Only the Right Side | Jesse Livermore

» It takes a man a long time to learn all the lessons of his mistakes. 

They say there are two sides to everything.
But there is only one side to the stock market; and it is not the bull side or bear side but the right side.
It took me longer to get that principle fixed firmly in my mind 

than it did most of the more technical phases of the game of stock speculation.

 

 I have heard of people who amuse themselves conducting imaginary operations in the
stock market to prove with imaginary dollars how right they are. 

Sometimes these ghost gamblers make millions. 

It is very easy to be a plunger that way.

 

It is like the old story of the man who was going to fight a duel the next day.

His second asked him, "Are you a good shot?"
"Well," said the duelist, "I can snap the stem of a wineglass at twenty paces," and he looked modest.
"That's all very well," said the unimpressed second. 

"But can you snap the stem of the wineglass while the wineglass is pointing a loaded pistol straight at your heart?" «

Jesse Livermore

Quoted from:
Edwin Lefèvre (1923) - Reminiscences of a Stock Operator.

Backtesting ICT 2022 Mentorship Trading Setups | Hannah Forex

A Trading Setup is an indication of a higher probability of one thing happening over another.  

Reference:
Hannah Forex (Mar 9, 2023) - I take these trades over and over again ... | ICT mentorship model.

 

See also:
The Inner Circle Trader - 2022 ICT Mentorship.

Anything Can Happen | Mark Douglas

The semiretired chairman of the board of the brokerage firm was a longtime trader with nearly 40 years of experience in the grain pits at the Chicago Board of Trade. He didn't know much about technical analysis, because he never needed it to make money on the floor. But he no longer traded on the floor and found the transition to trading from a screen difficult and somewhat mysterious. So he asked the firm's newly acquired star technical analyst to sit with him during the trading day and teach him technical trading. The new hire jumped at the opportunity to show off his abilities to such an experienced and successful trader. The analyst was using a method called "point and line",  developed by Charlie Drummond (HERE).

 

One day, as the two of them were watching the soybean market together, the analyst had projected major support and resistance points and the market happened to be trading between these two points.  As the technical analyst was explaining to the chairman the significance of these two points, he stated in very emphatic, almost absolute terms that if the market goes up to resistance, it will stop and reverse; and if the market goes down to support, it will also stop and reverse. Then he explained that if the market went down to the price level he calculated as support, his calculations indicated that would also be the low of the day. 

 

As they sat there, the bean market was slowly trending down to the price the analyst said would be the support, or low, of the day. When it finally got there, the chairman looked over to the analyst and said, "This is where the market is supposed to stop and go higher, right?" The analyst responded, "Absolutely! This is the low of the day." "That's bullshit!" the chairman retorted. "Watch this." He picked up the phone, called one of the clerks handling orders for the soybean pit, and said, "Sell two million beans bushels at the market." Within thirty seconds after he placed the order, the soybean market dropped ten cents a bushel. The chairman turned to look at the horrified expression on the analysts face. Calmly, he asked, "Now, where did you say the market was going to stop? If I can do that, anyone can."

Quoted from:
Mark Douglas (2000) - Trading in the Zone: Master the Market with Confidence, Discipline and a Winning Attitude.

The Probabilistic Mindset of Successful Traders | Mark Douglas

How can someone produce consistent results from an event that has an uncertain probabilistic outcome? To answer this question, all we have to do is look to the gambling industry. Casinos make consistent profits day after day and year after year, facilitating an event that has a purely random outcome. Shouldn't a consistent, nonrandom outcome produce consistent results, and a random outcome produce random, inconsistent results? 

 

"I just wait until there is money lying in the corner,
and all I have to do is go over there and pick it up.
I do nothing in the meantime."
Jim Rogers

What casino owners, experienced gamblers, and the best traders understand that the typical trader finds difficult to grasp is: events that have probable outcomes can produce consistent results, if you can get the odds in your favor and there is a large enough sample size. The best traders treat trading like a numbers game, similar to the way in which casinos and professional gamblers approach gambling. It's the ability to believe in the unpredictability of the game at the micro level and simultaneously believe in the predictability of the game at the macro level that makes the casino and the professional gambler effective and successful at what they do. 

