Steenbarger: Two Self-Destructive Behaviors

Dr. Brett Steenbarger highlights two self-destructive behaviors that many traders tend to engage in:

(1) Trading addiction
(2) Impulsivity (aka Overtrading)

"Two self-destructive behaviors come to mind immediately the first I would call trading addiction people can be addicted to trading just like they can be addicted to gambling and for much of the same reason not everyone trades to make money some people are trading for thrills and excitement and those people do get in their own way."

"The other self-destructive behavior I would call impulsivity. When people make impulsive decisions because of frustration. They lose some money, the markets are not moving very much and they become frustrated and out of that frustration they feel a need to trade. In fact, traders call it overtrading. They make those impulsive decisions where they don't really have an edge in the trade and they end up 01:38 losing money as a result."

You can find Dr. Steenbarger's books on Amazon.com:

Trading Psychology 2.0: From Best Practices to Best Processes (2015)
The Daily Trading Coach: 101 Lessons for Becoming Your Own Trading Psychologist (2009) 
The Psychology of Trading: Tools and Techniques for Minding the Markets (2002) 

Charlie Munger: The Merits Of Long-Term Investing

Short Bio: Charlie Munger is a 95 years old investor and the Vice Chairman of Berkshire Hathaway.

Video duration: 23m51s

Charlie Munger on the merits of long-term investing:

"If you invest the way people gamble in casinos you're not gonna do very well. So ,it's the long-term investment that works best. But if you like the action of investing and sometimes winning, sometimes losing, just like people like the action when they gamble in a casino, those people are not my people. I like the long-term investors who figure out something that's going to work over the long term and buy that."

Charlie Munger highlights a paradox in Chinese behavior when it comes to investing in the markets and the desire to gamble:

"The Chinese do have a long attention span and that is a hugely desirable quality because you you're more likely to get the right answer if you think deeply and hard about a subject for a long time and it's odd there's a group of people who are so good at having a long attention span like to gamble so much which is quite counterproductive."

Interestingly, Munger considers the short-term market players as "gamblers":

"We have a view as to what the intrinsic value is of what is being traded and we only buy it when we think it's worth more than we're paying so we're trying to make a long-term investment by waiting for something to be under priced and then buying it and we don't give a damn about all these gamblers in the market."

Jim Simmons: The Mathematician Who Cracked The Markets

Jim Simmons is a mathematician and a hedge fund manager (founded Renaissance Technologies in 1982). He is considered by many to have the best investment track record in the whole industry. 

In this interview Jim explained how he got started in trading in his late thirties when he got tired of mathematics (who can blame him?):

"When I started doing trading, I had gotten a little tired of mathematics. I was in my late 30s I had a little money I started trading and it went very well I made quite a lot of money how it with pure luck I mean I think it was pure luck. simply wasn't mathematical modeling."

And how starting that venture ended up in forming one of the world's biggest hedge funds:

"But in looking at the data after a while I realized hey this looks like there's some structure here and I hired a few mathematicians and we started trying to make some models just the kind of thing we did back at eye-dea you design an algorithm you test it out on a computer does it work doesn't it work and so on. "

Simmons also stated how commodities and currencies used to show trending characteristics back in the day but that is. not the case any longer:

"(in) the old days commodities or currencies had a tendency to trend."

"The trend-following would have been great in the 60s and it was sort of okay in the 70s by the 80s it wasn't such." 

Jim stressed the importance of staying ahead of the competition by looking for shorter term approaches to trading and hiring very smart individuals:

"We stayed ahead of the pack by finding by finding other other approaches and shorter term approaches to some extent. But the the real thing was to gather a tremendous amount of data and and we had to get it by hand in the early days. We went down to the Federal Reserve and copied interest rate histories and stuff like that because it didn't exist on computers. We got a lot of data, very smart people and that was the that was the key."

"In a certain sense what we did was machine learning you you you look at a lot of data and you try to simulate different predictive schemes until you get better and better at it it doesn't doesn't necessarily feed back on itself the way we did things but it worked."

