Five Behaviors for Making Money Now 24 comments
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As I'm writing this, the ES futures are lock limit down and my email count is off the charts. Lots of fear, not much greed: fear, not only for one's trading, but for retirement savings and the economy. Most of people's money is tied up in some combination of stocks, bonds, and residential real estate. That means that many, many people are worth 25+% less than they had been just a year or so ago.
It is difficult to insulate those fears and concerns from one's trading. And yet, I do hear from traders who are making money in these markets. There *is* volatility, and there can be opportunity. Here are five factors that stand out among the traders I talk with who are making money in the current environment:
1) Patience - The ones who are afraid of missing moves, who chase moves as a result, are getting hurt. The ones who wait for clear signals and good reward-to-risk opportunities can take advantage of the volatility. The successful traders aren't afraid of missing a move; they know, in this volatile environment, other opportunities will arise.
2) Position Sizing - Trading smaller when markets are moving more means that one or two losing trades won't knock you out for the day or the week. The successful traders tell me they're making plenty of money with smaller size simply because we're moving triple digits in the Dow just about every day.
3) Resilience - When you're wrong in these markets, you can really be wrong. My first trade yesterday lost over 20 S&P points; I wound up the day solidly in the green. By managing risk, you also manage emotions and can stay in the game. The successful traders are in there, making trades. They get off the canvas when they're wrong and they play defense, even as they look for opportunity.
4) Minimizing Distractions - One thing I noticed is that the successful traders in this environment have taken active measures to protect their personal finances. The less successful ones have been distracted by losses they're incurring outside of trading. It is difficult to focus on trading if you're worried about unemployment or loss of savings; addressing personal security helps maximize focus during trading.
5) Self-Maintenance - It's easy to get run down following markets through the day, every day, and then tracking them overnight and overseas. One troubled trader told me he was living, eating, and breathing trading. That is a risk factor for burnout, lessened concentration, and bad decision making. The successful traders aren't afraid to step away from the screens; once again, they know opportunity is not going to go away.
I'm finding that execution is the better part of success in these times. If you have a good idea, but the timing of your entry is wrong or your position is too large, you're likely to get stopped out at the worst conceivable time. By waiting for markets to put in a seeming high or low, waiting for a bounce or pullback that can't make a new price extreme, and *then* getting into a position, you can minimize the heat you take on trades. That, I'm finding, is half the battle.
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This article has 24 comments:
I don't think people are looking to hear things like 'manage your risk' and 'be patient'.
What people want to hear right now is 'How the heck do I KEEP what I have, let alone MAKE something?'
That's the question.
The other question is 'When is all of this new money going to make its way through the system and kick off something, inflation, a rally, whatever?'
Your last point (about waiting for the markets/stock to put in a new high or low before putting on a position) is so true.
One of the best adages I have heard, goes like this "Don't be impatient and go rushing out looking for any old trade but wait for the trade to come to you". This has been my golden rule, and so far I have been consistently profitable for 10 consecutive trades.
As you say, there are ALWAYS opportunities arising in the markets, so don't be annoyed if you've "missed" a trade, there'll be another 10 just around the corner. Patience is key.
Good luck and successful trading.
TRANSLATION:
1. Bubble Maker
2. Wall Street Marketer
3. Hype Artist
4. Buy, Buy and Buy Some More
Ever heard of cash?
Like any boomer is day trading their IRA's...
1. Stay away from the market.
2. Stay away from the market.
3. Stay away from the market.
4. Stay away from the market.
5. Stay away from the market.
All banks with exposure to hedge funds should be recapitalized for any losses they might suffer for this measures.
i just submitted for publication to seekingalpha the economic forecast by Businesscycle.com about the economy. they produce a weekly economic leading indicator. we are in deep doodoo, and shortly (meaning days away) may be facing a recession deeper than 1973/1974.
shortly, the least of your worries will be hedge fund (and mutual fund for that matter) sell-offs effecting the market. unless you are warren buffett, joe the investor needs to be in asset preservation mode.
I invest in gold and silver, but its going just the opposite site.maybe i have to wait a little longer. But with tidal wave its the same, they go up and down.
I agree 100 percent. It is so pathetic to watch these hype and super-hype types on TV telling you to buy, buy and buy some more.
