1. The only leading indicator that matters

Watch the market leaders, the stocks that have led the charge upward in a bull market. That is where the action is and where the money is to be made. As the leaders go, so goes the entire market. If you cannot make money in the leaders, you are not going to make money in the stock market. Watching the leaders keeps your universe of stocks limited, focused, and more easily controlled.

2. Patterns repeat, because human nature hasn’t changed for thousand of years

There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly build into human nature, that always gets in the way of human intelligence. Of this I am sure.

All through time, people have basically acted the same way in the market as a result of greed, fear, ignorance, and hope. This is why the numerical formations and patterns recur on a constant basis.

I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humans — and human nature never changes.

3. The obvious rarely happens, the unexpected constantly occurs

The market will often go contrary to what speculators have predicted. At these times, successful speculators must abandon their predictions and follow the action of the market. Prudent speculators never argue with the tape. Markets are never wrong, but opinions often are.

Remember, the market is designed to fool most of the people most of the time.

4. On the importance of sitting tight and being patient with your winners

They say you never go broke taking profits. No, you don’t. But neither do you grow rich taking a four-point profit in a bull market.

I did precisely the wrong thing. The cotton showed me a loss and I kept it. The wheat showed me a profit and I sold it out. Of all the speculative blunders there are few greater than trying to average a losing game. Always sell what shows you a loss and keep what shows you a profit.

The market does not beat them. They beat themselves, because though they have brains they cannot sit tight. Old Turkey was dead right in doing and saying what he did. He had not only the courage of his convictions but also the intelligence and patience to sit tight.

After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting.

5. You don’t have to be active every day

First, do not be invested in the market all the time. There are many times when I have been completely in cash, especially when I was unsure of the direction of the market and waiting for a confirmation of the next move….Second, it is the change in the major trend that hurts most speculators.

Always remember; you can win a horse race, but you can’t beat the races. You can win on a stock, but you cannot beat Wall Street all the time. Nobody can.

There is the plain fool, who does the wrong thing at all times everywhere, but there is also the Wall Street fool, who thinks he must trade all the time. No man can have adequate reasons for buying or selling stocks daily– or sufficient knowledge to make his play an intelligent play.

Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes.

6. It is what people actually did in the stock market that counted – not what they said they were going to do.

7. Successful trading is always an emotional battle for the speculator, not an intelligent battle.

8. I believe that the public wants to be led, to be instructed, to be told what to do. They want reassurance. They will always move en masse, a mob, a herd, a group, because people want the safety of human company. They are afraid to stand alone because they want to be safely included within the herd, not to be the lone calf standing on the desolate, dangerous, wolf-patrolled prairie of contrary opinion.

9. If you don’t have a plan, you will become part of someone else’s plan

I believe that having the discipline to follow your rules is essential. Without specific, clear, and tested rules, speculators do not have any real chance of success. Why? Because speculators without a plan are like a general without a strategy, and therefore without an actionable battle plan. Speculators without a single clear plan can only act and react, act and react, to the slings and arrows of stock market misfortune, until they are defeated.

10. If you can’t sleep at night because of your stock market position, then you have gone too far. If this is the case, then sell your position down to the sleeping level.

11. Remember that stocks are never too high for you to begin buying or too low to begin selling.

12. When I am long of stocks it is because my reading of conditions has made me bullish. But you find many people, reputed to be intelligent, who are bullish because they have stocks. I do not allow my possessions – or my prepossessions either – to do any thinking for me. That is why I repeat that I never argue with the tape.

13. Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocket book and to the soul.

14. I trade on my own information and follow my own methods.

15. But if after a long steady rise a stock turns and gradually begins to go down, with only occasionally small rallies, it is obvious that the line of least resistance has changed from upward to downward. Such being the case why should anyone ask for explanations? There are probably very good reasons why it should go down.

16. About scaling in and scaling out

When I’m bearish and I sell a stock, each sale must be at a lower level than the previous sale. When I am buying, the reverse is true. I must buy on a rising scale. I don’t buy long stocks on a scale down, I buy on a scale up.

17. It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind.

18. A man must know himself thoroughly if he is going to make a good job out of trading in the speculative markets

19. When the market goes against you, you hope that every day will be the last day – and you lose more than you should had you not listened to hope. And when the market goes your way, you become fearful that the next day will take away your profit and you get out – too soon. The successful trader has to fight these two deep-seated instincts.

