1. Bulls and bears make money; pigs get slaughtered.
2. It's okay to pay taxes.
3. Don't buy all at once; arrogance is a sin.
4. Look for broken stocks, not broken companies.
5. Diversification is the only free lunch.
6. Buy and homework; not buy and hold.
7. No one ever made a dime by panicking.
8. Own the best of breed; it is worth it.
9. He who defends everything, defends nothing. Discipline trumps conviction.
10. The fundamentals must be good in takeovers.
11. Don't own too many stocks.
12. Cash and sitting on the sidelines are fine alternatives.
13. No woulda shoulda coulda.
14. Expect corrections; don't be afraid of them.
15. Don't forget bonds.
16. Never subsidize losers with winners.
17. Hope is not part of the equation; this is not a sporting event - this is money.
18. Be flexible.
19. When high-level people quit a company, something is wrong.
20. Patience is a virtue; giving up on value is a sin.
21. Just because someone says it on TV doesn't make it so.
22. Always wait thirty days after an earnings preannouncement before you buy.
23. Never underestimate the Wall Street promotion machine.
24. Be able to explain your stock picks to someone else.
25. There is always a bull market somewhere.
Friday, March 5, 2010
Farley's 20 Golden Rules for Traders
1. Forget the news, remember the chart.
2. Buy the first pullback from a new high. Sell the first pullback from a new low.
3. Buy at support; sell at resistance.
4. Short rallies, not sell-offs.
5. Don't buy up into a major moving average, or sell down into one. (see #3)
6. Don't chase momentum if you can't find the exit.
7. Exhaustion gaps get filled. Breakaway and continuation gaps don't.
8. Trends test the point of last support or resistance.
9. Trade with the tick, not against it.
10. If you have to look, it isn't there.
11. Sell the second high, buy the second low.
12. The trend is your friend in the last hour.
13. Avoid the open; they see you coming, sucker.
14. 1 - 2 - 3 - Drop - Up. Look for downtrends to reverse after a top, two lower highs, and a double bottom.
15. Bulls live above the 200 day MA, bears live below.
16. Price has memory.
17. Big volume kills moves.
18. Trends never turn on a dime. The first dip always finds buyers, and the first sharp rise always finds sellers.
19. Bottoms take longer to form than tops.
20. Beat the crowd in and out the door.
2. Buy the first pullback from a new high. Sell the first pullback from a new low.
3. Buy at support; sell at resistance.
4. Short rallies, not sell-offs.
5. Don't buy up into a major moving average, or sell down into one. (see #3)
6. Don't chase momentum if you can't find the exit.
7. Exhaustion gaps get filled. Breakaway and continuation gaps don't.
8. Trends test the point of last support or resistance.
9. Trade with the tick, not against it.
10. If you have to look, it isn't there.
11. Sell the second high, buy the second low.
12. The trend is your friend in the last hour.
13. Avoid the open; they see you coming, sucker.
14. 1 - 2 - 3 - Drop - Up. Look for downtrends to reverse after a top, two lower highs, and a double bottom.
15. Bulls live above the 200 day MA, bears live below.
16. Price has memory.
17. Big volume kills moves.
18. Trends never turn on a dime. The first dip always finds buyers, and the first sharp rise always finds sellers.
19. Bottoms take longer to form than tops.
20. Beat the crowd in and out the door.
20 Rules for Effective Trade Execution:
(From Hardrightedge.com)
1. Seek favorable conditions for trade entry, or stay out of the market until they appear. Bad execution ruins a perfect set-up.
2. Watch the tape before you trade. Look for evidence to confirm your opinion. Time, crowd, and trend must support the reversal, breakout, or fade you're expecting to happen.
3. Choose to execute, or stand aside. Staying out of the market is an aggressive way to trade.
4. Filter the trade through your personal plan.
5. Stay on the sidelines and wait for the opportunity to develop.
6. Decide how long you want to be in the market before you execute. Don't daytrade an investment or invest in a swing trade.