 

 

Their belief prevents them from engaging in the pointless endeavor of trying to predict each individual outcome. They have learned and completely accepted the fact that they don't know what's going to happen next. More important, they don't need to know in order to make money consistently. Because they don't have to know what's going to happen next, they don't place any special significance, emotional or otherwise, on each individual hand, spin of the wheel, or roll of the dice. In other words, they're not encumbered by unrealistic expectations about what is going to happen, nor are their egos involved in a way that makes them have to be right. As a result, it's easier to stay focused on keeping the odds in their favor and executing flawlessly, which in turn makes them less susceptible to making costly mistakes.

A probabilistic mindset pertaining to trading consists of five fundamental truths:

1. Anything can happen.  
2. You don't need to know what is going to happen next in order to make money.  
3. There is a random distribution between wins and losses for any given set of variables that define an edge.  
4. An edge is nothing more than an indication of a higher probability of one thing happening over another.  
5. Every moment in the market is unique.

Quoted from:
Mark Douglas (2000) - Trading in the Zone: Master the Market with Confidence, Discipline and a Winning Attitude.

 

See also:

James B. Rogers Jr. in Jack D. Schwager (1992) - The New Market Wizards: Conversations with America's Top Traders.
Nassim Nicholas Taleb (2001) - On Randomness, Uncertainty, and Probability.

Tom Hougaard (2022) - Best Loser Wins: Why Normal Thinking Never Wins the Trading Game. 

The Funded Trader (Jan 15, 2023) - Paladin: 21 year old ICT Trader Makes a $28,000 Withdrawal | TFT Interview. 

Paladin (Feb 15, 2023) - How I Earned $250K At the Age of 21 from Trading.

The Inner Circle Trader (Mar 10, 2023) - Real Money, Real People - ICT Student Paladin.

On Randomness, Uncertainty, and Probability | Nassim Nicholas Taleb

Probability is not a mere computation of odds on the dice or more complicated variants; it is the acceptance of the lack of certainty in our knowledge and the development of methods for dealing with our ignorance. When things go our way we reject the lack of certainty. The epiphany I had in my career in randomness came when I understood that I was not intelligent enough, nor strong enough, to even try to fight my emotions. Although Soros did not deliver anything meaningful in his writings, he knew how to handle randomness. My lesson from Soros is to start every meeting at my boutique by convincing everyone that we are a bunch of idiots who know nothing and are mistake-prone, but happen to be endowed with the rare privilege of knowing it. 

 

A mistake is not something to be determined after the fact, but in light of the information available until that point. No matter how sophisticated our choices, how good we are at dominating the odds, randomness will have the last word.Mild success can be explainable by skills and labor. Wild success is attributable to variance. Bullish or bearish are terms used by people who do not engage in practicing uncertainty, like the television commentators, or those who have no experience in handling risk. Alas, investors and businesses are not paid in probabilities; they are paid in dollars. Accordingly, it is not how likely an event is to happen that matters, it is how much is made when it happens that should be the consideration.

We do not need to be rational and scientific when it comes to the details of our daily life—only in those that can harm us and threaten our survival. Modern life seems to invite us to do the exact opposite; become extremely realistic and intellectual when it comes to such matters as religion and personal behavior, yet as irrational as possible when it comes to matters ruled by randomness (say, portfolio or real estate investments). I have encountered colleagues, "rational," no-nonsense people, who do not understand why I cherish the poetry of Baudelaire and Saint-John Perse or obscure (and often impenetrable) writers like Elias Canetti, J. L. Borges, or Walter Benjamin. Yet they get sucked into listening to the "analyses" of a television "guru," or into buying the stock of a company they know absolutely nothing about, based on tips by neighbors who drive expensive cars." 

Quoted from:
Nassim Nicholas Taleb (2001) - Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets