use an overnight stop for the Mexican peso, but I would use one for the euro because it is so liquid. (Location 489)

I now know that I am my own worst enemy and that my natural instincts will often lead me astray. I am an impulsive person. (Location 510)

instead of being bothered by losing on a trade, you’re proud that you can take these small losses that prevent a large loss from accumulating. (Location 544)

when I was trading my own account, it was like trading monopoly money. My trading capital was just something I kept score with. I detached myself emotionally from it. (Location 675)

I am fortunate that I have trading peers I can speak to who will be honest with me. (Location 698)

it is best to liquidate any trade that shows an open loss as of the Friday close. (Location 830)

when you have a big move down, the first rally never holds. If there is ever a case where I want to sell into strength, it would be the first rally after a straight-line drop. Often the rally will last for only two days after the reversal day. (Location 900)

Dan had what he called the dominant fundamental factor theory, which postulated that, over an extended period, one to five years, there was one underlying fundamental factor that was the driver of the market. All the other news merely caused gyrations around the trend driven by the dominant fundamental factor, and, more often than not, conventional wisdom didn’t have a clue about what the relevant fundamental factor was. (Location 965)

if people were aware of the dominant factor at all, in most instances, they were trying to fade it. (Location 968)

“If you lost everything you put in, would it meaningfully change your lifestyle?” If it would, don’t trade. If you’re not a good problem solver, don’t trade. (Location 977)

Learn not to take a loss personally. The markets don’t care about who you are. (Location 988)

Can you define with high specificity what trade you’re willing to take a swing at? (Location 1009)

if I wait long enough, there’s always another great trade that will set up. (Location 1026)

They risk way too much. They don’t have a methodology. They chase markets. They have a fear of missing out. They can’t keep their emotions in check; they have wild swings between excitement and depression. (Location 1034)

“If you’re playing for emotional satisfaction, you’re bound to lose, because what feels good is often the wrong thing to do.” (Location 1078)

increases in account equity should be gradual to make sure that the trader is comfortable with the increased trading size. (Location 1100)

Traders who make the transition from trading their own account to managing money should be closely attuned to whether managing other people’s assets impacts their mental comfort level in making trading decisions. (Location 1106)

Cut your trading size, substantially if necessary, until you are once again in sync with the markets. (Location 1125)

discretionary traders should categorize their trades and monitor trade outcomes for each category, so they will have the hard data to know what does and doesn’t work. (Location 1142)

Be sure you really want to trade. And don’t confuse wanting to be rich with wanting to trade. Unless you love the endeavor, you are unlikely to succeed. (Location 1171)

Rather than suddenly switch from daily to weekly charts in 2025, I am starting to experiment with the idea now to give myself a couple of years to see if I can make trading on weekly charts work— (Location 1202)

If you could only trade one market, which market would it be? Eurodollars, 11 if we’re not at a zero interest-rate policy with the Fed. (Location 1225)

as a trader, you have to be able to forgive yourself. If you can’t, you’re in trouble because a mistake can then impact your next trade, which can then affect the trade after that, and so on. (Location 1245)

Hedge Fund Market Wizards (New Jersey, John Wiley & Sons, Inc., 2012), (Location 1268)

If you felt there was a significant chance you might decide against approval regardless of whether or not you like the chapter I write, you should let me know. If, however, it’s simply a matter of your not approving if you don’t like the finished product, I am not concerned about that.” (Location 1321)

I thought kids were supposed to hate school, so I did. I thought kids were supposed to rebel against teachers, so I did. (Location 1336)

My mother was a child psychologist, oddly enough, and her attitude was— and I thank her to this day for it— let him be, and eventually, he’ll grow up and find himself. (Location 1340)

In college, I took a liking to economics. It just made sense to me. In my last two years of college, I was reading a new economics or business book virtually every few days. In my senior year, I was also working almost a full-time job in real estate. (Location 1359)

I graduated in 1988 when Japan was booming. I had taken Japanese in college, and someone told me about Japan needing English teachers. I went to Japan with my girlfriend and taught English there for about a year. While I was in Japan, I applied for a job at HSBC. I went to Hong Kong to interview for their executive development program, and I got the job. It was a five-year program where they rotated you to different departments. (Location 1364)

These guys work on their own time. They were super contrarians. It didn’t matter what other people thought. Politics didn’t matter. (Location 1388)

Then the bull market ended. Within six months, I blew out the entire account. All I had left was the Porsche. (Location 1405)

[Nick Leeson was a trader for Barings Bank who was able to successfully hide a string of mounting losses. By the time his deception was uncovered, he had lost $ 1.4 billion, causing the collapse of Barings Bank.] (Location 1407)

Here I was going through all the trouble of getting charts faxed every day and trading every day, and then I make far more money because I am away in Africa and can’t see or do anything. (Location 1426)

Another trade that LTCM and other hedge funds had sizable positions in at the time was long Russian bonds because of their extremely high interest rates. In August 1998 Russia defaulted on its bonds. To help cover the margin calls on this trade gone very wrong, the holders of these positions had to sell other positions they held, which were primarily their European interest rate convergence trades. When they all tried to liquidate this trade at the same time, they found there were no buyers because anyone who wanted the position already had it on. This trade ended up blowing up LTCM and Salomon Brothers. (Location 1446)

The euro did come into existence, and European interest rates did converge. But because the participation in this trade was so extensive, most of the people who had the trade on lost money, (Location 1452)

Don’t have an opinion. We used to have a saying in Hong Kong, “Should’ve been up, but it’s down, so short it; should’ve been down, but it’s up, so long it.” (Location 1476)

It wasn’t a matter of confidence; it was what I was going to do. There were no two ways about it. I was going to figure it out. (Location 1485)

the typical signs you see in a market bubble— the proverbial shoeshine-boy-giving-you-stock-tips euphoria. (Location 1497)

Looking at the COT reports, I saw that the data never provided a sell signal until January 2000. I thought, “That is powerful data.” (Location 1500)

[The Commitment of Traders is a weekly report issued by the Commodity Futures Trading Commission (CFTC) that shows the breakdown of futures positions held by speculators and commercials (industry participants). (Location 1502)

there will always be an equal number of long and short positions in each futures contract, the commercial and speculator positions will move inversely to each other. The underlying premise of traders, such as Jason Shapiro, who use the report as a market indicator, is that commercials will tend to be right (because they are better informed) and, by implication, speculators will tend to be wrong. (Location 1506)

While the small guys may have been buying stocks and making money in late 1999, the large speculators knew it was a bubble and were short. The bull market didn’t end until they got squeezed out. Once they all got squeezed out, the market topped because there was no one left to buy. The COT report picked up that information. (Location 1512)

I don’t just trade on the COT numbers. First of all, I need price action confirmation, and second, I have tight stops. (Location 1522)

The lawyer told me that his wife and Helmut’s wife were best friends. I told him that if he wanted to be my divorce lawyer, he had to get his wife to introduce me to Helmut. (Location 1560)

When I was traveling through Burma, I spent a month in a monastery, and my attitude is that you should always be satisfied. (Location 1588)

I was a kid from an upper-middle-class background who was given everything he needed and took advantage of it to the extreme. And here I was walking around in Burma, and these people who didn’t have two dollars to their name were giving me food to eat every day. It was a very humbling experience. (Location 1600)

Happiness— spending your day doing what you want to do. (Location 1610)

catch-22 (Location 1625)

Having a full-time quant assigned to me allowed me to quantify a lot of what I was doing. (Location 1630)

It’s hard to see what a winner looks like, but it’s easy to see what a loser looks like. I thought to myself, “I’ve been there.” The things James was saying and doing were exactly what I was thinking and doing when I blew up in Thailand. (Location 1640)

“What would you do if they stopped publishing the COT numbers?” I tell them that I can trade right off of CNBC. (Location 1648)

You don’t fight the tape. Be patient, and the market will tell you when. The low of the reversal day will be my stop. I’m not going to argue with it. (Location 1656)

You need both the market positioning and the market action. (Location 1665)

All these people think they are smarter than the market. Again, I’ve been there. They are not. (Location 1694)

The most powerful word in the markets is “despite.” If you hear or see a comment like, “Despite the increase in oil inventories being much higher than expected, oil prices closed higher,” that is the tape telling you what is going to happen. (Location 1695)

It’s never a coincidence. That’s the point. Adam was a sample of everyone else. The fact that the chat started lighting up was itself a sign that the market was at a capitulation point. (Location 1713)

I had six people working for me, and I hated it. I didn’t like managing people and being responsible for their success. (Location 1752)

a book called How Nature Works by a famous physicist named Per Bak. (Location 1764)

What barrier? Most people didn’t want to have the stigma of being involved in the pot business. I didn’t care about any stigma. (Location 1777)

these are 24-year-old kids who didn’t go to college and are working at some blue-collar job. They didn’t have the $ 150,000– $ 200,000 startup cost for setting up a growing facility that could generate $ 400,000 a year in revenue. I started building these facilities and then renting them out at $ 6,000 a month. (Location 1783)

I look at the market all day. I’m paying attention to the market correlations, especially the correlations of the positions I am in. If I see that I am concentrated in positions that are all moving together, I will either reduce my position or put on a position that will be inversely correlated. (Location 1822)

By definition, everyone can’t make outsize returns. So if everyone is doing something, the only way to make outsize returns is by being on the other side. (Location 1859)

Being a contrarian works in the markets, but it doesn’t work in social situations. (Location 1864)

People get into such one-sided views that their logic disappears. (Location 1871)

I succeeded because I have failed so many times, and I had an open mind about failure and was able to learn from it. (Location 1887)

Everyone understands that the market is a discounting mechanism. What they don’t realize is that the discounting mechanism is not price; it’s participation. It’s not that the price has gone from 50 to 100, and therefore the bullish fundamentals are discounted. Instead, it’s everyone is long, and consequently, the bullish fundamentals are discounted. (Location 1919)

a market’s discounting mechanism is based on speculator participation, not price, (Location 1932)

“Markets can stay irrational longer than you can stay solvent.” (Location 1947)

He looks to be on the opposite side of extremes in speculator positioning, or equivalently, on the same side as commercial positioning. (Location 1953)

For timing his contrarian positions, Shapiro will look for market reversals that occur despite a preponderance of news in the opposite direction. Markets bottom on bearish news and top on bullish news. (Location 1956)

participation. Markets bottom because speculators are already fully positioned short— a condition that will naturally occur in an environment of pervasive bearish news. A similar explanation would apply to market tops. (Location 1959)

