Trading Quotes from “The Logical Trader” by Mark B. Fisher – Part 2

Go back to Part 1.

There are some more good trading quotes from the book, The Logical Trader.

Hope these can give you some insights for trading psychology.
Why do I like this kind of trading quotes? Because in my opinion, trading psychology plays very important part in trading success.
So, enjoy!

I Have No Clue
If a market is making a substantial move and traders seem to understand why, this market trend is not going to last very long.
However, if the market is moving in one direction and nobody has no clue as to why, then the trend is going to be prolonged.

When a market goes up or down for no apparent reason, it tends to go a lot further in that direction than people can imagine.

Be The House
The more time you spend at the table, the more bets you are going to place, and the greater the probability that you will eventually walk out of the casino as a loser. The casino would rather not have someone make a single large wager and, win or lose, immediately walk away.
What the house wants is for you to keep playing. The passage of time is the casino’s best friend and the player’s worst enemy.

Money Management
If the odds are in your favor of making a profit with your trading system, then keep your trade size consistent, cut your losses short, and know that, over time, you’ll be successful.

Fear and Greed
The two key ingredients that every trader needs to posses in the right combination in order to be successful – namely, fear and greed.

You need to have enough fear in you, meaning a healthy amount of respect for the market that you are participating in.
Allowing yourself that you are always right, especially when the market is clearly dictating that you are dead wrong, is a sure path toward trading disaster.

However, fear is not enough.
A trader must also have a healthy amount of greed.
You must be willing and able to press winning trades and allow these once-in-a-blue-moon occurrences to develop into large scale winners.
Sometimes it takes an iron will and a great deal of patience to be able to max out on these particular trades.

Staying Out Of The Penalty Box
The key to the whole puzzle is discipline, the more you have, the better you’ll trade.
The best traders have incredible amounts of discipline when they have a trading position on. They cut their losses and run. That’s the hardest thing on the world for a lot of other traders.
Maybe you’re bullish on the market, but your indicators say to get out. After you do, the market goes up this one time. Then you question your system. But if you stick with the system, you’ll be a lot better off.

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Trading Quotes from “The Logical Trader” by Mark B. Fisher - Part 1

Recently, I just read a book authored by Mark B. Fisher, The Logical Trader.
Although this book is not really one of my favourites, there are some good trading quotes that I like from that book. So, I think it may be good to share them here too.

Here are the trading quotes:

Have A Plan
In trading, as in life, you need a plan. This plan includes not only the micro – a strategy for each and every trade you make – but also the macro – meaning why you trade, how you intend to reach that goal (your means to the desired end), and what you’ll do as an alternative if that doesn’t work out.

Know what you want to accomplish, how you intend to get there, and what you will do if it does – or does not – work out. Have a plan and stick with it. That works in trading, as well as in life.

I Know Who I Am
Coming to term with who I am as a trading, knowing my limitations, and doing what I do well – and not doing those things that I have no clue about – has brought me continued success.
Too many people want to be who they are not, and professionally – whether in trading or in another field of business – that’s where they run into trouble.

Discipline and Comfortable With Yourself
You don’t need complicated Einstein formulas to make money in the markets.
You do need to be disciplined and comfortable with yourself.
No matter how good of a trader you think you are, the markets are always going to screw with your head and test your mental fortitude.
Remember, the survivors are also the ones who make up the market’s success stories.

Time Stop
An important rule of trading is that time is much more important than price.
Successful trading is a matter of seeking out immediate gratification. If the market doesn’t move your way within a short time of putting on a trade, just get out.
Most people trade just with Price Stops and not with Time Stops. They think they have to endure some initial pain. You, however, should not.

Get Out When You’re Wrong
Successful traders know that discipline is what allows them to enter their trades when the odds are in their favor and, more importantly, to get out when they’re wrong.
Being right is not the problem. What you do when you’re wrong is the crucial issue.

There are a lot of traders who buy then pray while the market goes against them, because they think that it will eventually go their way.
Most traders average down and wait for the market to turn their way.
Trading my way, I always have defined amount of money that I am willing to lose.
I let the market decide how much money I’m going to make.

Good News/Bad Action
When the news is good but the market just does not rise correspondingly, sell.

Continue to Part 2.

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Book Review: Come Into My Trading Room by Dr. Alexander Elder

One of the books that I read when I began learning trading is: Come Into My Trading Room: A Complete Guide to Trading, authored by Dr. Alexander Elder.

In my opinion, this is one of the best books for beginners, as it provides a comprehensive introduction to trading essentials as a solid foundation to build upon.

In this book, Dr. Elder shares three important pillars of trading: Mind, Method, and Money (3M).

The first M, Mind, refers to your trading psychology. Here he stresses the importance of discipline in trading,
In order not to let emotions (fear and greed) to lead you astray, you must instill discipline to stick to your own trading system and follow your trading plan prepared beforehand. Dr. Elder explains how to develop discipline in trading and avoid the traps caused by emotional trading, and also the importance of trading diary.

Discipline means designing, testing, and following your trading system.

It means learning to enter and exit in response to predefined signals rather than jumping in and out on a whim.

It means doing the right thing, not the easy thing.

And the first challenge down the road to disciplined trading involves setting up a record-keeping system.

