Happy New Year!

• Listen to My Audio Interview
• My Interview at StockTickr
• Position Sizing and Expectancy
• The Holy Grail of Trading: It’s not your System
• How to Create a Successful Stock Watch List
• My CANSLIM Screening and Buying Strategy
• Fundamental Screens and Scans
• CAN SLIM Breakdown
• Understand the ‘M’ in CANSLIM
• Paper Trading: Nothing to Lose, Nothing to Learn
• Focus on You
• Could you Trade Full Time?
• Position Size to Determine How Many Shares to Buy
• Trading Mistakes: Avoid at all Costs
• How to Calculate a Stock’s Pivot Point
• Do Not use Fundamental Analysis Alone!
• How to Short a Stock
• Learn to Focus when Investing
• Markets are not Efficient
• Point and Figure Charts

Times are tough, banks are failing, the government is bailing out everyone but the common guy and Madoff is the new Ponzi. With all of this in mind, nothing is new on Wall Street. We’ve been through this before and will come out the other end, one way or another. The question is: Are you a sheep?

I will refer to a couple of quotes I have posted numerous times on this blog:

“All through time, people have basically acted and re-acted the same way in the market as a result of: greed, fear, ignorance, and hope – that is why the numerical formations and patterns recur on a constant basis” – Jesse Livermore

“Wall Street never changes, the pockets change, the stocks change, but Wall Street never changes, because human nature never changes” – Jesse Livermore

The books listed below were found through a fabulous list provided by the Hess Collection from An Exhibit at The University of Toledo ’s William S. Carlson Library. February 22–April 30, 1999

As you can see, things will never change, as much as we wish they would because it’s in our DNA (we’re human).

Don’t these titles sound familiar:
How to Cope with the Developing Financial Crisis
By Ashby Bladen, New York: McGraw-Hill, 1980.

Financial Crises
By Theodore E. Burton, New York: Appleton, 1931.

Our Mysterious Panics 1830-1930
By Charles Albert Collman, New York: Morrow, 1931.

Booms and Depressions: Some First Principles
By Irving Fisher, London: George Allen and Unwin, 1933.

Read more »

Major long term support is being challenged!

“All through time, people have basically acted and re-acted the same way in the market as a result of: greed, fear, ignorance, and hope – that is why the numerical formations and patterns recur on a constant basis” – Jesse Livermore

Jesse Livermore says it better than me and he is a big part of the reason why I study chart patterns so intensely. Stock charts organize human behavior in patterns that allow us to anticipate future moves based on past results. Based on this assumption, I wrote a post last October titled: Is Shanghai a Nasdaq Déjà vu

I compared the 1929 Dow Jones to the 2000 NASDAQ (as many have before me) and then the 2000 NASDAQ to the 2007 Shanghai Composite Index. The three looked so eerily similar that I knew I had to write an intense post with excellent graphics to back up the possibilities. The entire post is pasted below or can be found on the link above. This is what I had to say about the future developments of the Shanghai Composite Index based on my studies of 2000 and 1929:

This won’t happen overnight but human nature always repeats so expect a huge decline in the Shanghai Stock Exchange within the next several years.

“The price pattern reminds you that every movement of importance is but a repetition of similar price movements, that just as soon as you familiarize yourself with the actions of the past, you will be able to anticipate and act correctly and profitably upon forthcoming movements” – Jesse Livermore

Well, take a look at what has happened to the Shanghai markets since my post last October: The chart has dropped in almost an exact shape and slope as did the NASDAQ in 2001 and 2002. The index is now down more than 65% since my blog post and more than 70% since its peak.

The moral of this post (I’ll leave it to Livermore one last time):
“Wall Street never changes, the pockets change, the stocks change, but Wall Street never changes, because human nature never changes” – Jesse Livermore.

Take a look at the charts from 2007 and compare them to the charts above. Human nature!

*************October 3, 2007 Blog Post*************
The rise of NASDAQ in the late 1990’s has been compared to the rise of the Dow of the late 1920’s. Chart overlays are amazingly similar.

Image from BullandBearWise.com

Well, the current two year rise of the Shanghai Stock Exchange Composite Index looks remarkably similar to the rise of the NASDAQ of the late 1990’s and the charts below explain better than I can!

The NASDAQ rose from 1,250 to 5,132 from March 1997 to March 2000: 310% gain!
The Shanghai Stock Exchange has moved from 998.23 in June 2005 to 5,552.30 today (10/2/07): 456% gain!

As you can see, the blue line of the late 1990’s NASDAQ has moved meticulously with the Shanghai Index of today.

Will the Shanghai Stock Exchange end up with the same result as the NASDAQ of the late 1990’s. As you can see, the NASDAQ went from 1,250 to 5,132 back down to 1,192 (all within a five year period).

This won’t happen overnight but human nature always repeats so expect a huge decline in the Shanghai Stock Exchange within the next several years.

1929, 1999, 2007, etc…
***************************************

Is Shanghai a Nasdaq Déjà vu

I was recently asked a question by one of the most respected trader development psychologists/ mentors that I know of in the business. Brett Steenbarger, working on a new project, asked if I could elaborate on what strategies and/ or courses of action I take to mentor/ coach myself as a trader. Brett’s excellent blog can be found at Traderfeed. He specifically asked:

What are the three things (i.e. courses of action, strategies, resources) that you’ve found most helpful in mentoring/coaching yourself as a trader?

And here is how I answered:

• 1. Understand me. The most powerful tool I have found in life and in this specific case, the market, is what I, as a person, am capable of doing as a trader. I finally understand that personal characteristics that are engrained in my DNA will only allow me to trade successfully under specific circumstances. For example, I am much more consistent and profitable as a medium term and longer term trend trader than as a day trader (even more so on the long side). I don’t need to be everything, all the time as long as I continue to focus on the areas that bring me the greatest success. Understanding “me” has been my holy grail of understanding how to trade the market with some type of consistency and profitability.
• 2. Learning to cut losses. It’s almost cliché but not many people can do it (in any aspect of life). I have learned to cut losses in my trading, my career, my hobby of competitive poker and everything else in life where the rule applies. Without this rule, there wouldn’t be a third rule.
• 3. Study and work hard. Sounds so simple but we live in a very lazy society. It is extremely important to my success for me to continuously study the markets on a fundamental and technical level and learn from my successes and mistakes. If you think about it, we would all start at square one on every trade if we didn’t learn from past situations where we succeeded or failed. Applying the knowledge gained from past experiences allows me to properly analyze similar situations in the future with slightly greater odds of success (or at least I would like to think). Never stop learning is a phrase that I will never stop saying as it proves to be truer the older I get.

P.S. – Sorry for the lack of posts over the past few weeks as I have been in and out of town without much focus on the market. It’s better for me to be mostly in cash at this point in time due to the lack of opportunities crossing my screens. Regular posting will resume as soon as my schedule allows me to focus 110% on the market. I will look to post occasionally as long as I have something of value to add.