Stock Market Wizards
Mark D Cook: Harvesting S&P Profits
Mark D Cook is passionate about trading, but his love for his market career still stands at third place after family and land. For him, farmland is the ultimate real asset. Hence, he is very enthusiastic about converting his trading profits into real assets.
His early attempts at trading were marked by repeated setbacks; however, he never gave up. Each failure only made him work harder. Finally, after many years of developing a strategy, business plan, and carefully tracking the stock market, his trading became consistently profitable. Discipline has helped him to realize triple-digit returns from the market unfailingly.
He used a method called Conjunction trade which required two simultaneous conditions to generate a buy signal. The conditions were stock ticks going below -400 and Dow Jones ticks going below -22. He adopted a strategy of selling calls and puts simultaneously (straddles) in high volatility stocks.
He also followed a method of Tick-buy. In this method, whenever the tick went to -1000, he would buy because the market will tend to bounce back.
He believes in increasing his activity rather than exposure. The first thing he does while losing is to reduce the position. He doesn't get out of that trade completely. This compels him to make money in his next trade. The idea behind this is to rebuild confidence.
He advises that hope should not be a part of a trader’s vocabulary (hoping for the trade to work in your favour). Instead, he should immediately reduce or exit his position.
He also never held his position for more than three days because he believes that holding a position for a longer period than this can diminish returns. Exception being when the cumulative market signals still validate the trade.
Common wisdom suggests looking for trades that offer several times more profit than risk. However, Cook's trading strategies involved making one dollar for every two dollars risked. This observation provides two important lessons: First, looking at the probability of winning is equally important as looking at the ratio of potential gain to risk.
He explains that a strategy can lose more on losing trades than it gains on winning trades but still can be a great approach if its probability of winning is high enough.
Conversely, a strategy that can make ten times on winning trades as it gives up on losing trades. Yet, it can lead to financial ruin if the probability of winning is very low.
He cites an example of continuous betting on number seven in roulette. On winning, it gives thirty-six times the bet but after playing long enough, you tend to lose all the money because the odds of success are only one in thirty-eight.
The second important factor in choosing a trading method that fits your personality.
His method of low return/risk ratio in exchange for a high probability of winning was appropriate for him. However, the same approach can prove to be uncomfortable and unprofitable to others.
He advises traders to stop trading or reduce trading activity if they are experiencing any kind of physical or emotional distress. This will help reduce the damage.
According to Cook, the key to success lies in commitment. Trading must be pursued as a full-time business and not as a part-time interest. One must be prepared for losses and think of it as tuition fees for learning in the school of trading. These are the cold facts that traders must accept.
He believes that gaining proficiency in trading or any other profession requires experience and experience comes with time.