The Education of a Speculator (Victor Niederhoffer, 1996)

• Major panics
• 1812 War with England
• 1837 President Jackson's failure to maintain US bank
• 1857 Failure of Ohio Life
• 1861 Outbreak of civil war
• 1869 Black Friday gold panic
• 1873 Failure of Jay Cooke & Co.
• 1884 Excessive speculating
• 1890 Barings & Co. Argentine bonds
• 1893 Agitation for change in gold/silver ratio
• 1901 Northern Pacific Corner
• Delphic (ancient Greek) financial model has not changed much as compare to modern finance.
• Bold lessons
• Ambiguity in the message sent on an order will work against you; be redundant in community it.
• Never be flip, especially when the forces are with you.
• Avoid stops, except when you can't meet a current or prospective margin call.
• Rules of speculation
• Trade with 5 times your required margin.
• Don't trade around funerals or after a fight with your spouse.
• The market will always be open. Wait for a good opportunity and then barrel in, subject to gamblers' ruin.
• Don't trade just for the sake of trading.
• Be careful when you trade the Japanese markets. Price-fixing deals there raise the commissions to a considerably higher proportion of the stake, unless you trade an inordinate size, in which case they will get you with the spread.
• Trouble comes in bundles, especially if your counterparts smell blood.
• Go for the jugular when you have a winning position.
• Let your broker make a decent profit on small trades. Accept some quotes for small amounts even when you know you don't have the edge. This will improve your liquidity and opaqueness for when you will need them.
• Always downplay your winnings and emphasize your losses.
• Who's going to pay for the yachts and 8-figure bonuses of the successful players?
• Consider reversing big up openings and buying small up openings.
• When the market goes up in the few minutes before an announcement, be careful about selling.
• When a market has its largest open of the last six months (for example, if the yen opens up 150), it is probably not a bluff and therefore should not be reversed.
• Don't share your trading strategies with your friends. Your broker doesn't have to know how smart you are.
• When you close your position out at a loss, do so with alacrity.
• Don't call your broker for quotes. it gives always your hand.
• Trade aggressively when you have an edge, even if it's small.
• If you are in a position that you would like to be out of, or that is moving against you, it is often to your advantage to double up. This trade might encourage others to come in with you and allow you to get out at a better price.
• Don't stay with a position unless you are willing to stay with it a little longer than expected, should an adverse move occur in the near term.
• Don't try to muscle the market before an economic announcement. People are already playing it close to the vest.
• When your position is going your way, don't get out while thinking you can get back in a better level. Your "cleverness" will often prevent you from taking the available profit.
• On those beautiful occasions when an unexpected bonanza comes your way, take your profits at the close.
• Don't waste energy emoting or spending time on other pursuits during the trading day.
• During periods of extreme volatility, or prior to a string of economic announcements, trade only if you have very strong reasons and can hold through an initial adverse move.
• Some trades work better in liquid markets. Others work better when only one market is open. For example, when bonds are open and stocks are closed, you don't have to worry about a crash scenario when bonds drop.
• During periods of calm, trade aggressively if you have a solid edge.
• Congratulate your unworthy competitors after a good month. Urge them to raise more capital. Send them a special gift commemorating their coup.
• When the explicit news announcements are negative for your positions, yet the position goes in your favour anyway, trade aggressively.
• If you have an edge in the markets, convince yourself that the outcome of a single trade doesn't matter. What does matter is trading according to your edge.
• Minimum depth in markets
• What is the effect of an announcement?
• What is the expected number? What is the anticipated reaction to "above" or "below" expectation? Has it been discount or leaked?
• Give yourself more than one way to profit from a trade. For example, get out if its up either the next 2 days or the next week.
• Let your counterparts think you're a fish, always losing, but with incredibly deep sources of capital. In that way, they'll be encouraged to reach to take your trades directly rather than making them up as the broker them to another player.
• Market properties
1. There is a general tendency for price reversal between trades.
2. Reversals are relatively more concentrated as integers where stable, slow-moving participants place their limit orders.
3. Fast-moving floor traders, knowing the locations of these limit orders, take positions at nearby prices, "pocketing the spread."
4. After 2 price changes in the same direction, the probability of a third change in the same direction as the second is greater than after 2 changes in opposite directions.
• Speculation mastery
• Study the market every day.
• Visit the exchanges. Be wary of rain and wind, and learn how to program in an assembly language.
• One position is enough.
• Don't boast or tell friends how great your system is or throw a few contracts in "just for fun."
• Keep a record of all your losing trades. Were you in over your head?
• Paper trade before you start. Save up adequate capital. When you trade, vary the size of the position based on your assessment of the distribution of return and risk.
• Calculators or computers should not be consulted during the trading day.Get to work by 7.10am, not 8.10am, just 10 minues before the markets open.
• How would Soros have traded that one lot?
• Take a break when you're losing.
• No high fives, crying, alibiing, or bemaning missed trades during the trading day.
• At least 4 books by Soros, and 3 about him are available.Stay away from badinage with those former models who cover you.
• Forget about the great prices you could have traded at. Should you enter, add, or exit right now?
• Everything is booked together.
• Pay attention of language, science, economices, literature, religion, and art.
• A man may fish with the worm that has eat of a king and eat of a fish that has fed of that worm (Hamlet).