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To Trade or Not to Trade-The Biggest Question For Traders

  
  Education
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In trading activity alone does not make money, the right activity at the right time is what makes money. Many times the right thing, is to do nothing.

In your actual trading you have to do four things very well to make money.

You have to know when to get in.

Only enter trades that have the highest probability of success and the best risk/reward ratio. Buy the best monster stocks during up trends. Short the fallen leaders when the game changes and they are under the 50 day. Buy the monster stocks at the gift of the 200 day moving average. Short down trending junk stocks. Go where the trends are.

You have to know when to get out. (more…)

9 Secrets for Successful Speculation

  
  Education
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As you read the list below, think about how you can learn more about each secret and adapt it to your own most effective use.

Secret #1: Contrarianism takes courage.

Everyone knows the essential investment formula: “Buy low, sell high,” but it is so much easier said than done, it might as well be a secret formula.

The way to really make it work is to invest in an asset or commodity that people want and need but that for reasons of market cyclicality or other temporary factors, no one else is buying. When the vast majority thinks something necessary is a bad investment, you want to be a buyer—that’s what it means to be a contrarian.

Obviously, if this were easy, everyone would do it, and there would be no such thing as a contrarian opportunity. But it is very hard for most people to think independently enough to risk hard-won cash in ways others think is mistaken or too dangerous. Hence, fortune favors the bold.

Secret #2: Success takes discipline.

It’s not just a matter of courage, of course; you can bravely follow a path right off a cliff if you’re not careful. So you have to have a game plan for risk mitigation. You have to expect market volatility and turn it to your advantage. And you’ll need an exit strategy.

The ways a successful speculator needs discipline are endless, but the most critical of all is to employ smart buying and selling tactics, so you don’t get goaded into paying too much or spooked into selling for too little.

Secret #3: Analysis over emotion. (more…)

Weaknesses and Strengths of Traders

  
  Education
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Ambitious

Makes and follows long term business plan

•Unambitious

Will ignore long term business plan

•Calm

Will handle times of market volatility and make smart decisions

•Worrying

Will panic when markets are volatile and make stupid decisions (more…)

8 Stock Market Sayings That Should Be Questioned

  
  Education
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8) There is a lot of cash on the sidelines.

There is always a lot of cash on the sidelines and that never changes. The buyer of a stock, thus taking cash off the sidelines, gives it to the seller who puts it back on the sidelines.

7) There are more buyers than sellers (or vice versa).

Maybe technically there are more bodies buying or selling than the other side but the number of shares traded has to be exactly the same as for every share bought is a share sold. It’s the aggressiveness of one side or the other that matters.

6) Stocks are attractive because they aren’t quite as overpriced as bonds.

If bonds are artificially priced, shouldn’t stocks be? Overpriced though can of course remain overpriced.

5) The higher stocks go the more attractive and less risky they are.

For long term investors, the more one pays in price today with respect to valuation, the less return they should expect in the future.

4) Stocks aren’t expensive because they are still cheaper than the valuations seen in March 2000.

Really?

3) There is no alternative.

In bull markets there is always no alternative to common stocks. In bear markets, there are always alternatives.

2) We’re going to get a rotation into stocks and out of bonds.

For every portfolio rotating out of bonds has to see someone rotating in and that buyer of stock has someone rotating out. Again, it’s the aggressiveness of the moves that matter.

1) The selloff in stocks was profit taking.

Does anyone refer to a rally as profit seeking?

Traders Can Control Only 2 Things

  
  Education
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If you understand that you can only control two things in the stock market, the rest is easy. This understanding simplifies decision-making processes and lightens worry…

Your Cash

You can control the cash you have, whether it’s on-hand or in investments.

Entry & Exit Points or Your Stops

You can control where you get in a stock or where you get out of a stock. You can control where you get in a certain stock at a certain price or where you get out of a stock if it’s falling below.

As a stock is climbing higher and higher, it’s a profit point. It’s a point where you get out.

These are the only two things you can control: your cash and your stops. It makes things easy, doesn’t it?

We can’t control the wave of the market as individual investors. We are not the operators; the operators can control much more. We don’t have billons of dollars to put into one stop to make it move.

Of course you can control where your position is on spreads, but where are you getting in and where are you getting out? Your cash and your stops are in your control.

If you focus and remember the two things you can control, the worry will subside…

Art Huprich’s Market Truisms and Axioms

  
  Education
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Raymond James’ P. Arthur Huprich published a terrific list of rules at year’s end. Other than commandment #1, they are in no particular order:

• Commandment #1: “Thou Shall Not Trade Against the Trend.”

• Portfolios heavy with underperforming stocks rarely outperform the stock market!

