Jesse Livermore: Lessons From A Legendary Trader

Born in 1877, Jesse Livermore is one of the greatest traders that few people know about. While a book on his life written by Edwin Lefèvre, “Reminiscences of a Stock Operator” (1923), is highly regarded as a must-read for all traders, it deserves more than a passing recommendation. Livermore, who is the author of “How to Trade in Stocks”(1940), was one of the greatest traders of all time. At his peak in 1929, Jesse Livermore was worth $100 million, which in today’s dollars roughly equates to $1.5-13 billion, depending on the index used.

The enormity of his success becomes even more staggering when considering that he traded on his own, using his own funds, his own system, and not trading anyone else’s capital in conjunction. There is no question that times have changed since Mr. Livermore traded stocks and commodities. Markets were thinly traded, compared to today, and the moves volatile. Jesse speaks of sliding major stocks multiple points with the purchase or sale of 1,000 shares. And yet, despite the difference in the markets, such automation increased liquidity, technology, regulation and a host of other factors that still drive the markets today.

The Test of Time
Given that this trader’s rules still apply, and the price patterns he looked for are still very relevant today, we will look at a summary of the patterns Jesse traded, as well his timing indicators and trading rules.

Read more: Jesse Livermore: Lessons From A Legendary Trader http://www.investopedia.com/articles/trading/09/legendary-trader-jesse-livermore.asp#ixzz3k117aEE7 
Follow us: Investopedia on Facebook

Hindsight Bias – continued

Hindsight bias, also known as the knew-it-all-along effect or creeping determinism, is the inclination, after an event has occurred, to see the event as having been predictable, despite there having been little or no objective basis for predicting it.

Abstract

Traditional accounts of “hindsight bias” inadequately distinguish “primary” hindsight bias from both “secondary” and “tertiary” hindsight bias. A subject exhibits primary bias when she assigns a higher ex ante probability estimate to actual outcomes, secondary bias when she believes that she herself would have made the same estimate of the prior probability of an event before receiving outcome information as she made after receiving it, and tertiary bias when she believes that third parties lacking outcome information were unreasonable if they did not make the same prior probability judgments that subjects now possessing such information make.

In our experiments, we find that when people can readily calculate the actual ex ante probability of an outcome, they don’t reassess that probability when told what outcomes actually occurred. They reassess only in situations in which they are unable to assess prior probabilities or when given information that the outcome was not simply a result of sampling or chance but the result of an imperceptible feature of the initial situation. Observed primary bias may therefore often be rational.

Hindsight Bias – Behavioral Finance – Confirmation and Hindsight Bias

Confirmation Bias
It can be difficult to encounter something or someone without having a preconceived opinion. This first impression can be hard to shake because people also tend to selectively filter and pay more attention to information that supports their opinions, while ignoring or rationalizing the rest. This type of selective thinking is often referred to as the confirmation bias.

In investing, the confirmation bias suggests that an investor would be more likely to look for information that supports his or her original idea about an investment rather than seek out information that contradicts it. As a result, this bias can often result in faulty decision making because one-sided information tends to skew an investor’s frame of reference, leaving them with an incomplete picture of the situation.

Consider, for example, an investor that hears about a hot stock from an unverified source and is intrigued by the potential returns. That investor might choose to research the stock in order to “prove” its touted potential is real.

What ends up happening is that the investor finds all sorts of green flags about the investment (such as growing cash flow or a low debt/equity ratio), while glossing over financially disastrous red flags, such as loss of critical customers or dwindling markets.
Hindsight Bias
Another common perception bias is hindsight bias, which tends to occur in situations where a person believes (after the fact) that the onset of some past event was predictable and completely obvious, whereas in fact, the event could not have been reasonably predicted.

Many events seem obvious in hindsight. Psychologists attribute hindsight bias to our innate need to find order in the world by creating explanations that allow us to believe that events are predictable. While this sense of curiosity is useful in many cases (take science, for example), finding erroneous links between the cause and effect of an event may result in incorrect oversimplifications.

For example, many people now claim that signs of the technology bubble of the late 1990s and early 2000s (or any bubble from history, such as the Tulip bubble from the 1630s or the SouthSea bubble of 1711) were very obvious. This is a clear example of hindsight bias: If the formation of a bubble had been obvious at the time, it probably wouldn’t have escalated and eventually burst. (To learn more, read The Greatest Market Crashes.)

