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Articles by Donald E. L. Johnson

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Today is Thursday, November 20, 2014

Trading Styles


Is high frequency trading (HFT) useful? How is it risky?

Is high frequency trading of stocks useful? Is it risky? My thoughts:

Posted by Donald E. L. Johnson on 04/05/14 at 09:59 AM
EthicsTrustSpeculationTrading StylesStocksTechnology • (0) CommentsRead More

Michael Lewis’ ‘Flash Boys’ shows SEC must revise high frequency trading rules

High frequencty trading on the stock exchanges has become a very controversial issue for Wall Street and speculators. Last week, Michael Lewis published his new book, Flash Boys, and took the debate to a new level. I've watched CNBC and Fox Business TV interviews and discussions and read stories about the debate and the book, but I haven't read the book yet. In response to a story on Politico.com this morning, I thought about the issue and decided the market is probably more manipulated than rigged. And I see the deals the exchanges give HFT funds as the same as the volume discounts Walmart and the Federal government get from their vendors. But the Securities and Exchange Commission, which wrote the rules that guide HFT funds, needs to update them. My thoughts:

Posted by Donald E. L. Johnson on 04/05/14 at 09:43 AM
EthicsTrustMediaFinancial MediaMutual FundsSpeculationTrading StylesStocksTechnology • (0) CommentsRead More

Review Dennis Gartman’s trading rules

Dennis Gartman frequently appears on CNBC’s “Fast Money” and its other shows because he’s a trading guru who makes money trading and publishing highly-regarded newsletter.

Several sites are republishing his trading rules, which are similar to Bill O’Neil’s 20 trading rules. Here they are:

1. Never, Ever, Ever, Under Any Circumstance, Add to a Losing Position… not ever, not never! Adding to losing positions is trading’s carcinogen; it is trading’s driving while intoxicated. It will lead to ruin. Count on it!

2. Trade Like a Wizened Mercenary Soldier: We must fight on the winning side, not on the side we may believe to be correct economically.

3. Mental Capital Trumps Real Capital: Capital comes in two types, mental and real, and the former is far more valuable than the latter. Holding losing positions costs measurable real capital, but it costs immeasurable mental capital.

4. This Is Not a Business of Buying Low and Selling High; it is, however, a business of buying high and selling higher. Strength tends to beget strength, and weakness, weakness.

5. In Bull Markets One Can Only Be Long or Neutral, and in bear markets, one can only be short or neutral. This may seem self-evident; few understand it however, and fewer still embrace it.

6. “Markets Can Remain Illogical Far Longer Than You or I Can Remain Solvent.” These are Keynes’ words, and illogic does often reign, despite what the academics would have us believe.

7. Buy Markets That Show the Greatest Strength; Sell Markets That Show the Greatest Weakness: Metaphorically, when bearish we need to throw rocks into the wettest paper sacks, for they break most easily. When bullish we need to sail the strongest winds, for they carry the farthest.

8. Think Like a Fundamentalist; Trade Like a Simple Technician: The fundamentals may drive a market and we need to understand them, but if the chart is not bullish, why be bullish? Be bullish when the technicals and fundamentals, as you understand them, run in tandem.

9. Trading Runs in Cycles, Some Good, Most Bad: Trade large and aggressively when trading well; trade small and ever smaller when trading poorly. In “good times,” even errors turn to profits; in “bad times,” the most well-researched trade will go awry. This is the nature of trading; accept it and move on.

10. Keep Your Technical Systems Simple: Complicated systems breed confusion; simplicity breeds elegance. The great traders we’ve known have the simplest methods of trading. There is a correlation here!

11. In Trading/Investing, An Understanding of Mass Psychology Is Often More Important Than an Understanding of Economics: Simply put, “When they are cryin’, you should be buyin’! And when they are yellin’, you should be sellin’!”

12. Bear Market Corrections Are More Violent and Far Swifter Than Bull Market Corrections: Why they are is still a mystery to us, but they are; we accept it as fact and we move on.

13. There Is Never Just One Cockroach: The lesson of bad news on most stocks is that more shall follow… usually hard upon and always with detrimental effect upon price, until such time as panic prevails and the weakest hands finally exit their positions.

14. Be Patient with Winning Trades; Be Enormously Impatient with Losing Trades: The older we get, the more small losses we take each year… and our profits grow accordingly.

15. Do More of That Which Is Working and Less of That Which Is Not: This works in life as well as trading. Do the things that have been proven of merit. Add to winning trades; cut back or eliminate losing ones. If there is a “secret” to trading (and of life), this is it.

16. All Rules Are Meant To Be Broken…. but only very, very infrequently. Genius comes in knowing how truly infrequently one can do so and still prosper.

Hat tip to market folly.

Gartman Letter is here.

 

Posted by Donald E. L. Johnson on 11/23/08 at 11:51 AM
SpeculationGurusTrading StylesStocksFinancial MediaPermalink
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