Wednesday, 19 September 2018

20 Eye-Opening Trading Quotes From Trading Legends

An Educational Article

We all need a little inspiration and guidance from time to time, and for us traders, who can we best learn from than the biggest trading legends of our time? After all, learning from those who have already achieved what you are trying to achieve is the best way to learn anything.

This article is a resource for all traders to refer to regularly on their trading journey when they need a ‘pep talk’ or to simply be reminded of the proper way to think about and trade the markets. 

You will notice that I have grouped together various quotes that relate to the same trading topic so that you can quickly reference inspiration and insight on the topics you most like. 

The traders quoted in this article are seasoned professionals with the quotes first appearing in our article on How to Trade Like the Market Wizards, based on the Market Wizards books by Jack D. Schwager. I truly hope you utilize this lesson as an on-going learning and inspiration resource….

Thoughts on technical analysis vs. fundamental analysis
The debate between technical analysts and fundamental analysts over which form of market analysis is ‘better’ has been going on for decades.
Let’s check out some famous quotes on this topic from some legendary traders…
“Fundamentals that you read about are typically useless as the market has already discounted the price, and I call them “funny-mentals”.

“I am primarily a trend trader with touches of hunches based on about twenty years of experience. In order of importance to me are: (1) the long-term trend, (2) the current chart pattern, and (3) picking a good spot to buy or sell. Those are the three primary component of my trading. Way down in a very distant fourth place are my fundamental ideas and, quite likely, on balance, they have cost me money”. – Ed Seykota

“I always laugh at people who say, “I’ve never met a rich technician.” I love that! It’s such an arrogant, nonsensical response. I used fundamentals for nine years and got rich as a technician.” – Marty Schwartz

Thoughts on trading robots / mechanical systems
If you’ve followed my blog for any length of time you probably already know how I feel about mechanical trading systems, expert advisors and robot trading software. Let’s check out some famous quotes on this topic from some legendary traders…

“The problem with developing expert systems for trading is that the “rules” of the trading and investment game keep changing. I have spent some time working with expert system developers, and we concluded that trading was a poor candidate for this approach, because trading decisions encompass too many types of knowledge, and the rules for interpreting the information keep changing”. – Bruce Kovner

“It is experience and gut feel. I use all forms of technical analysis, but interpret them through gut feel. I do not believe in mathematical systems that always approach the markets in the same way. Using myself as the “system,” I constantly change the input to achieve the same output – profit!” – Mark Weinstein

“Don’t be fooled by the modern day snake oil salesman approach to trading the Forex market; there’s no easy way to make money as a trader, and indeed I might be one of the few trading educators who will tell you that, but it’s the truth. The ‘easiest’ way to make money is by learning a sound and logical trading method that is either purely or mostly dependent on reading the price action in the market, proper trading psychology and proper money management practices.” – Nial Fuller

Thoughts on trading behaviour / psychology
I’ve written many articles dealing with trading psychology and behaviour and how significant attaining and maintaining the right trading mind-set is. Let’s check out some famous quotes on this topic from some legendary traders…

“I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime. Even people who lose money in the market say, “I just lost my money, now I have to do something to make it back.” No, you don’t. You should sit there until you find something”. – Jim Rogers

“I haven’t seen much correlation between good trading and intelligence. Some outstanding traders are quite intelligent, but a few aren’t. Many outstandingly intelligent people are horrible traders. Average intelligence is enough. Beyond that, emotional makeup is more important.” – William Eckhart (co-founder of Turtle Traders)

“A lot of people seem to be unaware of the fact that they are trading with a mind-set that is inhibiting them from making money in the markets. Instead, they think that if they just find the right indicator or system they will magically start printing money from their computer. Trading success is the end result of developing the proper trading habits, and habits are the end result of having the proper trading psychology.” – Nial Fuller

Thoughts on stop losses
Stop loss placement is a critical piece of the trading puzzle. If you do not know how to properly place stop losses your entire trading approach and money management plan will be spoiled. Let’s check out some famous quotes on this topic from some legendary traders…

“Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I’m getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis.” – Bruce Kovner

Thoughts on capital preservation, risk management and position sizing
Money management is the key. I know it may sound cliché to you at this point, but it’s only cliché because it’s true and you’ve probably heard it a thousand times from various trading education sources. Let’s check out some famous quotes on these topics from some legendary traders…

“The most important rule of trading is to play great defence, not great offense. Every day I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum possible draw-down. 

