This is a book recommended by
Michael Covel via his interview with Brendan Moynihan. Honestly, it is one of the greatest podcast did by Covel. As such, I very much look forward to read this book after enjoying the interview.
This book was separated into two parts where Jim Paul describes his amazing life story in the first part and Brendan Moynihan focus on the psychology of trading via second part. The whole story attracted me once I started reading it. In fact, I found it amazing that the life story of Jim Paul was very much similar with my own story. The intention in writing this book is exactly my philosophy since I am a kid. I always believe that there are countless of ways to make money and only a few ways to lose it. As such, I am keener to study failed cases rather than focus on success stories. This book exactly pointed out my thoughts when there are few quotes that emphasize what we think alike:
"We could study a hypothetical series of successes to demonstrate how success becomes personalized and then how a loss follows, but you are more likely to remember and learn the lessons if they are presented in anecdotes about a real person and a really big loss."
"So, why a book on losing? Because, there are as many ways to make money in the markets as there are participants but relatively few ways to lose, and despite all the books on how to make money in the markets, most of us aren't rich!"
"Those pros often did things opposite of each other. It finally occurred to me that maybe studying losses was more important than searching for some Holy Grail to make money."
"I had to find out how the pros made money in the markets. But, if the pros couldn't agree on how to make money, how was I going to learn their secret? And then it began to occur to me: there was no secret. They didn't all do the same thing to make money."
The next similarity that coincidentally happens to me is on the issue of skipping school during our education stages. As mentioned by the author:
"The professor hated it because I rarely went to class and I always made As on his tests. It really ticked him off. I wasn't doing what I was supposed to be doing, but I still did well in school." In my case, it's not about "rarely went to class". In fact, I am more like a full-timer class skipper since in secondary school, LOL. The difference part perhaps lies with my result. I do not get that much of As. But, I do get a lot of Bs with a few As too, LOL. In terms of career path, I am slightly different as I am more on the survival level during initial stage. Again... coincidentally, there is still something similar ~
"He would trade the account, take no fees and split profits and losses fifty/fifty." In my humble opinion, Jim Paul was lucky and unlucky in certain way. He was lucky with less competitive environment during his earlier trading life. He was unlucky perhaps due to the facts that he was surrounding with tons of negative components that slowed down a bit his career in trading... Overall, the life story of the late Jim Paul is like a mirror to me. I saw myself in many stages of life walking the same way with him... Sounds weird, but true...
In summary, this is a book finding who you are, and how to manage yourself in order to be success in trading via a real life story. This book is worth every dollar and I personally recommend every trader to reread it once a while. In fact, the earlier you read it, the better off you will be. My final words: Although Jim Paul passed away during 911, his extraordinary and amazing journey will live on with this book. Having said that... I have no hesitation to rate this book at 10/10. Thumbs up in producing such an excellent book...
With such an excellent stuff, of course there are tons of quotes that I believe I need to put on here for my own future references. Here we are...
Perhaps the most common fallacy to which market participants are susceptible is: Money Odds vs. Probability Odds. Many market participants express the probability of success in terms of a risk/reward ratio. All the ratio does is compare the dollar amount of what I think I might lose to the dollar amount of what I think I might make. But, it doesn't say anything about the probability of either event occurring.
When you are long and the market goes down you:
1. hope it will turn around but
2. fear it won't
If your fear is great enough, you'll get out and hope that it keeps going down.
When you are long in the market but want to be and the market goes up you:
1. hope it will temporarily turn around to let you in, but
2. fear it will keep going.
If your fear us great enough, you will buy and hope the market keeps going up.
The point is: focusing on individual emotions can be quite confusing and it is better to focus on emotionalism instead.
If you occasionally break the rules and still have an unbroken string of successes, you are likely to compound the problem because you assume that you are better than other people and above the rules. Your ego inflates and you refuse to recognize the reality of a loss when it comes.
Fundamental analysis in the stock market doesn't tell you when to enter the market. There isn't a magic formula combining the various fundamental data that tells you when to buy and when to sell. The different methods of technical analysis don't always offer specific instructions on when to make purchases or sales either. They are means of describing the conditions of the market. Analysis is simply that: analysis. It doesn't tell you what to do, or when to do it.
Don't worry about the ones you miss; they were someone else's. Your rules will only enable you to participate in some of the millions of possible opportunities, not all of them.
You must pick the loss side first. Why? Otherwise, after you enter the market everything you look at and hear will be skewed in favour of your position.
You can't calculate the probability a trade being profitable; you can only calculate your exposure. So, all you can do is manage your losses, not predict profits.
Remember, we are trying to manage possible scenarios and losses, not predict the future and profits. Scenario planning does not, of course tell us the future; only fortune tellers can do that. We already know trying to predict means you are betting which gets you all caught up in trying to be right.
Let me tell you some good news and bad news about "why" and the markets. The good news is, if you're long and the market is going up and you don't have a clue as to why, you get to keep all the money. They don't charge you if you were "only lucky". The bad news is, if the market is going up and you're short and you know exactly why it's up, you don't get any money back. Now, how important is it to know "why"? Knowing "why" doesn't get you any brownie points with the market.
In the market and in business, don't concern yourself with being right. Instead, follow your plan and watch the money.
Participating in the markets is about making money; it's about decision-making implemented by a plan. And if implemented properly, it's actually quite boring waiting for your buy/sell criteria to materialize. The minute it starts getting exciting, you are gambling.
If you continue to do the wrong thing in the market and get rewarded, your profits won't be linked to any particular recurring set of circumstances or rule-following on your part. This will result in what psychologists call a random reward schedule; the strongest form of reinforcement for getting a person to repeat a behavior.
Doing the "wrong thing" and still being rewarded means you will repeat behavior that may or may not have been responsible for the profitable trade or investment. If you don't know what is making the profitable trades profitable, you won't know what to repeat in order to repeat the profits (or avoid losses).
Stay with positions that make you feel good; get out of positions that make you feel bad. You'll know when you feel bad; if you can recognize anything, you will recognize "this-doesn't-feel-good." The minute it doesn't feel good, stop doing it.
We tolerate losses, but not surprises.
The formula for failure is not lack of knowledge, brains, skill or hard work, and it's not lack of luck; it's personalizing losses, especially if preceded by a string of wins or profits; it's refusing to acknowledge and accept the reality of a loss when it starts to occur, because to do so would reflect negatively on you.
