Sometimes, it is hard to stick to the plan. I admit it. You have the trade, you know what you want to do, and when it is time to do it, you look and the indicators and the market are saying, “Hold on, you could get more on the upside or sell, the market is going to reverse.” This is the point that tests all makers of excellent trading strategies and it is the single most compelling argument for automated trading. Yup, put in your sells on the top and bottom and walk away …
Speaking of strategies, some are extremely complicated and some are as simple as the one below. I follow it, which, BTW, has done well for me in this market.
- Buying the dips and selling the rips is a far more sound strategy for the time being.
So, here’s a cool thing about trading. I just told you about the “conundrum,” (the internal debate we all have) about changing the “rules” of the game we set up (unless you have set up automated trading). The “game we set up” is the operative phrase – we make the rules and we can break them if we want.
Hmmm … As I am writing this, I have a new thought about this. Yes, we make and break the rules at will, but if we want success as traders, we need to have a dang good reason to break the rules. The reason has to be thought-out and considered in the context of what your end goal is. As well, if you commit to breaking the rules, you need to accept the benefits with equanimity and the consequences without regret. So there it is; it is our game and we can do what we want, and that is a perfect segue for answering the following question from a reader.
- I am currently risking about 0.4% of my capital on most of my trades. I then pyramid into winning trades each 10-15% rise in their price, buying the same dollar amount worth of the stock each time. I feel that it’s OK for me to aggressively pyramid into winning trades because my initial position sizes (about 3% of my trading capital) are so small. I was wondering what you think of my pyramiding strategy and if you think risking 0.4% is too low because I consistently read about traders risking between 1 and 2% of their capital with each trade.
So, how is that for relating to my opening? Pretty weird how that happens …
Anyway, it is a good question and the answer is straightforward – we make the rules to our game, so if it works for you, then keep on doing it. Don’t worry about what “other” traders do. Make your decisions based on your money management rules, your risk tolerance, and your confidence in your trading abilities. The bottom line? Change your rules if you want and if you don’t want to change your rules, don’t. Keep in mind you will do your best work when you are relaxed about what you are doing. Oh, and BTW, I like your pyramiding strategy.
Do you remember me saying time and again that the perception often trumps reality in the market? Here is an example of that and a reason you never want to follow analysts too closely.
- Weighing in on the Dow today is Coke, falling by about 3% after posting not-so-great Q4 numbers. Oh, sales were up 4% overall, and profits were up 12.5%, but that still wasn’t good enough to satisfy investors or analysts. Revenue of $11.47 billion was about 4.5% shy of the expected $12.01 billion. Per-share earnings of $0.45 were a tad better than the expected $0.44. Yet, there it is – a pullback. Consider it another piece of evidence that perception and relativity is more important than reality.
Let me close out today with two thoughts. One focuses on investment or trading, that is to say, look to technology again. It might just be busting out for technical reasons.
- If the NASDAQ breaks above 3200, we haven’t seen the index that high going all the way back to the NASDAQ bubble of the late 90’s and its subsequent historical implosion in 2000.
And here is another thought about the breathless media, a cynical thought for sure, but one to consider. Is it possible that those in the financial media, many of whom have a long or short stake in the market, contrive with their interviews to move the market or a market one way or the other? Seems farfetched? Maybe …
- The scary part right now is, simply, that it seems like the media is looking for a reason – any reason – to start taking some profits and drive this market lower.
Trade in the day; Invest in your life …