Hopefully, I spend the rest of the day enjoying positions that are going my direction. If they are going against me, then I have a game plan for getting out.
Don’t be a hero. Don’t have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead. My biggest hits have always come after I have had a great period and I started to think that I knew something”. – Paul Tudor Jones

“The key to long-term survival and prosperity has a lot to do with the money management techniques incorporated into the technical system. There are old traders and there are bold traders, but there are very few old, bold traders.” – Ed Seykota

“I prefer not to dwell on past situations. I tend to cut bad trades as soon as possible, forget them, and then move on to new opportunities.” – Ed Seykota
“Either a trade is good enough to take, in which case it should be implemented at full size, or it’s not worth bothering with at all.” – William Eckhardt

“Learn to take losses. The most important thing in making money is not letting your losses get out of hand. Also, don’t increase your position size until you have doubled or tripled your capital. Most people make the mistake of increasing their bets as soon as they start making money. That is a quick way to get wiped out.” – Marty Schwartz

“I’ve learned many things from him [George Soros], but perhaps the most significant is that it’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” – Stanley Druckenmiller

Thoughts on the random distribution of winners and losers in trading
One of the most difficult things for many traders to grasp is that there’s a random distribution of winners and losers for any given series of trades. Meaning, you can’t ever assume you know that THIS trade will be a winner, because any one trade has essentially a random chance of winning or losing. 

A high-probability trading edge is only realized over a large SERIES of trades, this is an important thing to remember. Let’s check out some famous quotes on this topic from some legendary traders…

The key is consistency and discipline. Almost anybody can make up a list of rules that are 80 percent as good as what we taught our people. What they couldn’t do is give them the confidence to stick to those rules even when things are going bad.

“On any individual trade it is almost all luck. It is just a matter of statistics. If you take something that has a 53 percent chance of working each time, over the long run there is a 100 percent chance of it working. If I review the results of two different traders, looking at anything less than one year doesn’t make any sense. It might be a couple of years before you can determine if one is better than the other”. – Richard Dennis (co-founder of Turtle Traders)

Once you begin to realize that any given trade has an equal chance of being a winner or loser, you will stop giving too much emotional and financial importance to any one trade. Once you do this, it opens up the pathway to carefree trading and allows you to truly induce the proper trading mind-set. – Nial Fuller

Thoughts on end-of-day trading vs. day-trading
“For many very, very good reasons, I focus almost entirely on daily charts and end-of-day price data when I analyse and trade the markets. Having a quote machine is like having a slot machine on your desk – you end up feeding it all day long. I get my price data after the close each day. – Ed Seykota

“One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do. Most people – not that I’m better than most people – always have to be playing; they always have to be doing something. They make a big play and say, “Boy, am I smart, I just tripled my money.” Then they rush out and have to do something else with that money. They can’t just sit there and wait for something new to develop.” – Jim Rogers

There is much wisdom to be absorbed from trading legends such as those quoted above. The fastest way to get your trading career off to a successful start is simply by learning from those who have come before you. Don’t try to reinvent the wheel with trading, stick to what works and learn as much as you can from experienced, professional traders like myself and the other traders discussed in this lesson.
I truly hope you’ve found this article useful and that you will refer back to it for insight and inspiration when you need it. 

Reference: Nial Fuller

Investors raise cash buffers as gloom gathers over global economy

LONDON (Reuters) - Investors cut equity exposure this month as they grew more wary that economic growth may slow, but kept a long-standing preference for mega-cap tech stocks, Bank of America Merrill Lynch’s monthly survey indicated on Tuesday.

BAML’s September survey found investors’ outlook on economic growth had worsened significantly, driving them to increase cash holdings.

