Food for thought and opinions

[Deleted]

If you don’t have hard and fast rules, you don’t have
a mechanical trading system; you’re a discretionary
trader.

Discretionary traders struggle with their emotions --
doing battle every trading day against their fears and
their greed. Mechanical traders follow their rules and
sleep well at night as long as their system includes
ironclad money management tools.

Technical vs. Fundamentals for Trading…

"I haven't met a rich technician" - Jim Rogers.

"I always laugh at people who say "I've never met a rich
technician" I love that! It’s such an arrogant, nonsensical
response. I used fundamentals for 9 years and got rich as
a technician" -Marty Schwartz.

And about Diversification…

"Diversify your investments" - John Templeton.

"Diversification is a hedge for ignorance" - William O'Neil.

On Picking Bottoms and Tops…

"Don't bottom fish" - Peter Lynch.

"Don't try to buy at the bottom or sell at the top"
- Bernard Baruch.

"Maybe the trend is your friend for a few minutes in Chicago,
but for the most part it is rarely a way to get rich"
- Jim Rogers.

"I believe the very best money is made at the market turns.
Everyone says you get killed trying to pick tops and bottoms
and you make all your money by playing the trend in the middle.
Well for twelve years I have been missing the meat in the middle
but I have made a lot of money at tops and bottoms."
- Paul Tudor Jones.

So here we have a group of guys who have collectively taken
billions of dollars out of the market and they don't agree about
how to make money.

Is there anything they do agree on?

Just one: Money Management

"My basic advise is don't lose money" - Jim Rogers.

"I'm more concerned about controlling the downside. Learn to
take the losses. The most important thing about making money
is not to let your losses get out of hand." - Marty Schwartz.

"I'm always thinking about losing money as opposed to making
money. Don't focus on making money, focus on protecting what
you have" - Paul Tudor Jones.

"Rule number one of investing is never lose money. Rule number
two is never forget rule number 1" - Warren Buffet.

"If you have an approach that makes money, then money management
can make the difference between success and failure... ... I try
to be conservative in my risk management. I want to make sure
I'll be around to play tomorrow. Risk control is essential."
- Monroe Trout

"If you personalize losses, you can't trade." - Bruce Kovner.

"The best traders have no ego. You have to swallow your pride
and get out of the losses." - Tom Baldwin

"Never risk more than 1% of your total equity in any one trade. By
risking 1%, I am indifferent to any individual trade. Keeping your
risk small and constant is absolutely critical." Larry Hite.

Of course Ed Seykota is famous for pointing out that people get what
they want out of trading and the markets. Some want to experience the
emotional highs and lows and so losing their trading funds serves
those purposes. For those of us who trade to make money, I say thanks
to all those who chose to lose! Because of them we make money in
the markets.

[bimetalaupt]

On the other hand.. Forbes used darts to compare expert advise to random selection. THE DARTS WON...

THE ODDS ARE IF YOU BUY AND HOLD 34 STOCKS WITH EVERY MAJOR ALPHA FIRM YOUR PROFITS WILL BE ABOUT THE SAME OR BETTER THEN THE MARKET OVER THE LONG PULL.. SAY 34 YEARS OR 51 YEARS.. ETC!!!

[yclept]

"Never risk more than 1% of your total equity in any one trade. By
risking 1%, I am indifferent to any individual trade. Keeping your
risk small and constant is absolutely critical." Larry Hite.

If by this he is suggesting that one should divide assets into 100 investments, then I disagree with him. 100 investments is too many for an individual (or at least this individual) to monitor properly. Then too, even with a value-oriented highly mechanical (and let's throw in low-beta) trading system, turnover would be significant and even with a discount broker, commissions could become a relevant drag on the overall portfolio performance.