For investors and other participants in the financial world, the hindsight bias is a cause for one of the most potentially dangerous mindsets that an investor or trader can have: overconfidence. In this case, overconfidence refers to investors’ or traders’ unfounded belief that they possess superior stock-picking abilities.

Avoiding Confirmation Bias
Confirmation bias represents a tendency for us to focus on information that confirms some pre-existing thought. Part of the problem with confirmation bias is that being aware of it isn’t good enough to prevent you from doing it. One solution to overcoming this bias would be finding someone to act as a “dissenting voice of reason”. That way you’ll be confronted with a contrary viewpoint to examine.

source : http://www.investopedia.com

Price to Earning Ratio P/E Ratio

  1. A valuation ratio of a company’s current share price compared to its per-share earnings. For example, if a company is currently trading at $43 a share and earnings over the last 12 months were $1.95 per share, the P/E ratio for the stock would be 22.05 ($43/$1.95).

Demystified: How to use PE ratio to value a stock During bear markets, stocks generally trade at lower PE multiples and during bull markets at higher levels in relation to historical values.

The PE ratio is probably the most common measure to help investors compare how cheap or expensive a firm’s shares are, as stock prices, for lack of a better term, are arbitrary. The trailing PE is just the price per share of the stock divided by the annual net diluted earnings per share the firm generated in its last fiscal year. The forward PE is the price per share of the stock divided by next fiscal year’s annual net diluted earnings per share of the firm. It’s only when investors compare a firm’s share price to its annual net diluted earnings per share that they can get a sense for whether a company’s shares are expensive (overvalued, overpriced) or cheap (undervalued, underpriced). The higher the PE, the more expensive the company.

Capital Style

WE can take capital or the very word capital’s dichotomy can be understood as capping the little.

Capital = Working capital+ FIxed Capital or the industrial capital, this term industrial capital can be widely understood to be the market capitalisation or the market share ;specific or as a whole.

Capital Style when taken to be in different contexts as the base & lift off as the predicaments or presuppossitions rather than as assumptions or presumptions.

Presumptious ; when taken as the capital style , is more taken to be rather than processed as a system.

Capital style as taken to be decisive to approach the indecisiveness , indecisiveness being on the humane side or error presupposed directly categorizing it into the very section of Behavioural Finance than behavioural economics. Behavioural finance is the study of the influence of psychology on the behaviour of financial practitioners and the subsequent effect on markets. Behavioural finance is of interest because it helps explain why and how markets might be inefficient.

When we talk more on this capital Style this takes us to the behavioural skills which is the application. THE APPLICATION.

Behavioral skills are the skills you use to successfully interact with others.

Capital Style & portfolio management can be a theory of relativity study or an application as taken to be for the purpose of the very study.

Capital Style presumed to be the Runway, the establishment , the operative efficacy, nintendo hitherto.

Capital Ship Etiquette

The captain goes down with the ship” is an idiom and maritime tradition that a sea captain holds ultimate responsibility for both his ship and everyone embarked on it, and he will die trying to save either of them. Although often associated with the sinking of the RMS Titanic in 1912 and its captain, Edward J. Smith, the phrase predates the Titanic by at least 11 years.[1] In most instances the captain of the ship forgoes his own rapid departure of a ship in distress, and concentrates instead on saving other people. It often results in either the death or belated rescue of the captain as the last person on board.
// // // //

History

// // // //

The concept is closely related to another protocol from the nineteenth century, “women and children first.” Both reflect the Victorian ideal of chivalry in which the upper classes were expected to emulate a morality tied to sacred honour, service, and respect for the disadvantaged. The actions of the captain and men during the sinking of HMS Birkenhead in 1852 prompted praise from many due to the sacrifice of the men who saved the women and children by evacuating them first. Rudyard Kipling‘s poem “Soldier an’ Sailor Too” and Samuel SmilesSelf-Help both highlighted the valour of the men who stood at attention and played in the band as their ship was sinking.

// // // //

Social and legal responsibility

The idiom literally means that a captain will be the last person to leave a ship alive prior to its sinking or utter destruction, and if unable to evacuate the crew and passengers, the captain will not evacuate himself.[2] In a social context, especially as a mariner, the captain will feel compelled to take this responsibility as a type of social norm. Shirking this responsibility in a crisis would go against societal mores because of the offender’s lack of ethics.

