Sunday, June 01, 2014

Words of wisdom from Stanley Kroll

A fellow trader kindly pointed me in the direction of the works of Stanley Kroll, who was a trader from the early 1960's. He passed away in 1999. He was a trend follower who preached simplicity, and was greatly influenced by two books I have quoted from in the past - namely Edwin Lefevre's Reminiscences of a Stock Operator (the biography of Jesse Livermore) and The Art of War by Sun Tzu.

Below are some words of wisdom from Kroll's book Dragon and Bulls: Profitable Investment Strategies for Trading Stocks and Commodities:

"While a consistent, viable strategy is part is clearly the main-stay of successful speculation, three additional traits are required: discipline, discipline and discipline."

"Your with-the-trend position could result in a big favourable move, so you should try and remain aboard for the ride. By premising that every with-the-trend move could result in the big move, you will be encouraged to resist the many temptations to trade for the minor swings, or to scalp against-the-trend trades."

"Maintain your position until you are stopped out, and your trend analysis indicates that the trend has reversed."

"We invariably find a convenient way to rationalize our miscalculations and poor trades."

"If you make money in your trading, stand up and accept the accolades and the financial rewards. But if you lose money, you alone should accept the responsibility."

"You must have confidence to trade in the market, because the most serious loss of all is the 'loss' of confidence in your ability to trade independently and successfully."

"One of the reasons underlying this preoccupation with the fear of losing is that the speculator often overtrades, both in terms of the size of the position as well as the turnover activity of the account. It is essential that the trader control and overcome these urges to overtrade or overposition."

On the early 1990's uptrend in the Hang Seng Index: "A large body of speculators had succumbed to a combination of undisciplined wishful thinking and a desire to be short in the market (they had liquidated long positions prematurely because prices were 'too high' so they would now prove their acumen by getting aboard the short side). The great quantity of 'red ink' that accompanies these short positions was additional evidence, as if traders needed such additional proof, that trying to pick off tops or bottoms, against a strongly entrenched bull market trend in invariably dangerous to one's financial health and well-being."

"The astute operator will ignore the plethora of rumours, pit gossip and what generally passes for market news. He will maintain his focus on the real technical factors underlying each market and on whatever disciplined strategy and risk control technique has worked best for him and for his particular style of investment or trading. He will not lose sight of the old Wall Street axiom:

'Those that that know don't tell; those that tell don't know.'"

"The trend in the market is a lot like the weather; it is what it is, and there's not much anyone can do to change it. Or, as Mark Twain once said, 'Everybody talks about the weather, but no one does anything about it.' So, if the weather looks like rain, you wear a raincoat or carry an umbrella, whether you like it or not. Similarly, if the trend of a market is down, you play it short, or aside; and if the trend is up, you play it long, or aside - because you can't change the basic trend direction of the market. You either go with the trend, or you suffer the probable losses in trying to buck the trend."
For those interested in trend following, I would highly recommend trying to find a copy of Kroll's work. The anecdotes included of his trading experiences and the recollection of a discussion with Market Wizard Larry Hite alone are worth reading.

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