20. The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get rich-quick adventurer. They will die poor.

21. Don’t take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don’t be an impatient trader.

22. It is foolhardy to make a second trade, if your first trade shows you a loss. Never average losses. Let this thought be written indelibly upon your mind.

23. Successful traders always follow the line of least resistance. Follow the trend. The trend is your friend.

24. When you make a trade, “you should have a clear target where to sell if the market moves against you. And you must obey your rules! Never sustain a loss of more than 10% of your capital. Losses are twice as expensive to make up. I always established a stop before making a trade.

25. To Sum Things Up

Don’t worry about catching tops or bottoms, that’s fools play. Keep the number of stocks you own to a controllable number. It’s hard to herd cats, and it’s hard to track a lot of securities. Take your losses quickly and don’t brood about them. Try to learn from them but mistakes are as inevitable as death. And only make a big move, a real big plunge, when a majority of factors are in your favor….every once in a while you must go to cash, take a break, take a vacation. Don’t try to play the market all the time. It can’t be done, too tough on the emotions.

Source : http://socialleverage50.com/2013/09/15/25-market-insights-from-jesse-livermore/

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Some of the brightest minds in finance are sounding the alarm about a stock market bubble.

They aren’t warning of an imminent crash, but their comments should remind investors that the current bull market — over five years long — can’t last forever.

1. Nobel Prize-winning economist Robert Shiller: Valuations at “worrisome” levels.

“The United States stock market looks very expensive right now,” Robert Shiller wrote in arecent column for The New York Times.

Shiller, a Yale University professor who is often cited as one of the most influential people in economics and finance in the world, created a metric that compares stock prices with corporate profits. The metric recently climbed above 25. That level has only been surpassed three times since 1881: 1929, 1999 and 2007.

Steep market tumbles followed each instance, including the bursting of the dotcom bubble in the early 2000s. The Nasdaq still hasn’t fully recovered from that meltdown.

The Yale professor sounds bewildered by the lofty valuations for the stock market, which has nearly tripled since the March 2009 bear market lows.

Related: Get ready for lousy stock returns

But none of this means it’s time to sell everything. Shiller notes that his gauge is a “very imprecise timing indicator” and said the market could “remain at these valuations for years.”

2. Hedge fund king Carl Icahn believes there’s a bubble.

“We can no longer simply depend on the Federal Reserve to keep filling the bunch bowl,” the hedge fund billionaire wrote on Tumblr last week, referring to the numerous measures the Fed has taken to stimulate the U.S. economy.

Icahn described a “dangerous financial situation” that includes challenges tied to monetary policy, unemployment and income inequality.

He also said recent comments from Fed chief Janet Yellen at the International Monetary Fund “suggest, and I agree, that we are in an asset bubble.”

Related: Beware of social media, biotech stocks

Still, Icahn isn’t calling for an imminent crash by any means. He acknowledged a bubble might not burst for “the next one, five, ten or 20 years.”

It’s also important to recall that Icahn currently owns billions of dollars worth of stocks. During the second quarter he even raised his stake in eBay (EBAY, Tech30) and added a new investment in Gannett (GCI). He still thinks there’s value out there.

3. Ex-Treasury secretary Robert Rubin: Low rates could spark another financial crisis.

“The risk of excesses and the consequent instability have increased substantially,” Rubin and Harvard professor Martin Feldstein wrote in an Op-Ed in The Wall Street Journal last week.

These financial luminaries (Feldstein served as chief economic adviser to President Ronald Reagan) didn’t explicitly say whether a bubble already exists or if the Fed needs to hike rates now to prevent one.

However, they did advise the central bank to consider the possibility that the “excesses” caused by extremely low interest rates could “create financial crises.”

Rubin and Feldstein pointed to record high stock prices, “dramatically” lower spreads on low-quality junk bonds and surging volumes of high-risk leveraged loans as alarming signs.

Related: Is it time for Wall Street to issue a correction?

If hedge funds are holding assets that suddenly pop in a bubble, there’s a risk of “contagion and snowballing effect” when they all hit the exits at the same time, the duo wrote.

Rubin should know about this threat. He was in charge of Treasury in 1998 when collapsing hedge fund Long-Term Capital Management imperiled the whole system. Ultimately Wall Street was forced to come to the rescue with a $3.6 billion industry-funded bailout.

http://money.cnn.com/2014/08/19/investing/market-bubble-warnings/index.html

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