Oxstones Investment Club™Achievements and brilliant thoughts of the best:
Richard Dennis – turned $400 into $200 million trading futures.
“When things go bad, traders shouldn’t stick their head in the sand and just hope it gets better. You should always have a worst-case point. The only choice should be to get out quicker. The worst mistake a trader can make is to miss a major profit opportunity. 95 percent of profits come from only 5 percent of the trades.
I don’t think trading strategies are as vulnerable to not working if people know about them, as most traders believe. If what you are doing is right, it will work even if people have a general idea about it. I always say you could publish rules in a newspaper and no one would follow them. The key is consistency and discipline.”
Nicolas Darvas – the theatrical dancer who parlayed $3500 to $2000000. What most people don’t know is that he trained very hard to achieve that, reading eight hours or more a day almost to the point of exhaustion , 200 books …
“The lights go low at Manhattan’s garish Latin Quarter nightclub. Onto the stage glides a slim-hipped, broad-shouldered man in white tie and tails. He grasps his partner, a stunning redhead in black tights, whirls her over his head on one arm, hurls her dramatically in a split-legged fall to the floor. The dance team is Nicholas Darvas and his half-sister, Julia, one of the top acts in the U.S. What the tired businessmen watching the show do not realize is that Hungarian-born Nicholas Darvas, 39, is a better money man than most of them; he is a top stock-market speculator who has parlayed his considerable weekly income ($3,500 currently) into a fortune of more than $2,000,000.
Moneyman Darvas’ methods would raise the eyebrows of most Wall Streeters. Instead of studying what Wall Street calls the fundamentals”price-earning ratios and dividends”he judges public enthusiasm, a method that works best in volatile markets. “In my dancing I know how to judge an audience,” he says. “It is instinctive. The same way with the stock market. You have to find out what the public wants and go along with it. You can’t fight the tape, or the public.”
Darvas’ system is tailored to his job. Since he has to do trading from wherever he is dancing (he recently completed an Asian tour) he ignores tips, financial stories and brokers’ letters, has never been in a broker’s office. Basically, his approach is that of a chartist: he watches price and volume. But the only charts he keeps are in his head. He studies the weekly stock tables in Barron’s, receives a nightly wire from his broker giving the high, low and closing of stocks he is following, as well as the Dow-Jones averages. When a stock makes a good advance on strong volume, he begins watching it, buys when he feels that informed buyers are getting in. For example, when he was playing in Calcutta, he noticed E. L. Bruce moving up in the stock tables. Suddenly, on 35,000 shares it moved from 16 to 50. He bought in at 51, though he knew nothing about the company, and “I didn’t care what they made.” (They make hardwood flooring.) He sold out at 171 six weeks later.
Darvas places his buy orders for levels that he considers breakout points on the upside. At the same time, he places a stop-loss sell order just below his buy order, so that if the stock does not move straight up after he buys, he will be sold out and his loss cut. “I have no ego in the stock market,” he says. “If I make a mistake I admit it immediately and get out fast.” Darvas thinks his system is the height of conservatism. Says he: “If you could play roulette with the assurance that whenever you bet $100 you could get out for $98 if you lost your bet, wouldn’t you call that good odds?” If he has a big profit in a stock, he puts the stop-loss order just below the level at which a sliding stock should meet support. He bought Universal Controls at 18, sold it at 83 on the way down after it had hit 102. “I never bought a stock at the low or sold one at the high in my life,” says Darvas. “I am satisfied to be along for most of the ride.”
Limiting his selections to five or six stocks at a time, Darvas often studies one for weeks or months before buying. He steers away from blue chips, buys only growing companies. “I am only in infant industries where earnings could double or treble,” he says. “The biggest factor in stock prices is the lure of future earnings. The dream of the future is what excites people, not the reality.”