A net 24 percent of those surveyed expected global growth to slow in the next year, up from 7 percent in August. This was the worst such outlook since December 2001.

A trade war remained the biggest tail risk cited by investors. September was the fourth straight month this was cited as the biggest fear, though its dominance was receding. Fears of a slowdown in China were increasing, as were worries about rising global interest rates.

As a result, the average cash balance climbed to an 18-month high of 5.1 percent, from 5.0 percent in August. Overall allocation to equities fell 11 percentage points to a net 22 percent overweight - near July’s levels which were the lowest in 18 months.

The “most crowded” trade for the eighth straight month was “Long FAANG and BAT” - acronyms for U.S. tech giants Facebook, Amazon, Apple, Netflix and Google, and China’s Baidu, Alibaba and Tencent.

The two other crowded trades were short positions on emerging market equities followed by long dollar.

A divergence in regional preferences yawned ever wider: investors’ allocation to U.S. equities rose to the biggest overweight since January 2015, while allocation to euro zone equities fell to an 18-month low.

The United States was the most favored equity region for a second month running, BAML strategists said. This reflected a decoupling between the strong U.S. economy and the weaker rest of the world.

Investors’ outlook for U.S. corporate profits was at its most favorable in the survey’s history, with the biggest divergence with emerging market profits since January 2014.

Nearly half of investors (48 percent) thought the current decoupling would end, however, due to U.S. growth slowing, while 24 percent saw it continuing.

Just 28 percent saw growth in Asia and Europe accelerating. “Investors are holding on to more cash, telling us they are bearish growth and bullish US decoupling,” said Michael Hartnett, chief investment strategist.

Allocation to emerging stocks tumbled to a 10 percent underweight, the lowest since March 2016. The survey noted a “massive reversal” from the 43 percent overweight measured in April 2018 when emerging markets were the investors’ favorite.

“September rotation shows investors are selling emerging markets, banks and materials in favor of Japan, healthcare and industrials,” wrote the strategists.

The most contrarian trade, they said, is long EM and short U.S., while they also recommended long materials and short healthcare for investors wanting to bet on China stimulating its economy more in the fourth quarter.

While global investors cut their allocation to euro zone equities to the lowest since December 2016, they bought more UK equities.

Amid increasingly intense Brexit negotiations, global investors’ allocation to UK equities rose to a net 24 percent underweight from 28 percent underweight.

While European investors are moving into defensive sectors, sector conviction is low, they added.

European fund managers’ allocation to tech stocks fell to its lowest in nine years, while their weighting in banks hit a two-year low.

“We expect sentiment-driven rallies to be short-lived and see only temporary factors supporting EU financials,” wrote the strategists.

Evidence of earnings growing more than 10 percent would be the biggest catalyst for a sustained rise in European stocks, the survey found.

Reporting by Helen Reid

Tuesday, 18 September 2018

Dollar bounce fades, yuan dips, markets brace for China's response to US tariffs

TOKYO (Reuters) - The dollar was slightly higher on Tuesday and China’s yuan fell as global markets braced for Beijing’s response to new U.S. tariffs on Chinese goods.

The dollar index against a basket of six major currencies was up 0.09 percent at 94.585. The greenback in recent months has benefited from safe-haven flows amid the escalating Sino-U.S. trade conflict.

The index had popped up to 94.607 earlier in the session after U.S. President Donald Trump said on Monday that he will impose 10 percent U.S. tariffs on about $200 billion worth of Chinese imports, effective Sept. 24.

Trump said that if China takes retaliatory action against U.S. farmers or industries, “we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports.

“Of immediate concern to the market is how China responds to the tariffs,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

China’s yuan was a shade weaker at 6.8740 per dollar in onshore trade, though Chinese stocks managed slim gains.

“The dollar’s knee-jerk reaction has subsided somewhat as some equity markets are managing to rise despite the trade news. It appears that a consensus had already been formed beforehand on what the trade announcement would be,” said Shusuke Yamada, currency and equity strategist at Bank of America Merrill Lynch in Tokyo.

