Blood, Sweat & Pips - Here are our thoughts on Trading
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Thoughts on Trading
Win, Lose or Draw - The Road to Successful Trading
The other day Bob Pisani who has been covering markets for more than 20 years from the floor of the NYSE was ruminating about why investors fail and his conclusion was that most investors never stick to their original strategy. Bob was talking in particular about Bill O'Neill who founded Investors Business Daily and who is known as the father of momentum stock trading.
O'Neill had two very simple rules. If the stock fell by more than 8% from your purchase price, you sold it regardless of any macro or micro conditions that may have caused the fall. If the stock had quarterly earnings growth of 25% or more -- it was candidate for a buy regardless of current valuation.
There were several other criteria that O'Neill used, but Pisani's point was that it really didn't matter if O'Neill was right or wrong in the short term. He was consistent with his trading and in the long run that mattered much more.
We all know that when it comes to investing the single best strategy is to buy a very low cost index fund with the same amount of dollars every month. Any investor who followed this strategy from 2000 onward through two brutal bear markets would be much better off than sitting in cash and would be way ahead of most hedge funds who jumped in and out of the market trying to outsmart it.The problem is that very few investors have the strength of mind to remain consistent in the face of risk and to follow the rules.
As traders we fall prey to the same human weakness. Very few of us can follow a strategy consistently through its inevitable drawdowns. Yet if we try there is tremendous value to be gained. First and foremost you becomes a realistic rather than an idealistic trader. If you trade a high frequency day trading strategy long enough you learn that there are days, week even months when you will constantly lose money. Although most us can appreciate this truth intellectually, few of us can accept it emotionally.
That's why trading a system consistently win lose or draw can be the best training experience for a trader. Once you have gone through the rollercoaster ride of rising and sinking account equity, you can begin to accept your losses with poise, and that is the first step towards becoming a winner in the market.
Past performance is not indicative of future results. Trading forex carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade any such leveraged products you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading on margin, and seek advice from an independent financial advisor if you have any doubts.