On the Today Show this morning, they were giving hints on how to borrow money from your parents and if you should let your kids borrow money. I guess you should if the intent is to spend it buying shares of GE to pump-up the income of the staff of these dumb shows like Today and CNBC.
Speaking of these shows, man... They all look awful. These women from CNBC look like they've been tuning trick at night to make a few $$$ -- maybe they are called the Wall Street Walkers, or Paulson's Prostitutes. I guess they must get a lot of their income and retirement paid in GE stock...
People who watch CNBC now -- people like Cramer -- and NBC, do so for pure entertainment purposes. NOBODY, and I mean NOBODY is STUPID enough to put their money in stocks right now. This country is full of millions of Enron's waiting to fall. It's only a matter of time before the margin call gets to all of them.
This bail-out of $700 billion was nothing more or less than an effort by Bush-Paulson to hide the fact that all of these banks are worthless and these derivatives will suck the world's economies dry. It won't be long, people are STILL asking the hard questions about the solvency of the banking system and if any of these companies, be it GE or Wells Fargo, are worth a dime.
Yet Bush-Paulson ask us for their confidence and trust. Dis Iraq have WMD's? Sure Bush, sure Paulson... We trust the both of you 100 percent!
HAVE LOST OVER 50% OF THEIR VALUE.
DAY TRADING ONLY WILL MAKE YOU MONEY BUT SELECT 2 OR 3 STOCKS OF HIGH QUALITY WAIT FOR THAT STOCK TO MEET YOUR BOTTOM PRICE SND SELL WHEN YOU SEE PROFIT, AT THE END OF THE TRADING DAY BE SURE YOU DO NOT OWN ANY STOCK SINCE THE NEXT DAY THE DOW MAY DROP ANOTHER 300 POINTS.
THE BAD NEWS IS YET TO COME PERHAPS IN THE FIRST QUARTE 2009 WHEN ALL THE EXTRA HELP FOR THE XMAS HOLIDAY ARE LAID OFF AND THE REPORT COMES OUT VERY BAD.
IN THIS MARKET I WILL NOT BE SUPRISED TO SEE THE DOW
GOING TO THE LOW 7000 IF YOU REMAIN HOLDING A STOCK WHEN
THE DOW IS 8300 THEN THE DOW DROPS TO THE 7000 YOUR LOSSES WILL BE A DIASTER.
BUY AND HOLD FOR LONG TERM IS ONLY GOOD WHEN WE ARE IN A BULL MARKET AND THE ECONOMY IS GOOD AND SOUND.
RIGHT NOW GO INTO CASH AND BUY ONE STOCK AT A TIME AND SELL IT THE SAME DAY WHEN YOU SEE 10 OR 20 CENTS PROFIT.
GOOD LUCK. JOSEPH FOSTER DAY TRADER.
Bottom? You really think this is a bottom? I'd really be careful if you invest based on that thinking... Personally, I could see the market going down to Dow 5,000 to 4,000, although I'll admit, that may be high considering the bad derivatives may be over $100 trillion globally... Some are saying a realistic Dow of 3,000, since we've been living the last 15 years, spending into the future and using a bubble for collateral.
In any case... If you go into this market, do your RESEARCH. Most of all, don't be afraid to open your eyes and look at what's going on around you. Go to your local supermarket and look at the empty and near-empty shelves. Ask yourself why nobody in the media is reporting on serious supply issues in the markets. Look at the Baltic Dry index...
Many of the stocks that are being pushed these days, that made it through prior economic problems, may not make it through this time. I've seen a lot of name-brand items sitting on shelves, while the generic brands are out of stock.
On key indicator to look at is the U.S. Government's Consumer Price Index (CPI) -- many think that this number is increasingly a giant fraud. What it does is give a false indicator of profits of many of these companies, since, when adjust for CPI, they look like they're making lots of $$$$ -- in fact, they are selling fewer units at grossly inflated prices, but you'd never know since the feds are keeping the CPI low. I think the feds shop at Pie in the Sky Mart...
Hang on tight, this week could get nasty.
1) the knowledge that you have about economic issues and in particular about the stock that you follow
2) how emotive you are
3) the money management that you know to follow.
4) And of course if you have luck, the first 3 doesn't matter any more. ;)