7. Take positions with the market flow, not against it. It's more fun to surf the waves than to get eaten by the sharks.
8. Avoid the open. They see you coming, sucker.
9. Stand apart from the crowd. Its emotions often signal opportunity in the opposite direction. Profit rarely follows the herd.
10. Maintain an open mind and let the the market show its hand before you trade it.
11. Keep your hands off the keyboard until you're ready to act.
12. When confusion reigns, and the crowd lacks direction, stand aside.
13. Take overnight positions before trading intra-day markets. Longer holding periods reduce the risk of bad execution.
14. Lower your position size until you show a track record.
15. Trade a swing strategy in a range-bound market, and a momentum strategy in trending markets.
16. An excellent entry on a mediocre position will make you more money than a bad entry on a good position.
17. Step in front of the crowd on pullbacks and stand behind them on breakouts. Be prepared to move against them on reversals.
18. Find the breaking point where the crowd will lose control, give up, or show exuberance. Then execute the trade just before they do.
19. Use market orders to get in fast when you can watch the market. Use limit orders when you have a life outside the markets.
20. Focus on execution, not technology. Fast terminals can make a good trader better, but can also make a bad trader worse.
1. Seek favorable conditions for trade entry, or stay out of the market until they appear. Bad execution ruins a perfect set-up.
2. Watch the tape before you trade. Look for evidence to confirm your opinion. Time, crowd, and trend must support the reversal, breakout, or fade you're expecting to happen.
3. Choose to execute, or stand aside. Staying out of the market is an aggressive way to trade.
4. Filter the trade through your personal plan.
5. Stay on the sidelines and wait for the opportunity to develop.
6. Decide how long you want to be in the market before you execute. Don't daytrade an investment or invest in a swing trade.
7. Take positions with the market flow, not against it. It's more fun to surf the waves than to get eaten by the sharks.
8. Avoid the open. They see you coming, sucker.
9. Stand apart from the crowd. Its emotions often signal opportunity in the opposite direction. Profit rarely follows the herd.
10. Maintain an open mind and let the the market show its hand before you trade it.
11. Keep your hands off the keyboard until you're ready to act.
12. When confusion reigns, and the crowd lacks direction, stand aside.
13. Take overnight positions before trading intra-day markets. Longer holding periods reduce the risk of bad execution.
14. Lower your position size until you show a track record.
15. Trade a swing strategy in a range-bound market, and a momentum strategy in trending markets.
16. An excellent entry on a mediocre position will make you more money than a bad entry on a good position.
17. Step in front of the crowd on pullbacks and stand behind them on breakouts. Be prepared to move against them on reversals.
18. Find the breaking point where the crowd will lose control, give up, or show exuberance. Then execute the trade just before they do.
19. Use market orders to get in fast when you can watch the market. Use limit orders when you have a life outside the markets.
20. Focus on execution, not technology. Fast terminals can make a good trader better, but can also make a bad trader worse.
William O'Neil's Wisdom
William J. O'Neil made his first investment of only $300 in Procter & Gamble while serving in the Air Force. After graduating from Southern Methodist University and a tour of duty in the Air Force, he began his career as a stockbroker in Los Angeles. While a young broker, O'Neil started studying historical stock market winners. He identified seven key characteristics all these leading stocks had in common before their big price advancements, and increased his personal portfolio over 2,000% in just 26 months. He went on to become a multi-millionaire as the founder of a prestigious brokerage and Investors Business Daily.
"The stock market is human nature on parade. "
"When the forgotten old dogs begin to bark and spearhead the market's advance, the stock market is on its last feeble legs."
"First, you must recognize that you are simply not going to be right all of the time... In a lifetime of investing, you'll probably only be right five or six times out of ten. So you absolutely must have a rule to always protect yourself."
"My rule is simple -- any stock that I buy that declines 7% or 8% below my actual purchase price, I will always without exception, sell to cut short my loss."
"Your first loss is always your smallest loss. The only insurance policy you can take out to protect against a large devastating loss is to cut them all without exception while they're still small. "
"I will never average down in price. If I bought at $50, I will never buy more at $45 or $40 -- that's risking more money in a stock that's already wrong and not working -- so why put more good money after bad?"
