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How I Made $2,000,000 in the Stock Market by Nicholas Darvas

My Second Crisis

The half-million-dollar news gave tremendous confidence to the author. He had a very clear conception of how he had done it and was also convinced that he could repeat the feat. He had developed a sixth sense of working with the cables and had mastered the art.


The huge profit turned his confidence into overconfidence. He started operating from his broker’s office and stopped telling stop loss. He was not following his theory anymore and started listening to everyone except himself. As a result, within a few weeks, he lost $96,588. 


He noticed all sorts of distractions and realised his mistake. 


He went to Paris and gave special instructions to his broker to only communicate through usual telegrams. 


Initially, it was difficult for him to find his rhythm once again, but he finally did.


Takeaway- Arrogance is one of the most dangerous traits a trader can possess. It results in trading big at wrong and late entry points which results in losses. When a trader thinks he is more clever than the market action itself, he is setting himself up to take big losses. Everyone is always a student of the market, no one is ever its master.


Many traders underrate the psychological consequence of drastically increasing position size and trading with a much bigger account in a short period. To be successful in trading it is much better to start smaller and ease up in account size gradually over years. It is also beneficial for stress management to lower the percentage of capital at risk.


No one can ‘predict’ what will happen in the stock market because that would mean being able to read the minds of the millions of market participants, being able to see all breaking news before it happens and even knowing how the market will respond to that news. He would also be able to anticipate every political move before it was made.


What works is reading the price action and trading reality, buying at supports, selling at resistance, following trends, managing risk and staying modest and disciplined after big wins.


The market cannot beat a trader if he goes with the trend, manages risk and trades a strong system with confidence.


The weakest part of any trading method is the trader and his emotions. To improve trading one has to overcome emotions, strengthen self confidence and discipline in trading.


Greed causes traders to blindly look at price targets while ignoring the downside risk. This is the road to destruction. Risk management ALWAYS comes before thinking about profits. 


Following are the causes for being unable to read price action correctly:

  • Trading too big causes emotions to overtake. 
  • Looking at too many stocks.
  • Allowing greed to alter the way one looks at charts.
  • Letting people’s opinions influence you.

It is important to have definite rules for price action which stop from drifting away from the actual happenings. Traders should stay sharp and neutral to outcomes.

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Units 10/12