Trading – ten common elements of success

Monday, November 23rd, 2009

This post is a guest contribution by Charles Kirk, author of the popular The Kirk Report.

From time to time I have been asked to offer my perspectives on things I have found common in successful traders. I have always struggled with my reply to that question because there are only a few traders of which I have gained enough understanding of what they do every day to achieve their results.

However, in Van Tharp’s latest book “Super Trader,” he provides ten common characteristics frequently found among the best of the best among the hundreds of traders he’s worked with throughout his career. Like me, I think you may find it of interest!

1. They all have a tested, positive expectancy system that’s proved to make money for the market type for which it was designed.

2. They all have systems that fit them and their beliefs. They understand that they make money with their systems because their systems fit them.

3. They totally understand the concepts they are trading and how those concepts generate low-risk ideas.

4. They all understand that when they get into a trade, they must have some idea of when they are wrong and will bail out.

5. They all evaluate the ratio of reward to risk in each trade they take. For mechanical traders, this is part of their system. For discretionary traders, this is part of their evaluation before they take the trade.

6. They all have a business plan to guide their trading. You must treat your trading like any other business.

7. They all use position sizing. They have clear objectives written out, something that most traders/investors do not have. They also understand that position sizing is the key to meeting those objectives and have worked out a position sizing algorithm to meet those objectives.

8. They all understand that performance is a function of personal psychology and spend a lot of time working on themselves. You must become an efficient rather than inefficient decision maker.

9. They take total responsibility for the results they get. They don’t blame someone else or something else. They don’t justify their results. They don’t feel guilty or ashamed about their results. They simply assume that they created them and that they can create better results by eliminating mistakes.

10. They understand that not following their system and business plan rules is a mistake.

Source: Charles Kirk, The Kirk Report, November 18, 2009.

Tags: Advertisement, Algorithm, Business Guide, Business Plan, Charles Kirk, Decision Maker, Elements, Investors, Kirk Report, Lot, Money, Personal Psychology, Perspectives, Position Sizing, Reply, risk, Success, Successful Traders, Van Tharp
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Barton Biggs: Better a Pig, than a Bull or a Bear

Saturday, October 10th, 2009

Barton Biggs visits CNBC to discuss the market – Biggs says its better to be a pig in this market, rather than a bull or a bear. Funny thing is Biggs didn’t get to talk about this with Faber – instead they got down to the subject that there is more left in this rebound than investors imagine. The reference to being a pig comes from Biggs’ letters and a recent Newsweek article:

Biggs’ research looked back at past secular bear markets. Investors in past bear markets experienced an average drop from peak of 57% and a recovery from the trough of 78%. In some cases the recoveries from trough were in the 80 and 90 percent ranges. He pointed out further that this time around the drop from peak was 57%, and so far the recovery rally has provided a recovery of 45% out of the trough, hence his optimism that we may be only about halfway to the top of this market rally.
Click play to watch:

Biggs believes there are strong opportunities left in Big Cap Technology, Pharma, and Oil Services – and he believes that China markets will rally strongly again in the 4th quarter, after a lull that began in Mid-June, and emerging markets in general.

“It takes courage to hold fast and be a pig, as they say on Wall Street—my money is where my mouth is.” - Barton Biggs

Biggs thinks we are only half way through this rally:

The market is only about halfway through what is historically typical of a bear-market recovery—and this time around, the rebound is likely to be even bigger, said Barton Biggs of Traxis Partners.

Traxis analyzed 14 past bear markets—ranging from gold to US stocks—and found that when markets dipped more than 40 percent, the average rally off the lows was about 72 percent, he said.

Since the Dow is up only about 45 percent and the S&P about 52 percent, the market still has a lot of room to the upside, Biggs said.

“We’ve had a tremendous, an unbelievable decline in both the economy and the stock market, and so I just think we’re going to have a bigger than normal bounce,” Biggs said. “I just think we’ve got further to go.”

Tags: 4th Quarter, Barton Biggs, Bear Market, Bear Markets, Bounce, Cap Technology, China, China Markets, Cnbc, Courage, Decline, Dow, Economy, Emerging Markets, Faber, Funny Thing, Gold, Lot, Lows, Lull, Market Rally, Newsweek, Newsweek Article, oil, Oil Services, Optimism, Pig, Rally, Rebound, Stock Market, Stocks, Traxis Partners, Trough, Wall Street
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Chart of the Day: Any bets on the savings rate?

Friday, October 2nd, 2009

I published a post yesterday quoting Richard Koo, chief economist of Nomura Research Institute and author of Balance Sheet Recession, as saying American consumers are suffering from a balance sheet problem and will not increase consumption until their personal finances are back in order. The chart below, courtesy of Clusterstock, leaves scant hope that individuals will stop saving and start spending again anytime soon.