The dollar was 0.1 percent higher at 111.94 yen. It had briefly dropped to 111.66 against the yen, another safe-haven currency that draws demand in times of market tensions and risk aversion, before bouncing back.

The Australian dollar, seen as a proxy to China-related trades as well as a barometer of broader risk sentiment, was nearly flat at $0.7176 , having climbed off a low of $0.7144 plumbed earlier in the session.

Some analysts doubted Beijing would be in the mood to hold trade negotiations with Washington in the wake of Trump’s latest decision. U.S. Treasury Secretary Steven Mnuchin last week invited top Chinese officials to a new round of talks, but thus far nothing has been scheduled.

The euro was down 0.05 percent at $1.1678 after rising 0.5 percent the previous day.

The pound dipped 0.1 percent to $1.3147 .

Sterling had gained 0.7 percent on Monday, hitting a six-week high of $1.3165, helped by reports of progress on the Irish border question, an obstacle to Brexit that diplomats will try to overcome this week at a European Union summit.

Emerging market currencies including the Turkish lira, South African rand and the Mexican peso were all slightly lower on Tuesday.

Reporting by Shinichi Saoshiro

Asian shares slip as Sino-U.S. trade tensions intensify

TOKYO/SYDNEY (Reuters) - Asian shares fell and copper prices eased on Tuesday after Washington announced new tariffs on Chinese imports, inflaming trade tensions between the world’s two biggest economies.

U.S. stock futures took a knock as well, with E-Minis for the S&P 500 ESc1 and the Dow Minis both down 0.2 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slipped 0.3 percent with Hong Kong's Hang Seng index .HSI off 0.7 percent and Australian stocks down 0.4 percent.

Chinese shares were a touch lower with the blue-chip index .CSI300 off 0.1 percent while Japan's Nikkei .N225 bucked the trend, gaining more than 1.5 percent.

The sell-off came after U.S. President Donald Trump imposed 10 percent tariffs on as additional $200 billion worth of Chinese imports, and warned of duties on more products if China took retaliatory action.

Trump spared smart watches from Apple (AAPL.O) and Fitbit (FIT.N) and other consumer products such as bicycle helmets and car seats for babies.

“The announcement dashes hopes of any trade negotiations between two rivals. Be prepared for a prolonged period of risk-off,” analysts at ING said in a note.

“Although the levy saw a lower rate, it could foment a response from China which had previously threatened to walk away from the negotiating table,” ING said.

Some analysts said the market reaction was a bit muted because Tuesday’s announcement was in line with expectations and had been baked into prices.

Chinese Vice Premier Liu He was to convene a meeting in Beijing on Tuesday to discuss the government’s response, Bloomberg News reported, citing a person briefed on the matter.

The South China Morning Post newspaper reported, citing an unidentified source in Beijing, that China was reviewing its previous plan to send a delegation headed by Liu He to the United States next week for fresh talks, and was now unlikely to do so.

In currencies, the dollar index gained briefly against a basket of major currencies but was last unchanged at 94.465. .DXY

Against the yen JPY=, the greenback inched up 0.1 percent to 111.94.

The risk-sensitive Australian dollar AUD=D3 shed as much as 0.5 percent on the tariff news to near a recent 2-1/2 year low, then it changed direction and was up 0.2 percent at $0.7193.

The euro EUR= gained a fraction to $1.1693.

The latest tariff news sent some investors to the safety of U.S. Treasuries with 10-year yields coming off Monday’s four-month top of 3.0220 percent as bond prices rose. They were last at 2.9922 percent.

Oil prices fell on worries rising trade tensions could dent global demand for crude.

U.S. crude futures skidded 28 cents to $68.63 a barrel while international benchmark Brent futures LCOc1 lost 43 cents to $77.62 per barrel.

Copper, considered a barometer of global growth, drifted lower for a third straight session.

Reporting by Hideyuki Sano in Tokyo and Swati Pandey in Sydney

Monday, 17 September 2018

High U.S. stock valuations hinge on inflation, interest rates

NEW YORK (Reuters) - Investors are banking on tame inflation and interest rates to support U.S. stock prices and help counter any concerns over an anticipated slowdown in corporate earnings growth next year.

