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He’s no Market Wizard, but he is The Wiz, and nobody beats him.

It’s true - I’m a huge Market Wizards fan. All 3 of these interview-style trading books by Jack Schwager are excellent, and they continue to teach and remind me of highly important lessons about trading. My copies are all marked up with underlines, highlights, and margin notes, and I seem to add more every time I open them up.

Recently, I ran across a great quote by Larry Hite in Market Wizards:

“First, if you never bet your lifestyle, from a trading standpoint, nothing bad will ever happen to you. Second, if you know what the worst possible outcome is, it gives you tremendous freedom. The truth is that, while you can’t quantify reward, you can quantify risk.”

What a nice, basic concept. Know your risk…..on every trade, at any given time.

I know a trader who’s struggling to follow this advice right now. After getting caught on the wrong side of the market a few times in recent weeks, Read more »

One of my top 5 trading books is How I Made $2,000,000 in the Stock Market by Nicolas Darvas. From time to time I re-read this book because there are some good lessons and reminders in it. On page 11, Darvas refers to stocks he was trading in a funny way but one which all traders have been familiar with at one time or another:

“…For some of them I acquired a special liking. This came about for different reasons. Sometimes it was because they were given to me by a good friend of mine – other times, because I had started by making money with them. This led me to prefer these stocks more than others, and before I knew what I was doing I had started to keep ‘pets’.

I thought of them as something belonging to me, like members of my family. I praised their virtues day and night. I talked about them as one talks about his children. It did not bother me that no one else could see any special virtue in my pet stocks to distinguish them from any other stocks. This state of mind lasted until I realized that my pet stocks were causing me my heaviest losses.”

No doubt we’ve all encountered our share of “pet” stocks, but are you holding onto any of them right now? Here are three signs you may have a pet stock:

Read more »

I believe we can learn a lot from other traders, and the mentality that keeps us willing to learn is the same one that allows us to take a small loss or book profit on the way up. We don’t need to be perfect in the trading business to do quite well! Having some trading rules in place sure can help, though.

Recently I ran across Dennis Gartman’s Rules of Trading, which I highly suggest you check out. Dennis a well-known trader and market analyst, and his rules can help any trader in any market.

My favorite rule of his?

“Do more of what is working and less of what is not working.”

Easy to remember and a great reminder to maximize winning trades and minimize the losses. Simple but not always easy!

What is your favorite trading rule?

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com

The Market Wizards books by Jack Schwager are must-read books for traders of all kinds. These books are loaded with interviews with top traders, and it’s interesting to learn how the featured traders made it to the top of their profession.

One of the featured traders is Ed Seykota, who reportedly was up 250,000 percent between 1972 and 1988 – very much a wizard! Ed’s interview is filled with great insights as to what drives traders, and his play on words in many cases proves to be accurate. One quote that Ed makes is:

“Be sensitive to the subtle differences between ‘intuition’ and ‘into wishing.’”

I think this guy’s gut is telling him to BUY……dinner.

What great advice! As traders, we all fight the internal battle between what our “gut” is telling us and what we want to happen based on the positions we are holding at any given time. An experienced trader should allow intuition to play a part in the decision-making process when trading, but it certainly is a fine line between what our gut tells us and what our opinions leave us hoping for!

Keep Ed’s quote on your mind and always be aware of what it is that’s driving your next trading decision. Remember, HOPE is not a trading strategy!

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com

One of my favorite trading books is Reminiscences of a Stock Operator by Edwin Lefevre. Based on the trading of the famous Jesse Livermore, Reminiscences is full of trading lessons from cover to cover. Although it was written 83 years ago, it still applies to today’s market. Learning from the successes and failures of one of the all-time great traders is hard to beat.

Among the many lessons embedded in the book, one common theme is that a trader should keep his mistakes small. Livermore developed a “probing” system in which he would enter small positions to monitor their activity before he built up to a full position. This way, if he was wrong, it only cost him a little.

Chapter 10 begins with some great advice:

“All stock market mistakes wound you in two tender spots - your pocketbook and your vanity.“

This is so true! No trader wants to take a loss. It costs money and diminishes pride to know you were wrong. The mistake of losing money is compounded into a shot to your confidence which is so important to keep intact as a trader.

Lefevre goes on to say:

“Losing money is the least of my troubles. A loss never bothers me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocketbook and to the soul.”

I can certainly relate to that. The times when I know I could have gotten out of a bad trade at a better spot but didn’t because of a bad decision is always a shot to my pride. Such a feeling can be very detrimental to subsequent trading results, as the need to “make it back” leads to forced trades and compounded errors.

Make it a point to keep your mistakes small this year. Take small losses – they are easily overcome with winners, and you’ll keep your confidence intact!

Find out how I trade for a living by keeping losses small and locating winning stock picks to overcome them with a 2-week free trial to my stock pick service.

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com