One of the greatest trading books ever written is Reminiscences of a Stock Operator.
The original book was published in 1923, but in 2010, an Annotated Edition was produced by Jon Markman. This edition reveals the truth about Jesse Livermore and provides colorful, historically accurate commentary on the characters, places, and events that have made Reminiscences such an enjoyable and educational read for generations.
The foreward to the Annotated Edition is written by legendary trader Paul Tudor Jones. At the end of the book, Jones answers a few questions about his relationship with the book and its themes. Here is one of the insightful questions that was asked to Jones. I found a profound meaning in his response. I hope you discover it as well.
Question: Part of the appeal of the book is Livermore’s journey of self-discovery as a person and as a trader. Have you had the same experience as a trader and portfolio manager, or was your path easier or harder?
Paul Tudor Jones: Probably the best lessons to be learned from this book come from his repeated failures and how he dealt with them. In the book I think he lost his entire fortune four or five times. I did the same thing but was fortunate enough to do it all in my early twenties on very small stakes of capital. I think I lost $10,000 when I was 22, and when I was 25 I lost about $50,000, which was all I had to my name. It felt like a fortune at the time. It was then that my father flew up from Memphis and sat me down in my New York City apartment and began lecturing me as lawyers do. He commanded, “Leave the gambling den behind. Come home and get a real job in a safe profession like real estate.” Of course, I did not, and the rest is history. And real estate these past few years has been about as safe as shooting craps to pay the rent, so I was twice blessed. If I’d have taken my father’s advice, I might have lost all of my money again these past few years in my fifties.
Anyway, I think it’s no coincidence that our greatest champions, our greatest artists, our greatest leaders, our greatest everything all seem to have experienced some kind of gut-wrenching loss. I think their greatness, in part, was fashioned on the crucible of that defeat. Two years before Lincoln was elected as maybe our finest president, he lost that monumental Senate race to Stephen Douglas. To a certain extent, I think that holds true in my field as well, and I am leery of traders who have never lost it all. I think that intense feeling of desperation that accompanies such a horrifically deflating experience indelibly cauterizes great risk management reflexes into a trader’s very being.
There are two unpleasant experiences that every trader will face in his lifetime at least once and most likely multiple times. First, there will come a day after a devastatingly brutal and agonizing stretch of losing trades that you’ll wonder if you will ever make a winning trade again. And second, there will come a point when you begin to ask yourself why it is you make money and if this is truly sustainable. That first experience tests an individual’s grit; does he have the stamina, courage, guts, and smarts to get up and engage the battle again? That second moment of enlightenment is the one that is actually scarier because it acknowledges a certain lack of control over anything. I think I was almost 38 years old when one day, in a moment of frightening enlightenment, I knew that I really did not know exactly how and why I had made all the money that I had over the prior 17 years. This threw my confidence for a jolt. It sent me down a path of self-discovery that today is still a work in progress.
Good traders focus on entries and exits, discipline, market analysis, risk management and position-sizing in executing a robust trading plan.
But interestingly, many of our subscribers often breathlessly ask,
“What’s on your watchlist”, like THAT’S the holy grail.
Of course, we want to start with trading instruments with good volume, sufficient average price movement, appropriate volatility levels for a given option strategy, and a couple other criteria. This leads to a good GENERAL watch list.
But over time we’ve found specific symbols are better trading vehicles for certain purposes versus others. For example, some are better candidates for:
For example, EBAY is often choppy intraday with smaller timeframes, but in higher timeframes it’s a solid performer for intraweek swing trades. It’s on our short to medium-term swing trade list. Or INTC often stalls out and is range-bound for long periods, making it a perpetual member of our credit spread watchlist.
At PTL we share our regularly updated Sweet Spot Equity list featuring stock and ETF symbols with low share prices, sufficient (but not insane) price movement, and good average trading volume. These are subdivided for intraday-only, swing-trade-only, or either style. We post long and short symbols that represent good candidates for buying puts and calls. Another for selling vertical credit spreads.
So, the next time you think about your watchlist or updating IT (SINGULAR), consider how you trade, and create specific watchlists (PLURAL) and monitor THEM. They’ll match up better with what you’re doing.
12/7/2020 - Possible Swing Trade on the ETF: TLT.
Notes: trading odds enhancer beyond theory & technique is experience & observation, including getting to know a symbol’s tendencies. Sometimes the 21-day EMA is immediate support & resistance for a symbol; sometimes it breaks & very soon later snaps back to it. That is how TLT has behaved since the end of summer 2020.
TLT has been in a slow decline. Periodically, it pokes above the 21d EMA. then quickly drops back below. Here we have a decent daily SZ above the 2ld EMA. So, if price pops up to the yellow SZ, we can have some conﬁdence that price will react as the zone and recent behavior suggests & we should see a profitable down-move. Can trade the ETF itself; or use a long put “to express the trade.”
There are various fears associated with trading. Let’s focus here on “The Fear of Missing Out”, referred to as FOMO.
FOMO takes on two distinct forms:
This brings us to FOMO #2. You’ve got at least a passable trading plan, but you sometimes (or often) ignore it in whole or part:
For your consideration:
There’s a good reason for that…
They are. Give it a try!
10/27/2020 -- Since June, energy has been down, down, down. It's been riding down our favorite near-term trend identification measure, the 21-day EMA. Where does it stop? There are certainly fundamentals with reduced energy use due to COVID-19. But on the technical analysis side, while oscillators like the daily stochastic & RSI emit oversold conditions, & price is at the lower daily BB 2.0 SD,, those aren't automatic reversal points. We want to see a well-qualified demand zone. In the 120/130m chart there are two a bit further down (yellow regions).
Mitch ran through analysis on the QQQ...Here are his findings:
The 21-day EMA and the 50-day SMA are 2 key metrics to see if the NASDAQ remain intact.
They are backdropped by the orange demand zone further down, which coincides with the 100-day SMA.
MARKET ENVIRONMENT NOTE: There is a political battle in Congress about another COVID-relief plan. Speaker Pelosi has set tonight at midnight as the deadline for coming to an agreement-in-principle about what's on the table now in order to pass a bill before the election. This is being nervously watched by the media & market observers.
Mitch ran through an complete opportunity analysis for possible trade on the ETF: SMH.
Look at the chart for specific comments.