"The real key to stock market success is not to be right all the time (which you can't be) but to have more of your money in the stocks you're right on and lose less percentage wise and have fewer dollars in the stocks where you're wrong."
"Money is made by putting your eggs slowly and intelligently into fewer baskets you know well and watching those very carefully. Over-diversification is a hedge for ignorance."
"Our buy and sell rules were not based on our personal beliefs, systems, philosophy or opinions, but precisely on how the stock market actually worked for the last half century."
"It should be noted that Wall Street completely missed the homebuilders as a group with strong potential. Most leading firms all downgraded the group in the spring of 2001, saying they should be sold and that strength in housing sales couldn't last. The better housing stocks have since then doubled. Housing analysts gave costly advice."
"I have always avoided low-quality companies. As a rough definition, I place any company with a price below $10 in this category. You won't get the same quality of sponsorship (ownership by institutional investors) behind these companies that you do in true market leaders."
"Our research shows that most of the companies that had the best performance in the stock market started big runs with high earnings multiples."
"You absolutely must learn, write down, and follow some specific sell rules on when to best sell and take a profit on the way up while a stock is still advancing and popular. For example: If your stock breaks out of a sound price base structure and advances for many months and, on top of that, then runs up in price for one or two weeks at a much faster rate than in any other prior weeks since the beginning of the move up, this is a climax top, and the stock should always be sold while everyone else is all excited by the exceptionally strong price action. Typically, one day in this climax period will be up more points than any other day in the whole move up. Sell, get out while you can, and nail down your profit."
"How many times have you been wrong? When a stock is dropping, that's what the market is telling you -- "you're wrong." There are plenty of people who thought that Enron was severely underpriced at $30. Everyone needs sell rules, otherwise you're not being realistic. Nothing lasts forever. The big leaders in one market cycle do not normally come back and lead in the next bull market cycle. If you want to learn more about when to sell or how to create a realistic set of sell rules to improve your investment results, that includes being prepared to not fight the market. It doesn't care what you think about a company, or what you paid for it."
"Recognize this about the stock market -- it is a wonderful example of psychology on parade. It's a matter of historical fact that 82% of the best-performing stocks over the last 50 years had a blow-off top before they started coming down. I don't know about you, but if I saw something that happened 82% of the time, I'd pay attention."
"I did a study of the people that were doing very well in the market. I got copies of their prospectus and quarterly reports and plotted on charts precisely where they had purchased each of their stocks. There were over 100 of these securities and when I laid them out on a table, I made my first real discovery: Not some, not most, but every single stock had been bought when it went to a new high price. So the first thing I learned about how to get superior performance is not to buy stocks that are near their lows, but to buy stocks that are coming out of broad bases and beginning to make new highs relative to the preceding price base."
O'Neil says that certain changes in volume and price indicate selling or distribution. When institutions and professional investors start to sell, it means a trend reversal is imminent. He says most people miss these signs because they occur while the market is still advancing. But the signs, he says, are clear. They are:
These are the key factors, and O'Neil says one, notably the volume increase while prices falter, occurs on just one or two days, so if you miss it, well you miss it. But we do get a second chance. After these indicators occur and the market turns, O'Neil says the market will have an attempted bounce back. If the first attempted rally fails, it is a sign that a market reversal is in progress.
How do we know a rally has failed? If the rally sputters in its third, fourth or fifth day, or if the rally recovers less than half of the market drop, it is a sign of market weakness. Another sign is if the first market resurgence ends abruptly on the second day with a strong opening in the morning but closing down at the closing bell.
Spotting the Market Bottom....
James Cramer on The 5 Signs of a Market Mega-Bottom
First: The pain makes the front page of the New York Times. If the market-woes stories aren;t on the front page, then simply wait; the bottom hasn't been reached yet. It is simply incredible how right this indicator always is.
Second: The Investors Intelligence survey of money managers. While you might expect that a good time to invest is when the managers are bullish, that's actually the worst time to invest. When the market managers show a definitive majority of bears, you have reached the bottom.
Third: Mutual fund withdrawals. Consistent, repeated outflows of several months in duration accompany all the big bottoms.