If Shapiro is not stopped out of a trade, he will hold it until his COT-based oscillator turns neutral— an approach that will often require holding a position for months and through multiple market gyrations. (Location 1976)

if you know or can identify traders or commentators who are reliably wrong— a task far easier than finding those who are reliably right— then their opinions could well be useful in a contrarian sense. (Location 1981)

I write a market letter every weekend and have been doing it for 20 years. (Location 1994)

The three most important things to succeed in trading are patience— the ability to wait for the right trade rather than feeling you have to trade all the time— discipline, and risk management. (Location 2039)

Bargh maintains a spreadsheet with columns for different attributes, which he monitors daily in a self-awareness ritual. These items include focus, energy, risk management, process, counter trading (trading against the price move, which he considers a negative), ego, fear of missing out, and happiness rating (either extreme— depression or euphoria— being adverse for trading). (Location 2062)

When Bargh judges that he has exhibited weakness in any area, he will fill in the appropriate column for that day. At the end of each week, Bargh reviews the spreadsheet looking for columns with any fill-ins as a roadmap to the areas he needs to work on for further self-improvement. (Location 2065)

“You very quickly tend to forget about last month, last week, or even yesterday. By keeping a journal, you can see what was going through your mind at any point in time and track how your mindset changes over time. (Location 2070)

Bargh credits the Trading Tribe Process (TTP) created by Ed Seykota, whom I interviewed in Market Wizards, as an essential influence in helping him achieve emotional balance in both his trading and life overall. (Location 2074)

There are tribes practicing TTP worldwide, and Bargh runs the London group. Readers can find a detailed description of TTP at seykota.com. (Location 2077)

the movie about Nick Leeson [Rogue Trader], who broke Barings Bank. (Location 2103)

way behind the curve. I was competing against people who had been doing internships all through their college years. (Location 2122)

That tie habit is probably something you do unconsciously. Yes, entirely unconsciously. I only found out about it years later when one of them made a joke about it. (Location 2185)

Typically, trainees spent the first six months on a simulator. The firm monitored your P/ L. (Location 2218)

I found the first six months very difficult because of extreme paranoia. People used to joke about how I was only a few days away from getting fired. (Location 2225)

During the simulation period, I realized that I was only going to be good at trading if I became happy. I recognized early on how mentally tough trading could be, (Location 2264)

Depressive Illness: The Curse of the Strong by Tim Cantopher. (Location 2269)

It resonated with me because it made me feel that I was not alone. It helped me understand that the same thing happens to other people, and there is a strategy for getting out of it. (Location 2278)

I got out of it by brute force self-talk. I remember sitting on the bus back from work and thinking, “You have got to be happy! You have got to be happy!” (Location 2282)

If you are that committed to something and keep your focus on that one task, it’s only a matter of time before it starts working for you. He is that guy. He plugs away. He is proactive about dealing with anything that is holding him back.”] (Location 2363)

You had anticipated the possibility of the trade. You were utilizing the methodology you believed in— betting on an event— instead of using technicals. You were ready for the trade, and you put on the maximum position size. (Location 2394)

I don’t talk to them about trading anymore because my mom is a big worrier. (Location 2413)

every time I feel like I am set in this game, something strikes me back down. (Location 2416)

You work out what will move the market. You find your trade, and you execute. What stops traders from performing well is themselves. Most of my problem was psychological. I would have a good day, become complacent, and then be unprepared for the next event, which turned out to be an excellent trading opportunity. (Location 2420)

One of my regrets is that I didn’t trade more. I was pushing my size to levels that were more than I could comfortably handle, which made me afraid to trade. (Location 2462)

new things pop up when you reread one of those interviews years later. It seems like with more experience, you see things in a different light. (Location 2473)

Most of my mental energy was spent on worrying about whether I was good enough, and whether I would get fired. Instead, I should have been focusing on the process. (Location 2524)

I need to focus my attention on something; otherwise, I will focus on the wrong things. (Location 2537)

I don’t use trend following alone. I combine it with my knowledge of events. (Location 2558)

I didn’t want something a computer could do. My hunch was that if I could easily duplicate the basic trend-following systems, so could anyone else. (Location 2566)

Trend following by itself is insufficient. The critical elements are how you manage risk and how you take profits once you are in a trade. (Location 2573)

You have to trade your personality. You have to feel at peace with how you’re trading. (Location 2576)

keeping losses as small as possible is critical to capital preservation. The most crucial thing in trading is mental capital. (Location 2587)

When Brandt gets into a trade, he expects it to work straightaway if he is right. The best trades just go. If there is any sign that the market isn’t doing that, he tightens his stop for getting out. (Location 2592)

depends on the trade. The more confident I am, the more aggressive I will be with the risk I take, (Location 2604)

People have difficulty in cutting losses because they are afraid of getting out of the trade and then seeing it go in their direction. It’s an ego thing. (Location 2616)

The problem is that you only remember the times you got out, and the trade then went to the target; you don’t remember all the times when you got out, and it saved you money. (Location 2621)

The results were announced region by region. As the night wore on, it became increasingly clear that Brexit was going to win. The market had not priced that in at all. (Location 2636)

I bought US Treasurys. I figured that the shock of Brexit passing would cause a market shift to risk-off trades, which would trigger a rally in US Treasurys. The difference was that if I were wrong, I would probably lose only a few ticks in a long T-bond position compared with a couple of hundred ticks in a short British pound position— (Location 2647)

My goal as a trader is to always be in harmony with my process. So, I am using my feelings as an input to trading. I try to spot in real time when I am trading poorly. (Location 2678)

In analyzing my past drawdowns, I found that I would start to trade poorly but then keep on trading because I was afraid of missing the next trade. (Location 2679)

If I feel like something is not right, I just leave work early, or I might take the next morning off. I will do whatever I can to put my mindset back in the right place. I want to be trading from a state of calm and inner peace; I don’t want any internal conflict. (Location 2681)

that trade shook me up because it made me realize I was capable of doing what I did. It scared me because I thought, “I could do this again.” (Location 2701)

differentiate between the action and the outcome (Location 2706)

Steve helped me see a part of my personality that I hadn’t noticed. Which was? I tended to compare myself with others a lot and judge my performance against them. (Location 2738)

My ingrained response to missing a trade and seeing someone else do better than me was just a bad habit, and bad habits can be changed. Once I was aware of the problem, I was able to change. (Location 2753)

To be a good trader, you have to have a high degree of self-awareness. You have to be able to see your flaws and strengths and deal effectively with both— (Location 2776)

It doesn’t matter if I miss a trade because there will always be another opportunity. (Location 2778)

Opportunities are dispersed. You might have an opportunity today and then have to wait three months for the next opportunity. (Location 2783)

You have to forgive yourself for making a mistake. (Location 2787)

Staring at these screens all day long is like a casino inviting you to click. You have to guard against the temptation of taking impulsive trades. (Location 2789)

If a bad or missed trade destabilizes me, I have rules for bouncing back: Take some time off, exercise, go out in nature, have fun. (Location 2791)

don’t trade so large that fear dominates your trading. (Location 2816)

If you feel uncomfortable about your trading, you should seek to identify that source of discomfort and then modify your methodology to eliminate it. (Location 2817)

The obvious way to execute a trade idea may not always be the best approach. Sometimes, a related market can provide a better return/ risk trade. (Location 2841)

The damage from a bad trade often extends well beyond the loss on the trade itself. (Location 2856)

Traders need to distinguish between trade outcomes and trade decisions. (Location 2858)

Many traders erroneously evaluate their trading based solely on outcomes, whereas meaningful evaluation should be based on whether trading decisions were consistent with their methodology and risk control rules. (Location 2865)

The perfect environment for me is when the markets are quiet, and traders switch off because they are bored by the lack of volatility, but then there’s an increase in volatility. The volatility increase could be triggered by prices moving out of a consolidation area or an event that shakes things up, (Location 2946)

Sall focuses on trading market-moving events, seeking to capture large gains over short time intervals— typically only minutes— by identifying events that signal a high probability of accelerated price swings in the anticipated direction. He implements this core strategy in large-sized positions because his preparation for these trades gives him high confidence about the short-term market direction implied by different event scenarios. (Location 2977)

Sall is meticulous in keeping comprehensive write-ups on every trade he has ever taken and the significant trades he has missed. He groups these trade logs by category, filling multiple binders with trade descriptions. (Location 2980)

After a trade is made, Sall will summarize what he did and what he got wrong and right. At the end of each month, Sall reviews the trade summaries for the prior month. Before any significant expected trade, he will review similar past trade write-ups as analogues for how the market might be expected to react. (Location 2984)

“I will spend some time visualizing and internalizing how the trade might play out. This mental rehearsal allows me to act instantaneously. It includes not only triggers for getting into the trade but also a plan for managing the trade. I will also envision different scenarios (Location 2988)

one thing about life: You never know what is good and what is bad. Sometimes things that seem bad end up being fortunate and vice versa. (Location 3006)

While I was at Reading, there was a presentation by a couple of guys who were ex-LIFFE floor traders from Refco. After the presentation, I shoved a pen and pad at them and said, “Tell me everything I need to know. What books and articles should I read? What blogs should I follow? I’m interested in everything and anything about the practical side of trading.” One of them gave me his card and said, “Call me on Monday.” I was accepted into a trader training program before I graduated. (Location 3011)

For the first year, I didn’t feel comfortable with anything. I was trying everything, and that is what you should do. (Location 3025)

when you look at a chart, it seems like trendline breakouts work. But that perception is a consequence of knowing where to draw the trendline with the benefit of hindsight. What most people don’t realize is that, in real time, there were often multiple other trendlines that experienced what proved to be false breakouts, (Location 3035)

There are only a handful of factors driving any particular market at any given time. It is a matter of being aware of what is relevant to a market and what is priced in. (Location 3063)

I loosened my entry criteria by not sticking to my type of trades. It was the classic mistake of doing well and then loosening up. (Location 3106)

I never want a position where I am hoping that it will work. I had to go through that experience to know the difference between a trade where I have full conviction and a trade where I am hoping. (Location 3124)

With the benefit of hindsight and experience, I can now say that the big trades are pretty simple. You don’t have to go looking for them, but you do have to wait for them. (Location 3129)

