Having a plan of action allows you to be objective when others are often reacting emotionaly. Every weekend I sit and create a list with potential trading candidates for next week. I choose 5 longs and 5 shorts, representing different industry groups, which my analysis reveals that might have a significant move during the week. Watching such a small number of stocks helps me to be more focused and objective. Usually only 2 or 3 out of the chosen 10 stocks will behave the way I expected, but in my scheme of things this is more than enough.
In uptrends, it is more profitable to be long all time highs and positive reactions to earnings. In downtrends, it is more profitable to be short all time lows and negative reactions to earnings. Every trend experiences normal corrections on its way up/down. Such corrections are often good buying opportunities as the trend tends to continue in its major direction. Sooner or later every trend ends. No one knows when. But to maximize and protect profits, we gradually raise our stops to levels, which when broken indicate an end of a trend. There will be times when our stops will shake us out too early from a trend, but we don’t need to catch the exact top or bottom in order to be profitable.
“I’ve made phenomenal amounts of money for very simple decisions but I was willing to make them. Somebody had to. Others are looking for highly complex ways of interacting with the markets, when most of the time it’s only the simple ones that are going to work. ”