- Taking a trade with NO EXIT STRATEGY that is a horror movie. It is dangerous to not have a stop loss when you enter a trade becasue if a trader thinks they bought in at a great price the price starts looking better the lower it goes, and terror of all terrors the trader adds more to the trade! It only takes one mistake letting one trade run into a huge loss and add to it to blow up an account.
- Shorting the strongest stocks in the market during a bull market is scary as they continue to go up.
- Going long a stock in a death spiral due to a business misstep or earnings decline is like riding a roller coast that generally ends up much lower when the trade is finally closed.
- “Going all in” on one trade, with this plan all it takes is one bad trade to blow up your account, those are scary odds.
- When you are losing you go from your trading plan to “plan B” “hoping” maybe even praying for a reversal. When a trade turns you religious and leads you to pray it is definitely time to get out!
- Asking for others opinions instead of following your trading plan or methodology is very scary, time for homework not tips.
- It is terrifying to watch someone fight a trend instead of follow it. The bigger they go against the trend the scarier it gets. They are trying to stand in front of an elephant walking and tell it where it should be going.
Archives of “stock” tag
rssThree Wishes
Everyday receiving hundreds of emails for Subscriptions and many Traders are asking these type of questions …….
Q: Genie has granted you three wishes to help you improve your trading/investing skills. What would you ask the Genie?
A: I would ask for three things: 1) better statistical analysis skills, 2) more time to devote to mechanical strategy development and research, and 3) straightforward guidance on what I need to do to improve the performance consistency of a few of my stock screens. The good thing with all three of these is that I don’t really need a “genie” to give it to me as each are within reach as long as I devote the time and effort.
Trading: The Difference Between Playing Offense & Defense
The sooner traders learn to carefully manage risk the better off they will be. So many new traders come in with only the thoughts of profits dancing in their heads. This is equivalent to a football team only focusing on scoring points and not planning their defense.In trading you must play both sides of the ball. You have to be able to score points against the market and not allow the market to score back those points on you.
Your entries are your offense and your exits are your defense.
Letting a winner run is your offense, cutting your loser short is your defense.
Your automatic buy stop is your offense and your automatic stop loss is your defense.
Buying a monster stock is an offensive move, planning on how you will exit with your profits is your defensive move.
Identifying a trend is your offensive play creating a trading plan on how to trade it is your defensive play.
Your choice on what to trade is playing offense, choosing your position size is playing defense. (more…)
10 Most Foolish Things a Trader Can Do
The Ten Most Foolish Things a Trader Can Do
- Try to predict the future movement of a stock, and stay in it no matter what.
- Risk your entire account on one trade with no stop loss plan.
- Have a winning trade but no exit strategy to get out, no trailing stop or exhaustion top signal.
- Ask for and follow the advice of others instead of trading with your own trading plan, method, rules, and system.
- Trade your emotions instead of signals: buy when you are greedy and sell when you are afraid.
- Trade your opinions, not a quantified method.
- Do not bother to do your homework on trading, just jump in and trade, you are smart, you will figure it out.
- Short the best and most expensive stocks in the stock market and buy the cheapest junk stocks.
- Put on trades you are 100% sure are winners so you do not even need a stop loss or risk management.
- Buy more of a trade that you are losing money in and sell your winners quickly to lock in small profits.
10 Big Lies Traders always says…
1. The losing position wasn’t my fault, the market 2. The trade was right and the market wrong. 3. I just have bad luck. 4. Eventually the stock will go up (or down)… eventually. 5. Bigger size equals bigger profits. 6. No need to close the postion just yet.I can average down. 7. Because I made so much money on the last trade I can take on more risk the next. 8. If the market is going down I can’t make any money. 9. I need to trade a larger account in order to be a better trader. 10. I’ve had many winners in a row, so now I need a big loser. |
How to become contrarian?
1. Come to the market with a trading plan. Most traders don’t have a plan built around high odds trade set ups. Thus, they trade random patterns.
2. Put in the necessary work. You can’t be like most traders and just show up to the markets expecting to make big money in a short period of time. Don’t be like most traders; become contrarian. It takes hard work and study. Prepare yourself to trade well.
3. Enter on reactions, not on breakouts. Most traders see the market begin to move and then jump in. These dog-piling events are made-to-order for professional traders to act. They unload when the herd is buying, and stock up when it is selling. Adopt a professional’s attitude and look to sell into strength and buy into weakness.
4. Work on the mental side of trading, not just the technical side. Understanding how to read the chart is vital, of course. But it is not enough. Once the technical side is learned, trading becomes 100% psychological. Most traders think psychology is unimportant until it is too late. Be contrarian and put time in to learning the mental skills needed to trade well.
5. Keep learning. Not just about the markets but about your own performance, too. Most traders take a losing trade and sweep it under the rug. They try to forget about it. Likewise, they don’t bother to study their winning trades. They have little idea of why one trade worked and another didn’t. Be contrarian: review your trading and keep a journal.
Becoming contrari (more…)
Three Wishes
Q: Genie has granted you three wishes to help you improve your trading/investing skills. What would you ask the Genie?
A: I would ask for three things: 1) better statistical analysis skills, 2) more time to devote to mechanical strategy development and research, and 3) straightforward guidance on what I need to do to improve the performance consistency of a few of my stock screens. The good thing with all three of these is that I don’t really need a “genie” to give it to me as each are within reach as long as I devote the time and effort.
Russell Napier’s Anatomy of the Bear -Book Review
Described as “a cult classic in the investment community,” Russell Napier’s Anatomy of the Bear: Lessons from Wall Street’s Four Great Bottoms, first published in 2005, is now in its fourth edition, with a new foreword and preface (Harriman House, 2016).
Napier remains a bear. He believes that the run-up in the markets we have seen since 2009 is merely a bear market rally. The “inexorable pressure” from rising consumption in China and increasing retirement in the U.S. “augurs deflation and thus can unleash the force that will push equities to valuation levels associated with the bear market bottoms of 1921, 1932, 1949 and 1982.” (p. 13)
August 1921, July 1932, June 1949, and August 1982: four summer bottoms. What do they have in common? And what can we learn from them to steer ourselves through the next “big one,” whenever it may occur?
To study the nature of bear market bottoms, and how investors reacted to them, Napier analyzed “some 70,000 articles from the Wall Street Journal written in the two months either side of the four great bear market bottoms.” From his research he unearths “approaches that have worked in assessing when the bear is about to become the bull. What also emerges is an understanding of how similar the great four bear-market bottoms were, in turn leading us to a set of signals to guide investment strategy.” (p. 27)
On taking a loss
William O’Neill lays it down clearly and simply:
“Some people say, “I can’t sell that stock because I’d be taking a loss. If the stock is below the price you paid for it, selling doesn’t give you a loss; you already have it.”
If you don’t get this it’s probably best for all concerned that you stay away from the markets and if you must be involved give your money to someone who you trust understands this.
How to know when to exit your position?
This started as a quirky post but quickly turned into something probably more useful. I admit the post is based on personal experiences. Luckily, I do not make these mistakes any more….at least not very often ;). Enjoy!
1) It is time to sell when…..you find yourself using extra technical indicators on charts to justify holding your position that you didnt use to get into it in the first place!
2) It is time to sell when…..you find yourself going to yahoo message boards to see if someone has some positive news that you don’t know!
3) It is time to sell when…..you find yourself justifying to yourself holding a position for fundamental reasons when you entered it for technical reasons!
4) It is time to sell when…..when you ask an “expert” on twitter or some blog to chart a stock checking for entry when you are already in it!
Let me know if you readers have any other such fun “indicators” and I shall add them