Debussy’s quote that “Music is the space between the notes,” (Location 3135)

Trading is the space between trades— (Location 3136)

I always ask myself: Am I in a state of readiness? Am I fully prepared? Am I wasting my financial capital and mental capital on subpar trades instead of waiting patiently for the real trade opportunities? (Location 3138)

Any idiot can make something complicated. When I look back at the trades responsible for my best return months, they just scream out to me, This is a big trade opportunity. (Location 3144)

90% of the time, the market is not going to provide any opportunities, and 10% of the time, I will make 90% of my profits. (Location 3149)

I had a taste of what it was like to have good trades on, and I knew there were going to be more of them. I just had to stay in the game long enough for my stars to be aligned again. (Location 3158)

The Fed’s primary tool for targeting the Fed funds rate is termed open market operations— the buying and selling of short-term Treasurys to increase or decrease the quantity of money and, in turn, reduce or raise interest rates. (Location 3169)

In a sense, quantitative easing is an extension of normal open market operations. When short-term interest rates fall to near zero, (Location 3173)

quantitative easing, which meant increasing the supply of money, as in normal open market operations, but without the objective of decreasing short-term interest rates, (Location 3176)

In practical terms, quantitative easing meant the Fed created money to purchase non-traditional assets (i.e., assets other than short-term Treasurys). Specifically, the Fed bought longer-term Treasurys and non-government assets, such as mortgage-backed securities. (Location 3177)

The Fed’s first quantitative easing move occurred in November 2008 when, to support the mortgage and housing market, it purchased mortgage-related government agency assets and private mortgage-backed securities, a financial asset class for which buyer demand had virtually disappeared. (Location 3181)

I expected the Fed to eventually expand quantitative easing to include the purchase of longer-term US Treasurys. I thought that if and when such an announcement occurred, it would trigger an instantaneous, massive rally in T-bonds. (Location 3191)

I was poised for that one trade. The order was prepared, and my finger was ready to click. My mind was totally focused. There was no obstruction between the newsfeed and me. There was no self-doubt or excitement to compromise my acting on the trade. I was in a state of flow. I was looking for one trade, and I didn’t care about anything else. (Location 3211)

Once there has been enough price movement to avoid getting stopped out artificially, I will put my stop in. (Location 3237)

once you have a position, there is always the possibility of news coming out adverse to your position, and you may not be able to get out quickly enough. Having a stop in eliminates that tail risk. (Location 3238)

My approach doesn’t stop me from putting on a position on an event that may be somewhat priced in because it can still trigger a big move on the day of the event, (Location 3253)

My best trades come from being on the other side of the type of trade I was in— namely, trades in which short-term speculators have it wrong, and I can go against them. (Location 3268)

now that my trading size is much larger, I will no longer take anticipatory trades. (Location 3277)

We had what I called a “celebration” because I wanted to shift my focus to the positive aspects of my situation rather than sulk over my loss. I was grateful to be in a position that offered so much potential for earnings. The fact that I could lose so much money, so quickly, only reinforced the opportunity I had. (Location 3289)

After a bad trading day, I have two options: I can sit there, dwell on it, and let it hold me back, or I can flip it on its head and take control of it. (Location 3297)

After a big hit, I try to minimize the impact on my emotional capital by returning to a calm and centered state as soon as I can. I do a postmortem on the trade, learn the lessons, and move on to the next opportunity. After processing a big loss or drawdown, I have often treated myself from a place of gratitude for all that I have achieved to date. Through this process, I avoid the trap of repeatedly replaying the same negative story, reliving the pain multiple times, and taxing my mental capital. (Location 3298)

If I realize I am having a tough time, I will ground myself and be grateful for the journey. Then I can go out and treat myself. (Location 3310)

The ocean surface is covered with waves and turbulence, but if you dive down, it is calm. We all have the ability in us to dive down into that calm region. (Location 3312)

If you are worried about missing out on a trade, you will be prone to take trades you shouldn’t be taking. If you are emotionally agitated, you may snatch your profits instead of letting them run, or you may hold onto your losers. (Location 3313)

it’s going against standard human emotions. As a trader, you are continually going up against your own emotional limitations. That is why so few people succeed in trading. (Location 3319)

I noticed that, periodically, I would go through losing periods for no discernible reason. So, I started to keep an error log of marginal trades that were resulting in losses. (Location 3329)

Underlying subconscious thoughts, emotions, and behaviors can drive our actions and adversely impact trading. (Location 3331)

The only way I could be successful in making millisecond decisions for large amounts of money is by accessing that calm state. (Location 3341)

I once read that the US Navy Seals use neurofeedback and biofeedback to help them access flow states on demand when in combat. I also read that the hardest part of a Seal’s job was knowing when not to shoot. (Location 3343)

Before a significant trade event, I go through breath work and meditation to center in on the present moment and transcend the chatter in my mind. Over time, I have learned how to access flow states within a few minutes. (Location 3349)

When I am deeply present, everything feels easy. In this “deep now” state, I’m reacting from a subconscious level that represents 95% of the mind’s potential versus 5% for the conscious mind. In this state, I’m creative, and I can process large amounts of information and react without hesitation. (Location 3351)

Through experience, I have learned that when my gut tells me that something is off, regardless of what my research indicates, my gut is usually right. (Location 3358)

I always look for situations where the market initially moves in the wrong direction in response to an event, and then I can go the other way. (Location 3364)

The thing with short-term trading is that you can be “right” and lose money. (Location 3376)

Taking partial profits allows me to lock in “free trades” that offer unlimited upside but zero downside after I’ve taken profit on part of the position. (Location 3402)

At the portfolio level, when I hit a 6% drawdown, I may start scaling back my size and become much more selective on new trades I put on. (Location 3404)

I have been on a slow bleed losing money over a long period, which usually means the market is in a lull period, or I’m out of sync with the market. In such instances, I will begin cutting size back and tighten up my criteria to take only dead certain trades. (Location 3406)

try to execute trade ideas in multiple correlated markets. (Location 3411)

sometimes, if the trade is not working in one of these markets, it doesn’t mean there is something wrong with the trade hypothesis; it may just be that something is going on in that market that is keeping the trade from working. (Location 3413)

They had a paycheck mentality; they felt they had to make a certain amount every month. The reality is that you may go through long periods when you don’t make anything, or even have a drawdown, and then have a substantial gain. Entrepreneurs understand that. (Location 3425)

If they had killed the negative reinforcement process at the root by controlling their emotions after the first loss, they would’ve been in a much better position. (Location 3436)

They are competitive within themselves and are always looking for ways to improve performance month after month. (Location 3443)

They embrace failure as feedback. They understand that failure is a necessity on the path to success in any endeavor. They realize that something is a failure only if they miss the opportunity to learn from it. (Location 3447)

I am very aware of the characteristics of a good trade, and I don’t hesitate when such a trade presents itself. I am always looking for asymmetric return/ risk trade profiles. (Location 3451)

I’m not looking for instant gratification; I put in the work and then wait patiently for the right trade. (Location 3455)

I don’t attach myself to the outcome of a trade. I keep my focus on following a process. (Location 3459)

I am disciplined, which allows me to leverage aggressively when there is a major trade opportunity. (Location 3463)

my inner focus: self-reflection, self-awareness, journaling, meditation, and breathwork. In particular, my ability to get into a flow state is the essence of who I am and, when combined with in-depth research, is my edge. (Location 3472)

You can do so much damage to your mental capital between trades that when the big trade turns up, you are not ready for it. (Location 3477)

When he is in a drawdown or has experienced a particularly bad trading day, Sall will break any burgeoning negative mindset by focusing instead on all the things he is grateful for. (Location 3506)

Only take trades that fit your rules and avoid the marginal trades. (Location 3522)

a goal of making profits every month will entice traders to take trades that are based more on hope than methodology when genuine trade opportunities are lacking. (Location 3526)

If you are ambiguous or doubtful about whether your trading methodology provides an edge, you should be particularly cautious regarding the amount of money you are willing to risk. (Location 3569)

you could get that information before it was reported by the newswire services by retrieving data directly from the Florida website. It was market-moving information in the public domain, and I got it two or three minutes before Bloomberg reported it. (Location 3603)

the line between success and failure on that trade was so thin that if I weren’t in a calm state of mind, I definitely would have stopped myself out at the top and had a big down day. (Location 3632)

I accept that being in a drawdown is the natural state of a trader. You spend most of your time underwater just like a shark; you’re an apex predictor coming up occasionally for a big meal. It’s very difficult to succeed at event-based trading if you adopt a hunter-gatherer mentality, trying to find small, consistent wins to keep you alive. (Location 3673)

Daljit Dhaliwal’s (Location 3711)

In his nine-plus years of trading, he has achieved a remarkable average annual compounded return of 298%. (Location 3712)

When Dhaliwal is committed to a goal, he goes all out in achieving it. (Location 3722)

he studied market price moves and their causes, to learn from the markets how to interpret different events. (Location 3732)

Dhaliwal placed day trades based on his interpretation of fundamental events, such as central bank announcements. In recent years, he has shifted increasingly to longer-term trades based on macroeconomic models he and his research assistant have developed. (Location 3736)

On the quantitative side, I am using leading economic indicators and historical analogue models we have developed. On the qualitative side, I use a short-term strategy of trading headlines as a tactical tool for getting positioned in the market. Also, on the qualitative side, I use my understanding of narratives that may be driving the market, (Location 3745)

I don’t have to trade if I am not in the right frame of mind or the opportunity cycle is not in line with the way I trade, (Location 3775)

As a trader, you need to make optimal decisions, and it’s difficult to make the right decision if you’re stressed or tired. (Location 3781)

I started spread betting on currencies. I think it is illegal in the US, but it is legal in the UK and also tax-free. (Location 3793)

At the end, he asked me if there was anything else I wanted to ask for or say. I told him, “I have applied to 30 different places, and I really want to be in this field. If you just give me this job, I will be the hardest worker you will ever see.” (Location 3823)

I try to align myself more with making money than being intellectually correct. In practice, that means letting the market reaction to news guide me as to what is important. (Location 3866)

Around 2016, I began to realize that when there was a significant fundamental shift, the short-term moves continued into longer-term moves. (Location 3876)

The most profitable trades were the ones that were based on entirely unexpected events. (Location 3884)