Fourth: The VIX, or Volatility Index. A reading above 40 in the VIX indicates a market bottom. Any reading below 30 indicates the market can't be trusted.
Fifth: Oscillator readings indicating the market is oversold.
Remember, this is a checklist. Anyone one of these indicators may not be definitive, but if all five have occured, it is officially a mega-bottom, and time to buy, buy, buy.
(from Jim Cramer's Real Money, pp 212-219)
First: The pain makes the front page of the New York Times. If the market-woes stories aren;t on the front page, then simply wait; the bottom hasn't been reached yet. It is simply incredible how right this indicator always is.
Second: The Investors Intelligence survey of money managers. While you might expect that a good time to invest is when the managers are bullish, that's actually the worst time to invest. When the market managers show a definitive majority of bears, you have reached the bottom.
Third: Mutual fund withdrawals. Consistent, repeated outflows of several months in duration accompany all the big bottoms.
Fourth: The VIX, or Volatility Index. A reading above 40 in the VIX indicates a market bottom. Any reading below 30 indicates the market can't be trusted.
Fifth: Oscillator readings indicating the market is oversold.
Remember, this is a checklist. Anyone one of these indicators may not be definitive, but if all five have occured, it is officially a mega-bottom, and time to buy, buy, buy.
(from Jim Cramer's Real Money, pp 212-219)
Opportunity
"Opportunity is missed by most people because it is dressed in overalls, and looks like work." - Thomas Alva Edison
"Whatever we possess becomes of double value when we have the opportunity of sharing it with others." - Jean Nicolas Bouilly
"A wise man will make more opportunities than he finds." - Sir Francis Bacon
"Failure is the opportunity to begin again more intelligently." - Moshe Arens
"Too many people are thinking of security instead of opportunity. They seem more afraid of life than death." - James Francis Byrnes
"Opportunity doesn't knock. It presents itself when you beat down the door." - Kyle Chandler
"Luck is the time when preparation and opportunity meet." - Roy D. Chapin Jr.
"Small opportunities are often the beginnings of great enterprises." - Demosthenes
"We are told that talent creates its own opportunities. But it sometimes seems that intense desire creates not only its own opportunities, but its own talents." - Eric Hoffer
"There is no security on earth. There is only opportunity." - Gen. Douglas McArthur
"Whatever we possess becomes of double value when we have the opportunity of sharing it with others." - Jean Nicolas Bouilly
"A wise man will make more opportunities than he finds." - Sir Francis Bacon
"Failure is the opportunity to begin again more intelligently." - Moshe Arens
"Too many people are thinking of security instead of opportunity. They seem more afraid of life than death." - James Francis Byrnes
"Opportunity doesn't knock. It presents itself when you beat down the door." - Kyle Chandler
"Luck is the time when preparation and opportunity meet." - Roy D. Chapin Jr.
"Small opportunities are often the beginnings of great enterprises." - Demosthenes
"We are told that talent creates its own opportunities. But it sometimes seems that intense desire creates not only its own opportunities, but its own talents." - Eric Hoffer
"There is no security on earth. There is only opportunity." - Gen. Douglas McArthur
Market Wisdom...
"Rule No.1: Never lose money. Rule No.2: Never forget rule No.1. " - Warren Buffet
"I hate weekends because there is no stock market. " - Rene Rivkin
"How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case." - Robert G. Allen
"Successful investing is anticipating the anticipations of others." - John Maynard Keynes
"Price is what you pay. Value is what you get." - Warren Buffett
"October. This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February." - Mark Twain
"The successful man will profit from his mistakes and try again in a different way. " - Dale Carnegie
"Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it." - Will Rogers
"Markets can remain irrational longer than you can remain solvent." - John Maynard Keynes
"Whales only get harpooned when they come to the surface, and turtles can only move forward when they stick their neck out, but investors face risk no matter what they do. " - Charles A. Jaffe
"Investors don't like uncertainty." - Kenneth Lay
"Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it." - Warren Buffett
"The worst mistake investors make is taking their profits too soon, and their losses too long. " - Michael Price
"Many investors seem to have forgotten a hard reality: There are frequent periods when stock markets don't do much." - Jim Rogers
"I think that the failures of Enron and WorldCom and other companies are partially failures of investors to recognize companies that are selling for a thousand times nothing, but chances are they may be worth only that. " - Arthur Levitt
"If stock market experts were so expert, they would be buying stock, not selling advice. " - Norman R. Augustine
"Anybody who plays the stock market not as an insider is like a man buying cows in the moonlight." - Daniel Drew
"People think the stock market is a place of levelheadedness but it actually works in a totally emotional way: the President gets a pimple on his nose, and the thing plummets." - Bill Forsyth
"Control of a company does not carry with it the ability to control the price of its stock." - Paul Getty
"Emotions are your worst enemy in the stock market." - Don Hays
"It's no coincidence that three of the top five stock option traders in a recent trading contest were all ex-Marines." - Robert Prechter Jr.
