In the last few months Russell and I have really transformed our trading style. We find ourselves dropping back more and more to trading the weekly based swings. In this news driven chop and whippy intraday environment, it has become more and more important to find the sweet spot in the market... The cleanest trend with the most orderly action.
I see this followthrough coming mostly from weekly swings. I started speculating as a very short term trader. I thought by keeping time risk small and working my buying power, I'd maximize my returns. This was true in the crowd driven markets of the 98-00 era. These were fast moving and panic driven. Now, we see a much quieter market. One buffeted intraday by orders and news. As I adapted my daytrading style to these conditions, I began to add position trades with multi week expectations to the mix. I had always been aware of these swing points, and used these trend changes for my day and swing trade setups. But how many times did I take my $2-3 gain, and look back a week later to see the stock trading +10? As I began to trade these weekly patterns AS weekly patterns...holding them through wiggle after wiggle. I began to see a timeframe for trading with much better accuracy and huge risk to reward ratios. Slippage and gap risks were radically reduced, stress was almost nil. I could watch the intraday action and sneer at the whipsaws and rinses :)
I was increasingly drawn to these trades and began to focus on them. Then on one of my many re-readings of "Reminiscences of a Stock Operator", I found a passage which summed up almost perfectly my sentiments.
With such a high accuracy rate and risk to reward ratio, I can comfortably take larger size. These trades also have almost unlimited scalability, that is you can risk $100 or $10,000 on the same pattern with ease. This is harder trading intraday, as executions are a lot more tricky.
After entry, you set stops and go have a nice life. No longer glued to the screen dependant on each up and downtick. This has been such an awakening for me, and I have never had so much fun trading as I do now...
I hope this passage from "Reminiscences" will spark thought for you in the same way!
Good Luck and Good Trading!
-Bo Yoder
bo@realitytrader.com
=-=-=-=-=-=-=-==-==-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-==-
Slow as my progress seems now, I suppose I learned as fast
as I possibly could, considering that I was making money on
balance. If I had lost oftener perhaps it might have spurred me
too more continuous study. I certainly would have had more
mistakes to spot. But I am not sure of the exact value of
losing, for if I had lost more I would have lacked the money to
test out the improvements in my methods of trading.
Studying my winning plays in Fullerton's office I discovered
that although I often was 100 per cent right on the market that
is, in my diagnosis of conditions and general trend -- I was not
making as much money as my market "rightness" entitled me to.
Why wasn't I?
There was as much to learn from partial victory as from
defeat.
For instance, I had been bullish from the very start of a
bull market, and I had backed my opinion by buying stocks. An
advance followed, as I had clearly foreseen. So far, all very
well. But what else did I do? Why, I listened to the elder
statesmen and curbed my youthful impetuousness. I made up my
mind to be wise and play carefully, conservatively. Everybody
knew that the way to do that was to take profits and buy back
your stocks on reactions. And that is precisely what I did, or
rather what I tried to do; for I often took profits and waited
for a reaction that never came. And I saw my stock go kiting up
ten points more and I sitting there with my four-point profit
safe in my conservative pocket. They say you never grow poor
taking profits. No, you don't. But neither do you grow rich
taking a four-point profit in a bull market.
Where I should have made twenty thousand dollars I made two
thousand. That was what my conservatism did for me. About the
time I discovered what a small percentage of what I should have
made I was getting I discovered something else, and that is that
suckers differ among themselves according to the degree of
experience.
The tyro knows nothing, and everybody, including himself,
knows it. But the next, or second, grade thinks he knows a great
deal and makes others feel that way too. He is the experienced
sucker, who has studied not the market itself but a few remarks
about the market made by a still higher grade of suckers. The
second-grade sucker knows how to keep from losing his money in
some of the ways that get the raw beginner. It is this
semisucker rather than the 100 per cent article who is the real
all-the-year-round support of the commission houses. He lasts
about three and a half years on an average, as compared with a
single season of from three to thirty weeks, which is the usual
Wall Street life of a first offender. It is naturally the
semisucker who is always quoting the famous trading aphorisms
and the various rules of the game. He knows all the don'ts that
ever fell from the oracular lips of the old stagers excepting
the principal one, which is: Don't be a sucker!
