Investing vs Gambling

“Investors are the big gamblers. They make a bet, stay with it, and if it goes the wrong way, they lose it all.”

Jesse Livermore

Not having an exit strategy before initiating a trading position is worse than gambling, where you realize that the chance to lose is too big, therefore you risk only money you can afford to lose. Not having a stop loss means that you are most likely risking more than you could afford to lose. As they say amateurs go out of business because of taking big losses. Professionals go out of business by taking small profits. Cut your losses short when your stop level is hit. Even more, make sure to put your stop loss order immediately after you initiate a trade. Put your stop loss at a place where the trend you are following will be over. Let your profits run by gradually lifting you  profit protection stop order. In order to maximize your profits you have to be willing to give some of them back.

I” don’t believe anyone ever gets wiped out in the market because of bad luck; there is always some other reason for it. Either you were off when you did the trade, or you didn’t have the experience. There is always a mistake involved.”

Mark Weinstein

Sooner or later, every trend ends

You never know how long a trend will continue. This is why to maximize profits, you gradually raise you stop order as your position appreciates in value. Once the trend ends, you never know how much it will travel in the opposite direction. People tend to overshoot on both directions.

With an individual stock, you absolutely have to have a stop-loss point, because you never know how far down the stock is going. I remember selling a $100 stock one time and it eventually went to $1. I didn’t have any idea it was going down that far, but what would have happened if I had held on to it? One mistake like that and you can’t come back.”

William O”Neil

Being unbiased

“There is only one side to the stock market;….not the bull side or the bear side, but the right side.”

Jesse Livermore

If a man will begin with certainties, he shall end in doubts; but if he will be content to begin with doubts, he shall end in certainties.

Francis Bacon

Think for yourself

One of the biggest pitfalls in trading is to rely too heavily on the guidance of other people. It is important that you formulate your own personal view of the world and make investment decisions in tune with this view.” ~ Richard Olsen