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Notes on Reminiscences of a Stock Operator

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  • Notes on Reminiscences of a Stock Operator

    I recently came upon a very old and forgotten blog of mine - notes that I was creating as I read and studied the book Reminiscences of a Stock Operator.

    The following thread brings those notes here, and hope to encourage conversation and case studies that apply these timeless trading lessons to cryptocurrencies. I am always learning to trade, and a habit to review good trading books so I may learn to trade with greater success, and so my content may help others learn to trade as well.
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  • #2
    Believe in Yourself and Your Judgement

    Livingstone lets us look over his views on the type of determination needed to win at this game.

    “A man must believe in himself and his judgment if he is to make a living at this game.”

    He gives a few great examples of the hard lessons he learned by going with someone else’s opinion or trading advice. Your own opinion based on your own research, by trying it with money, is the only way to have the confidence to go against everyone else’s advice at the correct time.

    He walks us through his learning phases, with the benefit of hindsight added like a mystery story, edging the reader to uncover the source of the self-admitted blind-spot in his trading. What general principal was he ignoring that could be so surely fatal?

    “I was dead right and – I lost every cent I had!”

    “If the unusual didn’t happen there would be no difference in people and then there wouldn’t be any fun in life.”

    The habits he found so successful in the Bucket Shops (Paper Trading) were undoing him a reputable brokers office – yet he could not state his own problem to himself and, of course, he could not solve it. But he did worse than not see his error, he kept on trading. Soon he was broke again, and had to leave New York. Larry adds in a few paragraphs what took him years of experience to realize about the markets. He adds the advice to use market orders for entering and exiting a position rather than limit orders.

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    • #3
      In order not to lose money

      Chapter Five

      Larry went back home. But as soon as he was there, he knew that gathering a stake and returning to New York was his one mission in life. He was compelled, and confident he would succeed. At first, he was rejected from his old stomping grounds. The old Bucket Shops still would not take his orders. In a conversation with other traders, Larry makes the comment that the game cannot be beaten because of the slippage in order fills, especially when you trade using market orders. As it turns out, he repeats this warning in the last paragraph of the book, leaving an ominous ring in the reader’s ear.

      After talking with another trader, Larry investigates a local brokerage firm, and relates all manners of underhanded tricks they use to take money from the suckers and newbies. Having no intent on following their tips, or believing their lies, or worse yet, letting them trade his money for him, he went and spoke with the manager of the firm. He was assured that they have great execution – he was able to trade just like in a Bucket Shop. After learning all he could, he set up a small office and ran direct wires to three brokerage firms. For a time he traded slowly and fought for his view when their accounts and records didn’t match his own. These mistakes were uniformly against him, or course. After a while, and a couple instances of being cheated by the tricks of a crooked firm, Larry decided to turn the tables and play the scam on the scammers. He gives a detailed look at how the market can be manipulated for a short period.

      For a year, Larry lived a life of balance and patience. He set aside money for his stake, but also allowed himself to live very comfortably as well. Once he had a fair sized bank roll, he set out for New York, his third attempt. He had built himself to ten thousand, and lost that “because I traded out of season all the time…went in and gambled…I hoped to win.” Then he built himself to fifty thousand and lost it in one day – due to the “laggard tape and the unprecedented violence of the movements on that awful day.”

      “When you know what not to do in order not to lose money, you begin to learn what to do in order to win.”
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      • #4
        Stock Gambling vs Stock Speculation

        Noting the behavior of a stock and studying it’s past performance is a very old art form. Even at the turn of the century, traders were keeping monthly charts and intra-day charts, they studied seasonal patterns as well. But it is easy to suffer from over-specialization if the analysis doesn’t appraise the market conditions as a whole.

        Larry tells us his main trouble – that he was blind to and that cost him so dearly – was in not recognizing the difference between stock gambling, betting on fluctuations, and stock speculation, anticipating inevitable advances and declines. This is one of the mistakes that the average trader makes year in and year out. One his third entry into the New York Exchange, Larry’s expectations were more patient and long-term. For a paragraph, the author explains his perspective on how trading is balanced with other aspects of living once the markets were closed. Though he lived well and denied no wants, he knew that could never afford anything that kept him from feeling physically or mentally fit, and emphasized the importance of a good nights sleep for Balance in the rest of his living. He was not over-specialized. His first change in trading was in the aspect of time. He looked for the long-term advances and declines and studied trade reports, railroad earnings and other statistics. In a Bucket Shop, he only considered studying the past hour of price activity!

        If I had lost oftener, it would have lead me to more continuous study… Larry says, and gives us his method of studying new ideas; Before I can solve a problem I must state it to myself. When I think I have found a solution I must prove I am right. I know of only one way to prove it; and that is, with my own money. Later he adds that there is as much to learn from partial victory as there is from defeat.

        Larry found a mentor among the crowd of average customers. An old man who listened politely to everybody, but traded differently. He sat unconcerned when minor price fluctuations made everyone else flee. He held a long term perspective on the direction of the entire market, knowing that the big money was not made in reading the tape, but in sizing up the entire market and it’s trend. Here, Larry reflects over his life of trading and confirms this reality stating:

        It was never my thinking that made the big money for me. It was always my sitting

        Men who are right and can sit tight are uncommon, he explains, because most become impatient or doubtful when the market takes it’s time doing what you figured it must do. It takes brains and vision to put on a position at the beginning of a reversal of general directions. It is against the opinion of the majority. This emphasis on longer-term trading in the book makes me re-think the value of TWMPMM, and makes me think a Book Report on the Edward’s and Magee classic; Technical Analysis of Stock Trends would be a great addition to my list. The major reversal patterns and consolidation patterns, along with volume, divergence’s and relative strength patterns, should be studied more closely.

        Larry comments that the intelligent patience to sit tight was the hardest thing for him to learn. It is very difficult to un-learn bad habits from the past. With faith in your judgment, you can sit without a twinge of impatience, even in the face of a set-back. He began to treat his paper-profits differently than his initial equity – more willing to risk open equity for the opportunity of catching the big swings, that’s what makes you the big money. Larry makes a remark that closely parolees Dan Millman’s ‘Stages of Awareness’ in learning.

        If I learned all this so slowly, it was because I learned by my mistakes, and some time always lapses between making a mistake and realizing it, and more time between realizing it and exactly determining it.

        Outside of trading, the book’s character lives the high life of style and taste. He is not yet looking at his life in the long-term, and has not yet seen the value of a nest-egg.


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