[Deleted]

Yclept,

"Never risk more than 1% of your total equity in any one trade. By risking 1%, I am indifferent to any individual trade. Keeping your risk small and constant is absolutely critical." Larry Hite.

explanation of Hite's suggestion of limiting risk to 1% of one's portfolio. he's trying to tell us that if if he's managing 100 million dollars, the maximum he would risk on any one position is a 1 million dollar loss..... meaning that if he's invested in a 100 dollar stock and his stop is 95, that 5 dollar loss can not exceed 1 mil or 1% of his port.... the position could be 5% or 5 million of the port but the stop loss must not exceed 1%...
this is part of a risk/reward class i took.... i should have explained the risk thing because it could be easily misunderstood...

[bimetalaupt]

Jan 31, 2011 20:17:37 GMT -5 @yclept said:

" 8-)Never risk more than 1% of your total equity in any one trade. ::)By
risking 1%, I am indifferent to any individual trade. Keeping your
risk small and constant is absolutely critical." Larry Hite.

If by this he is suggesting that one should divide assets into 100 investments, then I disagree with him. 100 investments is too many for an individual (or at least this individual) to monitor properly. Then too, even with a value-oriented highly mechanical (and let's throw in low-beta) trading system, turnover would be significant and even with a discount broker, commissions could become a relevant drag on the overall portfolio performance.

+

Y Clept,
I read this to mean like Cramer has said, Buy into a position a little at a time so if you want holdings in stock trade of the day. Using the maxi risk factor of 1% per trade: 63% of the total value of the system then you would have a total minimum purchase of 63 trades. Remember , every time you buy or sell there is a risk. If you sell stocks and buy bonds to reposition or lower total "Value at Risk". You have a risk of two trades. As before you want assets that are mutually exclusive so that your exposure to major events will have less damage to you net worth.

Value at risk = standard deviation * net value...

Just a thought,
Bi Metal Au Pt

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Lawrence D. Hite is a hedge fund manager, who, along with Ed Seykota, is one of the forefathers of system trading. He has been profiled and recognized as one of the best in the industry in numerous major international publications, and, in 1986, Business-Week awarded Hite its annual Best of Award.
excerpt:
Lawrence Hite co-founded Mint Investments in 1981. By 1990, Mint had become the largest Commodity Trading Advisor in the world in terms of assets under management. Mint’s achievements won Hite and his team industry wide acclaim, and in 1990 Jack Schwager dedicated a chapter of his bestselling book, Market Wizards, to Hite's trading and risk management philosophy. In 1990, he began adding systematic trading of equity markets to the Mint managed futures portfolio.
en.wikipedia.org/wiki/Larry_Hite
www.bing.com/search?q=Larry+Hite+investment+trader&form=OSDSRC
_
Ed Seykota – Quotes

Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.
To avoid whipsaw losses, stop trading.
Risk no more than you can afford to lose and also risk enough so that a win is meaningful.
Trend following is an exercise in observing and responding to the ever-present moment of now.
Fundamentalists and anticipators may have difficulties with risk control because a trade keeps looking ‘better’ the more it goes against them.
Until you master the basic literature and spend some time with successful traders, you might consider confining your trading to the supermarket.
I don’t predict a non existing future.
It can be very expensive to try to convince the markets you are right.

[Deleted]

Remember Cramer outed himself as a fraudster...

By this time, a number of bloggers and stock market observers had noted that Cramer, a former hedge fund manager, had recently made a video available to a limited number of high-paying subscribers to his financial news website, TheStreet.com. In this video, Cramer advised his viewers – mostly Wall Street operators — to illegally drive down stock prices.

“Maybe you need $10 million capital to knock down,” Cramer had said. “It’s a fun game and it’s a lucrative game…By the way, no one else in the world would ever admit that, but I don’t care…Now, you can’t foment…You can’t create yourself an impression that a stock’s down. But you do it anyway because the SEC doesn’t understand it…This is just actually blatantly illegal…But I think it’s really important to foment…You get [the CNBC reporter]…talking about it as if there’s something wrong [with the stock]…Then you would call The Wall Street Journal and get the bozo reporter…if you’re not doing it maybe you shouldn’t be in the game.”

www.deepcapture.com/michael-milken-60000-deaths-and-the-story-of-dendreon-chapter-5-of-15/

[Deleted]

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