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  • Trading Stories - Stop Asking "Why" If You Want to Win


    Overview of Markets

    Our proprietary systems look at the US, Chinese, and Hong Kong stock markets and report that there are no immediately buyable stocks on Monday. So, again, we relax and tell more stories.

    The Best on no need to know the "why"

    Below are a few of the best traders/investors of the last 100 years have to say about the no need to know the "why"s.

    Jesse Livermore

    "We know that prices move up and down. They always have and they always will. My theory is that behind these major movements is an irresistible force. That is all one needs to know. It is not well to be too curious about all the reasons behind price movements. You risk the danger of clouding your mind with non-essentials. Just recognize that the movement is there and take advantage of it by steering your speculative ship along with the tide."

    Paul Tudor Jones

    "...Certain people have a greater proclivity for it (tape reading) because they don't have the need to feel intellectually superior to the crowd. It's a personality thing...I see the younger generation hampered by the need to understand and rationalize why something should go up or down. Usually, by the time that becomes self-evident, the move is already over. When I got into the business, there was so little information on fundamentals, and what little information one could get was largely imperfect. We learned just to go with the chart. Why work when Mr. Market can do it for you? These days, there are many more deep intellectuals in the business, and that, coupled with the explosion of information on the Internet, creates the illusion that there is an explanation for everything and that the primary task is simply to find that explanation."

    Ed Seykota

    "...Trying to understand the markets is a bit futile. I don't think it makes any more sense trying to understand the stock market than trying to understand music. A lot of people would rather understand the market than make money."

    Stop Asking "Why"

    In this article, we tell another story originally told by Stanley Kroll in this book entitled "Kroll on Futures Trading Strategy". This story illustrates that the real reason for big price moves are often hidden from us. And by the time you know, it is often way too late. However, without knowing the "why"s, we can still make money. Therefore, it is not necessary and often it is not advisable to seek out too much of the "why"s for a big move. Just recognize the big move at its inception and get on, with limited risk, and ride it to the end. Most people don't really know why a car can move, but they drive a car without any problem. That same idea applies to investing in the market as well - you don't really need to know why a move takes place, you just need to recognize it and ride along with it, and make big money.








    Conclusions

    1. Stop asking "why" in the market. There are reasons for big moves in the market. But think about it, WHY would the big boys, who make the big move happen, let you know what they plan to do, before they do it, so that you could have taken advantage of them by buying before they buy, thus pushing up the price and forcing themselves to buy at a higher price than they would have?
    2. Due to the competitive nature of the market, the real reasons behind big moves are almost always unknown to the public at the beginning of the moves, where the reward/risk profile is optimal (i.e., this is the exact point where you should buy).
    3. If you keep asking "why" before you invest, you automatically eliminate 99% of the big opportunities coming your way. And, by the time you know the "why"s, 99% of the time it is too late, and that's "WHY" most people find themselves in this scenario a lot: "WHY" as soon as I bought this stock, it started to go down?!
    4. To win consistently in the market, you have to go contrarian to your emotions. Most things that you feel comfortable with (e.g., figuring out the "why" before you invest) do not work very well in the market. Many skills that are socially very acceptable, and even very useful, backfire in the market. The market is a very different animal from your daily social life!
    5. William J O'Neil, a master investor of our generation, said "if you are normal, you can't make money in the stock market". Think about it.



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