TRADING QUOTES

“I think successful trading, or poker playing for that matter, involves speculating rather than gambling. Successful speculation implies taking risks when the odds are in your favor. Just like in poker, where you have to know which hands to bet on, in trading you have to know when the odds are in your favor.” – Sperandeo

It is interesting that Sperandeo makes a point to define the difference between speculating and gambling. He discusses how he never viewed playing poker to be gambling in the same respect that slot machines are gambling. In poker, he had the knowledge  of which hands had the highest probability of winning and the option to only play the highest probability hands. This draws a direct correlation to trading. We know from our study of historical winners what qualities make up stocks that go on big runs and we have the option to only play those key stocks

Looking at trading in this respect breaks it down into two important goals. We have to know which kinds of stocks have the best odds of going on huge runs. We also have to have the timing skills and the guts to play those stocks when we encounter them and the patience to sit on the sidelines when when there aren’t good options.

“Trading the market without knowing what stage it is in is like selling life insurance to twenty-year-olds and eighty-year-olds at the same premium.” – Sperandeo 

Again here, we see Sperandeo drawing a real world comparison to stock trading. He discusses that you just as the odds would be better if you sell life insurance to a twenty-year-old compared to an eighty-year-old, the same can be said when trading a young trend compared to trading an extended trend. He doesn’t necessarily say you should trade a new trend or shouldn’t trade an extended trend, but that you should strongly factor that in to your timing decisions. 

“To be a successful trader, you have to be able to admit mistakes. People who are very bright don’t make very many mistakes. In a sense, they generally are correct. In trading, however, the person who can easily admit to being wrong is the one who walks away a winner.” – Sperandeo

It is fairly obvious at this point that the most common advice from all of the Market Wizards interviews is that you absolutely must cut your losses quickly. The reason that many traders are unable to do this is that they are not good at admitting that they are wrong. Sperandeo suggests that many extremely intelligent traders suffer from this inability to admit that they are wrong because for most of their lives they have always been right. It goes against human nature to admit a mistake.

This is an area where I think that a lack of self-esteem can be a tremendous asset to a trader. Being unsure of yourself may be difficult to deal with in real life, but in trading, it can make you a winner just by keeping you from being a loser.

“Ty Cobb once was asked why he never had slumps. He said that whenever he felt himself getting into a slump, he wouldn’t try to get a hit, but he would simply try to make contact with the ball. To relate that concept to trading, when you’re in a slump, try to be patient and wait for a trade that you feel very confident about and keep the bet size small. Your goal should not be to make lots of money but rather to get your confidence back by making correct decisions.” – Sperandeo

I love baseball references, and this one has a strong relation to trading. More than a few of the Market Wizards have advocated cutting back the size of your trades while suffering through a losing period to take the pressure off. This sums up the reasoning behind that advice really well. 

“Being involved in this business requires tremendous dedication and desire. However, you shouldn’t make trading your whole life. You have to take time off. You need to spend time with loved ones. You need to balance your life.” – Sperandeo

I felt like I had to include this in the top five quotes simply because it struck me as the exact opposite of how I perceive most of the Market Wizards. It caught me off guard to see someone point out that you shouldn’t let trading consume your entire life. There have actually been interviews that led me to believe that letting trading consume my life would be the only way I would ever be successful. It was refreshing to hear someone as successful as Sperandeo point out the need for a balanced life. 

LEVELS FOR NIFTY & BSE

SENSEX (21,079.7)

In the midst of key events and volatility, the Sensex zoomed 1.7 per cent or 364 points for the week. However, it is now testing a key resistance at the 21,000-level. A robust start to next week can emphatically surpass this resistance and take the index higher to 21,206 and then to 21,500 in the coming week. Failure to move higher can find base at the important supports of 20,700; 20,300 and 20,137.

The index can confine itself to trading in the band between 20,000 and 21,500 for a few more weeks. This sideways movement will be a positive sign from a long-term perspective.

For the index, the medium-term trend is up. This trend will remain in place as long as the index trades above 19,850 levels. A fall below this level will threaten the medium-term trend. As mentioned in this column last week, the next key supports are placed at 19,405 and 18,955.

NIFTY (6,274.2)

The Nifty rallied 105 points or 1.7 per cent in the previous week. It managed to rebound from its 50-day moving average and close well above this average line. However, it is now facing key resistance at 6,300-level. A strong breakthrough of this resistance can take it northwards to 6,350 and on to 6,415 in the ensuing weeks. But, any inability to surpass this resistance level can see it slip to find supports at 6,166, 6,050 and 5,973. The next important support below these levels is at 5,905.

