Sunday, October 24, 2010
The Art of War and Investing --- Part II, god of Gamblers
If you watch this short clip before enter the trading floor everyday, I'm pretty sure that you can pysho yourself -- convince yourself that you are the god of Stock Markets. It will make you feel very confident to make a swing of 5-10% intra-day profits everyday.
I probably may NOT be very qualified to make a lot of comments because I do not have many actual experiences to share. Most of the following are from my brief venture into this approach(I quit because I don't feel the money I won justified my efforts and stress that I went through), imaginations, readings and also knowing a few people are who are from this school. By the way, instead of calling them gamblers, day traders, speculators and etc, I prefer to call them The Street Fighters(;-.
1. Street smart, these guys are smart but just don't expect them to be a 1st class honor in Accounting -- instead of looking into IS and BS(Balance Sheet and Bull Shit) numbers, they can read your face like a book. They are the master of crowd psychology. They know who they can "eat" who they got to stay out.
2. Chart reading skill is in their blood. They have good trading system. In and out based on a system. Trust no one but computer(especially the Quant).
3. They react very quickly to news, breakout, trend-line, support, resistance, moving average, convergence, divergence, price-volume, correlation, etc.........It's all part of their system.
4. They know they are playing with fire, a lot of stuffs they bought are back by nothing. All they care is PRICE ACTION. It's price action that make them money, period!. The modus operandi is: You can make money in bull or bear markets but only pigs and sheeps got slaughtered.
5. If you can't tell what is the probability of moon will show up tomorrow, you are disqualified to be a street fighter. These guys are master of calculating odds, they only take odds in their favor. Real Street Fighter only care pay-off and the odds of winning.
6. Strong discipline of cutting losses and also taking profits.
7. Strong risk and money management. They know that they can be wrong, don't put all eggs into 1 basket.
8. Very comfortable with uncertainty. Love for thrills and speeds.
9. Be like a machine -- never fall in love with stocks. They focus on batting average. Natural sportsmanship, they can handle victory and defeat very graciously.
10. These SOBs are tough. They have very strong mental toughness. They will keep fighting and never give up.
11. Wide contacts and probably have some informer networks.
1. If you believe EMH(Efficient Market Hypothesis), for most of the time, price already reflecting the known facts. You are probably too late to catch after a long white bar shot up by 10%. For most of the time, if we are lucky we may have the last 2 puffs before things roll over.
2. For most of the average retail investors, picking and reading the charts, news feed, trading system is easy. However, trusting the SYSTEM without questioning them even though they are counter-intuitive for most of the time. The right golf grip actual feel very odds, so it's trading system. Trending system for example is very easy and simple to follow but taking emotions out and trusting the system is difficult. That's how 95% of people fail.
3. Riding on trends too long is dangerous because it can breed over-confidence, excessive leverage that bring most people down to their knees. I prefer young investors to lose 10 - 20 k at the beginning their Street Fighting career than winning 50 k. A guy or a gal winning 50 k will probably will start to play with margin - leveraging up in a big way. They can destroy what they build in 10 years in 10 days.
4. Forecasting future by looking at past price action? A librarian is probably the best Street Fighter on earth, just to borrow from W. Buffett.
5. Here is the catch-22. First you need to trust the machine 100% and allow no human intervention. If you intervene, then you are not trusting your machine 100%. If you allow machine and human intervention to co-exist then there is a possibility of machine or human emotions can betray you. Things will be very ugly if you know what I mean........
6. Too obsessed with tools will be no difference from Graham purist. Just numbers and charts and news feed, rumors, etc ...... without understanding business, reasoning, cause and effects are not sustainable for a long period of time.
7. Large amount of money requires a lot of trading ideas, a lot of trading ideas will lead to two possibilities (a) over-diversification (b) over-trading. I have my doubts that one can beat the market by this approach without leveraging or taking concentrated bets. Taking concentrated bets and not back by anything solid is not for the faint heart.