I am not looking for confirming signals; I am looking for disconfirming signals. All I care about is how I might be wrong. If there is a meaningful adverse event, it might mean my models are wrong. (Location 3917)

I saw the attribution to the FT, and I thought it had to be correct. The story was such a complete surprise that I thought I could have my best day ever if it was correct. I decided to take a punt and instantly started buying the euro and selling the Euro Stoxx 50. The story was wrong. The ECB cut rates. The markets reversed so quickly that even though I liquidated immediately, I ended up getting out at the extreme of those moves. I went from being up six figures to down six figures in a matter of seconds. (Location 3936)

took some money off the table when I had a quick, large gain. (Location 3957)

keeping the downside small. The psychological impact of large drawdowns is not worth the upside. You are much better off keeping an even keel. (Location 3961)

The article was one of two pre-written stories— covering different possible decisions— which had been prepared in advance of the announcement. Due to an editing error it was published when it should not have been. Automated feeds meant that the initial error was compounded by being simultaneously published on Twitter. (Location 3974)

Steve Goldstein [the founder of Alpha R Cubed, a London-based executive coaching firm, who has worked with many excellent traders]. (Location 3979)

“Successful market speculation is an upstream swim against human nature,” and I liken coaching to a speedboat that helps me do that. (Location 3982)

If you focus on your strengths, you don’t leave any time for your weaknesses. (Location 3986)

The next day I received an email from Charitybuzz, the website that had run the auction, saying that Dalio was offering a second lunch and that I could have it if I matched the winning bid, which I happily did. (Location 3996)

Ray Dalio’s book, Principles, (Location 4005)

your perception of reality is not necessarily the way things are. To reach your goals, you need a strong understanding of the links between the actions you take and the outcomes they produce over time. You can then adjust your actions where needed to reach the desired outcomes. (Location 4009)

I reviewed the trading notes I kept, which represented my perceptions, and then I looked at the data of the outcomes for those trades, which represented the reality. (Location 4013)

it was essential to go as far back as I could to test my views. (Location 4027)

people get blindsided by something that has happened before because they overweight recent history and their own experience and don’t go back far enough to backtest their views. (Location 4027)

Devil Take the Hindmost: A History of Financial Speculation by Edward Chancellor. (Location 4035)

the expected value from ocean exploration was much greater than the expected value from space exploration. (Location 4046)

How would you define expected value? For me, it’s having a contrarian view on a market that is very out-of-favor. (Location 4048)

Brandt’s Factor trading service (Location 4059)

Peter told me that it took him 8 to 10 years before he knew he had a definable edge. (Location 4062)

the behavioral side of trading is an underexplored area for improving performance. (Location 4084)

I believe that long-term chart patterns are important, especially prolonged consolidations. You can’t tell when they will break, but when they do, it can often lead to major price moves. (Location 4108)

When I started, my attitude was that I didn’t know anything. So, I always worked backward from the market moves rather than forward from personal opinions. (Location 4139)

Compile your trading statistics and maintain a trading journal. Armed with this information, you should be able to define your positive and negative edge characteristics and adjust your trading accordingly. (Location 4145)

Stay in the sphere of your edge by playing your game and not someone else’s. Then, visualize yourself trading at your best. What does that look like? What things aren’t you doing that you should be? What actions do you need to guard against? Through this process, you can enhance your positive edge and limit your negative tendencies. (Location 4147)

Adam Robinson, (Location 4154)

genius is knowing that you have a hammer and only looking for nails. (Location 4154)

The risk/ reward on a trade is quite dynamic and can change dramatically as you hold it. Therefore, I need to be flexible in covering part of my position as a trade moves in my favor. (Location 4155)

I have a drawdown alert, which is a personalized rule. (Location 4159)

be cognizant of certain feelings that are a warning sign that I may be getting out of sync with the markets. The keywords I watch out for in my daily trading review notes are FOMO and frustration. (Location 4163)

Seek clarity over certainty. Trying to reach for certainty will keep you from acting. (Location 4165)

Always be prepared for what could go wrong. Know what you will do if the opposite of what you think will occur happens. (Location 4167)

Always trade an opportunity for what it is, not what you want it to be. (Location 4168)

Always make sure your stops are set at a point that disproves your market hypothesis; never use a monetary stop— a stop point selected because it is the amount of money you’re willing to risk. (Location 4170)

If you are tempted to use a monetary stop, it is a sure sign that your position size is too large. (Location 4172)

As long as the sun rises tomorrow, there will be another day I can make money. It is not something I have to worry about. (Location 4174)

I generally advise against seeking a trading career because most people are not willing to put in the amount of effort that is needed to succeed. (Location 4178)

One problem with markets and speculation is that luck plays such a significant role in the short term, which can fool people into thinking their profits are due to skill, even when they aren’t. (Location 4179)

Don’t be eager to start trading. Do the research, find your approach, (Location 4185)

Periodically reviewing such a journal to reinforce these lessons is one of the most effective ways traders can improve. (Location 4203)

once algorithmic traders started sparking the anticipated price moves more quickly than he could enter the orders, he shifted to a strategy of fading these price moves— that is, trading from the exact opposite direction after the initial price move. (Location 4207)

He will cut size in half if a drawdown exceeds 5%, and cut it by half again if it exceeds 8%. If his drawdown reaches 15%, Dhaliwal will stop trading altogether until he feels ready to resume. (Location 4216)

the reward/ risk ratio of a trade is dynamic and can change dramatically as the trade is held. (Location 4219)

holding the entire position until it is exited is an attempt to be 100% right, at the risk of being 100% wrong. (Location 4222)

Defining your trade management plan before you get into a trade is far preferable to doing so after you have placed the position. (Location 4231)

before you are in the trade, you have the advantage of making decisions with full objectivity. Once you are in the position, you lose this advantage. (Location 4232)

Seek clarity over certainty. The markets are not about certainty; they are about probabilities. Waiting for trades that approach the ideal of certainty, or near certainty, will lead to inaction and missing many trades that offer good probabilistic bets. (Location 4249)

After training, he was stationed in Japan. Netto loved the Japanese language and bought language instruction tapes, which he used to achieve fluency in Japanese. (Location 4305)

a methodology that combined an understanding of the dominant fundamental drivers of market prices with technical analysis as a tool for pinpointing the entry levels for trades consistent with his fundamental view. (Location 4317)

no matter how bad things are, the sun always rises the next day. (Location 4359)

Going through that loss, which I didn’t think was possible, made me aware of the potential for outlier events when I began trading, (Location 4362)

I had poor grades and lacked self-esteem. I had some intrinsic sense that I had intellectual potential, but I knew I needed a lot of discipline. And the idea of joining the toughest, most badass service just made sense. (Location 4377)

I chose the Marines both because it was the most challenging and most structured. I was self-aware enough to know that I had slacked off in high school and that I wasn’t focused. (Location 4381)

The Marines teach you discipline and the ability to function under tremendous pressure. (Location 4401)

Trading is a lot about accountability. You have to be responsible for your losses and not blame them on something else. (Location 4407)

[A Fibonacci series is a sequence of numbers in which each number is the sum of the preceding two numbers (0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89…). The ratio of one number in the series to the following number approaches 61.8% as numbers get larger, and the ratio of one number to the second following number in the series approaches 38.2%. (Location 4445)

“On tilt” is a poker term for a player who loses emotional control in trying to recover a loss, making aggressive, bad bets, which end up amplifying the total loss. (Location 4467)

in a sense, gold is a zero yielding currency. The fact that gold yields zero makes it a better asset to hold that $ 17 trillion of assets you have to pay to own. (Location 4508)

when a convincing narrative is contradicted by the market price action, the reversal from the narrative-driven trading can be violent. (Location 4536)

an audio squawk called Trade the News, (Location 4564)

you have to understand the market narrative, so you know what is and isn’t a surprise and act accordingly. (Location 4572)

A big part of what I do is defining 20, 30, 40 potential scenarios before the event, as well as the trade action associated with each scenario. (Location 4604)

Emotions are your friend, not your enemy. The human emotions that we feel can be used as a signal source. (Location 4637)

where I am on the emotional scale. Am I highly afraid? Am I highly greedy? Or, am I emotionally balanced somewhere between the two? (Location 4640)

I assess the tension in my body when I am in a trade. I want to be focused and still feel some anxiety. In contrast, if I exhale in relief after a position has gone my way and feel too relaxed, that is a warning sign of a possible impending market reversal. (Location 4645)

If you have to choose one, would you rather replicate the trades of the three most successful traders you knew, or would you rather do the opposite of the three worst traders you knew? I would always choose to do the opposite of the worst traders. (Location 4654)

the characteristics of bad traders? They have no process. They make their decisions emotionally and are incredibly impulsive, (Location 4657)

proxy for the worst traders— a valuable indicator— is being aware of your own emotional extremes. (Location 4660)

Winning traders get the joke. They realize that they can lose even when they do everything right. Winning traders have a process, the discipline to follow the process, and a commitment to strive for continuous improvement. (Location 4665)

Losing traders are looking for a silver bullet, and if it doesn’t work immediately, they are onto the next thing. (Location 4668)

Risk-taking with a process leads to success, while risk-taking on impulse leads to regret. (Location 4671)

When you love what you do, you’re going to be successful. (Location 4675)

When you lose money in a market, let it go. Be on guard against the urge to make money back by taking previously unplanned trades. (Location 4703)

There’s an intuitive feel you develop after decades of doing this. (Location 4732)

Joe DiNapoli, DiNapoli Levels: The Practical Application of Fibonacci Analysis to Investment Markets (Coast Investment Software, Incorporated, 3rd edition, 1998). (Location 4760)

By experience, I know that sometimes the best stories come up in the relaxed setting of a meal. (Location 4802)

sector themes are an essential component of Neumann’s methodology. Neumann defines his own niche sectors. (Location 4811)

I finished my required coursework in three years. The summer after my junior year, I went backpacking in Europe. (Location 4821)

I had an economics course in high school, and as part of the course, we had a $ 100,000 virtual stock portfolio. (Location 4829)

One of the best things I did was to set a profit goal. (Location 4858)

They let me put in an order at 7.01 cents. So I would get filled anytime anybody sold. I was able to cut in line. When I got filled, I would put up my stock for sale at 7.99, and anytime anybody bought, I would get filled. I was almost a market maker. (Location 4870)

It ended about a year after it started. The bid-ask spread got so compressed that by the end, I was selling a stock only a few hundredths of a penny above where I bought it. (Location 4920)