Darvas studied economics at the University of Budapest, fled Hungary for Turkey in World War II (he still holds Turkish citizenship), methodically trained eight hours a day to become a dancer. He came to the U.S. in 1951, got interested in the market in 1952 when a Toronto nightclub owner paid him off in a mining stock that promptly trebled. (He sold it at that point; it later collapsed.) Darvas trained for the market just as methodically as he had studied his dancing, read some 200 books on the market and the great speculators, spent eight hours a day until saturated. Two of the books he rereads almost every week: Humphrey Neill’s Tape Reading and Market Tactics and G. M. Loeb’s The Battle for Investment Survival. He still spends about two hours a day on his stock tables. Even though he has made a fortune he plans to keep on dancing. Dancing is his business; the stock market is just that second income.”
William O’Neil – turned $5,000 into $200,000 in 1962 with just 3 consecutive trades
“Letting losses run is the most serious mistake made by most investors. With an individual stock, you absolutely have to have a stop-loss point, because you never know how far down the stock is going. I remember selling a $100 stock one time and it eventually went to $1. I didn’t have any idea it was going down that far, but what would have happened if I had held on to it? One mistake like that and you can’t come back. The majority of unskilled investors stubbornly hold onto their losses when the losses are small and reasonable. They could get out cheaply, but being emotionally involved and human, they keep waiting and hoping until their loss gets much bigger and costs them dearly. … Some investors have trouble making decisions to buy or sell. In other words, they vacillate and can’t make up their minds. They are unsure because they really don’t know what they are doing. They do not have a plan, a set of principles, or rules to guide them and, therefore, are uncertain of what they should be doing.”
Dan Zangler – generated a 164000% return, turning $11000 into $18 million in 18 months
Dan Zanger on earnings:
”As another barometer, I identify powerful percentage changes in earnings and revenue to spot emerging winners. Typically, most of my stock have earnings and revenues up 100% or greater, with a small number of shares that float. These characteristics cause stocks to have large changes in price in shorter periods of time as the Street reacts to announcements about the company.
Over the last fifteen years, I’ve spent over 10,000 hours studying every type of chart pattern formation imaginable. From Cup and Handle patterns to Falling Wedges, Ascending Triangles, Bull and Bear Flags and too many others to list here now. And lucky for us these patterns repeat over and over and over again!
I combine these patterns with stocks that have unusually higher rates of growth and low number of shares that float. For the average stock I list, growth rates must be up at least 40% for both earnings and revenues growth for their most recent quarters and most stocks that I list have growth rates up 80, 90, 100 and sometimes up 200% and more. It’s these high growth rates combined with stocks that have low number of shares that float that make them so explosive.
To be a real winner a stock needs earnings power – and plenty of it. Look for companies with earnings up more than 70 percent in the most recent quarter. Also, look for earnings results to have accelerated during the past two to three quarters. This means that earnings are still ramping up on a percentage basis. Most of the big movers have earnings up 150 to 400 percent quarter over quarter. For example, Taser Inc. (TASR) made a more than 5,000-percent move in 2003 and 2004 while earnings and revenue growth exceeded 200 percent or more every quarter for about six quarters. Another big mover that started in April 2003 and had similar earnings growth was Research in Motion (RIMM).
My trading style incorporates the identification of volatile stocks in the market with profitable chart patterns, and I use this information to swing trade stocks as they emerge from defined patterns. (Swing trading involves buying a stock as it emerges from defined bases or patterns, such as a Bull or Bear Flag, and holding them for a maximum of three to six days.)
Swing trading is my most treasured style, one needs to keep in mind that not all styles of trading work in all market conditions. Often, stocks need 10 to 15 weeks to fully appreciate in price. Through various time frames, I study the action of a stock’s behavior as indicated in its chart patterns. Watching and understanding this “action,” however, takes patience and years of experience before one can fully understand how this behavior should dictate how one should trade the issue.
My most informative trading tool is the accurate interpretation of a stock’s trading volume throughout the day. eSignal provides me with the lifeblood of my trading style. I use eSignal’s quote page and the (aVolume) feature and compare it to a stock’s daily average volume, so I can quickly gauge disparities and unique changes of volume throughout the trading day.
