One of the great things about publishing a trading newsletter is that I’m able to assume the role of trading teacher. Not only do I teach other traders how to use the Darvas System, but I also field numerous questions every week from traders all over the world.
I believe that I benefit from answering these questions just as much (if not more) than those I’m providing the answers for. When I answer the “how’s” and “why’s” behind every trading technique I use, it helps me to take a step back and remind myself of the principles that work. It clarifies and reiterates the process for me, which is a great benefit to any trader.
I’m also able to see, again and again, the most common problems that plague traders.
With my newsletter now in its fourth year of publication, I can tell you with certainty that there are seven brutal trading mistakes that are repeated again and again by traders from many different backgrounds.
Review the list below and make sure you’re not committing any of these seven deadly trading sins… [click to continue…]
I’ve always believed there is a direct parallel between success in sports and success in the stock market.
For example, to succeed in the stock market, one must first find the investment strategy that is right for them. This is very similar to the way a football coach chooses the right offense for the team he is coaching.
In football, there’s no ONE right strategy that guarantees success. Especially at the college and high school levels, coaches win championships using a variety of offensive systems. Some prefer to grind it out with a conservative running game while others like to spread it out with a wide open passing attack. Both strategies work. Both styles win lots of games when utilized correctly.
The key for coaches is to find the proven system that best fits their player personnel and their own personality.
I think it’s interesting to note some parallels between the most successful offenses in football and the most successful investment strategies implemented in the stock market.
Below, I’ve showcased the investment world’s equivalent to the football world’s most well-known offenses. You just might find that the style that would best fit you as a football coach fits you best as an investor. [click to continue…]
While there is no shortage of new and interesting investment books published each year, a few classic titles have become legendary on Wall Street.
These are books that have reached elite-level status among traders and investors. They were written decades ago and are still read and re-read by Wall Street’s best. They’re handed out to new traders by some of the greatest investors of our time and they’ve become essential reading for anyone who wants to enter the stock market.
If you were going to name the three titles that are most often given this “classic” status, they would be The Intelligent Investor by Benjamin Graham, Reminiscences of a Stock Operator by Edwin Lefvre, and How I Made $2,000,000 in the Stock Market by Nicolas Darvas. [click to continue…]
Nicolas Darvas (along with so many other legendary traders) said that knowing the health of the general market was CRUCIAL to his strategy’s success. Darvas knew that one couldn’t rely solely on the action of individual stocks. The market’s overall direction had to be clearly determined before Darvas would make a trade.
Determining the health of the market isn’t as easy as it sounds.
In hindsight, anyone can see when the market was bullish, when it was bearish, and when it was choppy. You can simply look at a long-term chart and say, “Here’s where it was going up, here’s where it was going down, and here’s where it was moving mostly sideways.” Sounds simple enough, right?
But when you’re trading the market every day and you’re in the heat of the battle, it can be much more difficult to rationally decipher just how healthy or unhealthy the market is. [click to continue…]
Drawdowns are the necessary evil of trading. Nobody likes to have drawdowns, but they’re an unavoidable part of the trading game.
For those unfamiliar, a “drawdown” is the decline your portfolio experiences from its peak. If a portfolio reaches $100,000 and then pulls back to $80,000, it has experienced a 20% drawdown.
Usually, but not always, the bigger the annual return you aim for means that you must be prepared to withstand a bigger drawdown. It’s not at all uncommon for some of the best trend traders in the world, traders with streaks of 100%-plus annual returns, to experience drawdowns of 50% or more.
Drawdowns are caused by two factors. The first factor is a streak of losing trades. For the trend trader, losing-streak-induced drawdowns are usually not too severe. This is because trend traders like to EASE into positions that have just broken out and because they keep tight stops to minimize the damage caused by a trade that goes against them.
A professional trend trader is likely to initially risk no more than 1% of his portfolio on a new breakout. It would take a streak of 10-straight losing trades to create a drawdown of just 10%. A drawdown in the range of 10%-20% is quite manageable.
The second major cause of drawdowns is when a large winning position reverses and breaks its trend. This factor is much more significant for trend traders. [click to continue…]
Mottos and maxims are as much a part of Wall Street culture as stock charts and annual reports. But regardless of whether these well-known sayings originated in a classic book, a popular movie, or hard-won trader experience, not all of them are true.
Here are five fairly common stock market clichés that are simply NOT true. A wise trader can exploit these five MYTHS and profit from them.
Myth No. 1: Monday Sets the Tone for the Week
This is one of those sayings repeated constantly on news programs, usually at the beginning or end of a Monday session. Yet, there’s really no truth to it. In fact, Mondays are one of the most erratic days of the week for the stock market. [click to continue…]