Great Notes taken by @ZLucido - Nicholas Darvas: How I Made $2,000,000 in the Stock Market
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Nicholas Darvas: How I Made $2,000,000 in the Stock Market
• Be cautious with brokers’ advice.Nicholas Darvas: How I Made $2,000,000 in the Stock Market
• Ignore Wall St sayings, no matter how ancient and revered
• Avoid over the counter, only buy in listed stocks where there is always a buyer when I want to sell
• Avoid rumors, no matter how well-founded they may appear
• Buy only in strongest industry groups & the best within those groups.
• There is no sure thing in the market, i was bound to be wrong half the time
• I must accept this fact and readjust accordingly, pride and ego subdued
• Become an impartial diagnostician
• Cannot merely take chance. first i must reduce my risks as far as humanly possible.
• Automatic stop loss = quick loss weapon
• I knew many times i would be stopped out for the sake of a pt just to see my stock climb up immediately after but i realized that the was not so important as stopping the big losses.
• Besides i could always buy back the stock by paying a higher price.
• My profits had to be bigger than my losses
• Most difficult problem was to discipline myself a rising stock too quickly.
• Hold on to a rising stock but at the same time keep raising my stop loss parallel with its rise.
• Keep it at a distance that a meaningless swing in price would not touch it off.
• If the stock really turned around and began to drop i would be sold out immediately.
• I would not be able to sell at the top
• Producer would be a fool to close the show when the theater is full every night
• It is only when he starts to notice empty seats that he considers closing the show
• I would be a fool to sell a stock as long as it keeps advancing
• Sell when the boxes start to go in reverse, when the pyramids started to tumble downwards, my trailing stock should take care of this.
• Objectives in the mkt: right stock, right time, small loss, big profit
• Weapons in the market: price and volume, box theory/tech analysis/patterns, automatic buy order, automatic stop loss and trailing stop
• As the trend continued i would buy more, as the trend reversed i would run like a thief.
• I knew i had to adopt a col, unemotional attitude toward stocks, that i must not fall in love with them when they rose and i must not get angry when they fell
• There are no such animals as good or bad stocks, there are only rising and falling stocks and i should hold the rising ones and sell those that fall.
• I had to bring my emotions, fear, greed and hope under complete control.
• I had no doubt that this would require a great amount of self-discipline, but i felt like a man who knew a room could be lit up and was fumbling for the switches.
• I only handled 5-8 stocks at a time, i automatically separated them from the confusing, jungle-like movement of the hundreds of stocks which surrounded them.
• I was influenced by nothing but the price of my stocks.
• I could not hear what people said, but i could see what they did. it was like a poker game in which i could not hear the betting, but i could see all the cards.
• Poker plays will constantly try to mislead me with their words but if i did not listen to their words, and constantly watched their cards, i could guess what they were doing
• Disregarding the influence of the general mkt is no better than trying to direct a battle by only looking at one section of the battle field
• I could not apply mechanical standards to the relationship between the average and individual stocks
• Judging this relationship was more like an art, in some ways it was like painting
• In the same way i found that the relationship between the average and my individual stocks were confined within certain principles, but they could not be measured exactly
• Watched the averages only to determine whether i was in a strong or a weak market because general mkt cycle influences almost every stock.
• They became like x rays for me. to the uninitiated x rays are meaningless. to physician it obtains all he needs.
• I could absorb the page at a glance and draw rapid conclusions from it, instead of painfully putting the letters together like a child
• Whenever i bought i wrote down my reason for doing so. i did the same when i sold it.
• When it ended in a loss i wrote the reason i thought caused it. then i tried not to repeat the same mistake.
• Started to see stocks have characters just like people. this is not so illogical, because they faithfully reflect the character of the people who buy and sell them
• Like human beings, stocks behave differently. some are calm, slow conservative, others are jumpy, nervous, tense.
• Some easy to predict, consistent in their moves, logical in their behavior. they were dependable like friends.
• I slowly came to see that i was becoming a diagnostician i could not be a prophet.
• When i found a stock strong all i can say is it is healthy now, today at this hour. i could not guarantee it would not catch a cold tomorrow.
• My educated guesses, no matter how cautious, many times turned out to be wrong.
• Did not upset me anymore. who was i to say what a stock should or should not do anyway?
• My mistakes did not make me unhappy
• If i was right so much better. if i was wrong i was sold out.
