Author: Ivanhoff

About tight stops

Someone had said that he is jumping on stocks, moving with 100 mph with an inch stop for protection. There is a lot of wisdom behind these words. They reveal two essential elements of many systems for consistent profits: momentum and risk management.

Being right and being profitable in trading are two very different definitions. You could be right in 90% of your trades, making a $1 per share. Then you could be wrong on the 10th trade and lose $10 per share there. The final result is -$1 per share from all the ten trades. Percentage of winners is not what traders should be paying attention to.

You might decide to use a tight stop of 10 cents to exit quickly trades that don’t go in the desired direction. As long as you make 50 cents per share on your winning trades, you could afford the luxury to be wrong 4 out of 5 times and still be in a profitable position. The point is to jump on stocks that are moving and have the potential to provide much bigger reward than your initial risk.

Blindly using a tight stop might be useful in the begining stage of the learning curve of a developing trader, as it will teach you to lose. Sometimes you have to lose the battle in order to win the war. Losing will always be painful. The point is to use that pain as a catalyst to work harder and smarter next time. The point is, when you lose to lose small, so you could recover faster.

Using 10 cents as a stop is only an example to illustrate a point. Stop losses should be defined by the individual volatility of each stock and its supply and demand dynamics. 10 cents represents 5% of a $2 stock and it might be a proper stop, but 10 cents is only 0.1% of $100 stock, which is a normal move and might not be a stop that makes sense. Certainly this will depends on your trading horizon and trading skills. Use tight stops, but make sure there is a reason behind that stop. Don’t just randomly chose a number. Let the stop be the signal that will tell you that you are wrong and you should exit in order to chase other trading opportunities with better odds of success.

The Golden Rule

10% of your trades will account for 90% of your profits

1 or 2 months will account for most of your annual profits

1 or 2 days will account for most of your monthly profits

Good investors and traders know that very well. They are ready to press extra hard when realize that they might have a home run in play. They are ready to disappear in 60 seconds when things don’t go as planned.

Gio from IBC knows that rule very well and he pressed on his GMCR investment to achieve 190% return.

Dennis Gartman knows that The Golden Rule is what distinguishes smart from not so smart money:

We’ve learned one good lesson from that one trade, and that is that we only get one or two or perhaps three good ideas each year that work. So, when they work, it is our duty to beat them into submission; to add to them when we can; to embrace them as they insulate themselves from random market noise, and to use them to make up for the myriad numbers of truly idiotic ideas  we are capable of coming up with, keeping those losses small.

Sometimes one good opportunity could turn your life upside down.

Recession Marketing for Baseball Teams

baseball girl Tonight I was watching STL Cardinals losing shamelessly against Cincinnati and an interesting thought occurred to me. People go to see a game for entertainment purposes. There are three major ways to offer good quality entertainment to the fans (other than being in nice company and overconsuming beer):

1) they see a good quality, exiting game

2) their team wins no matter how

 3) they see a good quality game and their team wins.

 Therefore we might conclude that people are getting more satisfaction and better quality entertainment when their team wins. Higher quality justifies higher price of tickets. Here it is my proposal for every team, who wants to boosts its overall income and fans’ satisfaction.

1) Raise your tickets with 10 to 20% from the current prices.

2) If your team losses during a home game, give all ticket holders the right of 50% discount for the tickets of the next 2 home games. The promotion will work as “first comes, first served” until all seats are sold off. From one side people will get retributed for seeing their team losing and from the other, the owners will sell more seats for the next games. (seats that otherwise would stay empty)

3) If your team is winning at the beginning of the 8th inning, offer ½ price off on all drinks for the last two innings. By the end of the game, most people have consumed what they usually consume and if you see statistics, only small percentage of the overall sales take part in the 8th and 9th innings. Therefore a 50% discount mixed with the euphoria of the coming win would certainly boosts sales. We all know that margins on everything at the stadiums are gigantic, so even after 50% discount, profits will be sizable.