Wednesday, January 30, 2008
Monday, January 28, 2008
Dealing With Losses By Price Headley
Dealing with Losses
Most traders typically like to talk about their winners while avoiding any recollection of their losers. Smart traders will be aware of the patterns that occur with losing trades, so as not to hold losing trades any longer than necessary. Read below for tips on managing losses.
Today I'd like to address the issue of trades that don't work out as positively as you originally envisioned. If you have been an investor for any length of time, you will have experienced a loss. While experiencing a loss is less than enjoyable, the real danger of a losing trade is the threat it poses to your confidence and your mental approach.
That being said, here are some ground rules to keep in mind:
1. Understand the difference between confidence and unreasonable expectations. You should believe that every trade you place, based on your systematic criteria, is going to be a winner. If you are not confident of that, then don't place the trade. However, realize that over a given length of time, at least some of your trades will work against you. Even a great trading system fails sometimes, so your job is to make sure your system has an overall net positive return. If you are redefining your trading system for every trade in an effort to insure success, that is simply a signal that the system is ineffective.
2. Cut losses. It is critical that you be willing to take small losses before they turn into big losses. I can't tell you the number of times I've heard someone say about a stock "I'm sure it will come back.", only to see the share price continue to deteriorate. Besides doing damage to your account value, riding a loss can be a substantial blow to your confidence. If you are that confident about a stock, then sell it at a small loss and buy it back when you see it begin to turn around.
3. Don't try trade your way out of a loss. (This is an extension of rule number one.). By this I mean don't follow up a loss by placing a trade you wouldn't have normally placed in an effort to make up for the loss. The past can't be changed, so let go of it and approach the next trade in an unbiased manner.
4. Constantly learn. I'm not going to say there is something to be learned with every loss, because sometimes there is not. When there is something to learn though, then you certainly should learn it. More importantly, if what you learn is something that will improve your trading system, take it and apply it to your system. (Notice here that I said to apply it to your system, not just to your next trade.) Your system must have an overall net positive result, but there is nothing wrong with constantly improving your system.
5. Don't let losses paralyze you. It's just part of investing. While a loss may give us reason for caution, take a step back and look at your overall goals and your overall trading approach. If your confidence is injured, then paper trade for a while until you can see that your system has merit and you can invest successfully. It's imperative that you don't simply avoid investing.
Trade Well,Price Headley, CFA, CMT - President & Chief Analyst
Most traders typically like to talk about their winners while avoiding any recollection of their losers. Smart traders will be aware of the patterns that occur with losing trades, so as not to hold losing trades any longer than necessary. Read below for tips on managing losses.
Today I'd like to address the issue of trades that don't work out as positively as you originally envisioned. If you have been an investor for any length of time, you will have experienced a loss. While experiencing a loss is less than enjoyable, the real danger of a losing trade is the threat it poses to your confidence and your mental approach.
That being said, here are some ground rules to keep in mind:
1. Understand the difference between confidence and unreasonable expectations. You should believe that every trade you place, based on your systematic criteria, is going to be a winner. If you are not confident of that, then don't place the trade. However, realize that over a given length of time, at least some of your trades will work against you. Even a great trading system fails sometimes, so your job is to make sure your system has an overall net positive return. If you are redefining your trading system for every trade in an effort to insure success, that is simply a signal that the system is ineffective.
2. Cut losses. It is critical that you be willing to take small losses before they turn into big losses. I can't tell you the number of times I've heard someone say about a stock "I'm sure it will come back.", only to see the share price continue to deteriorate. Besides doing damage to your account value, riding a loss can be a substantial blow to your confidence. If you are that confident about a stock, then sell it at a small loss and buy it back when you see it begin to turn around.
3. Don't try trade your way out of a loss. (This is an extension of rule number one.). By this I mean don't follow up a loss by placing a trade you wouldn't have normally placed in an effort to make up for the loss. The past can't be changed, so let go of it and approach the next trade in an unbiased manner.
4. Constantly learn. I'm not going to say there is something to be learned with every loss, because sometimes there is not. When there is something to learn though, then you certainly should learn it. More importantly, if what you learn is something that will improve your trading system, take it and apply it to your system. (Notice here that I said to apply it to your system, not just to your next trade.) Your system must have an overall net positive result, but there is nothing wrong with constantly improving your system.
5. Don't let losses paralyze you. It's just part of investing. While a loss may give us reason for caution, take a step back and look at your overall goals and your overall trading approach. If your confidence is injured, then paper trade for a while until you can see that your system has merit and you can invest successfully. It's imperative that you don't simply avoid investing.
Trade Well,Price Headley, CFA, CMT - President & Chief Analyst
Markets Unwinding Over Sold Levels By Drifting Higher ....