• This happened automatically, separate from me
• I was no longer proud when a stock went up, nor did i feel wounded if it fell
• I knew now that the word value cannot be used in relation to stocks. the value of the stock is the quoted price. this is in turn entirely dependent on supply and demand
• No such thing as a $50 stock. if it trades to $49 it was now a $49 stock.
• I succeeded in disassociating myself emotionally from every stock i held.
• I decided i would trade in the market by doing the right thing first, follow what a stocks behavior commands and care about taxes later
• In the same way i realized it was impossible for me to assess great historical turning points in the market when they began to happen. Whats fascinated me as wall st prices continued to fall was the gradual
• Realization that my system of ducking out quickly with my automatic trailing stop losses made such an assessment unnecessary
• I had simply gotten out on the basis of the behavior of my stocks.
• Buy and hold or put them away investors who consider themselves conservative investors , i now regarded as pure gamblers. a non gambler use get out when his stocks fall.
• I could remember how i almost felt myself willing and pushing that stock upwards. it was a very human feeling, but it had no effect upon the mkt an more than spectators have on a horse race
• I tried to detect those stocks that resisted the decline. reasoned that if they could swim against the stream, they were the ones that would advance most rapidly when the current changed.
• Majority were companies whose earnings trends pointed sharply upwards
• Capital was flowing into these stocks even in a bad market. the capital was following earnings improvements as a dog follows a scent.
• Stocks are slaves of earning power, i would select stocks based on their technical action and then only buy them when i could give improving eps power as my fundamental reason for doing so.
• Looked for stocks tied up with the future and where i could expect that revolutionary products would sharply increase earnings.
• All a balance sheet can tell you is the past and present. they cannot tell you the future
• Enter high territory trading: stocks on launchpad to make new highs, more expensive then ever before and would look too dear to the uninitiated.
• But they could become dearer. i made up my mind to buy high and sell higher
• Expensive-but-cheap high velocity stocks. closely observed their price action, i was on the alert for any unusual activity as well. i had not forgotten the importance of volume
• Bear mkts always followed by bull mkts. i felt calm and confident waiting for the mkt tide to turn.
• I did suspect that leaders in previous mkt would not lead again. they had fulfilled their place in history.
• I had to find new ones. they war sonly sleeping the promising sleep of the unborn. one day soon they were destined to wake up.
• Steady rise in price and the high volume indicated to me that there was tremendous interest.
• Although i felt secure win my judgement w/ merged technical and fundamental viewpoints i did not for one moment con side abandoning my chief defensive weapon the stop loss order
• No matter how well built your house is, you would not think of forgetting to insure it against fire.
• The truth was that as my pockets had strengthened, my head had weakened. i became overconfident and that is the most dangerous state of mind anyone can develop in the stock market.
• Now i know that it was caused by egotism leading to vanity leading to over confidence which in turn led to disaster. it was not the mkt that beat me but my own unreasoning instincts and uncontrolled emotions
• My ears were my enemy, i had operated simply on my daily telegram which gave me perspective. it showed me the way my stocks were behaving. there were no other influences.
• In this way everything happens in wall st while i am in bed. i am sleeping while they are working and they cannot reach nor worry me. my delegate, the stop loss order represents me in case something unforeseen happens
• I settle down to work when wall st sleeps.
• Let a stocks strength in the market be your guide
• It began to be a strange life, i sat in th plaza every evening reading my telegram and filing it. there was nothing further i could do. i felt elated and restless, but powerless.
• I did not have any reason to sell a rising stock. i would continue to jog along with the trend, trailing my stop loss behind me.
• As the trend increased, i would buy more. if the trend reversed? i would, as ever, flee like a disturbed burglar.
Some Charts of Interest $MELI $SPG $V $LTD $FFIV $XOM $CAT $ULTA $HANS ETC..
MELI completing it's measured move out of this descending channel and clearing highs. Held it's 91-92.00 area it broke through yesterday.
SPG creating a small flag between 121 and 125.00. Keeping an eye on it.
Solid bounce today in V on average volume. Sitting right at previous all time highs.
LTD breaking out on huge volume today
FFIV remaining strong. Bounced today off this descending trend line that was previously resistance now acting as support. Still keeping an eye on the weekly as the measured move is back at highs near the 145 area.
XOM tryingto dcide if it wants to break out here or now. Volume came in as it cleared its 200d. Watching the action here and keeping a close eye on it.
SAFM
VMW
CAT holding 10/21d today. Could see an explosive move out of this 87-98.00 range
ULTA - Watching for a move thru 75.75.00
HANS
EOG - Along with APA, APC, SM
Reasons Why Most Active Traders Fail
Just posted on Twitter via @SunriseTrader. Great video on the use of trading plans by successful traders.