I look judiciously at a stock’s volume to see if its volume is far ahead of its daily average as it is under accumulation, or is the stock moving on below-average volume? Conversely, I look to see if a stock is moving lower (distribution) on heavy volume, or is it moving on lighter-than-normal volume?
I also set price buy or short point alerts a day or two in advance of a potential move so that I am notified when a stock breaks through a buy point or breakout point. With just a click of the mouse, I can access a multitude of charts, and see if the stock’s chart pattern is correct or healthy, using any time frame or time duration.
As another barometer, I identify powerful percentage changes in earnings and revenue to spot emerging winners. Typically, most of my stocks have earnings and revenues up 100% or greater, with a small number of shares that float. These characteristics cause stocks to have large changes in price in shorter periods of time as the Street reacts to announcements about the company.”
Michael Marcus – turned $30,000 into $80 million in 20 years.
“Taking advantage of potential major winning trades is not only important to the mental health of the trader but is also critical to winning. Letting winners ride is every bit as important as cutting losses short. If you don’t stay with your winners, you are not going to be able to pay for the losers. In addition to not overtrading, it is important to commit to an exit point on every trade. Protective stops are very important because they force this commitment on the trader.”
Bruce Kovner – has earned as much as $300 million in one year from trading.
“You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael [Marcus] taught me about making your best judgment, being wrong, making your next best judgment, being wrong, making your third best judgment, and then doubling your money. Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I’m getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis. I never think about other people who may be using the same stop, because the market shouldn’t go there if I am right. Place your stops at a point that, if reached, will reasonably indicate that the trade is wrong, not at a point determined primarily by the maximum dollar amount you are willing to lose. If you personalize losses, you can’t trade.”
Paul Tudor Jones – turned $1.5 million into $300 million in five years.
“That cotton trade was almost the deal breaker for me. It was at that point that I said, “Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?” I had to learn discipline and money management. I decided that I was going to become very disciplined and businesslike about my trading. I spend my day trying to make myself as happy and relaxed as I can be. If I have positions going against me, I get right out; if they are going for me, I keep them. I am always thinking about losing money as opposed to making money. Risk control is the most important thing in trading. I keep cutting my position size down as I have losing trades. When I am trading poorly, I keep reducing my position size. That way, I will be trading my smallest position size when my trading is worst. If I have positions going against me, I get right out; if they are going for me, I keep them… Risk control is the most important thing in trading. If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in. There is nothing better than a fresh start. The most important rule of trading is to play great defense, not great offense. Every day I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum possible draw down. Hopefully, I spend the rest of the day enjoying positions that are going in my direction. If they are going against me, then I have a game plan for getting out. Don’t be a hero. Don’t have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead. I know that to be successful, I have to be frightened. Don’t focus on making money; focus on protecting what you have.”
Larry Hite – turned a $2 million managed account into $800 million in 8 years.
“Throughout my financial career, I have continually witnessed examples of other people that I have known being ruined by a failure to respect risk. If you don’t take a hard look at risk, it will take you. If you argue with the market, you will lose. It is incredible how rich you can get by not being perfect. Never risk more than 1% of your total equity in any one trade. By risking 1%, I am indifferent to any individual trade. Keeping your risk small and constant is absolutely critical. I have two basic rules about winning in trading as well as in life: 1. If you don’t bet, you can’t win. 2. If you lose all your chips, you can’t bet. Frankly, I don’t see markets. I see risks, rewards, and money.”
David Ryan – earned 1,400% return over 3 years.
“The more disciplined you can get, the better you are going to do in the market. The more you listen to tips and rumors, the more money you’re likely to lose. My percentage of winners is only about 50/50, because I cut my losers very quickly. The maximum loss I allow is 7 percent, and usually I am out of a losing stock a lot quicker. I make my money on the few stocks a year that double and triple in price. The profits in those trades easily makes up for all the small losers. If you really think the stock is going to make a big move – and that should be the only reason you are buying the stock to begin with – then there is no reason to haggle over an eighth of a point. Just buy the stock. The same thing applies to the downside; if you think the stock is going to drop, just sell it. The single most important advice I can give anybody is: Learn from your mistakes. That is the only way to become a successful trader.”