This semisucker type that thinks he has cut his wisdom
teeth because he loves to buy on declines. He waits for them. He
measures his bargains by the number of points it has sold off
from the top. In big bull markets the plain un
This semisucker is the type that thinks he has cut his
wisdom teeth because he loves to buy on declines. He waits for
them. He measures his bargains by the number of points it has
sold off from the top. In big bull markets the plain
unadulterated sucker, utterly ignorant of rules and precedents,
buys blindly because he hopes blindly. He makes most of the
money until one of the healthy reactions takes it away from him
at one fell swoop. But the Careful Mike sucker does what I did
when I thought I was playing the game intelligently according to
the intelligence of others. I knew I needed to change my
bucket-shop methods and I thought I was solving my problem with
any change, particularly one that assayed high gold values
according to the experienced traders among the customers.
What old Mr. Partridge said did not mean much to me until I
began to think about my own numerous failures to make as much
money as I ought to when I was so right on the general market.
The more I studied the more I realized how wise that old chap
was. He had evidently suffered from the same defect in his young
days and knew his own human weaknesses. He would not lay himself
open to a temptation that experience had taught him was hard to
resist and had always proved expensive to him, as it was to me.
I think it was a long step forward in my trading education
when I realized at last that when old Mr. Partridge kept on
telling the other customers, "Well, you know this is a bull
market!" he really meant to tell them that the big money was not
in the individual fluctuations but in the main movements that
is, not in reading the tape but in sizing up the entire market
and its trend.
And right here let me say one thing: After spending many
years in Wall Street and after making and losing millions of
dollars I want to tell you this: It never was my thinking that
made the big money for me. It always was my sitting. Got that?
My sitting tight! It is no trick at all to be right on the
market. You always find lots of early bulls in bull markets and
early bears in bear markets. I've known many men who were right
at exactly the right time, and began buying or selling stocks
when prices were at the very level, which should show the
greatest profit. And their experience invariably matched mine --
that is, they made no real money out of it. Men who can both be
right and sit tight are uncommon. I found it one of the hardest
things to learn. But it is only after a stock operator has
firmly grasped this that he can make big money. It is literally
true that millions come easier to a trader after he knows how to
trade than hundreds did in the days of his ignorance.
The reason is that a man may see straight and clearly and
yet become impatient or doubtful when the market takes its time
about doing as he figured it must do. That is why so many men in
Wall Street, who are not at all in the sucker class, not even in
the third grade, nevertheless lose money. The market does not
beat them. They beat themselves, because though they have brains
they cannot sit tight. Old Turkey was dead right in doing and
saying what he did. He had not only the courage of his
convictions but the intelligent patience to sit tight.
Disregarding the big swing and trying to jump in and out
was fatal to me. Nobody can catch all the fluctuations. In a
bull market your game is to buy and hold until you believe that
the bull market is near its end. To do this you must study
general conditions and not tips or special factors affecting
individual stocks. Then get out of all your stocks; get out for
keeps! Wait until you see -- or if you prefer, until you think
you see the turn of the market; the beginning of a reversal of
general conditions. You have to use your brains and your vision
to do this; otherwise my advice would be as idiotic as to tell
you to buy cheap and sell dear. One of the most helpful things
that anybody can learn is to give up trying to catch the last
eighth or the first. These two are the most expensive eighths in
the world. They have cost stock traders, in the aggregate,
enough millions of dollars to build a concrete highway across
the continent.
Another thing I noticed in studying my plays in Fullerton's
office after I began to trade less unintelligently was that my
initial operations seldom showed me a loss. That naturally made
me decide to start big. It gave me confidence in my own judgment
before I allowed it to be vitiated by the advice of others or
even by my own impatience at times. Without faith in his own
judgment no man can go very far in this game. That is about all
I have learned to study general conditions, to take a position
and stick to it. I can wait without a twinge of impatience. I
can see a setback without being shaken, knowing that it is only
temporary. I have been short one hundred thousand shares and I
have seen a big rally coming. I have figured and figured
correctly -- that such a rally as I felt was inevitable, and
even wholesome, would make a difference of one million dollars
in my paper profits. And I nevertheless have stood pat and seen
half my paper profit wiped out, without once considering the
advisability of covering my shorts to put them out again on the
rally. I knew that if I did I might lose my position and with it
the certainty of a big killing. It is the big swing that makes
the big money for you. |