Mark D. Cook: Having A Business Plan For Trading

Mark D. Cook was one of the few day traders interviewed by Jack Schwager on his Market Wizards books (Stock Market Wizards, Mark D. Cook: Harvesting S&P Profits). In this presentation Mark stresses out the importance of treating trading as a business.

"In my own experience as I started with the business training plan in 1991 and I have been doing it every year since. It added to my bottom line because I had scenarios covered of what to do, when to do it and how to go about it before as I said before the emotions came on to it."

A few of the best quotes from his interview on the Stock market Wizards book are:

"The best trades work the quickest."

"If you decide to trade for a living, you have to treat it just like any other business endeavor and go into it with a plan."

"You need to have a solid business plan. The trouble is that most people start trading without any definitive plan."

Jack Schwager: Have The Markets Changed Over The Years?

Jack Schwager has written four excellent book on his Market Wizards series (Market Wizards, The New Market Wizards, Stock Market Wizards and Hedge Fund Market Wizards). When asked on how these new traders differ from the ones interviewed in the first book he answered:

"Every person is a different personality, different story, different lessons and different way of trading. Even within this book (Hedge Fund Market Wizards) everybody I interviewed is completely different on how they make money in the markets. (That's) amazing, I mean, I couldn't even make up as many various ways of trading markets as these people are using."

On the price action itself, Jack stresses that markets have changed a lot over the years but the main trading principles do not really change over time:

"Markets are always changing and but certain principles but the main principles don't change." 

While trend following worked very well in the eighties and nineties, in the modern markets they do not work well. One of the reasons for that is the proliferation of computerized trading systems and models:

"I think one big change is the the big trend following profits that were easy to take in those earlier years no longer are then you can still get big trends but markets sent a much more false breakouts you tend to have lots of choppier conditions it's more difficult to make money doing that type of approach you can still do it but has to be a bit more sophisticated."

The Story Of Jesse Livermore

Jesse Livermore is considered by many has the best speculator that has ever lived. His book, Reminiscences of a Stock Operator was the most recommended book among the market wizards interviewed by Jack Schwager in his books. 

Inside Reminiscences of a Stock Operator you will find some of the most brilliant quotes about the stock market, trading and investing. Here's a few:

"Blunders by incompetent speculators cover a wide scale. I have warned against averaging losses. That is a most common practice." 

“I have long since learned, as all should learn, not to make excuses when wrong. Just admit it and try to profit by it. We all know when we are wrong. The market will tell the speculator when he is wrong, because he is losing money.” 

“Let me warn you that the fruits of your success will be in direct ratio to the honesty and sincerity of your own effort in keeping your own records, doing your own thinking, and reaching your own conclusions.” 

“The real money made in speculating has been in commitments showing in profit right from the start.” 

"Rome was not built in a day," and no real movement of importance ends in one day or in one week. It takes time for it to run its logical course. 

"Remember that stocks are never too high for you to begin buying or too low to begin selling. But after the initial transaction, don’t make a second unless the first shows you a profit." 

"A speculator should make it a rule each time he closes out a successful deal to take one-half of his profits and lock this sum up in a safe deposit box." 

"Definitely is not safe to try to keep account of too many stocks at one time. You will become entangled and confused." 

“A speculator without cash is like a store owner with no inventory. Cash is your inventory, your lifeline, your best friend. Without cash you’re out of business.” 

“The market will tell the speculator when he is wrong, because he is losing money.”

Peter Brandt: Mental Game Of Trading

Peter Brandt is a professional trader and he has been trading futures and forex for 42 years.

Video duration: 7m11s

Peter Brandt starts with a few pertinent questions to describe what trading is really all about.

"Have you ever had five straight losing trades, ten straight losing trades?"

"Have you ever been in a situation where you wonder whether you're ever gonna win again?"

Peter Brandt considers that there are two dangerous periods in the life of the trader:

"The two most dangerous periods that can enter into the life of the trader and how they affect you in slightly different ways but important ways and the two things are severe draw downs and the second thing is a severely profitable period of time because they also can be very dangerous."

