Learning from the Legends

As a trader, over the years I have made numerous mistakes. I did try every possible strategy listed out there. Be it using CCI or coding the Sir Donchian previous highs breakouts to Connors’ strategy of placing the trades to the most common method of using RSI-MACD combination.

One key thing missing was - disrespect to the price and volume - the only two primary sources of information. Took on the journey of reading a lot. In fact, the primary motivating factor for me to jump in the market was my love for reading & as soon as I figured out that this is the place where you get paid for your knowledge, there was no looking back.

I picked up hundreds of books and many have covered within 2-3 days also waking up the whole night. Here are the important key learnings from the life-changing works for me:

• Trend identification: from the classical work by Sir A.C. Nelson in “The ABC of Stock Speculation”. Not many know that Sir Charles Dow never used the term Dow theory that we use every day. In fact, his friend, Sir Nelson coined the term in his work.

• Building on the concept of Dow Theory, many years later, Sir Stan Weinstein formulated his work on stage analysis in his work “Secrets for profiting in bull and bear markets”. In the book, State 2 is the same application of 1902’s dow theory in the 1980s in the form of Stage 2 uptrend.

• Pivot Points: they are the least risk entry zones where the risk to reward ratio is the maximum and you make either your maximum gains or you get stopped out too quickly. I learn this concept from the work of Sir Jessie Livermore. The same concept was named “asymmetric leverage” many decades later by Sir Larry Hite in his work “The Rule: How I Beat the Odds in the Markets and in the Life”

• Sir Richard Schabacker explained to me the science of chart patterns in detail in his work “Technical Analysis and Stock Market Profits” in 1932 which shaped up my understanding of consolidation periods and gauging the direction of the stocks

• One name that stands out amongst the all is Sir Richard Demille Wyckoff who taught me there are no bulls and bears in the markets but only smart hands and poor uninformed retailers through his work “Tape Reading”.

Till here I got the basics of trend, pivot points for entries, and understood how smart hands play in the market, and retailer is fooled to believe the “bulls and bears” theory.

• I was introduced to Sir H.M. Gartleys’ first research paper on relative strength written in 1945 that was an Aha movement for me as it opened up the route for much stronger stock selection as the stocks that were beating the benchmark stayed stronger for upcoming many months. I researched further to have a look at more such papers and came across many written by Sir Robert A. Levy (1967), Professor Naraseemhan Jegadeeshan & Sir Sheridan Titman (1993), and the one written by Sir Mebane T. Faber (2010).

• After going through all of them a book was written by Sir Richard S. Love “Superperformance Stocks” - I remember I woke up continuously for many nights to check for the past performance of winners in the Indian market and what made them different from the rest of the pack.

• To understand the fundamental aspect - I read many books by Sir Peter Lynch (One up on wall street), Sir Anil Lamba (Romancing the Balance Sheet), Sir Benjamin Graham (The Intelligent Investor & Security Analysis), Sir Saurabh Mukherjee (all of them written by him), and many more

• To combine both fundamentals and technicals in a combined strategy - Sir Nicolas Darvas’s work “How I made 2,000,000 dollars in the stock market” came to the fore.

I understood by now that stocks in an uptrend with a higher relative strength along with fundamental backing will make the maximum money for me.

But the missing piece was risk management, position-sizing, and probabilities of winning that needed to be brought in my favor.

• the game-changing work in this space was by Sir Mark Minervini who taught one basic statement “Losses work geometrically against you” and by Sir Perry J. Kauffman “Risk and reward are not proportional to each other”.

• Sir Mark Minervini in his evergreen classical work cemented everything and used the RS concept by Sir Richard S. Love, Stage analysis by Sir Stan Weinstein and Pivot points concept by Sir Jessie Livermore along with chart patterns by Sir William Jiler.

• Another work combing everything was by Sir William J O’ Neil in “How to make money in Stocks”

Besides the above-mentioned classical works by the legends and hundreds of more, my own study of individual charts in the Indian market helped shape my understanding of the market. On top of that, my own CMT curriculum taught me to stick to what is the most authentic source of information and to discard everything that has not been tested or is market lore.

The only advice to a struggling person probably reading this is from any field is

“Have a belief in yourself. Luck favors the skilled. Bring the maximum probabilities in your favor by reading more and more. Identify your passion, be it in any field, and follow it. Almighty will make a way for you. There is nothing better than you making your passion your profession. That is the ultimate bliss”

Thanks for reading this and taking out your time.