I watched for stocks that had large block size orders, so I could follow what big money was doing. I only wanted to be in stocks where I saw accumulation by larger entities. (Location 4924)

he is buying a breakout from a downtrend line rather than an upside breakout from a sideways consolidation formed near lows. (Location 4941)

I get out really quickly. If I bought the stock at 30.1 cents, and it went down to 30.0 cents, I would hit the bid and be out. (Location 4951)

look for breakouts from longer-term trendlines because they led to much bigger moves. (Location 4959)

I look for breakouts from one- to five-year trendlines so that I can accumulate more significant positions and trade for bigger price moves. (Location 4962)

This post was two weeks before the bill was introduced in Congress. The story was carried in some local Kansas City newspaper. The news had not yet been disseminated on national media. It was just that songw was such a great researcher that he found this story. (Location 4973)

I held them for the full move. I sold the day the bill went to Congress. I crushed it. Three of the ethanol stocks I bought went up over 1000% in 10 trading days. (Location 4980)

the power of a sector move with a hard catalyst and a well-defined date. (Location 4983)

I like to buy a whole sector of stocks at the same time. When I get into a sector, I use a shotgun approach. I buy everything in the space— every stock, every related stock. Initially, I buy smaller positions, and then I start researching the idea intensively. I read filings on all the companies. Once I get conviction on the trade, I start pyramiding my positions by hundreds or even thousands of times. (Location 4992)

At this point, I don’t just sit here and look at a company. I will visit the company. If they make a consumer product, I will buy it and see if I like it. If I don’t like the product, I won’t trade the company. (Location 5005)

I turn myself into an expert in each of the sectors I invest in. (Location 5012)

Once everyone is talking about it, I no longer have an advantage. By that point, if I am not already out, I want to be looking for a place to get out. (Location 5029)

When the sector leaders broke their uptrend lines, even though some of the smaller stocks held on, I started getting out of everything. (Location 5034)

the 3D printing experience led me into what turned out to be my most profitable trade ever. I found a 3D printing company that was doing bioprinting. (Location 5036)

they uplisted to the NASDAQ and did a concurrent share filing raise, which knocked the price of the stock down about 30%. But from my perspective, the uplisting provided the ultimate buying opportunity, and I went all in. (Location 5044)

For a lot of my best trades, the stocks don’t even exist anymore. (Location 5056)

I ordered the product and tried it, and I actually liked it. However, the biggest thing for me was the filing that showed that insiders had bought half the outstanding shares. (Location 5062)

While I was on safari in Kenya, I received a text from my buddy telling me that Spongetech had gone up to 25 cents. At 25 cents, the company’s market capitalization was nearing $ 400 million, and all they did was make a sponge with soap. (Location 5074)

Reminiscences of a Stock Operator. (Location 5104)

[In 2010, the SEC charged Spongetech and its executives with “a massive pump-and-dump scheme that deceived investors into believing they were buying stock in a highly successful company.” Spongetech had also defrauded Madison Square Garden and a host of professional sports teams, leaving them holding the bag for millions of dollars of unpaid sponsorship and advertising bills.] (Location 5109)

focus on small-cap stocks. My sweet spot is stocks in the $ 200 million– $ 500 million capitalization range. (Location 5137)

If the stock starts moving down instead of up, or liquidity is declining, or big orders are getting hit on the ask instead of the bid. By the time I buy several percent of a company, I have a pretty good idea of how the stock acts. If the stock starts acting differently, I start reducing my position. (Location 5216)

If you get stopped out of a trade, will you look to reenter it if conditions are right? It’s easy for me to buy it again. I have no qualms about buying higher. (Location 5228)

placing large bets when you had the right set up, and keeping bets small when you didn’t. (Location 5239)

I look at trading like a puzzle; (Location 5250) - Note: Trading Puzzle four corners: 1. technical analysis: you have to have the right chart pattern; 2. a clean share structure: has few or no options or warrants, and preferably, there are fewer than 200 million shares; 3. being in the right sector; 4. having a catalyst or story that will make the stock or sector move up. Once the four corners are in place, you can then fill in the pieces: details on filings, checking into what management has done before, trying the product, and pyramiding your position correctly.

What’s next? Always look for the next big opportunity. Understand when you get out of a position that’s not acting right, you can always get right back in. Look for 10 to 1 return/ risk trading opportunities. (Location 5265)

I wanted to be first. Even if I got smacked around sometimes, it was OK, as long as I could be ahead of everyone else for whatever theme was next. (Location 5276)

I am quick to see when I made a mistake, and I immediately pivot and correct it. I learn from each mistake. (Location 5279)

Neumann is early— he gets out immediately if the breakout doesn’t follow through, thereby assuring a near-breakeven outcome, even on premature trade entries. (Location 5289)

Many of these emerging industries go through a cycle of an initial upward price wave, as hype over a new product sector generates excessive buying that is unwarranted by the nascent fundamentals, and then experience a near-complete price decline once reality sets in. (Location 5292)

knowing which breakouts to buy is what makes Neumann’s trading approach so effective. (Location 5308)

The stock is showing some signs of life— either a sudden upmove after an extended period of decline or sideways price movement, or an abrupt spike in volume after a lengthy period of relative inactivity, or both. (Location 5316)

unflinching ability to exit trades without hesitation when they are not behaving as he expected them to. (Location 5326)

You need to stick to your methodology and trading plan. Beware of being enamored by an unplanned trade. (Location 5345)

Successful trading is a matter of skillful money management (expressed via entry and exit methodologies), not prediction. (Location 5352)

“If you are on the right side of euphoria or panic, lighten up. Parabolic price moves in either direction tend to end abruptly and sharply. (Location 5359)

Peter Lynch’s book, One Up on Wall Street, (Location 5364)

Extreme position concentration has worked for Neumann because of three factors. First, he has a high success rate on his high-conviction trades. Second, he scales into his positions so that by the time he has as much as one-third of his account in a single stock or single sector play, his average entry price is much lower, providing him with a substantial cushion if the stock starts falling. Third, and perhaps most importantly, he is very quick in scaling out or liquidating his position if the stock starts moving down or exhibits other signs of not acting as he anticipated. (Location 5373)

Robin Hood and free trading, everyone being home, stimulus checks, and WallStreetBets building its swagger all coincided, and it was game on. (Location 5393)

I used this neat Reddit crawling tool, which indicated the frequency of specific stock posts on WallStreetBets. (Location 5405)

There were two profit opportunity days in SPACs: the day they announced a partner and the day when the ticker symbol changed, usually a couple of months later. (Location 5427)

I will always be looking for another zero-risk, unlimited-gain opportunity. (Location 5435)

I probably made as many trades on an average day in 2020 as in the entire first half year of 2022. (Location 5458)

My playbook is to be heavily long lithium miners for the next three years, then roll the proceeds into solid-state battery companies, and then several years later roll my investment into recyclers, riding what I anticipate will be a giant electrification trend. (Location 5474)

Camillo founded TickerTags, a company whose software allows monitoring and measuring social media mentions of words or word combinations (which he terms “tags”) that are important to specific stocks. (Location 5485)

I went to antique malls and flea markets to find people who were interested in one particular item and were willing to pay a premium for it. There was no eBay at the time. (Location 5532)

they have a much lower degree of knowledge about things that are male-oriented, such as watches and old train sets. Anything that was male-oriented, they just put a number on it and got rid of it. (Location 5537)

I had a hard time focusing on things that didn’t interest me. (Location 5549)

Wall Street had blinders on to certain things because of a geographic bias, or other bias. (Location 5651)

My biggest mistakes over the years have always been a consequence of trading too much. If I just stuck to my highest conviction trades, I believe my account would be 10-fold what it is today. (Location 5673)

“Don’t ever, ever get shaken out of a trade by thinking they know something that you don’t.” (Location 5775)

Stranger Things did something different: It hit that peak in the first week but then plateaued at that level week after week. When you combined all the mentions during the first 60 days after the show’s release, the total was triple the second-highest amount for a past hit show. (Location 5787)

I didn’t recognize it. I saw it, but I didn’t observe it. (Location 5805)

hiring 40 students from local colleges to curate these ticker tags. They curated a quarter of a million tags. The idea was to combine these ticker tags with unstructured data licensed from social media firms, such as Twitter and Facebook, so we could measure the relative frequency with which those tags were being mentioned across these social networks in real time. (Location 5843)

For each company on their list, they were instructed to research the company, research quarterly earnings reports, find news articles about the company, all with an end goal of identifying the price drivers for that company. They would tag any word associated with anything that could move the needle for the company. (Location 5854)

The information timeline begins with social communication— people talking with each other online or offline. Then it makes its way to the non-financial press. After that, the financial media picks it up. As the last step, it hits company earnings statements. (Location 5877)

Credit card data shows what people are buying before the earnings come out. (Location 5880)

so you use the transactional data as your exit. Yes, when I believe it indicates the information has already been sufficiently disseminated. (Location 5893)

The typical scenario is that something bad happens, the company does some brand repair, and then weeks or months later, everybody forgets about it. SeaWorld was one of those rare situations where the level of negative conversation spiked, and then just kept building. (Location 5930)

I shorted the stock repeatedly during that period, trading in and out around information dissemination events, such as earnings calls, because I knew the situation wasn’t improving, and the market refused to believe it. (Location 5933)

This type of methodology is so foreign to them that their lack of comfort and confidence in this approach would lead them to move much more slowly on the trade than I would, if they made the trade at all. (Location 5967)

Their world is really noisy. They have a hundred different ways to look at things. They are so entrenched in doing things a certain way that for them to adopt what I do would be radical and extreme. They can’t look at something like conversational volume impacting a specific stock because there is no history there. They want to see high correlation to trust the data. (Location 5971)

It was a one-of-a-kind event. You have to understand and interpret this data. You have to be willing to trust it. (Location 5975)

Unless the methodology is your own, you won’t trust it. (Location 5980)

I will never trade on data alone. Every trade I do has a thesis with a narrative associated with it. (Location 5990)

anytime I saw a spike in the number of people concerned about guns being banned and also people looking for gun classes, I would view it as an early sign that gun sales were increasing. (Location 6007)

The word combination “obsessed” plus “new” plus “game” will alert me when there is any new game that is sparking an upsurge in online conversation. So that umbrella tag would clue me in as to what specific game tag I need to start following at that moment, (Location 6030)

