Trading is a high stress occupation

25 09 2007

IV

Trading is a high stress occupation, and frequent holidays are important. Larry removes himself from even hearing about the markets by going out on a fishing boat. When he does finally hear about the market while on holidays, Larry often cuts his holidays shorter than planned if he sees that the market is ready for it’s next movement. Before going on holidays, all positions are liquidated.

After this fishing trip, Larry returns to the quotation board and watches the tape for an idea of the market’s mood. Although he is generally bearish, the short-term indications seem to point him to long one particularly active stock. He explains his reasons for buying the stock and puts on a large line. As it turns out, the position wasn’t proven correct so he bales out – then shares his observation of others who stayed long and started to sweat, and to hope. ‘The only thing a man can do when he is wrong is to be right by ceasing to be wrong’. In exiting his position, Larry sells at the market. Although one can lose a few ticks on poor execution by a broker, setting a limit order is often worse. Often your limit isn’t hit, and you get stuck with a bigger loss when you try to get out later. When you want to get out, get out.

Market behavior and people behavior are not the same. After an outrageous rally in a bear market, people started to talk bullish again. The course of the market, however, said the rally had run it’s course. And Larry sold. His profits reminded him that he was right and he sold more. After four months of trading on the bear side, the markets began to slow down. Larry cleaned up operations and took a holiday in Europe for the summer. Returning early from this trip as well because of market conditions, we are again given the inside view of the ‘other’ traders mind. The market was megaphoning it’s warning to the world until the day of reckoning for the bulls that, ‘dreading the pain of a small loss at the beginning, were now about to suffer total amputation – without anesthetics.’ The mouse in the glass bell analogy fits perfectly.

The rest of the chapter talks about the tightness at the bottom of the bear market, the profits that our character has pulled from the markets, and finishes with a great quote; ‘But my biggest winnings were not in dollars but in the intangibles: I had been right, I had looked ahead and followed a clear-cut plan. I had learned what a man must do in order to make big money; I was permanently out of the gambler class’

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Believe in Yourself and Your Judgement

22 08 2007

III

Livingstone lets us look over his views on the type of determination needed to win at this game.

         “A man must believe in himself and his judgment if he is to make a living at this game.”

He gives a few great examples of the hard lessons he learned by going with someone else’s opinion or trading advice. Your own opinion based on your own research, by trying it with money, is the only way to have the confidence to go against everyone else’s advice at the correct time.

He walks us through his learning phases, with the benefit of hindsight added like a mystery story, edging the reader to uncover the source of the self-admitted blind-spot in his trading. What general principal was he ignoring that could be so surely fatal?

“I was dead right and – I lost every cent I had!”

“If the unusual didn’t happen there would be no difference in people and then there wouldn’t be any fun in life.”

The habits he found so successful in the Bucket Shops (Paper Trading) were undoing him a reputable brokers office – yet he could not state his own problem to himself and, of course, he could not solve it. But he did worse than not see his error, he kept on trading. Soon he was broke again, and had to leave New York. Larry adds in a few paragraphs what took him years of experience to realize about the markets. He adds the advice to use market orders for entering and exiting a position rather than limit orders.