Back November 5, 2007

...continued from yesterday...

On holiday until November 5, 2007.

...back on November 5, 2007...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Habits 6 and 7

...continued from yesterday...

Sixth. Synergize. According to Stephen Covey, synergy means 1 + 1 may equal 8, 16 or even 100. In trading, when you pyramid during a winning trade, your pyramid could result far more than double your profits, it could be 8 times, 16 times or even 100 times your profits as compared to a single position without pyramiding.

Seventh. Sharpen the saw. Spend time maintaining and improving yourself so you can trade effectively. Do so in terms of your body’s condition, your spiritual dimension, your mental condition, and your social/emotional condition.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Habits 4 and 5

...continued from yesterday...

Fourth. Think win/win in interpersonal relations. Stephen Covey says that a character trait essential to win/win is the abundance mentality where you believe there is plenty out there for everybody. In trading, that means your win is not necessarily anybody’s loss. For example, when you sell for a profit somebody else could be buying to take profits on a short position. Both of you won! Thinking that your win is someone else’s loss, as is frequently mentioned in literature about trading, could disable you from trading effectively.

Fifth. Seek first to understand, then to be understood. In trading, ensure you understand what your order is supposed to be. Then proofread it before transmitting it to your broker to ensure that you will be understood.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Habits 2 and 3

...continued from yesterday...

Second. Begin with the end in mind in terms of how you are going to be and what you are going to do. For example, as a trader, you are going to be self-disciplined and you are going to follow your trading plan for the next specified number of trades, after which time you will evaluate your trading plan (but not before you are finished those specified number of trades).

Third. Put first things first. In trading, for example, decide what is more important to you: exiting a losing trade when your stop loss is hit or wanting to “be right all the time”.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Seven habits of highly effective people

...continued from yesterday...

Would you like to become a more effective trader? What are the major things that distinguish highly effective people and others? According to Stephen R. Covey, there’s seven habits that highly effective people have. He describes them in his book The 7 Habits of Highly Effective People

Here’s my understanding of them as applied to trading.

First Habit. Be proactive in matters where you can affect the result and don’t bother where you cannot have any effect. As an independent trader, you don’t have control over the direction and extent of price movement. Therefore, don’t bother stressing out about those things. Instead, spend you energy on controlling what markets you will trade, when to enter, how much to trade, and when to exit.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Raising funds to trade - ideas 11 to 12

...continued from yesterday...

11. Get other people to guarantee your loan or put up security for a loan.

12. Get partners or investors. Not recommended! You’ve got plenty of legal barriers here that will distract from trading profitably. If you’re inclined to go ahead with this option, be aware that your relations with partners or investors can take many different forms including but not limited to partnerships, limited partnerships, corporations, joint ventures, etc. You’ll need a securities lawyer to set you up as well as maintain on-going obligations imposed by legal authorities or argue with them about your exemption from their authority.

...back next week...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Raising funds to trade - ideas 7 to 10

...continued from yesterday...

Borrow money. I recommend against this. Legendary supertrader Jesse Livermore, at one point in his career, felt disabled from trading due to his debts. Read more about it in chapter 16 of Reminiscences of a Stock Operator (Wiley Investment Classics)

If you decide to go against my recommendation and use borrowed money, you might try:

7. an unsecured line of credit from a bank,
8. a secured line of credit,
9. a mortgage on real estate that you own (it could be a second, third or fourth mortgage), or
10. draw on your credit card cash advance (strongly recommended against).

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Raising funds to trade - ideas 4 to 6

...continued from yesterday...

4. Get a real job and then save money out of your salary so you’ll have money with which to trade.

5. Join a propriety firm where you trade the company’s money as an independent contractor. You can find these firms at http://traderdaily.efinancialcareers.com/.

6. Start a business offering a product or service to get some cash flow going. Then save money out of that cash flow for trading.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Raising funds to trade - ideas 1 to 3

...continued from yesterday...

1. Use your cash savings.

2. Convert something you own into cash by selling it. Make a list of everything you own and consider selling some of the items on the list.

