Wisdom From Various Classic Books

[idaxtrader]

Firstly, I would like to thank Brownsfan for maintaining this candlestick section. Its really a great place to find out practical information about the application of candlesticks.

This month I have decided to re read Nisons work in a very careful manner. I thought it would be a good idea to post a few nuggets from his book as I progress with my reading. My purpose of this is to help fill the reality gap between the theory of candlesticks and the end of month results to my account. By now almost everyone is familiar with the basics of candle sticks but even with this knowledge most still struggle with actually extracting decent profits on a consistent basis using this method. My goal to identify and remove the hurdles that may obstruct a trader applying this approach. I would greatly appreciate any form of interaction to this thread, not so much about your success but where you may have made a misstep and the resulting lesson learned. Trading is nothing more than trial and error and then refinement. The more errors contributed to this thread the more growth to everyone.

Here's the first nugget from Nisons Beyond Candlesticks book.

"A single candle by itself is rarely sufficient reason to forecast an immediate
reversal" (21)

[idaxtrader]

When you cannot see the state of your opponent, you pretend to make a powerful attack to uncover the intention of the enemy. This concept, as related to trading, is one of the reasons a spring is so important. 57


In effect, these traders act like the aforementioned "moving shadow," testing the battlefield by entering a large order to try and break support (or resistance).For example, if a large-scale trader places a sell order as the market gets near support, their sell order may be enough to drag prices under the support area. Now, this trader, as a "moving shadow,,, will now learn about the underlying strength of the market. If the market fails to hold
under a broken support area and forms a spring, these "moving shadows,"(i.e., the sellers who were attempting to probe the market), now
have learned about the tenacity of the bulls and as a result may decide to cover their shorts. 58

[idaxtrader]

Although this generally means that the bearish engulfing pattern is more bearish than a dark cloud cover, and a bullish engulfing pattern more
bullish than a piercing pattern, it is equally important to see where these patterns emerge before deciding which is more important. For instance,
a piercing pattern that confirms a major support area should be viewed more likely as a bottom reversal signal than a bullish engulfing pattern
that does not confirm support. This vital aspect of viewing the candle patterns in conjunction with the overall technical picture will be discussed
in depth in the next chapter. 76


Eight to ten record sessions are so important in Japan that they have been described as being "the bones of Sakata's body." The meaning of
this expression is that just as the bones, or skeleton, of a person's body are its foundation, so are record sessions the foundation or essence of
the Sakata charts. 122


A book that I had translated states that, "Action that ignores the condition of the market is only asking for a loss and an ambush encounter." This picturesque saying (using the typical military analogy so common in Japanese technical analysis) means that you must consider the overall market condition before trading with the candles. Otherwise, you may be in for a "loss and ambush encounter."129

[idaxtrader]

Effective candle charting techniques require not only an understanding of the candle patterns, but a policy of using sound, coherent trading strategies and tactics. It is unfortunate that some traders who know about the candle patterns often ignore such tactics. 129

"The Side that Knows When to Fight and When Not to Will Take the Victory" 133

"wait for time to ripen, waiting for just the right moment is virtuous, a patient mind or spirit is essential. 133


There will be times when you should not release the trigger. For example, without an attractive risk/reward ratio at the time that a bullish or bearish candle signal emerges, the trade should be ignored 133

quickly and effectively adapting to a new market environment, is a vital element to successful trading. 142


If a candle pattern emerges, does that mean that a buy or sell signal is automatically given? of course not. As I previously discussed, you should not base a trade on a candle pattern in isolation. You must firsi determine the overall technical picture at the time the pattern forms. 147

How you trade with candlesticks will depend on your trading philosophy, your risk adversity, and temperament. These are very individual aspects. 149

[idaxtrader]

I thought I would post some of my notes while I read REMINISCENCES OF A STOCK OPERATOR.



Of course there is always a reason for fluctuations, but the tape does not concern itself with the why and wherefore.

My plan of trading was sound enough and won oftener than it lost. If I had stuck to it I'd have been right perhaps as often as seven out of ten times.

What beat me was not having brains enough to stick to my own game.

But there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying or selling stocks daily or sufficient knowledge to make his. play an intelligent play.

The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall
Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.

It takes a man a long time to learn all the lessons of all 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 the bear side, but the right side. It took me longer to get that general principle fixed firmly in my mind than it did most of the more technical phases of the game of stock speculation.