In this video Peter shares his worst drawdown experience:

"My year worst year as a trader was 2013 in which I lost 13 percent but that was part of a drawdown that lasted 15 months. For 15 months I was in the drawdown and it was agony."

Peter Brandt has written a great book. You can find it on Amazon:

Diary of a Professional Commodity Trader: Lessons from 21 Weeks of Real Trading (2011)

Ray Dalio: Building A Company Where The Best Ideas Win

Short Bio: Ray Dalio is an hedge fund manager, writer and philanthropist. Dalio founded Bridgewater Associates, currently one of the world's biggest hedge funds. His estimated net worth is around 18 billion dollars.

Video duration: 16m33s

In this video presentation at Ted Talks, Ray Dalio explained how he got started in trading the markets and how investors must act in order to become successful. Here are some of the highlights:

"When I was 12 years old I hated school but I fell in love with trading the markets."

"In order to be an effective investor one has to bet against the consensus and be right and it's not easy to bet against the census and be right when has the bet against the consensus and be right because the consensus is built into the price." 

"I made a lot of painful mistakes and with time my attitude about those mistakes began to change I began to think of them as puzzles that if I could solve the puzzles they would give me gems and the puzzles were what would I do differently in the future so I wouldn't make that painful mistake and the gems were principles that I would then write down so I would remember them that would help me in the future."

You can find Ray Dalio's books on Amazon:

Principles: Life and Work (2017)
Big Debt Crises (2018)

Brett Steenbarger: The Importance Of Deliberate Practice In Trading

Video duration: 3m19s

Record date: August, 2018

Dr. Brett Steenbarger considers trading as a performance activity similar to sports or chess:

"What traders need to focus on is that trading is a performance activity no different from sports no different from chess acting and so in any performance activity it requires practice it requires feedback about how we're doing efforts at getting better and better and so we see successful traders going through a certain kind of learning curve where they're constantly learning from their experience changing what they do improving what they do redoing relearning always evolving."

 Brett also stresses the importance for traders to work in teams:

"One of the techniques that's worked very well with the developing traders I've worked with is to learn in teams (...) Traders will team up and learn together. They will keep a journal of their results, have a daily report card that they keep about what they've done well, what they need to improve and they share that with each other so that each trader is learning from everybody else which doubles or triples the learning."

You can find Dr. Steenbarger's books on Amazon.com:

Trading Psychology 2.0: From Best Practices to Best Processes (2015)
The Daily Trading Coach: 101 Lessons for Becoming Your Own Trading Psychologist (2009) 
The Psychology of Trading: Tools and Techniques for Minding the Markets (2002) 

Jack Schwager: Losing Is Part Of The Game

Video duration: 2m48s

Highlights:

"One of the keys who to being a successful trader is to understand that losing is part of the game."

"It's all about finding what works for you and it's not the same as for somebody else." 

"The most important thing is risk management they all will tell you that more important in methodology."

"Marty Schwartz spent like 10 years he says losing money and then he became a winner I asked what what changed he said I became a winner when I understood it was okay to lose."

The role of "Luck" in trading:

When asked if luck has anything to do with trading success, Jack Schwager answered that over the long run luck has nothing to do with successful trading in the markets:

"In the short run you're better off being lucky than smart, that's the old cliche. It's true. But for the long run only the traders that really know what they're doing will survive. So, in fact what luck is one of the things that fools people because in trading even the amateur  can be right because you can only buy or sell so some people think they're smart just because they get into the bull market and they're on the right side. But over the long term,luck has nothing to do with it, just for the short term."

Here are some of Schwager's books available for sale on Amazon: 

Market Wizards, Updated: Interviews with Top Traders (2012) 

The New Market Wizards: Conversations with America's Top Traders (1994)

A Complete Guide to the Futures Market: Technical Analysis, Trading Systems, Fundamental Analysis, Options, Spreads, and Trading Principles (2017)

Linda Raschke: Pre-Market Routines

Linda Raschke shares her trading routines.

The importance of doing the homework the night before:

"First of all I always try to have my homework done the night before(...) and then of course first thing I'll do when I get up is usually check the markets just to see where they're trading so I can get a baseline reading (...)"