....In a very difficult to trade low volume grind. I am guessing that we could be setting for some sort of a test of the declining 20 day moving averages.
Gary Kaltbaum NewsLetter
Subject: NIGHTLY FOR MONDAY
Down legs in bear markets end with heavy volume reversals just to suck out the last sellers at the most inopportune time. That occurred on Wednesday. But amazingly, many were already out calling THE bottom of the bear market. Some of these pundits have called the bottom about 10 times in the past few months. This is folly. In my study of bear markets, you need to know that they just don't end in one day...but go through a process of bottoming over time. I just do not believe we are there yet. I have no idea about price and time but I do know how bear markets end...and they certainly do not end when many are calling the bottom. Here is my next guess based on my studies of characteristics of bear markets. I suspect we're going to see what I call ABC-type action where the A move was the first move off the low, which may have just ended...the B move is the next move down, which probably started on Friday's reversal...and the C move which is another rally which may or may not tak e the market back above recent highs. Just keep in mind, this rally only serves to work off the very extended and oversold condition the market created on its drop. So...while I believe the recent reversal low could hold near term, I am not so sure we are out of the woods. There are just too many stocks and sectors that are horror shows. The last point I want to make is about Friday's action. The market opened up in a frenzy with many heralding Microsoft and its earnings as a reason to NOW BUY TECH! By the end of the day, those people were back in their caves. If there is anything you need to know about bear markets, it was all encapsulated in Friday's action as a frenzied open failed and failed miserably and "good news" in Microsoft was sold off. This type of action does not occur in bull markets. In bull markets, "good news" like that is bought and bought and bought. Learn this characteristic. It is right there for you to understand. In bull markets, bad news still gets bo ught and good news is bought with a fervor. In bear markets, good news is sold and bad news is crushed.
All I have wanted is a good bounce to short into. We got less than 2 days on Jan 9 and this bounce may be failing already after just 2 days. I hate this. Friday morning, looking back, was a good short...but I hate guesswork.
The bear is getting em all...UTILITIES and DEFENSIVE issues are now even being crushed. COAL is strong...FERTS have come back up nicely but they are close to a short also.
This is not going to be an exact science...but we will look to short the weakest of the FERTS...AGU in the morning...but only 25% probe. If it starts to work, we add.
Also, we will look to do the same in NDAQ as it has come straight up to the 50 day. Stay tuned for pre market report. I have hundreds of bad charts to short into resistance.
Down legs in bear markets end with heavy volume reversals just to suck out the last sellers at the most inopportune time. That occurred on Wednesday. But amazingly, many were already out calling THE bottom of the bear market. Some of these pundits have called the bottom about 10 times in the past few months. This is folly. In my study of bear markets, you need to know that they just don't end in one day...but go through a process of bottoming over time. I just do not believe we are there yet. I have no idea about price and time but I do know how bear markets end...and they certainly do not end when many are calling the bottom. Here is my next guess based on my studies of characteristics of bear markets. I suspect we're going to see what I call ABC-type action where the A move was the first move off the low, which may have just ended...the B move is the next move down, which probably started on Friday's reversal...and the C move which is another rally which may or may not tak e the market back above recent highs. Just keep in mind, this rally only serves to work off the very extended and oversold condition the market created on its drop. So...while I believe the recent reversal low could hold near term, I am not so sure we are out of the woods. There are just too many stocks and sectors that are horror shows. The last point I want to make is about Friday's action. The market opened up in a frenzy with many heralding Microsoft and its earnings as a reason to NOW BUY TECH! By the end of the day, those people were back in their caves. If there is anything you need to know about bear markets, it was all encapsulated in Friday's action as a frenzied open failed and failed miserably and "good news" in Microsoft was sold off. This type of action does not occur in bull markets. In bull markets, "good news" like that is bought and bought and bought. Learn this characteristic. It is right there for you to understand. In bull markets, bad news still gets bo ught and good news is bought with a fervor. In bear markets, good news is sold and bad news is crushed.
All I have wanted is a good bounce to short into. We got less than 2 days on Jan 9 and this bounce may be failing already after just 2 days. I hate this. Friday morning, looking back, was a good short...but I hate guesswork.
The bear is getting em all...UTILITIES and DEFENSIVE issues are now even being crushed. COAL is strong...FERTS have come back up nicely but they are close to a short also.
This is not going to be an exact science...but we will look to short the weakest of the FERTS...AGU in the morning...but only 25% probe. If it starts to work, we add.
Also, we will look to do the same in NDAQ as it has come straight up to the 50 day. Stay tuned for pre market report. I have hundreds of bad charts to short into resistance.
Saturday, January 26, 2008
Friday, January 25, 2008
Thursday, January 24, 2008
Wednesday, January 23, 2008
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