If I believe the information could potentially be significant, I then have to determine to what degree it has already been disseminated to the investment public. If it’s already market knowledge, then I have to assume it is reflected in the price. If the information is both significant and not yet disseminated, I then have to research whether there might be any extraneous factors that could meaningfully impact the company during the time window of my trade. (Location 6065)

I don’t care if the company is overvalued or undervalued. I assume that the stock is trading relatively efficiently on the information that is out there. Then once this new information is added to the picture, the stock should adjust accordingly. (Location 6071)

I want to select options that expire as soon after the expected information dissemination as possible to keep my option premium expenditures as low as possible. (Location 6075)

The second the information I am trading on hits the street, whether it’s through analysis by a sell-side firm, or a media story, or the company itself reporting it, I call that “information parity,” and my trade is over. (Location 6085)

when I took my first week of meetings with hedge funds to market TickerTags as a data product, they loved the concept, but every fund I met with told me not to come back as long as I was still running my hedge fund. (Location 6110)

Since this doll was associated with a Disney movie, wouldn’t many other people have been aware of it? Not necessarily since there were a lot of other merchandise items related to the same Disney movie. It’s funny how people always seem to congregate around one hot item. (Location 6122)

Jakks Pacific was not an actively traded stock, and this fund had apparently decided that they would use the first day with good liquidity and strength to get out of their entire position. (Location 6141)

I feel my ability to focus on subject matter that is of interest to me is my number one strength. The type of analysis that I do requires an immense amount of work for something that often doesn’t have any immediate payoff. I could go for months without finding a high-conviction trade. (Location 6173)

Patience is something that I have slowly developed over the past 15 years. (Location 6186)

Don’t try to change who you are to match some perception you might have about what professional traders do on Wall Street. Don’t try to learn mathematics if you’re not a natural mathematician. Don’t try to learn financial analysis if you have no background in it. There is probably something in your background— some area of knowledge or intense interest— where you are willing to spend an inordinate amount of time to develop deep expertise. If that’s what you do, then you can outsmart the generalist, and most market participants are generalists. You have to find a niche where you can excel. (Location 6191)

being observant and highly attuned to new behavioral trends, both in your everyday life and in social media, can be a source for uncovering trading opportunities. (Location 6208)

Losing trades can be good trades, and, similarly, winning trades can be bad trades. (Location 6220)

Don’t ever listen to anybody when you are in a position. Stick to your own approach and avoid being influenced by contradictory opinions. (Location 6221)

“Am I confident that my trading methodology and process will make me a winner in the markets?” If the answer is anything less than an emphatic “yes,” they should stringently limit their risk capital until they achieve a higher level of confidence in their approach. (Location 6239)

You have to come to terms with the fact that the thing you do well might not matter at a given time. (Location 6274)

The second I got the first word of the coronavirus in China, I started translating Chinese blogs and newspapers into English. It didn’t take long for me to see that something big was happening. (Location 6292)

Everything I see, I stop and ask myself, “Is this meaningful? Can it significantly impact public markets in any way?” If it does, then I have to start my research process. (Location 6300)

It is difficult for people to wrap their heads around extreme anomalies or believe in them until they are right in front of their faces. (Location 6310)

in 2008. Some people saw the impending financial crisis as clear as day, but the market was unwilling to believe it until it couldn’t be ignored. That historical precedent assured me that the market could ignore something big and obvious. (Location 6314)

I went leveraged short on the market as a whole, as well as travel and casino stocks. (Location 6319)

as my primary short position, I bought weekly puts in the stock indexes and the stocks I wanted to be short. I got my ass kicked for 2 1⁄2 weeks. I bought weekly options because I wanted to maximize my position. At the time, I had about $ 7 million in my account. Each week that passed with nothing happening, I lost a couple of hundred thousand dollars as the options expired worthless. (Location 6324)

I recognized that a handful of companies were positioned to not just benefit from the virus but benefit hugely. And those companies were being sold off along with the rest of the market, (Location 6356)

I was not going to flip from my short positions to long positions until after the market had made a turn. I knew precisely what stocks I was going to trade. I was mentally prepared, (Location 6368)

Everything I do hinges upon changes in consumer behavior, and we have never seen a time of change in consumer behavior that comes close to what we saw in 2020. (Location 6379)

Although people are no longer flying or staying in hotels, they can rent an Airbnb with their family members. They can drive to their destination, but not everyone owns a car, so rental cars became huge. There was a small company in Canada that owned Schwinn bicycles. Has there ever been a time in history when more people wanted to bicycle? That company went up 10 ×. (Location 6385)

TikTok allows me to read shifts in consumer culture and behavior in real time. TikTok is a platform where people share what they’re excited about. (Location 6400)

The Wall Street analysts that cover this sector are out of touch. They have no sense of reading consumer culture. They don’t have a clue what’s happening in the real world. (Location 6413)

TikTok, with its billion participants, provides a place where I can test and validate my thesis. (Location 6420)

when you spend enough time on TikTok, you get a sense of what’s meaningful and what’s not. A lot of this analysis is qualitative, not quantitative. (Location 6432)

There has never been a better platform than TikTok for uncovering things early and deciphering the world’s thoughts and behavior in real time. (Location 6445)

Sixty percent of the trades I do were either surfaced by or vetted by people in the Dumb Money community who are now using my investing style. (Location 6468)

we were looking for strong-performing stocks that had unusually high volume on the previous day. These two conditions would narrow down the list of stocks considered for a trade to about 20 or 30. Here is where the discretionary part would come in. We would review the charts of those stocks, looking for stocks that had recent breakouts to new highs from prior consolidation periods. (Location 6623)

From 2000 to 2012, I made more than half my profits from the short side using that strategy. But then in 2013, it stopped working. (Location 6676)

the system executing on the close hit a brick wall in early 2005. In the decade before, it had made steady profits; after early 2005, it steadily lost money. (Location 6719)

Late 2012 marked the beginning of an extended drawdown in my short strategy. That was effectively the end of my short strategy working. (Location 6739)

[Mean-reversion systems sell on strength and buy on weakness based on the assumption that prices will pull back to some period average.] (Location 6750)

people introduced the term BTFD (buy the fucking dip). What was happening was that the same signals used for my short trades became popular buy signals. (Location 6751)

books by Keith Fitschen, Larry Connors, and Howard Bandy, which discussed mean-reversion strategies. (Location 6767)

For the long mean-reversion system, the underlying requirement was that the stock had to be in an uptrend because you don’t want to buy a stock that keeps going down and down. Then the following condition was that the stock had to be down a certain percentage from its recent high within a given time frame. If these two conditions were met, then I would enter a buy order a specified amount lower, with the exact amount lower based on the stock’s average daily volatility. (Location 6771)

For a mean-reversion long trade, you enter on a limit order as the market is dropping, and you wait for a day with a higher close to exit the position. (Location 6781)

with mean-reversion trades. If you are going long, it implies that you are taking the position because the market has fallen too much, too quickly. If you then use a stop-loss order, and it is activated, by definition, you would be getting out at an even more extreme point, which would make the rules somewhat self-contradictory. (Location 6788)

I exclude biotech stocks from the universe of possible shorts because they have the possibility of multiplying in price in response to drug trial results or FDA decisions. (Location 6801)

how do you define a mean-reversion short trade? Typically, these signals occur as part of a blow-off top in a major uptrend without any intervening correction. You are looking for a particularly prominent short-term upmove— namely, a large percentage price rise in a short period. (Location 6812)

At the end of 2014, I decided my classic systems had lost their edge and that I would trade only the new mean-reversion systems going forward into 2015. And I was determined not to miss out this time, so I foolishly decided to allocate 120% of capital to them. The new systems did very well for the first four months of the year, gaining over 25%. My cumulative profits even hit a new high in May 2015. However, the rest of the year was a disaster. (Location 6823)

losing trades can cluster together in time. It was the “eats like a bird, shits like an elephant” phenomenon. (Location 6831)

In mean-reversion systems, when the market is tanking, you don’t get sell signals. So, you need to hedge a long mean-reversion system with a short momentum system. (Location 6839)

If you are trading multiple systems that are well differentiated and diversify each other, the combination can be superior to the best individual system. (Location 6882)

I noticed that a lot of the people on Stockbee focused on trading IPOs. That gave me the idea of limiting the trading universe to recent IPOs in backtesting momentum systems. (Location 6884)

turn off a system if its equity curve goes below its 200-day moving average, (Location 6893)

What I like is when the results don’t differ too much between different parameter values because that means the system is robust. What’s even better is when I can altogether remove a parameterized rule from a system. (Location 6923)

It’s more effective to build a diverse collection of simple systems than to keep adding rules and re-optimizing a single system. (Location 6932)

It’s wise to include an on/ off switch (e.g., an equity curve moving below its moving average) in each strategy, even if it reduces profits in a backtest. (Location 6934)

The tail-risk in a mean-reversion strategy is more likely to come from a cluster of medium-sized losing trades rather than from the potential for a huge loss in an individual trade. (Location 6937)

It is possible to succeed quickly, continue to do well for 15 years, and then have a near-career-ending drawdown. Therefore, it is advisable to maintain another income source, if possible. (Location 6939)

Good things come from sharing your story and knowledge with others— something I was afraid to do for many years. (Location 6941)

Don’t quit your day job. Try to develop an appreciation for how much randomness there is in the market. Test everything. Don’t assume something works or doesn’t work just because someone says so. Maintain an ever-present spirit of experimentation. (Location 6945)

follow the rules of the system unwaveringly. This advice is sound for a system with a definitive edge and effective risk controls. (Location 6953)

the ability to terminate or radically change systems is an essential ingredient to longer-term success as a systematic trader. (Location 6958)

Although Parker frequently changed the parameter values in his systems so that a recent drawdown would have been mitigated or eliminated if the revised parameter values had been used, he now recognizes that these changes made little difference in future profitability. (Location 6969)

The danger is not that optimization is likely to lead to worse trading results (although it may), but rather that it will give traders highly distorted expectations regarding the efficacy of the systems they test. (Location 6973)

If you ever find a system that can’t be optimized to show good profits in the past, congratulations, you have just discovered a money machine (by doing the opposite, unless transaction costs are excessive). (Location 6987)

Optimization will always, repeat always, overstate the potential future performance of a system— usually by a wide margin (Location 6990)

