- You need to determine where you will get out before you get in. You need to specify your exit point when you get in. When you set an exit point, you need to know how much money you are willing to lose on this idea and also at what exit point you think you are wrong in your assessment. You should not place a stop too close, because that is likely to lead to multiple losses.
- Some times, options can provide the same protection as stops.
- At the portfolio level, it may also be prudent to specify a maximum loss from the starting stake for each year.
- Be willing to get out quickly when you are wrong.
- If you are not sure whether you are wrong or right and you have made a loss, partially liquidate 50%. If you continue to be wrong, liquidate 50% more. Then what is left is not a big deal.
- When your losses are small, you will bet again. When your losses are big, you are afraid to bet and you lose great opportunities.
- Never risk more than 1% of total equity on any trade is probably a effective money management tool for many.
Archives of “January 4, 2019” day
rss10 Worst Cases -Hyperinflation
Inflation is hot property today, hyperinflation is even hotter! We think we are modern, contemporary, smart and ready to deal with anything. We’ve got that seen-it-all-before, been-there-done-it attitude. But, we are not a patch on what some countries have been through in the worst cases of hyperinflation in history. Here’s the top 10 list of worst cases in history. We’ll start with the worst first…let’s think positive!
Hungary 1946
Inflation at its peak reached a staggering figure of 13.6 quadrillion % per month! That’s 13, 600, 000, 000, 000, 000%. The largest denomination bill was a 100 Quintillion note. Prices ended up doubling every 15 hours at the time.
Zimbabwe 2008
Prices doubled here every 24.7 hours in November 2008 and inflation reached levels of 79 billion-odd %. They eventually stopped using the official currency and switched to the South African Rand or the $US. A loaf of bread ended up costing $35 million. This is the most recent case. It was Mugabe’s land-redistribution program that caused this.
Yugoslavia 1994 (more…)
Control
Stocks rise when they are being bought up. Stocks fall when they are being sold off. I always ask myself “Who is in control. The buyers or sellers.” Control changes often and in different time frames you can argue that one party or the other were merely taking a rest.
I generally buy stocks that are going up and short sell stocks that are falling. But I also play the sharp reversals that happen if there is a huge gain or drop as I know gravity will take effect and profit taking will occur. The smart way to day trade is to be on the winning side be it buyers or sellers.
As a small fish in a big ocean I can only ride on the coattails of the big boys who actually move the market. My job as a trader is to recognize when trend or momentum is starting to kick in and climb aboard. Short term trends or momentum are the only thing that I trade. The old cliche’ “the trend is your friend” is so very true.
I only trade in the direction the chart is telling me to. Maybe you can watch the talking heads on TV blathering on or read about how great some stock is without forming an opinion on it. I can’t, so it’s safer to insulate myself from any and all information. I actually don’t care what, where, why, how or when a company does what it does. Who am I to be able to process all this information? I do know that when a stock is rising, more people are buying it than selling it and vice versa. Seems easier to me to only look at and believe the chart and trade accordingly. If I have preconceived notions about what the stock may do, I will not be able to cut my losses when the chart tells me to. I will hold on to the dream all the way to the poor house. Always trade with the trend.
Cutting your losers is one of the most important aspects of trading.Unless you have an unlimited pile of money to fritter away you must admit you’re wrong and exit the trade. If you don’t you will not have enough to remain in the game. End of story.
Letting the winners run is also important. They are winners after all and that is all that counts. Adding size (buying more shares) can turn little winners into big winners.
If you disregard any or all of these 3 simple rules you won’t be around trading very long.
Top 25 All-Time Warren Buffett Quotes
When reading Berkshire Hathaway’s annual letters or hearing him speak, one can always take away a few great quotes from value investor extraordinaire Warren Buffett. It should come as no surprise that he is so good at dishing out words of wisdom. After all, he is known as the Oracle of Omaha. We thought it would be prudent to assemble some of his best advice in one cohesive post.
1. “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1”
2. “In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world. A right-thinking duck would instead compare its position after the downpour to that of the other ducks on the pond.”
3. “The fact that people will be full of greed, fear or folly is predictable. The sequence is not predictable.”
4. “Be fearful when others are greedy. Be greedy when others are fearful.” (more…)
The Mathematics of Losses
Quotes from The Little Book of Trading
The Little book of trading is a must read for trend followers. Michael Covel brings down to all of us what is needed in order to succeed in trend following:
Some of the quotes need to be internalized by investors of trend following strategies..
David Druz
Trend traders are trying to capture risk premium from the hedgers. […]
Hedgers hope to minimize their exposure to unwanted risk. Speculators (i.e. trend followers assume risk for hedgers. […]
Hedgers are net losers in futures markets over the long run, and Druz’s trend trading approach is based on capturing this risk premium.
The more robust a system, the more volatile it tends to be!
There are whole families of trend trading ideas that seem to work forever on any market. The down side is they are very volatile because they are not curve-fitted.
Larry Hite (more…)
Dan Loeb's latest letter to investors is a must read. He nails it.
Technical Patterns for Traders -Just Take Print out or simply memorize.
Few more Seconds
Many of us have made trades after a quick look at our charts and later we look back and say “I wish I would have taken a little more time before I did that”.
In the world around us, everyone is always rushing to do everything especially in making a decision. I understand that sometimes you are forced to make quick decisions, however as a trader, you will regret quick decisions more times that you will congratulate yourself.
If we have committed to our risk management, money management, trading strategy along with our overall plan for our session, then I recommend that if you truly want your sessions to be more successful, take a few more seconds in every step.
Take a few more seconds to not just look at the charts, but to truly see and understand what you see. Take a few more seconds to determine where you entry point and exit point is and not just wing it.
Take a few more seconds to prepare and instead of just looking and deciding, clearly see and understand what you see and you will enhance your trading performance.
Thought For A Day
