Wednesday, February 14, 2007

Livermore's four traits of successful traders

In his book, How to Trade in Stocks, one of the most successful investors during the 1920's, Jesse Livermore, stated a successful trader must have all four of these traits if they are to be successful in the markets: observation, memory, mathematics, and experience.

Observation - the ability to observe facts without prejudice.

Memory - the ability to remember key events correctly and objectively.

Mathematics - the ability to calculate numbers easily.

Experience - the ability to learn, retain, and call upon knowledge at will.

With today's markets up .7% today, I'm reminded that to me, the portfolio is a constant exercise in money management. Ideally, my portfolio should be structured so that it exceeds the market averages during up days and either generates small gains or negligible losses on down days.

Because I underperformed the market by .2% today, I'm looking at what caused the underperformance and where I'm likely to pull the trigger to remedy the situation for the next trading day.

For me, my experience has taught me that this is the most effective means of money management. When you are faced with difficult decisions especially with regards to your money, sometimes you have to look at your portfolio from different perspectives in order to arrive at an answer. Once you realize what you have to do, you stand one step closer towards your financial goals.

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