3. License your trading system to other traders.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Getting more money to trade

If you’ve got a good trading system, it’s tempting to try finding more money with which to trade it. This week’s series of articles will be about how to find more money with which to trade, if that’s what you want to do.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Done for the week

Back on Monday next week....

Just one thing c 9 to 12

...continued from yesterday...

George Gilder – the outsider trading scandal.
Focus on getting real fundamental knowledge about companies (facts about supply and demand, finance, technology paradigms and execution). Current laws have made it hard to get real fundamental information about companies, but it remains irrepressible.

Michael Masterson – the winner’s rule.
In every business, social or personal interaction, make sure the other person gets as much benefit from it as you do. When considering your own advantages and disadvantages in taking any course of action, consider them of everyone else involved.

Richard Russell – rich man, poor man.
In investing there is no substitute for taking action. Compounding works. Don’t lose money. Don’t feel a need for the markets or feel pressured to make money. Look for value.

John Mauldin – the millenium wave.
The key talent in the future will be the ability to deal with the tremendous technological and cultural changes that are coming at an ever-increasing pace while developing an understanding of how those changes will evolve in the age-old patterns of life.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Just one thing c 5 to 8

...continued from yesterday...

Ed Easterling – risk is not a knob.
Accepting higher risks in an investment can lead to lower returns, contrary to the conventional belief that higher risks beget higher risks.

James Montier – psychology matters: an investor’s guide to thinking about thinking.
Your thinking is biased and so is everyone else’s. You know less than you think you do. Focus on facts, not stories. More information is not necessarily better. Consider both the strength and weight of information. Look for information that disagrees with your opinion. Examine mistakes to improve. You didn’t really know it all along. Re-bias because you can’t de-bias – replace unimportant information with relevant information. Judge things by how statistically likely they are, not how they appear. Don’t overweight personal experience. Big vivid easy to recall events are less likely than you think they are. Don’t take information at face value; consider how it was presented. Don’t value something more just because you own it. Sell your losers and ride your winners.

Bill Bonner – the means are the ends.
Almost all that political leaders and opinion setters say is self-serving claptrap; most of what they do is counterproductive, fraudulent, and sometimes lethal.

Rob Arnott – the two percent solution.
Weight adjusted indicies such as the S&P 500 are always overweight in overvalued stocks and underweight in undervalued stocks. That is why equal or non-weighted indices where each stock in it is an equal amount will outperform the weighted indicies.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Just one thing c 1 to 4

...continued from yesterday...

Of the four chapters of the book summarized today, I believe the most useful for independent traders/investors is the chapter by Dennis Gartman. The other three out of the first four chapters, in my opinion, is relevant only to extremely long term, large funded, institutional money managers.

Andy Kessler – Signposts in the fog.
Invest where nobody knows anything, imagine what things might look like up ahead or look for vague outlines of what lies ahead. Then cash in when crowds arrives 3 months to 5 years later to drive prices up 100% to more than 1,000%.

Dennis Gartman – The not so simple rules of trading.
Never add to a losing position. Trade on the side (long or short) that has the upper hand and be willing to switch sides as soon as the other side gains the upper hand. Buy high to sell higher; sell low to buy lower. Sell markets that show the greatest weakness and buy markets that show the greatest strength. In a bull market go only either long or neutral; in a bear market go only either short or neutral. Markets can remain illogical longer than you can remain solvent. Markets run in cycles – when things are going well, trade often and large; when things are going poorly, trade less and smaller size until fortune turns better. Think like a fundamentalist and trade like a technician. Keep your technical system simple. Understanding mass psychology is more important than understanding economics. Do more of what is working and less of what is not working.

Mark Finn and Jonathan Finn - The triumph of hype over long-run experience.
Don’t rely on past returns to predict future performance of a money manager.

Gary Shilling – the long bond.
Find an important non-consensus long-term theme and stick with it.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Just one thing

Here’s a book title that caught my attention recently because the title explicitly stated that it’s a book “you can’t overlook”. The book is entitled Just One Thing: Twelve of the World's Best Investors Reveal the One Strategy You Can't Overlook

The book was published in 2006 and was edited by John Maudin.

This week I’ll be posting notes in this blog about the contents of the book as I read through it. The pace will be about 3 or 4 chapters a day.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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