In my early years of trading I started researching Legendary Traders. I wanted to know what made them tick...what attributes they had that made them successful in this game...and most importantly to see if there was anything I could extract and assimilate into my Trading program.
While One could find dozens of traders to emulate, our two favorites are Victor Sperandeo, and Jesse Livermore.
The Great Bear of Wall St
Jesse Livermore is regarded by many as the Greatest Trader to have ever lived. He carved out his Legend trading in the early 1900s, and seemed to always get the big market turns correct. During the Crash of 1907, he netted $3m in one day. He was heavily shorting the Market in 1929 and entered the Great Depression with $100m in cash. Needless to say at the time he was vilified for his success while so many others were suffering. Heavy is the crown on the head of a King I suppose.
He lived and Traded in secrecy and silence. He lived to play and beat the Trading Game. It was a never ending puzzle, and he always wanted to figure out what was going to happen next, while then backing up his view with heavy betting.
While he was a visionary, astute student of the game, and Incredible Trader, he was also his own worst enemy. He would run up a small stake to a large fortune, and then proceed to lose it all in one mis-guided operation. This cycle would be repeated numerous times in his life, and each time he would come back, until one day he didn't.
Our Hero Growing up..But should he have been?
His free wheeling days and adventures are immortalized in the classic "Reminiscences of a Stock Operator" - I swear, I must have read that book front to back at least 25 times. The book is laden with insights and pithy quotes that Traders would tape to their monitor - to learn and heed the warnings and advice of this Great Master. Some of our personal favorites are:
1) "The Desire for constant action irrespective of conditions is responsible for many losses on Wall St, even among the professional who feel that they must take home some money every day... as though they were working for regular wages."
2) "It takes a man a long time to learn all the lessons of all his mistakes."
3) "My losses have taught me that I must not begin to advance until I am sure I shall not have to retreat."
4) "I always knew I would have another chance and that I would not make the same mistake a second time. I believed in myself."
5) "Speculation is a hard and trying business, and a speculator must be on the job all the time or he'll soon have no job to be on."
6) "There is nothing like losing all you have in the world for teaching you what not to do."
7) "No diagnosis, no prognosis. No prognosis, no profit."
8) "If a man pushes his confidence to his logical limit, he is bound to go broke."
9) "They say you never grow poor taking profits. No you don't. But neither do you grow rich taking a 4 point profit in a bull market."
10) "Remember that markets are never too high for you to begin buying or too low to begin selling."
Despite all of his successes in the market game, he busted out one final time and ended up blowing his brains out. The "Boy Plunger" and "Great Bear of Wall St" who Towered over Wall Street for 40 years, lost the game of life.
In studying this man, it is clear that he had 1 serious character flaw. It haunts many traders, and is a key ingredient to their demise. It is Narcissism. When you are constantly focused on being "Right" and then betting a out-sized percentage of your chip stack on that outcome - You are not doing this to make money in the market; you are doing it for a different reason - You are doing it for "The Glory", or your Ego.
It may not even be a conscious desire, but it is there and will twist your judgement at the worst possible time. You can play a perfect game for month's and even years, but then blow it all on one or two bad judgement calls. Never forget that success is fleeting in this business. I think a fair analogy is to a airline pilot who has logged 1,000 flights under his belt. It makes no difference if he safely landed the aircraft the past 1,000 times he took flight - it only matters that he does it again this time and every time going forward. One pilot error, and that could be it folks. You must be vigilant and guard against this desire to become "The MVP of the League" or to "Make a Killing on this one" or to live with a self-destructive mindset of "Getting my Money back" after a loss.
In the next chapter you will see that Price Movement is statistically a random distribution of potential outcomes - We have proved it here at 3ptCapital via statistical analysis. On average, on any given day, prices are likely to move up or down, by the same increment, over a given time frame. Don't believe me? We'll prove it to you. Just go to the Odds tables in Alchymist and pull up the Probability Table. There you can see the Average and Percentile moves for all futures across 5/10/20/40 and 60day time intervals.
Once you embrace this reality, that each bet is a coin flip proposition, regardless of how much research or time you spent doping out some "Can't lose" trade, then you will never make the fatal mistake of betting too heavy on a single outcome.
You don't have to predict anything... you don't have to be "so smart". You don't need a gold star and pat on your head from a elementary school teacher, or a Dean's List GPA at your university.
The embedding into your fiber of having to "score high marks" or "get the answer right", will absolutely sink you as a trader.
You have been taught incorrectly.
In life, we are wrong all the time, and you must learn to embrace being wrong, and being OK with being wrong. It doesn't make you dumb, it doesn't make you a loser. It's simply another hand being dealt at the Poker table. It's one snap in a football game. Don't make your bet out to be more than what it is - A single random distribution of an outcome.
Check your ego at the door and understand that you don't have to know what is going to happen next in the market in order to make money.
The way you are going to make money in trading is through a strict and disciplined approach to your place betting.
The reason I wanted to write this lesson is because it is this character flaw, as well as trading flaw, that led to numerous wipe outs for me personally. I made things much harder on myself than they ever needed to be. I cost myself a "lost" decade during the peak money making years of a man's life.
If you are a beginner, heed this warning. There is no need for you to suffer through these types of mistakes. Build your career one brick at a time, and in a few years you will look down and see a foundation as solid as cement that you can build on for the rest of your life. Once you learn to consistently trade well, the power of compounding will make you a small fortune.
If you are a experienced trader who has suffered similar bust outs as I have, then make this the day that you end the self destructive behavior. You can't make back prior losses in a day. And there is nothing you can do to make up for lost time - It's gone and forever. Focus on the future, and everything that you can do to make this year a success.
In conclusion, the biggest threat you face in your trading career is self sabotage...it's yourself.
Don't get caught up in the bright lights or the glitz and glamour of the casino. Be mechanical and methodical in your place betting. Treat your inventory stocking and sale decisions just as the owner of a warehouse does. Don't try to get rich on one bet, but rather get rich one win at a time. Build your career brick by brick, and in time you will find the wealth and success your are looking for.