• There is nothing new on Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again, mostly due to human nature.

• Sell when you can, not when you have to.

• Bulls make money, bears make money, and “pigs” get slaughtered.

• We can’t control the stock market. The very best we can do is to try to understand what the stock market is trying to tell us.

• Understanding mass psychology is just as important as understanding fundamentals and economics.

• Learn to take losses quickly, don’t expect to be right all the time, and learn from your mistakes.

• Don’t think you can consistently buy at the bottom or sell at the top. This can rarely be consistently done.

• When trading, remain objective. Don’t have a preconceived idea or prejudice. Said another way, “the great names in Trading all have the same trait: An ability to shift on a dime when the shifting time comes.”

• Any dead fish can go with the flow. Yet, it takes a strong fish to swim against the flow. In other words, what seems “hard” at the time is usually, over time, right.

• Even the best looking chart can fall apart for no apparent reason. Thus, never fall in love with a position but instead remain vigilant in managing risk and expectations. Use volume as a confirming guidepost.

• When trading, if a stock doesn’t perform as expected within a short time period, either close it out or tighten your stop-loss point.

• As long as a stock is acting right and the market is “in-gear,” don’t be in a hurry to take a profit on the whole positions. Scale out instead.

• Never let a profitable trade turn into a loss, and never let an initial trading position turn into a long-term one because it is at a loss.

• Don’t buy a stock simply because it has had a big decline from its high and is now a “better value;” wait for the market to recognize “value” first.

• Don’t average trading losses, meaning don’t put “good” money after “bad.” Adding to a losing position will lead to ruin. Ask the Nobel Laureates of Long-Term Capital Management.

• Human emotion is a big enemy of the average investor and trader. Be patient and unemotional. There are periods where traders don’t need to trade.

• Wishful thinking can be detrimental to your financial wealth.

• Don’t make investment or trading decisions based on tips. Tips are something you leave for good service.

• Where there is smoke, there is fire, or there is never just one cockroach: In other words, bad news is usually not a one-time event, more usually follows.

• Realize that a loss in the stock market is part of the investment process. The key is not letting it turn into a big one as this could devastate a portfolio.

• Said another way, “It’s not the ones that you sell that keep going up that matter. It’s the one that you don’t sell that keeps going down that does.”

The table below depicts the percentage gain necessary to get back even, after a certain percentage loss. (more…)

The best investors (and traders) are modest

  
  Education
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Let’s face it you suck at investing. Your advisor sucks at investing too.  You have all seen where monkeys picking stocks or throwing darts at a list can do better than many if not all advisors.

But Quartz is out with their annual analysis of just how bad you suck at this game.  If you had picked the best stock to buy every day you could have turned $1000 into $179 billion by mid December. That is a 17.9 billion percent return.

Did you even get a 1 billion percent return? How about 1 million percent? 1000%? 100%? If you did not hit a 100% return then you did not get even 4/10 millionths of what was out there. Translation: You suck at stock picking. People like Jack Bogle will use this type of data to tell you that you are wasting your time even trying and that you should just index your portfolio.

Coincidentally he runs a few dollars in an index fund. I find it more interesting when some manager makes a killing and convinces themselves that they are geniuses. No one in this game is a genius. 100% return sucks remember? (more…)

Fear-Greed-logic

  
  Education
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Fear – Distress Over Losses

Psychologically, our minds process losses as more significant than a gain of the same amount. In trading, our fear of being wrong will often be used as a reason for staying in a losing position which leaves our accounts vulnerable to larger losses.

The most important part of trading is risk management. If you have a consistent and objective approach to risk management it will allow you cut your losses fast, and hold on to your profits!

Greed – Batting For Home-Runs

Coulda, woulda, shoulda. Those are 3 words that you should eliminate from your trading vocabulary, as they are most often associated with home run trades you missed (hindsight is always 20/20). There are thousands of stocks to choose from – don’t get distracted by potential home run trades. Instead, focus on being disciplined and consistently extracting profits from stocks. No one gets all the winners, focus on your process.

Logic – Remain Disciplined (more…)

To Trade or Not to Trade: The Most Important Question

  
  Education
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In trading activity alone does not make money, the right activity at the right time is what makes money. Many times the right thing, is to do nothing.

In your actual trading you have to do four things very well to make money.

You have to know when to get in.

Only enter trades that have the highest probability of success and the best risk/reward ratio. Buy the best monster stocks during up trends. Short the fallen leaders when the game changes and they are under the 50 day. Buy the monster stocks at the gift of the 200 day moving average. Short down trending junk stocks. Go where the trends are.

You have to know when to get out. (more…)

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