Most trading opportunities are in the morning:

"The opportunity comes in the morning sessions and you know I usually start at 6 a.m. CT so at 7 a.m. CT there is a big pickup in activity in the market so if I'm watching it a little bit beforehand it helps get a feel (...)"

The importance of avoiding or minimizing distractions:

"Trading is a performance oriented discipline so the more you can eliminate distractions and get yourself into a ritual or groove right away I think you're better able to concentrate and that's really the key is being able to concentrate right off the bat."

The little details that matter:

"For me, it's always important that I eat a big breakfast. I always have a giant bowl of oatmeal or a couple eggs and you know that really only takes 5 minutes but you got to feel the body and got to feel the brain. That's so important! People sit there and think they're going to make it on a bagel or something... It just doesn't work that way so it's really important to have some good nutrition." 

The importance of trading from a quiet, calm space:

"Try and have a space where you're not going to be distracted or kids knocking on the door, phone's ringing or that type of stuff." 

Steenbarger: 3 Common Trading Problems

Dr. Brett Steenbarger identifies three important common trading problems:

(1) performance anxiety
(2) impulsivity: impulsivity occurs when we act before we think
(3) failure to adapt to changing market conditions

Video duration: 9 minutes

Record date: July, 2009

You can find Dr. Steenbarger's books on Amazon.com:

Trading Psychology 2.0: From Best Practices to Best Processes (2015)
The Daily Trading Coach: 101 Lessons for Becoming Your Own Trading Psychologist (2009) 
The Psychology of Trading: Tools and Techniques for Minding the Markets (2002) 

John F. Carter: 5 Favorite Option Trades

Bio: John F. Carter is the founder and the CEO of Simpler Trading and the author of the best-selling book Mastering The Trade.

Video duration: 48 minutes

Record date: October, 2018

Summary:

John F. Carter describes his 5 favorite basic strategies:

1. Directional swings lasting a few weeks
2. Directional swings lasting a few days
3. Directional day trades lasting a few hours
4. Selling credit spreads on weekly options
5. Implied volatility crush on bad news

John's book is available on Amazon:

Mastering the Trade, Third Edition: Proven Techniques for Profiting from Intraday and Swing Trading Setups 3rd Edition

Jack Schwager: Polar Extreme Approaches To Trading

Video Duration: 6 minutes

Record date: May, 2015

Video Highlights: 

On one hand you have Jim Rogers who's the world's biggest cynic about technical trading. He's very long-term, fundamental ideas and done successfully all his life. His comment about technical analysis is, "I never met a rich technician unless you count the ones that sell their services". That's a summary of his opinion about technical analysis and he's been extremely successful. 

But you got people like Marty Schwartz who started out as a stocks trader and told me he lost money every year trading about fundamentals and then found technical analysis and got wealthy as a technician. 

So you can take people who have not only different approaches but have approaches that are polar extremes and consider each other's approaches complete nonsense and yet they're both extremely successful.

Here are some of Schwager's books available for sale on Amazon: 

Market Wizards, Updated: Interviews with Top Traders (2012) 
The New Market Wizards: Conversations with America's Top Traders (1994)
A Complete Guide to the Futures Market: Technical Analysis, Trading Systems, Fundamental Analysis, Options, Spreads, and Trading Principles (2017)

Van Tharp: Position Sizing Strategies

Dr. Van Tharp on the importance of position sizing:

"It's a little-known topic but it's probably aside from your own psychology the most important topic you could ever learn. How much? Position Sizing strategies tell you how much you should have on throughout the course of a trade and what people don't realize that it's through position sizing, not your system but through position sizing that you meet your (trading) objectives."

Mark Minervini: I'm a Big Reader

I came from a modest beginning to say the least so I had to read a lot of books and get a lot of books and tapes early on in the day to get me motivated and to learn how to get a successful mindset.

So, I have I often point out that I have all my books behind me in my office. Over a thousand books on motivation, success and finance and so I'm a big reader. I wanted also in my book to be able to motivate people because if you're not motivated, you don't believe you can do something.