Learning to manage the money

[Matt Bowen]

Some things never change...Here is an old Interview with Tom Basso who worked with two groups of traders to determine the differences between Professionals and Novice (New) traders.

I'm sending this over for a couple reasons:

1.) Most professional traders do not report a risk reward multiple above 3.00 over an extended period of time (12 months +) on an entire portfolio. (Please see figure #1)

2.) In the article it proves that novice traders GAMBLE and TAKE UNNECESSARY RISK (please see figure #2)

3.) Given the opportunity, most novice will lose their entire trading account without having any regard to risk control. Notice how many novice traders were fired from the test.

Read the attached article...

http://users.adelphia.net/~spoonaz/Basso.pdf

Tom Basso is retired from Trendstat Capital management firm and now lives in Scottsdale Arizona.

[Matt Bowen]

A great e-mail from Van Tharp's e-mail list...

Market Update for March 31, 2005

1-2-3 Model Still in Red Light Mode

By
Van K. Tharp

Part I: Market Commentary.

Last month I was talking about how some of the market sectors were on fire – Oil, Homebuilding, and Steel, in particular. But shortly after I said that the market promptly turned around. And all of those sectors topped out. Overall the market closed down three or four of the last five weeks, depending upon which index you measure. And all three major indexes fell during the first quarter. The Dow and S&P500 were down 2.6% for the quarter, while the NASDAQ finished down 8.9%. However, during the entire quarter the DOW and S&P 500 only had one week in which the change was more than 2%. Remember that the average change used to be 2.5% per week. The NASDAQ only had two weeks in which it changed by more than 3% — and that used to be a weekly occurrence.

The 1-2-3 Stock Market Model IS IN RED LIGHT MODE. BE CAREFUL.

But before you make specific decisions on where to put your money, let’s take a look at what the market is doing. Right now it is definitely going down.

Currently, all three major averages are 1) down for the year and 2) down for the last five weeks. However, two of the three averages were up for the week ending April 1st and all of them only made minor changes, so we don’t get a bear market trading signal. However, I don’t like this market at all. It’s just being a very subtle bear, making it hard for anyone to take much money out of the market. It’s probably nibbling most of you to financial ruin – but just a few percent each month. However, we could expect some real fireworks once the pension fund money stops moving into the market.

The table below shows the five week status of each of the major markets.
(see picture at the bottom of message)

Incidentally, this data is calculated by hand, based upon last Friday’s close (i.e., April 1st). There is always a possibility of human error in our numbers.

What’s a good strategy for the month? For many of you, it might be best to stay on the sideline until this market tips its hand a little more. There are very few strategies that are working well right now in the sort of market – a low-volatility, down to sideways market.