LET’S SAY YOU want to buy XYZ. Maybe it announced better-than-expected earnings or crossed a key moving average. Perhaps you are watching a similar company or index move and expect XYZ to follow along. Maybe you used the company’s products or read some compelling research. As Rod Stewart sang, we all need a reason to believe. Whatever your reason, you believe. Fine. Two sides make a market, and nobody knows the future. If you are bullish on XYZ, then it’s time to buy XYZ.
What messes most people up isn’t what to buy, but how. Having a good investment idea is a start, but putting it into practice is another thing altogether. And while a sound trading technique won’t prevent you from losing money, it will keep your losses small and the majority of your capital focused on the most profitable ideas. No trade is without risk, but the difference between risk and recklessness is proper procedure. Trading is like any fine art: There is such thing as objectively good form.
The oldest — and the only surviving — of the ancient Seven Wonders of the World are the Egyptian Pyramids. Their longevity is due, in part, to inherently strong design. The majority of a pyramid’s mass rests at its base, closest to the ground. A much smaller portion of the material is used near the top. The setup creates a uniquely stable architectural footprint. (more…)