My losses have taught me that I must not begin to advance until I am sure I shall not have to retreat. But if I cannot advance I do not move at all. I do not mean by this that a man should not limit his losses when he is wrong. He should. But that should not breed indecision.

I was still ignoring general principles; and as long as I did that I could not spot the exact trouble with my game.

I can't tell you how it came to take me so many years to learn that instead of placing piking bets on what the next few quotations were going to be, my game was to anticipate what was going to happen in a big way.

Their specialty was trimming suckers who wanted to get rich quick.

I had to make a stake, but I also had to live while I was doing it.

I was twenty when I made my first ten thousand, and I lost that. But I knew how and why, because I traded out of season all the time; because when I couldn't play according to my system, which was based on study and experience, I went in and gambled. I hoped to win, instead of knowing that I ought to win on form.

And when you know what not to do in order not to lose money, you begin to learn what to do in order to win. Did you get that? You begin to learn!

No diagnosis, no prognosis. No prognosis, no profit.

The average chart reader, however, is apt to become obsessed with the notion that the dips and peaks and primary and secondary movements are all there is to stock speculation. If he pushes his confidence to its logical limit he is bound to go broke.

The game of beating the market exclusively interested me from ten to three every day, and after three, the game of living my life.

I couldn't afford anything that kept me from feeling physically and mentally fit.

I was acquiring the confidence that comes to a man from a professionally dispassionate attitude toward his own method of providing bread and butter for himself.

It taught me, little by little, the essential difference between betting on fluctuations and anticipating inevitable advances and declines, between gambling and speculating.

He knows all the don'ts that ever fell from the oracular lips of the old stagers excepting the principal one, which is: Don't be a sucker!

It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!

That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.

Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the fluctuations.

Without faith in his own judgment no man can go very far in this game.

It was that I gained confidence in myself and I was able finally to shake off the old method of trading.

[BlowFish]

	Quote:	idaxtrader
	I thought I would post some of my notes while I read REMINISCENCES OF A STOCK OPERATOR.

Now you're talking probably read that 20+ times

[idaxtrader]

I had been gradually approaching the full realization of how much more than tape reading there was to stock speculation. Old man Partridge's insistence on the vital importance of being continuously bullish in a bull market doubtless made my mind dwell on the need above all other things of determining the kind of market a man is trading in.

There was not so much need as I had imagined to study individual plays or the behaviour of this or the other stock.

Obviously the thing to do was to be bullish in a bull market and bearish in a bear market. Sounds silly, doesn't it? But I had to grasp that general principle firmly before I saw that to put it into practice really meant to anticipate probabilities.

I always had or felt that I had to make my daily bread out of the stock market. It interfered with my efforts to increase the stake available for the more profitable but slower and therefore more immediately expensive method of trading on swings.

You see, I had observed certain facts but had not learned to co-ordinate them. My incomplete observation not only did not help but actually hindered.

But if he didn't profit by his mistakes he wouldn't own a blessed thing.

But I can tell you after the market began to go my way I felt for the first time in my life that I had allies -- the strongest and truest in the
world: underlying conditions. They were helping me with all their might. Perhaps they were a trifle slow at times in bringing up the reserves, but they were dependable, provided I did not get too impatient.

The market would not be right for me to trade in for a while.

I lost because I traded in and out of season, every day, whether or not conditions were right. I wasn't making that mistake twice.

However, the real joy was in the consciousness that as a trader I was at last on the right track. I still had much to learn but I knew what to do. No more floundering, no more half-right methods. Tape reading was an important part of the game; so was beginning at the right time; so was sticking to your position. But my greatest discovery was that a man must study general conditions, to size them so as to be able to anticipate probabilities. In short, I had learned that I had to work for my money.

I was no longer betting blindly or concerned with mastering the technic of the game, but with earning my successes by hard study and clear thinking. I also had found out that nobody was immune from the danger of making sucker plays. And for a sucker play a man gets sucker pay; for the paymaster is on the job and never loses the pay envelope that is coming to you.

It marked the successful ending of my first deliberately planned trading campaign. What I had foreseen had come to pass.

But my biggest winnings were not in dollars but in the intangibles: I had been right, I had looked ahead and followed a clear-cut plan. I had learned what a man must do in order to make big money; I was permanently out of the gambler class; I had at last learned to trade intelligently in a big way. It was a day of days for me.