"Bob Dole revealed he is one of the test subjects for Viagra. He said on Larry King, 'I wish I had bought stock in it.' Only a Republican would think the best part of Viagra is the fact that you could make money off of it." - Jay Leno
"90% of the people in the stock market, professionals and amateurs alike, simply haven't done enough homework." - William J. O'Neil
"I'm involved in the stock market, which is fun and, sometimes, very painful." - Regis Philbin
"I had a couple of million dollars' worth of... stock once. And now it's not worth much more than wallpaper. I guess I just wasn't born to be rich." - Norman Rockwell
"I'm investing in a company that has patented wallet technology that will deodorize currency. That way people won't have to deal with money that smells funny." - Moby
"Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised." - Warren Buffett
"I hate weekends because there is no stock market. " - Rene Rivkin
"How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case." - Robert G. Allen
"Successful investing is anticipating the anticipations of others." - John Maynard Keynes
"Price is what you pay. Value is what you get." - Warren Buffett
"October. This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February." - Mark Twain
"The successful man will profit from his mistakes and try again in a different way. " - Dale Carnegie
"Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it." - Will Rogers
"Markets can remain irrational longer than you can remain solvent." - John Maynard Keynes
"Whales only get harpooned when they come to the surface, and turtles can only move forward when they stick their neck out, but investors face risk no matter what they do. " - Charles A. Jaffe
"Investors don't like uncertainty." - Kenneth Lay
"Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it." - Warren Buffett
"The worst mistake investors make is taking their profits too soon, and their losses too long. " - Michael Price
"Many investors seem to have forgotten a hard reality: There are frequent periods when stock markets don't do much." - Jim Rogers
"I think that the failures of Enron and WorldCom and other companies are partially failures of investors to recognize companies that are selling for a thousand times nothing, but chances are they may be worth only that. " - Arthur Levitt
"If stock market experts were so expert, they would be buying stock, not selling advice. " - Norman R. Augustine
"Anybody who plays the stock market not as an insider is like a man buying cows in the moonlight." - Daniel Drew
"People think the stock market is a place of levelheadedness but it actually works in a totally emotional way: the President gets a pimple on his nose, and the thing plummets." - Bill Forsyth
"Control of a company does not carry with it the ability to control the price of its stock." - Paul Getty
"Emotions are your worst enemy in the stock market." - Don Hays
"It's no coincidence that three of the top five stock option traders in a recent trading contest were all ex-Marines." - Robert Prechter Jr.
"Bob Dole revealed he is one of the test subjects for Viagra. He said on Larry King, 'I wish I had bought stock in it.' Only a Republican would think the best part of Viagra is the fact that you could make money off of it." - Jay Leno
"90% of the people in the stock market, professionals and amateurs alike, simply haven't done enough homework." - William J. O'Neil
"I'm involved in the stock market, which is fun and, sometimes, very painful." - Regis Philbin
"I had a couple of million dollars' worth of... stock once. And now it's not worth much more than wallpaper. I guess I just wasn't born to be rich." - Norman Rockwell
"I'm investing in a company that has patented wallet technology that will deodorize currency. That way people won't have to deal with money that smells funny." - Moby
"Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised." - Warren Buffett
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