The index can prolong its sideways movement for some more weeks in the zone between 5,950 and 6,400. This move will be positive for long-term prospects. The medium-term trend is also up for the Nifty, and as long as it trades above 5,920 this trend remains in place. A tumble below this level can activate supports at 5,770 and 5,618 levels.

PANIC IN NIKKEI ON MONDAY

The Japanese government forecast on Saturday that real gross domestic product will grow by 1.4 % instead of 2.6 % growth for the current year as a planned sales tax increase is seen dampening consumption.

The forecast is part of the annual budget review. The government projects about Y50tn ($480bn) in tax revenue for the coming fiscal year based on the growth forecast.

While higher sales tax is expected to curb consumption, the government expects positive economic growth thanks to the effects of a fiscal and monetary stimulus.

The national sales tax is set to rise to 8 per cent in April and could rise to 10 per cent in 2015 if the government of Prime Minister Shinzo Abe goes ahead with its fiscal consolidation plan.

The government also forecast that consumer prices will rise by about 1.2 per cent in the 2014 fiscal year, without considering an impact from the sales tax hike. Consumer prices are expected to show a rise of 0.7 per cent in the current fiscal year. The Bank of Japan launched a massive monetary stimulus programme aimed at pushing the inflation rate up to 2.0 per cent in two years, in a bid to wrench the country out of a long phase of deflation.

BRITAIN - FASTEST GROWING G-7 ECONOMY

Advanced economies will get their “mojo” back in 2014 as the UK retains its crown as the fastest-growing major European economy next year, according to analysts.

PwC, one of the world’s “Big Four” audit firms, said Britain’s brighter growth prospects could also put it in line to be the fastest-growing economy in the G7.

Richard Boxshall, an economist at PwC, said the UK, which is expected to grow by up to 3pc next year, would be “level pegging” with America for the title of the strongest-growing advanced economy in the world. “It’s too close to call,” he said.

Advanced economies such as America, Japan and Britain are expected to contribute about 40pc to global GDP growth for the first time since 2010 next year, up from levels closer to 30pc between 2011 and 2013. Improving consumer confidence will feed through to higher business investment among advanced economies, PwC will say in its annual predictions this week.

“It’s been quite a long, slow recovery from the crisis, and for the first time in what feels like an awfully long time — about five years or so — low-growth advanced economies are really starting to pick up, and that it is increasingly self-sustaining,” said Mr Boxshall. “It’s coming through private sector growth, rather than relying too much on government fiscal support.”

SCHOOL MAKES ME

LEVELS FOR NIFTY IN THE COMING WEEK

The Nifty too, hit a new life-time high 6,415.2 in the opening hour of Monday and then lost ground rapidly to end the week 91 points lower.

The index is following the script given as the first option last week. This could be the third part of the correction that began from the 6,342-peak in the index. This wave has the targets of 6,187; 6,046 and then 5,905. There is thus, a slight possibility of the correction ending at these levels. But if the decline continues, the index can head towards the next levels.

There is a strong likelihood of the index moving in the band between 5,950 and 6,400 for a few more weeks before it attempts to move higher. The medium term view will turn negative only on close below 5,920. Subsequent supports are 5,770 and 5,618.

A rebound next week can make the Nifty head higher to 6,262 or 6,323. The inability to move above the first resistance will be the cue for traders to initiate fresh short positions. Downward targets are 6,046, 5,973 and 5,905.

TEN WAYS TO BE A TRADER

1.       Trade based on the probabilities NOT the potential profits.

2.       Trade small position sizes based on your account NEVER put your whole account at risk of ruin.

3.       Trade a plan NOT emotions.

4.       Always enter a trade with an edge that can be defined DO NOT trade with entries that are only opinions.

5.       Trade based on quantifiable facts NOT opinions.

6.       Trade after extensive research on what works and what does not. Don’t trade in ignorance.

7.       Trade with the correct position sizing since risk management is your number one priority and profits are secondary concern.

8.       Trade in a way that eliminates any chance of financial ruin NOT to get rich quick.

9.       Trade with discipline and focus DO NOT change the way you trade suddenly due to winning or losing streaks.

10.    Trade in the present moment and DO NOT get biased due to old wins or losses.