Ed Seykota – achieved 250,000% return over 16 years of trading.
If you can’t take a small loss, sooner or later you will take the mother of all losses. There are old traders and there are bold traders, but there are very few old, bold traders. Dramatic and emotional trading experiences tend to be negative. Pride is a great banana peel, as are hope, fear, and greed. My biggest slip-ups occurred shortly after I got emotionally involved with positions. I prefer not to dwell on past situations. I tend to cut bad trades as soon as possible, forget them, and then move on to new opportunities. The elements of good trading are: 1. Cutting losses, 2. Cutting losses, and 3. Cutting losses. If you can follow these three rules, you may have a chance. Trying to trade during a losing streak is emotionally devastating. Trying to play “catch up” is lethal. I set protective stops at the same time I enter a trade. I normally move these stops in to lock in a profit as the trend continues. One evening, while having dinner with a fundamentalist, I accidentally knocked a sharp knife off the edge of the table. He watched the knife twirl through the air, as it came to rest with the pointed end sticking into his shoe. “Why didn’t you move your foot?” I exclaimed. “I was waiting for it to come back up,” he replied. Losing a position is aggravating, whereas losing your nerve is devastating. I intend to risk below 5 percent on a trade, allowing for poor executions. The trading rules I live by are: 1. Cut losses. 2. Ride winners. 3. Keep bets small. 4. Follow the rules without question. 5. Know when to break the rules. Be sensitive to subtle differences between ‘intuition’ and ‘into wishing’. Everybody gets what they want out of the market. “The “aha!” process lies at the heart of price change. For instance, consider the series: OTTFFSSE. What is the next letter? This puzzle creates tension – until you see the first letters of the ordinal numbers – one, two. “Aha!” you say. A lot happens during an “aha.” The puzzle dies and the tension dissipates. A societal “aha!” drives price. Read the newspapers and the news magazines during a major move. At first, no one gets why the move is happening. There’s a lot of confusion. Part of the move’s way up, some people get it. At the end, everybody gets it. The tension is resolved and the move ends.”
“The biggest secret about success is that there isn’t any big secret about it, or if there is, then it’s a secret from me, too. The idea of searching for some secret for trading success misses the point. “
Marty Schwartz – Has scored enormous percentage gains in every year since he turned full time trader in 1979, but he has done so without ever losing more than 3 percent of his equity on a month-end to month-end basis. In nine of the ten four-month trading championships he entered, he made more money than all the other traders combined. His average return in these nine contests was 210 percent – non annualized! In his single entry in a one-year contest, he scored a 781 percent return.
“The marketplace is an arena and other traders are the adversaries.
I turned from a loser to a winner when I was able to separate my ego needs from making money. When I was able to accept being wrong. Before that, admitting I was wrong was more upsetting than losing the money.
When I became a winner I went from ‘I figured it out, therefore it can’t be wrong’ to ‘I figured it out, but if I’m wrong, I’m getting the hell out, because I want to save my money and go on to the next trade.’
By living the philosophy that my winners are always in front of me, it is not so painful to take a loss. If I make a mistake, so what!
My attitude is: Never risk your family’s security.
Whenever you get hit, you are very upset emotionally. Most traders try to make it back immediately; they try to play bigger. Whenever you try to get all your losses back at once, you are most often doomed to fail.
After a devastating loss, I always play very small and try to get black ink, black ink. It’s not how much money I make, but just getting my rhythm and confidence back.
Before taking a position always know the amount you are willing to lose.
The most important thing is money management, money management, money management. Anybody who is successful will tell you the same thing.
I always take my losses quickly. That is probably the key to my success.
The best advice I can give to the ordinary guy trying to become a better trader is Learn to take losses. The most important thing in making money is not letting your losses get out of hand.”
Source: traderji.com
Tags: Bruce Kovner, Dan Zangler, David Ryan, Ed Seykota, Larry Hite, Marty Schwartz, Michael Marcus, Nicolas Darvas, Paul Tudor Jones, Richard Dennis, William O'Neil