Archives of “January 14, 2019” dayrss
|A good trade can lose money, and a bad trade can make money. |
Even the best trading processes will lose a certain percentage of the time. There is no way of knowing a priori which individual trade will make money. As long as a trade adhered to a process with a positive edge, it is a good trade, regardless of whether it wins or loses because if similar trades are repeated multiple times, they will come out ahead. Conversely, a trade that is taken as a gamble is a bad trade regardless of whether it wins or loses because over time such trades will lose money.
“For a new age of markets has been ushered in – an age that offers safer opportunities for the reasonable, studious, competent investor and speculator.” – Livermore
In the third chapter of How To Trade in Stocks, Livermore discusses the importance of following the leading stocks in the leading groups. He argues that a speculator needs to be in tune with the general trend of the market and to only follow leading stocks from leading groups so that he is not overwhelmed with unnecessary data.
The Trend Is Your Friend
“It is not good to be too curious about all the reasons behind price movements. You risk the danger of clouding your mind with non-essentials. Just recognize that the movement is there and take advantage of it by steering your speculative ship along with the tide. Do not argue with the condition, and most of all, do not try to combat it.” – Livermore
If you don’t understand what Livermore is talking about here, you can find an example on your TV almost around the clock. If you tune in to one of the business news cable channels at just about any time, day or night, you will find journalists and so-called experts breaking down even the slightest details of the global economy or an individual stock.
Livermore argues that this obsession with analyzing the reason behind a price movement is completely unnecessary. He says that we should simply recognize that there is, in fact, a price movement and align our investments to profit from that movement. This is pretty much the definition of trend following.
Focus Your Investments (more…)