Always respect the marketplace. Never take anything for granted. Do your homework. Recap the day. Figure out what you did right and what you did wrong. That is one part of homework; the other part is projective. What do I want to happen tomorrow? What happen if the opposite occurs? What if nothing happens? Think through all the “What ifs.” Anticipate and plan, rather than react.
– Tony Saliba, Market Wizards by Jack Schwager
Avoid information overload. Set aside a reasonable time for preparation and limit analysis to focus on key stocks and indices in detail. Reduce watch list, news and charts until they conform to a healthy personal lifestyle. Get recreation, eat right, and get plenty of sleep before the new market day begins. Exhausted swing traders make terrible decisions.
– Alan Farley, The Master Swing Trader
OH HOW I WISH that each week I could come up with a list of investments guaranteed to rise. You’d make money, I’d look like a genius and everybody would be happy. If only it were that easy.
Because while the point is to buy stocks that go up, the reality is that no matter how good your research is not every trade is a winner. There’s no certainty in speculation, and as we often point out sometimes you’ve got to throw a hundred casts just to get a nibble, let alone a substantial catch.
As we wrote a few months back, the emotional strain in trading can be downright debilitating. And while losing money and dealing with uncertainty is tough, I’ve found the most difficult aspect also to be the most important: taking responsibility for your own actions in the market.
Like many elements of trading, it’s much easier said than done. The fact is that when we lose money in the market it hurts. And what makes trading losses especially painful is the knowledge that it’s our action — or inaction — that prompted the loss. In a free market, nobody forces us to buy or sell anything. To that end, win or lose, when it comes to our portfolios, we’ve got nobody to blame but ourselves. (more…)
A stop automatically takes your brain out of reverse and puts it into neutral. Your money’s not back to neutral, but your mind’s back to the point where you can regroup and try to think up a fresh idea without the pressure of a losing position hanging over your head.
– Martin Schwartz, Pit Bull
If you apply the same principles of poker strategy to trading, it increases your odds of winning significantly. I have always tried to keep the concept of patience in mind by waiting for the right trade, just like you wait for the percentage hand in poker. If a trade doesn’t look right, you get out and take a small loss; it’s precisely equivalent to forfeiting the ante by dropping out of a poor hand in poker. On the other hand, when the percentages seem to be strongly in your favor, you should be aggressive and really try to leverage the trade similar to the way you raise on the good hands in poker.
– Gary Bielfeldt, Market Wizards by Jack Schwager
The personal attitude of the plunger is likely to be one of daring. He risks so much of his capital on a single trade that he is also likely to risk much more in his judgment and analysis. He is likely to be abrupt, dogmatic and prejudiced in his analysis, if not actually slipshod in his methods. The very traits which lead him to risk such capital lead him also to substitute risk for knowledge, chance for study and a thorough weighing of the situation. And the results are much more apt to be disastrous on that account.
– Richard Schabacker, Stock Market Profits
LIKE THE RING toss at the carnival and rollerblading at the beach, investing always seems easier than it really is. You can be correct on the sector but wrong on the stock. You can be correct on the timing but wrong on your position size. This is a game where there’s slim margin for error and plenty of opportunity to do the wrong thing.
When it comes to stock picking, I’m hit or miss. No matter how much research or analysis I do, many of my stock picks end up going exactly the wrong way. Although it’s tempting for investors to brag about gains, it’s how they deal with losses that really matters.
During the 1990s bull market, losses were a problem that nobody seemed to have. After three years of a bear market, however, most investors are now aware that not every investment goes according to plan. To that end, they’ve become more sophisticated: Hedging and stop-loss orders are a few of the strategies that have become part of many investors’ repertoires.
But dealing with emotions can be just as difficult as wrestling with the market itself. Perhaps even tougher. Trading, even when done right, can really mess with a person’s mind. (more…)
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