“For one thing, we’re way below the personal savings rate we saw in the early 70s, let alone the savings rate in the pre-Greenspan era. With the recent wealth shock and the aging population, there are a lot of folks eager to hold on to every last dollar they’ve got,” said Clusterstock.

Source: Joe Weisenthal and Kamelia Angelova, Clusterstock – The Business Insider, September 30, 2009.

Tags: Aging Population, American Consumers, Balance Sheet, Bets, Business Insider, Chief Economist, Consumption, Era, Greenspan, Last Dollar, Leaves, Lot, Nomura Research Institute, Personal Finances, Personal Savings Rate, Recession, Richard Koo, Shock, Weisenthal
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Technical talk: Telling Week for Stock Market

Monday, June 29th, 2009

The comments below were provided by Kevin Lane of Fusion IQ.

This week’s trading on the S&P 500 should tell us a lot about the stock market. The questions likely to be answered this week are the following: Is this just a pause that refreshes and prices then rise or are we entering a corrective phase in line with the typical seasonal summer weakness?

As seen from the chart below the market is equally confused, as the S&P 500 has been fairly directionless since early May, moving a few percentage points above and below the 920 level. To gain some direction (up or down) the Index needs to break either above 923 or below 875 (key intermediate term support).

Sentiment remains the market’s friend as most sentiment measures suggest that investors have not endorsed the current rally.

Kevin Lane, Fusion IQ, June 29, 2009.

Tags: Cape Town, Corrective Phase, Fusion, Investors, Iq, June 29, Kevin Lane, Lot, Measures, Percentage Points, Postcards, Rally, S Trading, Sentiment, Stock Market, Target
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Technical Talk: Is the rally done?

Tuesday, April 7th, 2009

The comments below were provided by Kevin Lane of Fusion IQ.

The S&P 500 is rallying back into its upper resistance zone and minor downtrend line … The market has now moved 26.37% off the intraday low set on March 6, 2009. The easy call here is to say, “Sell everything and lock in the gains from this trading rally and wait for a re-test then buy back in!”

However, as we all know the easy calls are the ones that are so obvious they never seem to work out. As the old traders’ saying goes, “The market is here to reward the minority and confound the majority.” After meeting a lot of investors recently in meetings many feel and I quote, “safe” in cash and also “do not mind having missed this move”.

So anecdotal sentiment observations are this rally is not real. When I hear that from a lot of people it makes me think resistance or not we may have a shot to work higher still. That said we explore a few charts to gain more perspective.

The S&P 500 is at its minor downtrend line as well as its upper resistance level near 850. Support and resistance, while not an exact science, do provide us backdrops as to where markets are likely to stall or bounce. However, when looking at support and resistance one must gauge what buying (and selling) power look like to give them an idea of whether those support or resistance areas are likely to hold.

Right now liquidity is strong as evidenced several times of late by the market dipping and roaring back. So while the market could stall here near 850, if liquidity is strong it could pop up to 881, the first Fibonacci retracement level from the 2007 highs to 2009 lows. (I don’t put a ton of faith in Fibonnaci retracements levels, but a lot of traders watch them.)

Source: Kevin Lane, Fusion IQ, April 6, 2009

Tags: April, C Sc, Exact Science, Faith, Fibonacci Retracement, Fusion, Investors, Iq, Kevin Lane, liquidity, Lot, Lows, Perspective, Rally, Resistance Areas, Resistance Level, Resistance One, Sentiment, Several Times, Spy
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Rio Tinto/BHP Billiton at parity

Friday, December 19th, 2008

Yep, the share prices of the two mining giants have crossed. After suffering another sickening fall on Thursday, Rio shares (down 10 per cent) are now trading at £10.40, about 4p lower than BHP’s.

This is seriously embarrassing for Rio. After all, BHP’s abandoned bid was pitched at a ratio of 3.4:1.

Of course, the reason Rio is being dragged lower is debt. And Rio has a lot of it – $40bn to be precise, against a market value of $27bn.

The company says it will be able to meet its debt repayments ($8.9bn is due next September) and does not need a rights issue.

But the market doesn’t believe Rio, and the result is a sinking share price.

Since BHP walked away last week, Rio shares have fallen 58 per cent.

Related links:
No respite for Rio - FT Alphaville

Source

Tags: Alphaville, Bhp Billiton, Bid, Debt Repayments, Ft Alphaville, Giants, Lot, Parity, Reason, Respite, Rio 10, Rio Tinto, Share Price, Share Prices, Shares
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