As they have recently, stocks in general are poised to trade at valuations, based on price-to-earnings ratios, higher than they have traded on average since the mid-1980s, investors said.

Yields on U.S. government securities and consumer prices overall have been moving higher, although they remain relatively moderate. Investors said low bond yields mean reduced investment competition for stocks, and relatively subdued inflation supports low interest rates.

“There’s an argument historically with that type of inflation backdrop and rates where they are, that you can justify a higher valuation,” said Walter Todd, chief investment officer at Greenwood Capital in Greenwood, South Carolina.

The ability of stocks to hold relatively high valuations is important because an expected slowdown in corporate profit growth in 2019 could otherwise temper stock returns. Analysts will increasingly focus on next year’s outlook as third-quarter reports arrive next month.

Spurred by corporate tax cuts that took effect this year, earnings of companies on the benchmark S&P 500 index .SPX are expected to climb 23 percent in 2018, and then 10 percent in 2019, according to Thomson Reuters.

Stocks are commonly valued by their forward P/E ratios, meaning their prices divided by earnings estimates for the next 12 months.

The S&P 500’s average forward P/E over the past 33 years has been 15 times earnings estimates, but the index has traded above that level for more than two years, according to Thomson Reuters Datastream.

This year, the index peaked at about 18.5 times in late January before the market’s 10 percent correction, and now trades at about 16.8 times.

More than 60 years of data show that the S&P 500 trades on average at higher valuations when the consumer price index (CPI), a common measure of inflation, is rising annually between 0 to 4 percent, compared to when it is higher or when there is deflation, according to Keith Lerner, chief market strategist with SunTrust Advisory Services in Atlanta.

Annual CPI last topped 4 percent about 10 years ago.

When the CPI increases 0-2 percent, the index trades at 16.6 times forward P/E. At 2-4 percent CPI growth, the average is 16.4 times. In the 12 months through August, the CPI increased 2.7 percent, according to data on Thursday.

Lerner calls a P/E of 16 to 17 times a fair current valuation, with global trade tensions and other issues causing fluctuations within that range.

“The way the market is looking at this is a 16 level on a forward P/E basis is pretty good support,” Lerner said.

Equity strategists at Credit Suisse project the forward P/E will drift higher and end 2019 at 18 times. They project the S&P 500 will finish next year at 3,350, a roughly 15 percent rise from current levels.

Credit Suisse equity strategist Patrick Palfrey said tax cuts and other factors are propping up results in 2018, so next year’s decline in earnings growth is less severe that it seems.

This year’s underlying earnings growth is closer to 9-10 percent, Palfrey said, which would be only slightly ahead of the nearly 8 percent expected by Credit Suisse next year.

Credit Suisse also sees limited risk of a recession on the horizon, Palfrey said.

“The economy actually is still moving at a very healthy clip,” Palfrey said.

While current P/Es are higher than average historically, strategists point to a change in the composition over time of the S&P 500, including a greater weight for higher-valued tech companies, as a reason why those historical comparisons may not be as appropriate.

Another factor is the relative attractiveness of equities to bonds and other assets. For example, the earnings yield, which is earnings divided by a stock’s price, for the S&P 500 is currently 6 percent, against a roughly 3 percent yield for U.S. 10-year Treasuries.

A spike in bond yields would change the valuation equation, could be put to the test as the Federal Reserve is expected to continue its tightening cycle.

Mark Hackett, chief of investment research at Nationwide, said a 4 percent yield on the 10-year U.S. Treasury note would pressure equities, although he doesn’t see that level in the near term.

“Every investment is competition for that next dollar,” Hackett said.

Reporting by Lewis Krauskopf

Sterling rises on Irish border hopes before EU summit

LONDON (Reuters) - The pound rose on Monday, buoyed by reports of progress on the Irish border question, an obstacle to Brexit that diplomats will seek to overcome at a an European Union summit later this week.

Sterling has benefited recently from reports on behind-the-scenes efforts to work out how to manage the Irish border if Britain also leaves the single market and customs union.