If optimization has any value, it is usually in defining the broad boundaries for the ranges from which parameter values in the system should be chosen. (Location 6994)

If you have been dealt a lousy hand, you want to limit your loss to the kitty contribution rather than going all-in. You want to assure that you have the opportunity to try again with another hand. (Location 7017)

applying technical analysis to the equity curve as a risk-control method. This risk control strategy is not just applicable to systems but can also be implemented at the portfolio level for both systematic and discretionary traders. (Location 7023)

whether the approach increases return/ risk. If it does, any reduction in return can be offset by increasing trade size, while still providing lower risk. (Location 7028)

Traders can find tools for applying technical analysis to their equity curves by linking or uploading their account data at FundSeeder.com. (Location 7029)

Trading size needs to be based on daily net account value and calculated using a consistent formula. Otherwise, while you might occasionally get lucky with an oversized win, you risk amplifying a cumulative drawdown. (Location 7033)

If you are trading for a living, it is not enough for your cumulative profits to continue rising. They have to continually keep climbing by more than the sum of taxes and cumulative withdrawals for living expenses. (Location 7037)

RealTest. The description of the product is on my website, mhptrading.com. (Location 7045)

Curtis Faith, one of the Turtles, wrote a book, Way of the Turtle, in which he detailed the Turtle system rules.] (Location 7059)

the era of the “Fed put” [the belief that the Federal Reserve would step in with accommodative monetary policy to support U.S. equity markets whenever they came under severe pressure]. This era was detrimental for trend-following systems and a time when buying the dips in stock prices was the optimal strategy. (Location 7065)

To test the system correctly, you need to run your simulation based on the stocks that were part of the index on every past date, not the stock list based on the current components of the index. (Location 7074)

I’ve added two mean-reversion strategies that don’t hold positions overnight. They fade a big move during the day, then exit on the close. One of these strategies takes only longs and the other only shorts. (Location 7082)

Another innovation, which was influenced by the short squeezes in meme stocks, was to prohibit shorts in any stock in which margins were raised to 50% or higher. It was not a rule I backtested because I don’t have the historical margin data. (Location 7091)

Jack D. Schwager, A Complete Guide to the Futures Market (New Jersey, John Wiley and Sons, Inc., 2017), (Location 7109)

In his short positions, Kean focuses on situations where less sophisticated buyers are more likely to be on the other side of the trade. These trades typically involve small-cap stocks witnessing fundamentally unwarranted rallies in response to news or an impending catalyst event. (Location 7120)

adaptability is critical in the game of speculation.” (Location 7140)

During the 1980s, there was a massive stock market boom in New Zealand. The catalyst for the bull market was that New Zealand transitioned from one of the most closed economies in the world to one of the most open in a few years. Tariffs, subsidies, and taxes were all substantially reduced. (Location 7146)

Your Black Monday was our Black Tuesday. The 1987 crash in the US was the event that popped the New Zealand stock market bubble. Within six months, the stock market was down 50%. It didn’t recover to the old highs for over 20 years. (Location 7166)

in 2008, we lost 50% in six months. However, I realized that stocks were insanely cheap. I convinced some of the investors to double down, and the portfolio was up 88% in 2009. (Location 7186)

shorting pump-and-dump stocks on the OTC. These were stocks that would go from 50 cents to $ 5 or $ 10 on virtually nothing and then collapse in a day. I found these research services and blogs that covered penny stocks. Most of them were focused on the pump, but I was interested in the services that focused on shorting these stocks. (Location 7215)

They have critical catalysts, such as clinical results for phase 2 and phase 3 trials, which are make-or-break events for small biotechs. (Location 7246)

There are circumstances where the odds for failure are very high, even if you don’t know anything about the drug itself. (Location 7281)

you have to be careful about the short side because there could always be a surprise. I will typically use puts for these trades rather than shorts. (Location 7289)

Most of the trades I do in biotech are short-term trades— intraday to a few days— and most of them are on the short side. (Location 7293)

My job is to decipher whether that news was expected and whether it has any meaning or is just a spin job. (Location 7298)

I should have been out before that day on the changing fundamentals, but the worst mistake was ignoring that day’s price action. As someone who trades for a living, I should have known better. (Location 7320)

another reason why I went short was that it was already a broken stock when the news about McDonald’s came out. I wouldn’t have stepped in front of that news if the stock was still in its roaring up phase; (Location 7350)

On a non-biotech position, I’ll risk only about 30 basis points of the portfolio and size the position accordingly. On biotech stocks, which are more my bread-and-butter type of trades, I may risk closer to 1% of the portfolio on a single trade and, sometimes, even as high as 2% or 3% if I have a particularly good setup on the trade. (Location 7355)

To use an analogy to the typical 60/ 40 long equity/ long bond portfolio, where the bond position is used for diversification, in my 60/ 40 portfolio, short-term trading provides the diversification. (Location 7362)

You want to be underconfident rather than overconfident. (Location 7432)

I assume I am the dumb one and trade accordingly. At best, my success rate is going to be 50%– 70%. So I’m always looking for reasons why I shouldn’t be in the trade if it’s not working. (Location 7433)

You need to be great at learning from your mistakes. Analyze every mistake you make until you learn something from it and then incorporate what you learn into your process. (Location 7443)

building a portfolio of uncorrelated and inversely correlated positions (Location 7455)

Important fundamental news that results in counter-to-expected price action can often represent a critical signal. (Location 7480)

issue. The market had been in freefall, but it had a big rally on that day, gaining about 5%. As the market was soaring, I bought enough puts to hedge my entire long position. (Location 7487)

That weekend the Fed had an emergency meeting, and I was upset because I had just spent a lot of money insuring my portfolio, and now the Fed was going to bail everything out. But what actually happened was the market had one of its largest one-day declines on the Monday. I covered my entire put position and made about 4% that day, while the market was down about 8% to 10%. (Location 7490)

I was fairly bullish as the market crashed in March because I thought the Fed and the government would throw everything they could at keeping the system going, and that is exactly what they eventually did. (Location 7498)

Krejčí uses his trading profits to pay for living expenses. So, although his returns have been consistently excellent, he has never been able to build his account size. (Location 7549)

I don’t think that education is that important in trading; a passion for learning how to trade is far more crucial. (Location 7559)

Since most people bet on their national team, the bookies have to adjust their odds shortly before the match, decreasing the payoff on the national team and increasing the payoff on the foreign team. There is a short time window when arbitrage can occur— usually only a few seconds. You have to be quick to catch it. The profit on the bets was very small, but you couldn’t lose. I did it for about a year and a half until they stopped taking my bets and closed my account. (Location 7607)

I review my previous trades to see how I could have done better. For example, I try to answer questions such as: Would I have done better if I held the trade longer? (Location 7629)

80% of my trades and 90% of my profits are in stocks in uptrends with bullish reports. (Location 7653)

Will you ever buy a stock that has a bullish report but is in a downtrend? Yes, but such trades are infrequent. I may buy a stock that is in a downtrend if it is in a prevailing strong sector because then the stock trend is less important. (Location 7654)

I have charts for the post-earnings-reports price action going back about 15 years for all the stocks I trade. (Location 7677)

The best trades are when the general market is sideways to down, and the stock is in an uptrend and has a bullish report. (Location 7679)

the best situations are when the stock is in an uptrend and there is a pullback before the earnings report because people are worried about what the report will say. If the report is then bullish, there will tend to be immediate strong buying from people who got out before the report. (Location 7683)

There is a saying that the analysts are always wrong. Yes, that may be generally true, but the day after an earnings report, some of their upgrades and downgrades can be critical to the market price action. (Location 7715)

I will get in anywhere between a few minutes to a half-hour after the opening. (Location 7719)

at the open and right after the open, the bid-ask spreads can be extremely wide, and you can get a very bad fill. Also, I need to wait for the market to calm down before I can place my stop. (Location 7722)

It depends on the historical pattern for the stock. Different stocks behave differently. Some stocks tend to have a pullback after the opening, while other stocks tend to move straight up. (Location 7727)

Sometimes there will be a huge price jump in the stock early in the day, especially for stocks with a large short interest, and I will take profits. (Location 7732)

If I didn’t use stops, my percentage of winning trades would be higher, and my returns would probably be very similar, but my drawdowns would be much larger. (Location 7744)

when I searched for what I could do, I knew I wanted to find something where the success or failure would depend only on me, not my colleagues, my boss, or anybody else. (Location 7767)

any success I have had is because I hate losing. I work extremely hard when I am losing. When I am losing, I can’t focus on anything else besides figuring out how to improve what I am doing. (Location 7772)

Winning traders understand they are responsible for their outcomes. If they lose money, they will give you one of two explanations. Either they followed their methodology, and the losing trade was within the percentage of losing trades that is inevitable, or they made a mistake— a fault they will completely own. (Location 7785)

Politics aside, I would bet that President Trump would be an awful trader because he has never taken responsibility for any mistake or failure. (Location 7788)

to succeed in the markets, you have to find a methodology that you are comfortable trading. (Location 7793)

Many traders could improve their performance by trading less— passing on the marginal trades and waiting for high-probability opportunities. (Location 7802)

There are periods when the volatility of all stocks is more influential than individual stock earnings reports, (Location 7836)

I search for weak stocks with poor earnings and disappointing guidance for the next quarter or year. (Location 7847)

I always test anything I will trade going back at least 10 years. (Location 7864)

What is the most important lesson you’ve learned in trading? How not to lose money. (Location 7877)

How do you not lose money? I always play defense; I don’t play offense. (Location 7879)

Even an excellent methodology will yield poor results if it is not consistent with your beliefs and comfort zone. (Location 7902)

social arbitrage— profiting by spotting a societal shift or trend that will impact a stock and has not yet been reflected by the stock price. (Location 7908)

Besides documenting the reasons for trades and associated right and wrong decisions, a journal can also be useful in recording emotional observations. (Location 7923)

Categorizing trades by type can be extremely useful in determining what works and what doesn’t. (Location 7927)

If you don’t know what your edge is, you don’t have one. (Location 7933)

“Stay in the sphere of your edge by playing your game and not someone else’s.” (Location 7937)

Sall used his journal to identify a mistake he was making after winning periods. He noticed that he was continually taking subpar trades after highly profitable periods. He realized that because he came from a working-class background, these subpar trades were an act of self-sabotage to bring him “back down to earth.” (Location 7942)