The second M, Method, discusses how you about finding the trades and making entry and exit decisions. Basically, in order to achieve long term success, you have to develop a good system that gives you an edge over the market, and you must trade consistently based on your system.
In this section, Dr Elder covers technical analysis and trading indicators, and how to use and combine them to develop your own trading system.
He also shows using various examples on how to identify good trades and determine entries and exits (i.e. stops & targets).

The third M, Money, refers to how you manage your trading capital for long-term survival and success (i.e. money management).
Here Dr. Elder explains the importance of money management. Basically, a successful trader always manages his risks properly.
He then lays down the rules / formula of a good money management and provides the detail steps of proper money management.


Good quotes from the book with regards to how important the 3M is for trading success:

Every winner needs three essential components of trading: a sound individual psychology, a logical trading system and a good money management.

These essentials are three legs of a stool – remove one and the stool will fall together with the person who sits on it.

Losers try to build a stool with only one leg, or two at the most. They usually focus exclusively on trading systems.

Your trade must be based on clearly defined rules.
You have to analyze your feelings as you trade, to make sure that your decisions are intellectually sound.
You have to structure your money management so that no string of losses can kick you out of the game.

In addition, Dr Alexander Elder also provides some ideas on how to how to set up a good trading diary. Trading diary is very important from a trader. Because by having a good trading diary, you can learn from your own trades & experiences, both good & bad.

At the end of his book, Dr Elder discloses his own trading diary, which shows the details of some of his real trades (charts & indicators, trading signals, entry, stop, target, exits, etc.).

The bottom line is that, I HIGHLY recommend all beginners to read this book.
As I said earlier, this book can equip you with a complete introduction to trading essentials, which would serve as a solid foundation to build upon.

In case you’re interested, for your info, another popular & excellent book from Dr Alexander Elder is Trading for a Living: Psychology, Trading Tactics, Money Management

Related Post:
* Why Trading Psychology Is Very Important
* Book Review: When The Market Moves, Will You Be Ready?

You might be interested in the following topics:
* Learning Candlestick Charts
* Learning Charts Patterns
* Options Trading Basic – Part 1
* Options Trading Basic – Part 2
* Understanding Implied Volatility (IV)
* Option Greeks

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Book Review: When The Market Moves, Will You Be Ready?

I just finished reading a book: When the Market Moves, Will You Be Ready?, authored by Peter Navarro.
Peter Navarro is the author of "If It's Raining in Brazil, Buy Starbucks", one of the famous books on Sector Rotation.

I found this book to be very well written. It is clear, concise and easy to understand, even for beginners.
Basically, the book introduces a top-down, step-by-step approach of investing, from the basic of fundamental analysis, technical analysis to risk management, money management, trade management, and execution.

Here are the main points what the book is all about:

There are 4 stages of Macrowave investing:

Stage 1: To analyze the 4 dynamic factors that have impacts to the broad market trend:
a) Company earnings: Especially for the big companies. Must take note of their earnings calendar.
b) Macro-economic events, such as government reports on inflation, employment, productivity reports, trade deficit, etc.
c) Fed policy changes (monetary vs. fiscal policy).
d) Exogenous shocks, such as oil price spikes, wars, terrorism, company scandals, etc.

Stage 2: To understand and determine the 3 key cycles that shape the market and sector trend: Business cycle, Stock market cycle and Interest rate cycle

With regards to the stock market & business cycle, Navarro emphasized the importance of Sector Rotation:

It’s well-known that to be successful in investing, one should follow the broad market trend because about 3 out of 4 stocks will follow the broad market. However, that principle only is actually not enough.
At different points of market cycle, there are some sectors that outperform both the general market and the other sectors. Therefore, investors should regularly change sectors as the stock market moves through the patterns of sector rotation.

If you’re in the right sector at the right time, you can make a lot of money very fast.

Peter Lynch

The following are 3 golden rules of Macrowave investing:
1) Buy strong stocks in the strong sectors in an upward trending market.
2) Short weak stocks in the weak sectors in a downward trending market.
3) Stay out of the market and in cash when there is no definable trend

This part of the book explained further the stages of stock market cycle, which sectors that normally outperform the others during each stage of the cycle, and the logics why it is so. Some ways to track the market and sector trend are also discussed.

With regards to the interest rate cycle, the author explained the 4 stages of interest rate cycle, and how interest rates affect stock and bond market.

In addition, Navarro also explained the Yield Curve and how the shapes the curve could possibly signal the possibility of market expansion / boom, or recession.

Stage 3: To screen and pick the strong stocks in the strong sectors or weak stocks in the weak sectors, based on fundamental and technical analysis.
The author offered some ways to screen stocks with strong fundamental and discussed some basics of technical analysis.

Stage 4: To use solid risk management, money management, and trade management as well as the execution itself.

I personally like how the author explained about the basic of money management. Very clear and systematic with a few examples. I think it’s the best explanation on the basic of money management as compared to other books or articles that I ever read on the topic so far. However, he did not explore too much on various money management techniques.

The trade management covers the comparison between market vs. limit order and when to use it, setting trailing stop to prevent a profitable trade from turning into a losing trade, using buying stop order for breakout play, etc.

On the execution, the author discussed the advantages of using Level II quotes as compared to Level I.

You can also take look at the Table of Content as well as excerpt of the book from the link provided above.
I think, it’s really a book worth reading.

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