by Darrin Donnelly on April 5, 2012
Trader. Stress.
The two words have become forever linked to each other, largely due to the stereotypical image of what a trader is and how a trader acts.
You know the stereotype. The 20-something testosterone-fueled Alpha Male who sucks down a Red Bull every 15 minutes and lives off adrenaline. His days are spent maniacally screaming and bullying his way through Wall Street trading rooms while his nights are spent partying ‘till dawn.
Of course, this exaggerated stereotype is hardly realistic of what a successful trader behaves like. In fact, it’s probably the complete opposite of how a successful trader acts in reality. Successful traders are more likely to work in calm, quiet settings (often from a home office) and live a typical family life in Suburbia, U.S.A.
Still, erroneous stereotype or not, “trader stress” is a very real problem. Anyone who has ever tried their hand at trading (especially trading for a living) knows all too well what a tremendous level of stress trading can induce. It’s a level unmatched by just about every other profession in terms of intensity and consistency – that is, it hits hard and lasts long.
The good news is, stress doesn’t have to be a part of trading. There are very real ways to defeat trader stress. And when you do, your performance as a trader and happiness as a person will improve dramatically. [click to continue…]
by Darrin Donnelly on April 3, 2012
Why do people who are hugely successful in one career end up failing miserably as traders?
My trading hero, Nicolas Darvas, succeeded in several other fields besides trading, but his case is an extremely rare exception. The much more likely scenario is for someone to confidently enter the trading world after finding success in other areas, only to whittle away at the fortune they made.
Why is that? After all, there are universal principles that make one successful and we therefore tend to assume that success in one area will more than likely translate to success in another area. But in trading, this logical assumption fails much more often than it proves right.
I think the reason for this is due to a fundamental difference in what it takes to succeed in trading compared to other professions. [click to continue…]
by Darrin Donnelly on March 27, 2012
Nicolas Darvas described himself as a “techno-fundamentalist.”
He based his trading strategy on a combination of BOTH technical analysis and fundamental analysis. This reliance on both types of analysis separated Darvas from many trend traders, back then and still today.
Some trend traders rely exclusively on technical analysis and disregard the fundamentals. They believe that every fundamental that can be known about a stock – past earnings, projected earnings, market direction, market outlook, etc. – is already reflected in the actual price of the stock.
This reasoning seems logical. However, I think the viewpoint misses something key.
Yes, the technicals ARE more important than the fundamentals to a trend trader. That is, no matter how great the fundamentals look, if the technicals are poor, the stock needs to be avoided. You can’t “force” the technicals to match up with the fundamentals no matter how much you think (or hope) they should.
However, traders who have learned to properly recognize trends and technical patterns can take their success rate to a much higher level when they add fundamental analysis to their repertoire.
Since the NCAA basketball tournament’s Final Four will take place on Saturday and Monday, allow me to offer the following analogy. [click to continue…]
by Darrin Donnelly on March 19, 2012
One of Nicolas Darvas’ essential lessons was to ignore the noise on Wall Street.
Darvas learned this lesson the hard way back in the 1950s, when he nearly lost everything he had by following the advice of those who claimed to be stock market experts. I can only imagine what Darvas would’ve thought in this modern era of massive financial news, where we’re bombarded by market predictions and “hot tips” everywhere we look.
Today, the Wall Street noise Nicolas Darvas warned about is no longer limited to New York’s financial district. It’s nearly impossible to avoid hearing someone on TV, radio, the Internet, in newspapers, in magazines, pretty much anywhere you look, offering their opinion on where the market is headed next.
And with the market roaring aggressively higher this year, these opinions are getting louder and louder. [click to continue…]
by Darrin Donnelly on March 8, 2012
What is it about Nicolas Darvas’ story that has made it so endearing over the last 50-plus years?
His first book, How I Made $2,000,000 in the Stock Market, is considered a Wall Street classic and his subsequent books remain brisk sellers decades after they were written. Why do these books continue to captivate traders of all skill levels so many years later?
Obviously, there is an inspirational factor to it. When someone overcomes incredible odds and does the seemingly impossible – in this case, turning just over $30,000 into $2.25 million in less than two years – it certainly excites and motivates us all. It reminds us of the enormous potential the stock market holds if the stars align just right.
But the stock market has a long history of such “rags-to-riches” stories. These tales inspire us, for sure, but they don’t continue to captivate us decades later the way Darvas’ story has.
So what is it? What makes Nicolas Darvas go beyond the mere subject of an inspirational true story to a Wall Street legend whose teachings continue to educate and fascinate us several decades later? What makes Darvas and his writings so timeless? [click to continue…]
by Darrin Donnelly on March 1, 2012
“To hell with exciting. I’d rather be drab as hell and win.” – Woody Hayes
Traders need to adopt the Woody Hayes philosophy.
Football is a lot like trading.
In football, the fastest and most exciting way to try to score points is by throwing deep passes regardless of where you are on the field. On any given down, a big pass play that goes for six is always a possibility.
Exciting? Yes.
Practical? No.
Throwing deep on every play may result in a touchdown here and there, but the odds are much higher that going “all or nothing” on each play will lead to a lot more turnovers than touchdowns.
Instead of trying to score a touchdown on every play, smart plays are designed to first pick up positive yardage. Enough positive yards and you start picking up first downs, no matter how exciting the manner in which those yards are gained. Keep racking up first downs and you’re eventually in position to score a manageable touchdown. [click to continue…]