In maritime law the responsibility of the ship’s master for his ship is paramount no matter what its condition, so abandoning a ship has legal consequences, including the nature of salvage rights. So even if a captain abandons his ship in distress, he is generally responsible for it in his absence and would be compelled to return to the ship until danger to the vessel has relented. If a naval captain evacuates a vessel in wartime, it may be considered a capital offence similar to desertion unless he subsequently returns to the ship at his first opportunity to prevent its capture and rescue the crew.

Abandoning a ship in distress may be considered a crime that can lead to imprisonment.[2] Captain Francesco Schettino, who left his ship in the midst of the Costa Concordia disaster, was not only widely reviled for his actions, but was arrested by Italian authorities on criminal charges.[3] Abandoning ship is a maritime crime that has been on the books for centuries in Spain, Greece and Italy.[4] South Korean law may also require the captain to rescue himself last.[5] In Finland the Maritime Law (Merilaki) states that the captain must do everything in his power to save everyone on board the ship in distress and that unless his life is in immediate danger, he shall not leave the vessel as long as there is reasonable hope that it can be saved.[6] In the United States, abandoning the ship is not explicitly illegal, but the captain could be charged with other crimes, such as manslaughter, which encompass common law precedent passed down through centuries. It is not illegal under international maritime law.

Capital Market – Derivatives

Derivatives

What are derivatives?
Derivatives are financial contracts, which derive their value off a spot price time-series, which is called “the underlying”. The underlying asset can be equity, index, commodity or any other asset. Some common examples of derivatives are Forwards, Futures, Options and Swaps.

Derivatives help to improve market efficiencies because risks can be isolated and sold to those who are willing to accept them at the least cost. Using derivatives breaks risk into pieces that can be managed independently. From a market-oriented perspective, derivatives offer the free trading of financial risks.

What is the importance of derivatives?
There are several risks inherent in financial transactions. Derivatives are used to separate risks from traditional instruments and transfer these risks to parties willing to bear these risks. The fundamental risks involved in derivative business includes:

  • Credit Risk

This is the risk of failure of a counterparty to perform its obligation as per the contract. Also known as default or counterparty risk, it differs with different instruments.

  • Market Risk

Market risk is a risk of financial loss as a result of adverse movements of prices of the underlying asset/instrument.

  • Liquidity Risk

The inability of a firm to arrange a transaction at prevailing market prices is termed as liquidity risk. A firm faces two types of liquidity risks

  1. Related to liquidity of separate products
  2. Related to the funding of activities of the firm including derivatives.

  • Legal Risk

Derivatives cut across judicial boundaries, therefore the legal aspects associated with the deal should be looked into carefully.

What are the various types of derivatives?
Derivatives can be classified into four types:

  • Forwards
  • Futures
  • Options
  • Swaps

Who are the operators in the derivatives market?

  • Hedgers – Operators, who want to transfer a risk component of their portfolio.
  • Speculators – Operators, who intentionally take the risk from hedgers in pursuit of profit.
  • Arbitrageurs – Operators who operate in the different markets simultaneously, in pursuit of profit and eliminate mis-pricing.

Source : http://www.capitalmarket.com

Top

Definition of ‘Credit Rating’

//

Credit rating is an analysis of the credit risks associated with a financial instrument or a financial entity.
Definition: Credit rating is an analysis of the credit risks associated with a financial instrument or a financial entity. It is a rating given to a particular entity based on the credentials and the extent to which the financial statements of the entity are sound, in terms of borrowing and lending that has been done in the past.

Description: Usually, is in the form of a detailed report based on the financial history of borrowing or lending and credit worthiness of the entity or the person obtained from the statements of its assets and liabilities with an aim to determine their ability to meet the debt obligations. It helps in assessment of the solvency of the particular entity. These ratings based on detailed analysis are published by various credit rating agencies like Standard & Poor’s, Moody’s Investors Service, and ICRA, to name a few.

NSIC – CREDIT RATING

Performance  & Credit Rating Scheme

NSIC – CREDIT RATING

Need of a Performance and Credit Rating Mechanism for SSIs (now Micro and Small Enterprises) was highlighted in Union Budget’04-05. A scheme for SSIs (now Micro and Small Enterprises) has been formulated in consultation with Indian Banks’ Association(IBA) and Rating Agencies. NSIC has been appointed the nodal agency for implementation of this scheme through empanelled agencies.

