Question:
I have just been reading your statements and just wanted to know what you meant by “cash is king” Maybe it is silly, but I am not clear about what you mean.
a.kahn from Cashville
Answer:
Well, let me put it this way … if you have no cash, you have no trades. Even though trading is the point of trading, the more important aspect of this endeavor is protecting and preserving capital. Thus, an active trader always has cash available to trade. An active trader never “locks up” all of his capital in a trade or a series of trades that are open-ended. All trades have exits (stops and profit targets) built into the trade. Day traders, in fact, have an unwritten rule that says, never hold a trade over night. Get the cash for the next day’s trade.
The importance of “cash is king” falls into everyday trading, but the real value in this maxim is when times are tough, such as where we were and where we are today. When markets fall to the levels we saw in early 2009, buying opportunities emerge. In this case, the buying opportunity was and is a once-in-a-lifetime offering. Many, many markets are undervalued to the point where trading them in the short term can turn quick profits, and holding them for a bit may prove to be even more profitable. In either case, in order to take advantage of the opportunities, traders need cash. Thus, like the moral fable about the ant that toiled and worked to prepare for winter and the grasshopper that sang and danced all summer, so goes trading. As a trader, put away, for when you need it, a certain percentage of your winnings. Make sure you always have cash available for that opportunity that is waiting for you to find it.
Note: We seem to have lost the interactivity we were developing. Comments have dropped off. Any chance we could get that momentum back?
Trade in the day; invest in your life …
