“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.