Monday, 20 May 2013

What I learned from reading The Market Wizards

Great book written by Jack D. Schwager. I can see why this is one of the top recommended books.

Anyhow, here's some tips I learned from it. Not sure how useful some of them will be but I figure it'd be a good idea to write them down, for my own sake.

- Volatility is not the same as risk.

- The best time to be very careful is when everything is working out extremely well. It's possible to get complacent and lose it all.

- If you're scared of selling when the market is going your way in an unstable time, get out of the market.

- To be a successful trader, three things are needed: effective trade selection process, risk control, and the discipline to follow the previous two.

- If you start making a lot of mistakes, take the day (or few days) off from trading.

- Write down the reasons why you made a trade. Helps with checking for errors in your reasoning.

- CANSLIM:
   Current Earnings (compared to same quarter from last year)
   Annual Earnings per share (each years earnings should show an increase from last year)
   New (whether there's a new product, service, change in management, change in industry, or even a new high price)
   Shares outstanding (I think the lower is better but not clear on this bit)
   Leaders or laggards (pick the leaders and not the laggards)
   Institutional backing (good if the company has some but not too much of it)
   Market (3 out of 4 stocks in the same market will move in the same direction of a significant mover. Need to track all 4 to have an idea of when the market has topped)

- The more % of your capital you risk, the more volatile the results.

- Always have a stop order in place. Just in case the shit hits the fan, you'll be able to run out the door before getting covered too much.

- If thinks are looking bad, get out of that market. Even if you might think it'll recover.

- If you're not sure about a stock, don't buy it. If you already bought it, sell it and wait for another day or time when you understand better.

- Learn to trust your own judgment instead of just listening to others.

- Brokers know less than traders. Expect to lose money if you listen to a broker.

- If you don't understand why something is happening to a trade you made, get out of it.

- The less observed a market, the better a trade...for currencies. Can be more expensive though.

- Risk management is very important when trading. Knowing when to cut losses is more important than knowing when to sell for max profit.

- Set a trading rule about losses and follow it through. No ifs or buts!

- If a big loss occurs, back off and stop trading to let your head clear up.

- Analyze the trades you do correctly as much as the trades you do incorrectly. Heck just analyze them both fully.

- Learn trending systems...it's good to know just in case.

- Stay with the winners and get rid of the losers.

- If you make a system, don't doubt it. Like flipping a coin to pick between two choices. IF you went far enough to make a system, trust it (unless it loses consistently of course).


Biggest point seems to be on reducing the amount of risk. Another big point is not to sell a winning trade too quickly it seems. I definitely still have a lot to learn.

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