Would you pass the marshmallow test?

In the early 1970's Stanford University conducted a series of psychological tests on young children. The results of these experiments helped shape how people thought about success, motivation and drive in individuals. Arguably the most famous of these experiments involved some marshmallows.

The markets have spoken

So, the markets have clearly spoken this week. New highs have been made in many of the major indices - some of which are at either all-time or multi-year highs. The trend is therefore upwards.

The reasons or catalysts are irrelevant. Price is giving you a very clear signal of which way the markets are going, and the direction in which you should be looking to trade.

Three of those and one of them is four

The title of this post is a famous quote from the US golfer Walter Hagen.  He was the undisputing king of matchplay golf in the 1920's, winning the USPGA Championship (which in those days was a matchplay event) five times. He would infuriate his opponents by zig-zagging his way from tee to green, before a miracle shot out of trouble, or a holed putt, would halve or win him the hole.

I often wonder if some traders think in the same way of trend followers. Historically, a win rate below 50% (and often below 40%) would be sufficient for a trend follower to make reasonable profits. We may lose on three trades, but then strike a winner on the fourth trade - may be even a big one. This must be frustrating for those traders who seek a very high win percentage.

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: