Archives of “fundamental change” tag

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Ideas that spread

  
  Education
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Not all great investing/trading ideas are profitable. Ideas that spread are. If no one else sees what you see and acts, you can’t make money. Hoping that eventually the rest of the market will understand and embrace your thesis is a loser’s strategy or a privilege for someone with very deep pockets. Markets often know more than you as they constantly try to discount all the available public and private information. You might be convinced that your analysis is right and the market is wrong, but it could remain wrong longer than you could remain solvent. The question again is do you have deep enough pockets to ride the storm out and aren’t there more plausible alternatives for your capital at the time. Smart people like to scale in and out of positions, knowing that no one can consistently pick tops and bottoms.

Take for example Jim Rogers. He is a typical contrarian investor, who likes to buy low and sell high. But he is not buying anything that is low priced and neglected. He buys cheap things only when he sees a fundamental change on the horizon – a catalyst that will help other market participants to re-evaluate their thesis and act on their new observations.

49 Trading Rules for Traders

  
  Education
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  1. Usually they liquidate the good trades and keep the bad ones. Many traders don’t realize the news they hear and read has, in many cases, already been discounted by the market.
  2. After several profitable trades, many speculators become wild and unconservative. They base their trades on hunches and long shots, rather than sound fundamental and technical reasoning, or put their money into one deal that “can’t fail.”
  3. Traders often try to carry too big a position with too little capital, and trade too frequently for the size of the account.
  4. Some traders try to “beat the market” by day-trading, nervous scalping, and getting greedy.
  5. They fail to pre-define risk, add to a losing position, and fail to use stops.
  6. They frequently have a directional bias; for example, always wanting to be long.
  7. Lack of experience in the market causes many traders to become emotionally and/or financially committed to one trade, and unwilling or unable to take a loss. They may be unable to admit they have made a mistake, or they look at the market in too short a timeframe.
  8. They overtrade.
  9. Many traders can’t (or don’t) take the small losses. They often stick with a loser until it really hurts, then take the loss. This is an undisciplined approach…a trader needs to develop and stick with a system.
  10. Many traders get a fundamental case and hang onto it, even after the market technically turns. Only believe fundamentals as long as the technical signals follow. Both must agree.
  11. Many traders break a cardinal rule: “Cut losses short. Let profits run.”
  12. Many people trade with their hearts instead of their heads. For some traders, adversity (or success) distorts judgment. That’s why they should have a plan first, and stick to it.
  13. Often traders have bad timing, and not enough capital to survive the shake out.
  14. Too many traders perceive futures markets as an intuitive arena. The inability to distinguish between price fluctuations which reflect a fundamental change and those which represent an interim change often causes losses.
  15. Not following a disciplined trading program leads to accepting large losses and small profits. Many traders do not define offensive and defensive plans when an initial position is taken.
  16. Emotion makes many traders hold a loser too long. Many traders don’t discipline themselves to take small losses and big gains.
  17. Too many traders are underfinanced, and get washed out at the extremes.
  18. Greed causes some traders to allow profits to dwindle into losses while hoping for larger profits. This is really lack of discipline. Also, having too many trades on at one time and overtrading for the amount of capital involved can stem from greed.
  19. Trying to trade inactive markets is dangerous.
  20. Taking too big a risk with too little profit potential is a sure way to losses. (more…)
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