In high volatile environment (now), you would often be shaken out of positions, only to see them reverse back in the desired direction. This is not a reason not to honor your stop losses. It is just a reminder that either your timing was inappropriate or that you don’t have an edge in the current market environment and therefore you shouldn’t participate until things change. There are times to buy, there are times to sell, there are times to do nothing.
In bear market, honoring your stop loss will save you form disaster. It will assist you to preserve capital, so you could live to trade another day. In bull market, it will free out money for better trading opportunities.
The only reason to hold a stock in your portfolio is if you would buy it at its current level and there aren’t any better opportunities for your money.
We are experiencing a rare event of market destruction that will lay down the foundations for the greatest wealth-building opportunities in our life time.
After the darkest hour of the night, the sun will rise again.
“If you really think the stock is going to make a big move – and that should be the only reason you are buying the stock to begin with – then there is no reason to haggle over an eighth of a point. Just buy the stock. The same thing applies to the downside; if you think the stock is going to drop, just sell it.”
To be successful in the markets you need to know:
– what to buy (equity selection);
– When to buy it and when to pass on it (risk management);
– When to exit (time management).
The most essential part of equity selection is finding/creating a trading system with positive expectancy. Look for the catalyst/catalysts than has/have the potential to start a big move in the desired direction. There are two catalysts I focus on – earnings related and sector related. I pay attention to price, because it measures the only factor than really moves markets – confidence. It always says more than any other source of information. Reaction to news is more important to news itself.
Risk management has two basic elements: defining risk/reward ratio for every position I consider to get involved in and position sizing (how much to buy, what % of capital to put on risk).
Time management involves taking into account the opportunity cost. How long to stay in a position?
It’s the greed factor that corrupts the way people think in this business. Unfortunately, I needed a 6 fig loss to remind me how stupid greed can make a person. Needless to say, from here on, or until I recover some of these losses, trading will be disciplined.
Sept. 26 (Bloomberg) — China’s cabinet agreed to let investors buy shares on credit and sell borrowed stock to help develop Asia’s second-largest market after prices and trading volumes slumped, an official familiar with the plan said.
China’s government is betting the changes will boost trading without spurring further declines after state share buybacks helped the CSI 300 Index rebound from a two-year low.
China has scrapped the tax on stock purchases and relaxed company buyback rules to help support the world’s second-worst performing stock market this year.
The CSI 300 rose 0.9 percent today and added 8.2 percent this week, the first weekly gain in nine weeks.