Don't Get it Twisted...
Earlier tonight, I read a tweet by Mr. @GSElevator that said, "Don't confuse friends, work friends and friends of convenience." It struck a cord and so I thought I would waste some of your time with my ramblings on why I agree with that statement.
I started valet parking when I was nineteen because I was in college and during my first semester at school I blew my entire savings account partying and gambling. How that happened, I'll save for another time. Either way, I got a job valet parking for a medium size valet company in the Twin Cities. I worked seven nights a week for almost nine months straight to get my shit back in order, as I did have a truck, insurance, parking, cell phone among some other bills.
Along came summer, and the valet company was accepting applications for an internship. I submitted an applications. I had to choose to intern and continue valet parking or go back to construction working while school was out. I was going to a business school, economics degree, so I thought the better decision was to intern, after all these bullshit internships are what many deemed important and crucial as it added to your resume and helped in finding a 9 to 5 desk job after college.
Well I got it and so it started. I interned all summer and as the summer wore on, more and more responsibility piled on. I was fine with it. As a result, some office employees were let go and again my responsibilities grew even more. I had initiative and worked hard. While, my pay never increased that summer, I did make the schedule for 100+ valets...making my schedule was great.
Fast forward about a year and there was five people in the office. Our two owners who knew nothing about the business or how valet really worked, our VP of Sales and Marketing, Myself who became the General Manager and our payroll manager. Before we hired our payroll manager, I did that as well. My responsibilities had no end. I pretty much did everything. I had over 200 Valet Supervisors and Valets that reported to me. I had restaurant, hotel, night club, Health Care facilities, and private event managers that had my cell and called me when something wasn't going right.
Again the pay sucked ass, but I didn't care. I made the schedule and worked where I wanted when I wanted. Trust me when I say, it made up for the lousy salary.
For a long time I looked at one of our owners as a mentor. We talked all the time. He taught me a lot. At one point, I think I would've considered him a friend and thought about working with him on other business ventures. In hindsight, I am glad I didn't.
I hired a kid to work as a valet that eventually scheduled a meeting with our owner to talk about business...owning one, running one, etc. He was hired as an intern for our owner's other business. Some lame bull shit printing company. This kid helped with both our valet company and the printing business. We got a long, mainly because he did what I told him to and he was never late.
I don't know where or when it happened, but the kid thought he deserved my job and became a snake. I have no idea what he told our owner and if any of it was true or not. All I know is that our owner believed it. This kid had it out for me and everyone that I had hired. Still to this day, not sure why. I personally think, they thought I was stealing. In what way, I don't know. Because I didn't I knew how how to hustle and make money. I didn't need to steal. but whatever, I will never get an answer.
The last year that I was with the company I did a lot of butting heads with our owner. I didn't like the way he treated our employees and the way he ran a business. It was shady to say the least.
After five years of running the company, tripling it in size, working eighty hour weeks it was decided that I needed to go. For a long time my delusional thinking told me that I was irreplaceable. No one could do as good of a job handling everything I handled and as a result operations running smooth and seamless. What was the reason? I still don't know. The answer I was given was that I was late twice with a weekly review letter and I didn't respond to one phone call. I thought my relationship was stronger and there was more respect for one another. Letting and believe a chirping bird, it's all water under the bridge. Trusting someone, especially an employer or someone trying to clime the hierarchical latter is suicide. Don't get it twisted, Do not confuse friends with work friends and or friends of convenience.
Unfortunately for me, I had signed a one year non compete. I thought for a second if I really wanted to, I could get all 200 valets to quit, strike or what ever. Again delusional thinking. They were all work friends. They loved me as a leader because of how I ran things, I in a sense controlled their schedule/income. I highly doubt they would've had the faith in me to start and retain clients in a short time frame. They had no choice but to keep quiet and do their jobs in fear that they may lose it if this new G.M. found out he/she was "friend" of mine.
I packed my truck with my computer and a small amount of clothes, and off to AZ I went to trade on a prop desk.
I don't really feel like getting into a long a long analogy of how or why this relates to trading other than this. No one will ever care about you or your trading account the way you do. You think if you whine enough after blindly following someone into a losing trade they will give you the money you lost? I doubt it.