[idaxtrader]

A loss never bothers me after I take it. I forget it overnight. But being wrong -- not taking the loss that is what does the damage to the pocketbook and to the soul.

The message of the tape is the same. That will be perfectly plain to anyone who will take the trouble to think. He will find if he asks himself questions and considers conditions, that the answers will supply themselves directly.

Therefore the thing to determine is the speculative line of least resistance at the moment of trading; and what he should wait for is the moment when that line defines itself, because that is his signal to get busy.

It sounds very easy to say that all you have to do is to watch the tape, establish your resistance points and be ready to trade along the line of least resistance as soon as you have determined it. But in actual practice a man has to guard against, many things, and most of all against himself -- that is, against human nature.

When a man makes his play in a commodity market he must not permit himself set opinions. He must have an open mind and
flexibility. It is not wise to disregard the message of the tape.

A speculator must concern himself with making money out of the market and not with insisting that the tape must agree with him. Never argue with it or ask it for reasons or explanations.

It would not be so difficult to make money if a trader always stuck to his speculative guns -- that is, waited for the line of least resistance to define itself and began buying only when the tape said up or selling only when it said down. He should accumulate his line on the way up. Let him buy
one-fifth of his full line. He is wrong temporarily and there is no profit in being wrong at any time. The same tape that said up did not necessarily lie merely because it is now saying NOT YET.

It is simple arithmetic to prove that it is a wise thing to have the big bet down only when you win, and when you lose to lose only a small exploratory bet, as it were. If a man trades in the way I have described, he will always be in the profitable position of being able to cash in on the big bet.

He did not stick to his own proved system. That's the trouble with most of them,"

The speculator's chief enemies are always boring from within. It is inseparable from human nature to hope and to fear.

The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit.

It is absolutely wrong to gamble in stocks the way the average man does.

[Tasuki]

cute quote from Steve Nison on one of his training videos:
"The Japanese have a saying, 'Fear does not ride out on a donkey.'"

[idaxtrader]

The professional concerns himself with doing the right thing rather than with making money, knowing that the profit takes care of itself if the other things are attended to.


That is, he looks far ahead instead of considering the particular shot before him. It gets to be an instinct to play for position.

He was no novice in Wall Street, but he was thinking of the market from the point of view of the newspaper man and, incidentally, of the general public. The price certainly ought to go down on the news of inside selling.

The point I would make is his habitual attitude toward trading. He didn't have to reflect.

I am fairly immune from the commoner speculative ailments, such as greed and fear and hope. But being an ordinary man I find I can err with great ease.

I wish to know my own limitations and habits of thought. Another reason is that I do not wish to make the same mistake a second time.

"What are you working for then?" "For the commission and the record," he answered. "What record?" "Mine." "What are you driving at?"
"Do you work for money alone?" he asked me. "Yes," I said. "No." And he shook his head. "No, you don't. You wouldn't get enough fun out of it. You certainly do not work merely to add a few more dollars to your bank account and you are not in Wall Street because you like easy money. You get your fun some other way. Well, same here."

"I know exactly what I am doing. That's all the secret there is.

But he can be talked into a state of uncertainty and indecision, which is even worse, for that means that he cannot trade with confidence and comfort.

Of all speculative blunders there are few greater than trying to average a losing game.

To learn that a man can make foolish plays for no reason whatever was a valuable lesson.

If you know much about the average customer of the average commission house you will agree with me that the hope of making the stock market pay your bill is one of the most prolific sources of loss in Wall Street. You will chip out all you have if you adhere to your determination.

In fact, of all hoodoos in Wall Street I think the resolve to induce the stock market to act as a fairy godmother is the busiest and most persistent.

What does a man do when he sets out to make the stock market pay for a sudden need? Why, he merely hopes. He gambles. He therefore runs much greater risks than he would if he were speculating intelligently, in accordance with opinions or beliefs logically arrived at after a dispassionate study of underlying conditions. To begin with, he is after an immediate profit. He cannot afford to wait. The market must be nice to him at once if at all. He flatters himself that he is not asking more than to place an even-money bet. Because he is prepared to run quick -- say, stop his loss at two points when all he hopes to make is two points -- he hugs the fallacy that he is merely taking a fifty-fifty chance.

I was sick, nervous, upset and unable to reason calmly. That is, I was in the frame of mind in which no speculator should be when he is trading.

A man must know himself thoroughly if he is going to make a good job out of trading in the speculative markets. To know what I was capable
of in the line of folly was a long educational step.