When I first was drawn to trading I was a little intimidated by
parts of the new language (e.g. diagonalized calendar spread or
strangles or going naked) and I was a little amused by some of the
cliches. Sayings like "you can't go broke making a profit," or "the
trend is your friend" easily reinforced some conventional wisdom with
something I could easily remember. Some of these sayings have become so
well known that I have wondered how often and in what ways they may be
applied. Are they 'truths' of the market? Are they infallible? Is there
some other side? Do they really work? I'm going to take a look at a
couple of these cliches in this article and give you my own thoughts.
Mostly, these are just my opinions and I would encourage you to form
your own. Just doing a little thinking about the meaning of some of the
cliches might give us some new insight.
The first saying that might be worth looking at is the idea that
"buy and hold" is the best (and as at least one subscriber noted) and
perhaps the only way to succeed in the markets. I devoted a little
space in my book,
"Trade Your Way to Wealth," to an analysis of "buy and
hold," and, suffice it to say I don't see how the strategy "buy and
hold" answers the question: "Hold 'til when?" " Buy and hold" is a
strategy based on the historical fact that markets go up over time and
if one holds a position in a stock, it is probably going to increase in
value over time. Depending on the specific stock and depending on the
time frame, that may or may not be true. What the strategy really
lacks, in my view, is an exit. Is the exit "buy and hold" hold until
death? What else is it? When do you get out of a losing position if
your strategy is to buy and hold? How does that thought correlate with
the next important cliche: "Cut your losses and let your profits run."
It seems to me that if you are going to buy and hold (does that
mean buy to hold?) you have no way of cutting your losses. Though your
profits may run, they may also disappear, and even turn to losses if
there is no exit strategy. I personally am a believer in cutting losses
and letting profits run. Hardly anyone would disagree with the general
principles in that cliche. The problem I have seen is that so many
retail traders don't have a clue how to cut losses or how to let profits
run. It does suggest the need for some plan on the trader's part that
will define when, or under what circumstances, the trade will be
closed. There are many ways that creating an exit strategy can be
accomplished and it is up to the individual to chose the strategy that
best fits his own trading needs and personality. One trader may decide
to use a cross above a moving average as a reason to enter and a cross
beneath the average to be a reason to exit thereby making the moving
average the strategy. Would that help cut losses? Sure it would in
most cases. That strategy could also let profits run because there would be
no exit unless and until the stock price dropped down through the moving
average. A different trader may choose to move stops behind his
position either on a trailing basis or at a specific stop price that he
could regularly move behind his position. I discuss this concept in
"Trade Your Way to Wealth" and believe it is an important concept for
every trader to incorporate into his personal trading plan. I don't
mean to suggest any specific exit strategy is better than some other
one, but I do mean to suggest that I think is better to have some
disciplined exit strategy in place than to have none at all.
I hope that is food for a little thought. Down the road, I think
I'd like to take a look at "buy on the rumor and sell on the news" and
maybe "you can't go broke making a profit." Maybe even think about "the
trend is your friend" or "you earn on the turn". Let me know if you are
aware of some market saying that we might have some fun thinking about.
Good Trading!
Bill Kraft
Editor of $10 Trader, Option Trader and Trend Trader
You can comment on this article!
"Trade Your Way to Wealth" by Bill Kraft is an Amazon.com best seller!
Mr. Kraft's past articles are posted on our website for your review.
$10 TRADER -- by Bill Kraft
We really enjoy trading stocks that are $10 and under. Often they provide the chance to enjoy high percentage gains and, of course, at worst, the risk is limited to what we paid for the stock.
Details Here.
OPTION TRADER -- by Bill Kraft
Our Option Trading Service is for conservative traders that understand leverage principles. We focus on powerful option trading strategies that place volatility and momentum in your favor. And we pride ourselves on minimizing our losses. We always know our downside potential in a trade.
Details Here.
TREND TRADER -- by Bill Kraft
Trend trading as we try to practice it is a form of momentum trading. We prefer to try to capture profit out of the middle of the trend rather than try to catch reversal at bottoms and tops.
Details Here.
Trading is a path to financial independence, personal freedom, and wealth. But the path is immensely challenging and only a few emerge victorious. Bill Kraft's book Trade Your Way to Wealth, an Amazon.com "best seller", shows you the path.
SUCCESS TRADING GROUP -- by Eric Aafedt
52 Wins in 52 Weeks
Our Success Trading service delivers quality trading ideas for the elite investor that has the financial wherewithal and market nimbleness to profit on small moves in a stock's price. Become a member and you will be provided with email and/or PDA alerts intended to provide you with the opportunity to make many, many profitable trades.
Details Here.
DIVIDEND INVESTOR -- by Eric Aafedt
Perfect for your IRA! Our Dividend Investor service focuses solely on the "best of the best" dividend paying stocks. Many of the stocks that we will be buying in our Dividend Investor service raise their dividends almost every year. Year after year! This is powerful. We buy these stocks for their powerful dividend producing income; and we will also buy these with a purpose to make capital gains as the stock increases in value.
Feel free to sign-up for a free 30-day trial. During such time you can review our Trade Table and see the type of stocks we are buying. You will also receive all the new investing alerts we send during your trial period. Again, many of the stocks that we will be buying in our Dividend Investor service raise their dividends almost every year. Year after year! This is powerful. Don't miss out on this service!
While we titled this service an "investor" service, we also believe these stocks are solid for the "trader" in you. With these stocks, we believe an exit point of 3% above the buy price is generally appropriate for traders. And, in fact, our first 46 positions have hit our 3% target subsequent to the buy alert!
Details Here.
COVERED CALL SERVICE -- by the Covered Call Research Team
Details Here.
|
Success Trading Group Trade the same stocks over and over. 330 trades with only 9 losses on our Main Trade Table!
Trend Trader "The Trend Is Your Friend". Utilize trends and momentum in your stock trading!
Option Trader Use the power and leverage inherent in option trading to your advantage!
$10 Trader Focusing on stocks under $10 per share!
Dividend Investor Perfect for your IRA! Quality dividend paying stocks!
Covered Calls Conservative option writing -- Allowed in your IRA!
|
|
The foregoing is commentary for informational purposes only. All statements and expressions are the opinions of Online Investment Services, LP. or the associated editor. This information is not meant to be a solicitation or recommendation to buy, sell, or hold securities. Past results do not guarantee future performance. Stock investing is risky. Option trading is risky. Futures trading entails great risk where one can lose more than his account balance. We are not licensed or registered in the securities or futures industries. The information presented herein and on the related web sites is presented "as is" without warranty of any kind either express or implied. Although the information has been obtained or derived from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolios of writers for this issue may, in some instances, include securities mentioned herein and on the related web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors. No one associated herewith receives compensation in any manner from any of the companies that are discussed in this newsletter or on the related websites. By accepting emails, including various paid subscriptions and free email reports and newsletters, you agree to the terms of the MarketFN.com's website Disclaimer, Privacy Policy and Terms of Use provisions as such may be amended from time to time.
This email was sent to ~~EMAIL~~.
|
|
|
|
|