What is a friend? It is a person attached to another by feelings of affection or personal regard. I consider a close friend one that I would lend money, and not worry about getting paid back. I can say that I have three. How many do you have? Having 500 Facebook friends or 10,00 twitter followers doesn't man jack shit. In my opinion in this life there are winners and losers as in trading. You have the power and ability to chose which to be. No one else cares.
I started valet parking when I was nineteen because I was in college and during my first semester at school I blew my entire savings account partying and gambling. How that happened, I'll save for another time. Either way, I got a job valet parking for a medium size valet company in the Twin Cities. I worked seven nights a week for almost nine months straight to get my shit back in order, as I did have a truck, insurance, parking, cell phone among some other bills.
Along came summer, and the valet company was accepting applications for an internship. I submitted an applications. I had to choose to intern and continue valet parking or go back to construction working while school was out. I was going to a business school, economics degree, so I thought the better decision was to intern, after all these bullshit internships are what many deemed important and crucial as it added to your resume and helped in finding a 9 to 5 desk job after college.
Well I got it and so it started. I interned all summer and as the summer wore on, more and more responsibility piled on. I was fine with it. As a result, some office employees were let go and again my responsibilities grew even more. I had initiative and worked hard. While, my pay never increased that summer, I did make the schedule for 100+ valets...making my schedule was great.
Fast forward about a year and there was five people in the office. Our two owners who knew nothing about the business or how valet really worked, our VP of Sales and Marketing, Myself who became the General Manager and our payroll manager. Before we hired our payroll manager, I did that as well. My responsibilities had no end. I pretty much did everything. I had over 200 Valet Supervisors and Valets that reported to me. I had restaurant, hotel, night club, Health Care facilities, and private event managers that had my cell and called me when something wasn't going right.
Again the pay sucked ass, but I didn't care. I made the schedule and worked where I wanted when I wanted. Trust me when I say, it made up for the lousy salary.
For a long time I looked at one of our owners as a mentor. We talked all the time. He taught me a lot. At one point, I think I would've considered him a friend and thought about working with him on other business ventures. In hindsight, I am glad I didn't.
I hired a kid to work as a valet that eventually scheduled a meeting with our owner to talk about business...owning one, running one, etc. He was hired as an intern for our owner's other business. Some lame bull shit printing company. This kid helped with both our valet company and the printing business. We got a long, mainly because he did what I told him to and he was never late.
I don't know where or when it happened, but the kid thought he deserved my job and became a snake. I have no idea what he told our owner and if any of it was true or not. All I know is that our owner believed it. This kid had it out for me and everyone that I had hired. Still to this day, not sure why. I personally think, they thought I was stealing. In what way, I don't know. Because I didn't I knew how how to hustle and make money. I didn't need to steal. but whatever, I will never get an answer.
The last year that I was with the company I did a lot of butting heads with our owner. I didn't like the way he treated our employees and the way he ran a business. It was shady to say the least.
After five years of running the company, tripling it in size, working eighty hour weeks it was decided that I needed to go. For a long time my delusional thinking told me that I was irreplaceable. No one could do as good of a job handling everything I handled and as a result operations running smooth and seamless. What was the reason? I still don't know. The answer I was given was that I was late twice with a weekly review letter and I didn't respond to one phone call. I thought my relationship was stronger and there was more respect for one another. Letting and believe a chirping bird, it's all water under the bridge. Trusting someone, especially an employer or someone trying to clime the hierarchical latter is suicide. Don't get it twisted, Do not confuse friends with work friends and or friends of convenience.
Unfortunately for me, I had signed a one year non compete. I thought for a second if I really wanted to, I could get all 200 valets to quit, strike or what ever. Again delusional thinking. They were all work friends. They loved me as a leader because of how I ran things, I in a sense controlled their schedule/income. I highly doubt they would've had the faith in me to start and retain clients in a short time frame. They had no choice but to keep quiet and do their jobs in fear that they may lose it if this new G.M. found out he/she was "friend" of mine.
I packed my truck with my computer and a small amount of clothes, and off to AZ I went to trade on a prop desk.
I don't really feel like getting into a long a long analogy of how or why this relates to trading other than this. No one will ever care about you or your trading account the way you do. You think if you whine enough after blindly following someone into a losing trade they will give you the money you lost? I doubt it.
What is a friend? It is a person attached to another by feelings of affection or personal regard. I consider a close friend one that I would lend money, and not worry about getting paid back. I can say that I have three. How many do you have? Having 500 Facebook friends or 10,00 twitter followers doesn't man jack shit. In my opinion in this life there are winners and losers as in trading. You have the power and ability to chose which to be. No one else cares.
