There are countless stock books on the market, and the vast majority teach you how to 'succeed'. But if you ask me which book truly counts as the trader's 'Bible', I would unhesitatingly recommend (Reminiscences of a Stock Operator).
Why? Because success studies often only sell results, while this book talks about human nature, about thinking, and most importantly, it analyzes failure without reservation.
Today, I want to combine Livermore's classic quotes to talk about the 5 truths I have earned with real money in my trading career.
Truth one: Don't ask 'why', only ask 'how'.
Livermore once said: 'There is always a reason for rises and falls; I didn't ask when I was 14, and I still don't ask at 40.'
Many newbies' biggest misconception is that when they see a surge or a crash, their first reaction is to look for news and reasons. Remember, the reason always arrives later than the fact. By the time you figure out why it has risen, the market may have already ended.
Experts don't look at the 'reason', they only look at the 'catalyst'.
What we are looking for are those driving forces that can trigger market 'reflexivity', allowing trends to reinforce themselves.
My practical mindset:
Don't try to explain the market; learn to do dynamic deductions.
When you see abnormal signs (such as huge gaps, key breakthroughs), the first thing is not to ask why, but to take out your Plan A, Plan B, Plan C.
If the breakout is successful, how do I add to my position?
If the breakout fails, where do I stop loss?
Trade what you see, not what you think.
Truth Two: Even if the odds are only 50%, you can still make a lot of money.
Whether a newbie or an expert, at the moment of entering each trade, the odds are actually 50%. No one dares to say they will definitely profit.
Since you cannot predict the outcome, what should you rely on to make money? Rely on the risk-reward ratio.
My 'three trading questions'.
Before pressing the buy button, I force myself to answer these three questions:
Why do it? (What is the logic? Is it at a key position to trigger human nature?)
What is the expectation? (If correct, what percentage is there above?)
Where is the bottom line? (If wrong, what is the stop-loss space?)
As long as the winning potential far exceeds the losing potential, even if the win rate is not high, you are still a winner in the long run. This is the essence of profit and loss being of the same source: to make big money, you must accept reasonable trial and error costs.
Truth Three: If you can't control your emotions, your IQ will drop to zero.
Livermore said: 'The main reason for my mistakes is not being able to stick to my principles.'
Many times, trading fails not because you don't understand the technique or because you don't have a plan, but because emotions affect your IQ.
Because of greed, you will imagine 'tomorrow will rise' at a high position;
Because of fear, you will speculate 'tomorrow will fall' at a low position.
Remember: Do not use your imagination to guess the market!
Once you have the obsession of 'bottom fishing' or 'top escaping' in your mind, your operations will lose elasticity. When the market moves contrary to expectations, you will be unable to react.
My principle: Keep myself comfortable.
If a position makes your heart race, causes anxiety and insomnia, it means your position has exceeded your psychological tolerance. The best way at this point is to reduce your position until you regain your calm. When your mindset collapses, even the best technique won't save you.
Truth Four: Learn to 'wait like a hunter'.
Newbies die from excessive diligence.
Many new market entrants feel uncomfortable if they don't do something, and are overly sensitive to every small fluctuation.
But before seeing the prey (clear signals), 'doing nothing' is the highest-level strategy.
No rabbit, no eagle.
If there are no key signs (moving average arrangement, pattern breakthrough), then go rest, go live your life.
The stock market has only one side, not the bull side or the bear side, but the correct side. Only when you are sure that 'you won't lose money' or 'you will lose very little' is it time to take action.
Truth Five: There is no 'best' method, only 'your' method.
Many people want to learn from Buffett, want to learn from Soros. But if you don't have Buffett's knowledge structure and Soros's capital size, you will never be able to replicate their success.
Trading is a highly personalized matter.
You need to find a method that fits your personality. For example, I like to use a 'dual moving average system' combined with 'dynamic deduction', which aligns with my pursuit of vague correctness. This system will eventually become an instinct, an intuition.
What is meant by 'doing things right' is to walk on two legs:
Have a plan.
Act according to the plan.
Even if the plan is wrong, you can adjust and iterate; but if there is no plan, or if there is a plan that is not executed, you will always be going in circles.
