Comments about Trends: “Match Your Tactic By Classifying Trends”
Dec 29,200912:09 PM Some random thoughts, in no particular order:
1. It’s important to have a mental classification of stocks. E.g., If a stock is in an uptrend, then it’s in an uptrend. If you want to own it (but currently do not), then a stock you want to own is in an uptrend. You are looking for an opportune time to buy.
Any ruler can be placed over a chart of an uptrending stock and make the proper buy points easily identifiable. It can also make the poor buy points identifiable — i.e., buy at the top.
So why is it, then, that we seem hardwired to buy an uptrending stock at the top of its trading channel, and then sell it at the bottom?
Strive to dismantle that circuitry and rewire yourself to stay in phase with a trend (i.e., bullish on uptrending stocks rather than to always try foolishly to identify the precise top so you can short it). And once in phase with the trend, you focus on buying the stock when others are done selling…and scale out of part of your position when others are done buying.
2. Why is it that we can have a perfectly good analysis, bias, and trading plan during the evening, yet immediately jettison that plan at the opening bell and instead start doing the things we decided NOT to do?
3. As a new trader, is it really realistic to believe that beating the market is easy? (It’s not) But a new trader, operating under the assumption that he/she should be beating the market is prone to make a bunch of bad mistakes and really lousy trades. Rather than trading the opportunities that are presented, the new trader tries to force opportunities. He has magic goggles that enable him to see opportunities that others do not.
If we first learn to manage risk; control the downside; preserve our trading capital in the same way as we’d preserve water when stranded in the desert (perhaps a bit of an extreme example, but you get the point), then we put ourselves in a position to win.
Over time, preservation of capital enables you to “stay in school” long enough to learn the things you need to learn, and gain the experience you need to gain, in order to be a solid, profitable, competent trader!
4. There have been many years where I’ve done quite well. I have made a lot of money! But when I’d review that year month by month (as I always do), I inevitably see the same pattern — a pattern that I’m quite proud of and that I commend to you.
TRADE LIKE A POKER PLAYER
My year would look like the behavior of a good poker player. Just hanging around…hanging around…and hanging around. Ante up…fold. Ante up…raise once…fold. Ante up…raise, re-raise, drag a nice pot.
Then…continue to hang around…protecting my larger stack of chips. Ante up for each hand so I can get my cards. Lousy cards…no more chips. Good cards, now the fun begins because I want to be putting as much as I can into the middle without spooking the opposition…and also, without increasing my risk too much.
I’m in a position to win…but it’s never a sure thing, so I never risk it all. I won’t ever go “all in”, which is where the poker analogy ends.
The bottom line is this: I hang around. I always hang around. I’m always involved. When I’m losing, I’m losing very little. I don’t like to lose money because I work so hard to make it. If I lose too much, it’s tantamount to working for free. And I don’t work for free! I work for money.
When I’m winning, I’m in control. When I’m losing, the market is in control.
I am almost always winning! Always! Is this because I’m a great trader? No! That’s not the point. I’m almost always winning because I don’t hold losers. So, by the process of elimination, my positions are profitable. So it is the approach, not the talent, that makes me a winner.
As I often say, “This stuff is not that hard!”
But we make it hard because we are hard wired to do the wrong thing at the wrong time.
By just hanging around, I’m in a position to capitalize on a big opportunity when it comes along. I “see” it. And I take action. Virtually every year I’ll see that the lion’s share of my gains occurred within a very short time period. It was not evenly spaced throughout the year.
Again, I just hang around…and I then POUNCE when Bambi wanders too close to my hiding place.
Take out your circuit board and replace it with one that allows you to hang around, and to remain in a position to win!
There is no law against loitering in on Wall Street. Typically those are the guys who make the most money.
Hope this helps.
–Dan
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