The biggest impression Shapiro gave me was:
No matter what the news tells you, you must stick to the direction of the market. If the market goes up, I will go long, and if the market goes down, I will go short.
When making a counter-trend reversal order, we will be greatly affected by expectations. Adhering to the belief that "history will repeat itself", we will have countless choices for the target position. However, 90% of the reversals will fail. There is only one truly perfect target position. Greed will make us miss the perfect profit stop position, and premature closing will make us anxious about "selling at a loss". Once our expectation is "maximizing profits" rather than "maximizing the profit and loss ratio", our transaction is destined to be affected by emotions. For the correct trading system, this situation is a completely contrary to the wrong approach!
The following are some selected contents:
Shapiro quoted a line from Reminiscences of a Stock Operator by Edwin Lefevre, a book generally recognized as the protagonist of Jesse Livermore himself: "After many years on Wall Street, millions of dollars in gains and losses, I will tell you this: 'It was not my ideas that made me rich. It was my sitting and waiting. Do you understand? I waited.'"
On the news and the feeling of missing out
Q: So, you do realize the importance of the market, which first plunged on the bad news and then rebounded to close at a high.
Yes, I realized that, but I was always shorting and I fell into a psychological trap of thinking, "What? After being short for so long and losing so much money, am I going long now?" When this happened, I developed a fear of missing out on the short-term trend. I don't think like that now, but I see others falling into the same trap all the time.
On Going with the Flow
Don’t hold any opinions. There is an old saying in Hong Kong, China: “If it should go up but it goes down, then go short; if it should go down but it goes up, then go long.” This trading philosophy is the basis of what I do: when the media tells you some news, don’t go against the news, but go with the flow.
Most of the time, the COT signals will be consistent with what is on the news. If everyone is saying you have to buy gold and the COT shows everyone is long, it is no accident. However, I don't make these trades on a whim. These people may be talking about something, but I still wait for the market to confirm it before I make a move. If they are very bearish and the Dow Jones Industrial Average falls 1,000 points and closes low, I will not buy it. However, if they are very bearish and there is some very negative news that day, but the market closes higher, I will go long. I have learned my lesson; don't fight the media. Be patient and the market will tell you when to enter the market.
On the Importance of Patience
One of Shapiro’s most profitable periods in his early trading career was when he went on a three-week vacation to Africa, which prevented him from monitoring his market positions. Before leaving for Africa, he gave his broker instructions to close his positions if prices moved against him. When Shapiro returned, he was pleasantly surprised to find that his positions had accumulated a large amount of profit during his absence. Not being able to monitor his positions every day helped him avoid the temptation to take profits. He realized that patiently holding positions would be more profitable than his frequent daily trading. This experience proved to be effective in the long run and was validated in the trading method Shapiro later developed. As long as his stop loss was not triggered, he would continue to hold his positions until his oscillator based on the Commitment of Traders report turned neutral before closing the positions. This usually required him to hold his positions for several months and through many market shocks.
Correctly understand that market prices are related to market development
Everyone understands that the market is a discount machine, but what people don't realize is that the core of this discount machine is not the price, but the participation of people. It's not that the price goes from $50 to $100 that causes a bull market, but that everyone is bullish that ultimately causes a bull market. The market's discount mechanism is based on the participation of speculators, not on the price, and this is the most important thing I know.