Benefits of Performance and Credit Rating

  • An independent, trusted third party opinion on capabilities and credit-worthiness of SSIs
  • Availability of credit at attractive interest
  • Recognition in global trade
  • Prompt sanctions of Credit from Banks and Financial Institutions
  • Subsidized rating fee structure for SSIs
  • Facilitate vendors/buyers in capability and capacity assessment of SSIs
  • Enable SSIs to ascertain the strengths and weaknesses of their existing operations and take corrective measures.

Benefits to Banks and Financial Institutions

Availability of an independent evaluation of the strength and weaknesses of an SSI unit seeking credit and thereby enabling banks and financial institutions manage their credit risk

Salient Features

  • A combination of credit and performance factors including operations, finance, business and management risk
  • Uniform Rating Scale for all empanelled rating agencies.
  • SSIs have the liberty to choose among the empanelled Rating Agencies.
  • Turn-Over based Fee structure
  • Partial Reimbursement of Rating Fee through NSIC

Source : http://www.tradingeconomics.com

:  www.nsic.co.in

What is Technical Writing?

// // // //

Technical writing is sometimes defined as simplifying the complex.  Inherent in such a concise and deceptively simple definition is a whole range of skills and characteristics that address nearly every field of human endeavor at some level.  A significant subset of the broader field of technical communication, technical writing involves communicating complex information to those who need it to accomplish some task or goal.

Oxford Dictionaries Online (ODO) provides four definitions for the word technical, all of which relate to the profession of technical writing:

  1. of or relating to a particular subject, art, or craft, or its techniques
  2. of, involving, or concerned with applied and industrial sciences
  3. resulting from mechanical failure
  4. according to a strict application or interpretation of the law or rules

With these definitions in mind, it’s easy to see that technical writing has been around as long as there have been written languages.  Modern references to technical writing and technical communications as a profession begin around the time of World War I as technical developments in warfare, industry and telecommunications began to evolve more rapidly.  Although many people today think of technical writing as creating manuals for computers and software, the practice of technical writing takes place in any field or industry where complex ideas, concepts, processes or procedures need to be communicated.  In fact, the US Bureau of Labor Statistics defines technical writers as those who “…put technical information into easily understandable language. They work primarily in information-technology-related industries, coordinating the development and dissemination of technical content for a variety of users; however, a growing number of technical communicators are using technical content to resolve business communications problems in a diversifying number of industries.”

The Goal of Technical Writing

Good technical writing results in relevant, useful and accurate information geared to specifically targeted audiences in order to enable a set of actions on the part of the audience in pursuit of a defined goal.  The goal may be using a software application, operating industrial equipment, preventing accidents, safely consuming a packaged food, assessing a medical condition, complying with a law, coaching a sports team, or any of an infinite range of possible activities.  If the activity requires expertise or skill to perform, then technical writing is a necessary component.

Only a small proportion of technical writing is actually aimed at the general consumer audience. Businesses and organizations deliver vast amounts of technical writing to explain internal procedures, design and produce products, implement processes, sell products and services to other businesses, or define policies. The leading professional association representing technical writing, Society for Technical Communication, hosts a number of special interest groups for these different aspects of the profession.

Technical Writing Categories

Technical writing comprises the largest segment of technical communications.  Technical writers work together with editors, graphic designers and illustrators, document specialists, content managers, instructional designers, trainers, and analysts to produce an amazing variety of deliverables, including:

Contracts Online and embedded help Requirements specifications
Customer Service scripts Policy documents Simulations
Demonstrations Process flows Training course materials
Design documents Project documents User manuals
FAQs (Frequently Asked Questions) Product catalogs Warning labels
How-to videos Product packaging Web-based Training
Instructions Proposals Websites
Knowledge base articles Release notes White papers
Reference guides

Technical writing follows a development lifecycle that often parallels the product development lifecycle of an organization:

  1. Identification of needs, audience(s), and scope
  2. Planning
  3. Research & content development
  4. Testing / review and revision
  5. Delivery / production
  6. Evaluation and feedback
  7. Disposition (revision, archiving, or destruction)

Technical Writing and Integrated Technical Communications

Enormous changes have occurred in the field of technical writing in the last 20 years, particularly with how technical content is researched, and how it is produced and delivered.  As a result, more organizations are developing integrated technical communications to effectively manage the information that must be communicated. They also build a content management strategy that encompasses delivery of technical, marketing and promotion, internal and other communications messages between the organization and its customers, suppliers, investors and employees.

source : http://www.techwirl.com