A report published by The Times on Monday said that EU chief negotiator Michel Barnier is working on a plan to minimise physical checks at the border between the two Irelands by tracking goods using barcodes on shipping containers.

The first of three summits on the terms of Brexit will be held this week, and EU leaders hope a deal can be struck within the next two months. The talks could determine how orderly Britain’s March 2019 withdrawal will be and what kind of economic impact it and its neighbours face.

“Sterling could out-perform this week if the EU decide to adopt a more flexible stance on Brexit at the EU summit,” said Chris Turner, head of foreign exchange strategy at ING. The pound could rise to 88.50 pence against the euro, he said.

Sterling on Monday traded up 0.2 percent at $1.3086, closing in on a six-week high of $1.3145. It was flat against the euro at 89.02 pence..

Sterling has reversed nearly all of its losses against the dollar in August, when fears of a no-deal Brexit surged and last week it gained 1.2 percent.

Other analysts expressed caution, though.

“The moderate recovery of sterling we saw over the past weeks is justified. But for all those who have to manage their sterling risks beyond the Brexit date, the problem of how to plan ahead persists, of course,” said Ulrich Leuchtmann, a currency strategist at Commerzbank in Frankfurt.

Despite growing confidence Britain can land a Brexit deal, domestic political uncertainty remains high.

Leaders of Germany and Austria said over the weekend they wanted to avoid a hard Brexit at all costs, but the biggest obstacle to a compromise might be hard-line Brexiters in Prime Minister Theresa May’s own party.

Britain’s opposition Labour party will vote against May’s Brexit plans, a senior Labour lawmaker told the Financial Times last week.

The final rounds of Brexit negotiations may determine what the Bank of England does next. Most economists polled by Reuters don’t expect interest rates to rise again until after Britain’s exit.

Reporting by Tom Finn

Sterling slips but still set for big weekly rise

LONDON (Reuters) - Sterling slipped on Friday but remained on track for its biggest weekly rise since March, as worries about emerging markets faded and investors bet Britain would eventually clinch a Brexit trade deal with the European Union.

Britain and the EU are “closing in” on a withdrawal agreement, Brexit minister Dominic Raab said on Friday.

The British currency has become increasingly correlated to risk appetite in recent weeks and concerns over a widening emerging market currency selloff had also weighed on sterling.

Turkey’s sharp rate hike on Thursday, which smoothed investor nerves more broadly, and a Bank of England (BoE) upgrade of UK growth forecasts also helped the pound this week.

On Friday, after initially trading to its highest since July 31, at $1.3145, sterling fell 0.1 percent to $1.3092, pushed lower by a stronger dollar.

Sterling has reversed nearly all of its losses against the dollar in August, when fears of a no-deal Brexit surged.

On a weekly basis, it is up more than 1.3 percent.

“It has been a good week for high beta currencies including the pound, thanks to Turkey and growth upgrades by the Bank of England, but it is still too soon to flip to net long bets,” said Kenneth Broux, a currency strategist at Societe Generale in London.

The BoE voted 9-0 to leave interest rates at 0.75 percent, a month after tightening policy for only the second time since the 2009 financial crisis, and upgraded its forecast for third-quarter GDP growth, to 0.5 percent from 0.4 percent.

Despite growing confidence Britain can land a Brexit deal, domestic political uncertainty remains high.

Britain’s opposition Labour party will vote against Prime Minister Theresa May’s Brexit plans, a senior Labour lawmaker told the Financial Times.

BoE governor Mark Carney told British ministers the UK property market would crash and mortgage rates spiral up if there was a chaotic no-deal Brexit, the Times newspaper reported.

Sterling’s fortunes were more mixed against the euro as lower-than-forecast U.S. inflation data initially pushed the single currency higher. The pound was flat against the euro at 89.14 pence.

In the cash markets, hedge funds remain negative on the British currency, according to latest positioning data, showing a net $5.5 billion outstanding short position though the size of that position reduced slightly last week.

Reporting by Saikat Chatterjee and Tommy Wilkes