Asymmetric Strategies (Location 7950)

Any long-only equity portfolio faces the problem that most of the positions will be highly correlated. (Location 7979)

Equity-based risk controls will either cut position sizes or cease trading altogether when equity drawdowns reach specific threshold levels. (Location 7984)

A risk control I recommend when starting a new trading account is to decide how much you are willing to lose before you stop trading. (Location 7989)

determining how much you are willing to lose before you start trading will keep you from losing all your risk capital in one failed attempt. (Location 7996)

protective stops should be placed at a level that disproves your trade hypothesis. Don’t determine the stop by what you are willing to lose. If a meaningful stop point implies too much risk, it means that your position is too large. (Location 8001)

you don’t need to wait for a stop to be hit. The longer a trade has an open loss, the more seriously you should consider liquidation even though the stop point hasn’t been hit. (Location 8007)

the Friday close is the most critical price of the week because it is the price at which all holders of positions commit to the risk of holding a position over the weekend. (Location 8014)

“If you speculate with a loss to get less of a loss, you end up with more of a loss.” (Location 8021)

Avoid the temptation to take trades unrelated to your methodology. (Location 8032)

Markets change. Over time, even an effective methodology may need to be altered. (Location 8035)

If there is anything in your approach that is uncomfortable, you need to figure out how to change it. (Location 8044)

Sall and Neumann are exceptionally skilled traders who have a high success rate on their strong-conviction trades and are quick to liquidate when a trade starts to move against them. For most ordinary traders, taking huge positions, no matter how high their conviction level, is a risky proposition. (Location 8065)

If you trade too large, fear will lead to poor trading decisions. (Location 8070)

If You Hope a Trade Will Work, Get Out If you find yourself hoping your trade will work, that is a sure sign that you lack conviction. (Location 8074)

If you are hoping a trade will work, you are gambling and not trading. (Location 8082)

You need to trade based on your own methodology and your own decisions. Trades based on someone else’s recommendation tend to end badly, even when the advice is correct. (Location 8085)

Brandt calls trades in which you have a profit and ride it all the way back to where you got in “popcorn trades.” He avoids popcorn trades by a combination of taking profits and tightening stops— (Location 8107)

emotional trades tend to be losers. Beware of being enamored by an unplanned trade. (Location 8115)

When traders, particularly novice traders, lose money in a market, there is a reflexive instinct to try to make it back in the same market. This impulse, perhaps driven by a desire to seek revenge or to expiate the prior trading loss, leads to emotion-induced trading, (Location 8130)

the greatest damage from a bad trade is often not the loss on the trade itself but, rather, the lost profits on subsequent good trades not taken because of the destabilizing effect of the bad trade. (Location 8140)

trading mistakes (losses due to traders breaking their own rules). (Location 8145)

instead of liquidating an entire position at a profit target, traders should consider holding onto a minor portion of the position with raised protective stops. (Location 8148)

If You Are on the Right Side of Euphoria or Panic, Liquidate or Lighten Up (Location 8155)

Traders often experience their worst performance after periods when they have done exceptionally well. (Location 8161)

If everything is going great, watch out! (Location 8171)

The Flexibility to Change Your Opinion Is an Attribute, Not a Flaw (Location 8173)

you should have firm conviction when you enter a trade, but you should be quick to abandon that position if the trade moves against you. (Location 8177)

Losses beget losses. Taking a break can act as a circuit breaker. (Location 8186)

On election night 2016, as the returns started indicating a surprise Trump victory, stock indexes sold off, as was anticipated in such an event. But then, even though a Trump win became increasingly likely, the market reversed sharply to the upside. This counter-to-expected price action marked the start of a 14-month steady climb in stock prices. (Location 8214)

Trade opportunities are sporadic, and aiming for consistent profitability in low-opportunity periods can lead to taking marginal trades that end up being net losers. (Location 8224)

a common trait he observed among traders who failed is that they had a goal of making money every month. (Location 8227)

Patience to wait for the right trade— (Location 8266)

“My style has often been referred to that of a sniper. I am in a constant state of readiness waiting for that perfect shot.” (Location 8272)

Bargh seeks to trade from a calm state free of any inner conflict. (Location 8289)

Sometimes we pick up a book that changes our lives. Occasionally, there is a much rarer moment. We pick up a book that changes our perspective on life. (Location 8324)

No arrogance was present— just a simple gut feeling that it is absolutely something he should, can, and must do. (Location 8351)

It was my first time having hearts of palm, and it was one of those dishes that was so good you wish you could have just one more bite. (Location 8365)

As John spoke during dinner, he mostly talked about quantum physics, and specifically about the topic of entanglement. (Location 8387)

after we arrived in America, our entire family lived in a single room for about half a year (a residence provided by the HIAS, a refugee aid organization). (Location 8411)

In my early years of college, I was pro-government, a stance that was primarily a reaction to the SDS (Students for a Democratic Society), a radical anti-war group. I hated their tactics of shutting down colleges as a protest against the war. However, I was always a close follower of the news and political events. My views changed as I discovered the government was guilty of lying about crucial aspects of the war. (Location 8464)

The number of scholarships was cut sharply, and my grades were not good enough to retain mine. I could have continued without a scholarship, but I decided to stop at the M.A. level, get a job, and presumably return to school to get a Ph.D. after several years of work. As it turned out, I fell into a successful career and never pursued any further education. (Location 8514)

I spent a week at the Grand Army Plaza library, which is Brooklyn’s version of the New York Public Library in Manhattan, reading anything I could find on the copper market, which included years’ worth of various periodicals, ranging from annual to daily. At the end of the week, I wrote a four-page article and submitted it. I got the job. (Location 8557)

I was hired to replace the New York analyst who was leaving to become a trader. That analyst was Michael Marcus, who would later be the subject of the first trader chapter in the first Market Wizards book. Michael was also the contact for other traders in the first Market Wizards book. (Location 8574)

I got a call from the Los Angeles Times asking me for a comment on the sugar market, which I provided. I thought it was ironic that I was being quoted by a newspaper as a market expert when I had all of two weeks’ experience. (Location 8583)

Michael didn’t do any of the analysis I did, but he had the uncanny ability to look at a market with 50 different factors and latch onto the one factor that was most important. (Location 8624)

I went to an executive recruiter. Within a week, I had an interview that led to a job offer for a director of commodity research for Hornblower Weeks at more than triple my salary at Reynolds. (Location 8642)

Whenever I start trading, I always risk a small amount, and if I lose that small amount, then I’ll stop and come back at a later time. (Location 8655)

Market prices— the core input of technical analysis— reflected all the known fundamentals and the actions of all market participants. In effect, prices were the net result of all market information and everybody’s actions. (Location 8667)

When you work on a book, ultimately, the structure defines itself. (Location 8774)

When writing Market Wizards, I had an objective of writing a book on trading that, like Reminiscences, would capture basic truths about trading that would remain relevant 50 or 75 years later. (Location 8837)

Dale Carnegie’s How to Win Friends and Influence People, published around 1936. (Location 8841)

“Know where you will get out before you get in.” (Location 8855)

you determine where you will get out when you still have complete objectivity— before entering the trade. Once you are in a trade, you lose that objectivity. (Location 8858)

“Everybody gets what they want out of the market.” (Location 8860)

He asked why I didn’t stop trading and buy the car with the profits if I was under such time pressure. I explained my rationale. Ed replied, “In other words, the only way you could stop trading was by losing. Is that right?” There it was. I had wanted not to be trading, and that is what I got. (Location 8871)

Often, people experience a disappointing result, but there may be hidden reasons that are more compelling and drove that outcome. (Location 8880)

“I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime.” (Location 8883)

Any rational person would have said it was a crazy idea to build a huge theme park on swampland. But the chief engineer [William “Joe” Potter] knew what he wanted, and he made it happen by designing Disney World so that any water in the park is always moving. (Location 8894)

Follow your talent. Choose what interests you. Don’t settle for less than your best. Be honest. Believe in what you can achieve. (Location 8913)

“Be honest” is a core principle if you want to have long-standing relationships. It also relates to trading because you must be honest with yourself. (Location 8931)

“Believe in what you can achieve” ties into getting what you want. If you don’t have that belief, you won’t achieve your goal because you’re the barrier to getting what you want. (Location 8933)

You pulled the car over at that fork, turned to me, and said, “Zachary, if you do anything in life, you have to be honest. That’s the most important thing.” That moment just stayed with me. (Location 8940)

there is a big difference between difficult and impossible. (Location 8974)

Succeeding as a trader requires some combination of hard work, innate skill, and beneficial psychological traits (e.g., patience, discipline, etc.). (Location 8977)

book Market Sense and Nonsense. (Location 8982)

The essence of a futures market is in its name: Trading involves a commodity or financial instrument for a future delivery date, as opposed to the present time. (Location 8987)

The futures markets allow equal ease of going short as well as long. (Location 9009)

In the futures markets, margins do not imply partial payments, since no actual physical transaction occurs until the expiration date; rather, margins are basically good-faith deposits.) (Location 9014)

In general, futures prices are no more volatile than the underlying cash prices or, for that matter, most stocks. The high-risk reputation of futures is largely a consequence of the leverage factor. (Location 9017)

the trader would not take delivery even given a desire to maintain the long gold position. In this case, the trader would liquidate the December contract and simultaneously go long in a more forward contract. (This type of transaction is called a rollover and would be implemented with a spread order.) Traders should always avoid taking delivery, since it can result in substantial extra costs without any compensating benefits. (Location 9034)

futures markets are still commonly, albeit erroneously, referred to as commodity markets, and these terms are synonymous. (Location 9067)

the majority of futures trading activity is concentrated in financial instruments, many futures traders are, in reality, traders in stocks, bonds, and currencies. (Location 9070)

Right or wrong, the trader will offset his short position before the last trading day, eliminating any need for actual ownership of the commodity. (Location 9081)

return levels only have meaning in context of the risk undertaken to achieve those returns. (Location 9085)

Excess return is the return above the risk-free return (e.g., T-bill rate). For example, if the average return is 8% per year and the T-bill rate is 3%, the excess return would be 5%. (Location 9098)

The Sortino ratio is defined as the compounded return in excess of the MAR divided by the downside deviation. (Location 9118)

The Gain to Pain ratio (GPR) is the sum of all monthly returns divided by the absolute value of the sum of all monthly losses. (Location 9148)