I'm not sure I have an answer to that question. I certainly do NOT have a trading tip that is the Holy Grail. So here are some things I think are important in trading the market anytime, then we'll address the current market and my thoughts about the volatility.
1. THIS IS BUSINESS! Too many people think playing the market is a game. Or it's easy. Or it does not require any time. NOPE on all counts. Like any other money making endeavor trading-investing takes time. DUH! If you think it's easy....... plan on losing your arse. Let's flash back to the internet bubble, January 3, 2000 ....
Goofy: "Uh-huh, uh-huh, hey, uh, the market is on fire & Yahoo is a buy at $477/share. Let's get some before it goes to $1,000".
Logical Larry: "Ummmm, but they aren't making any money Goofy."
Goofy: "Uh yea, but uh-huh, uh-huh...I heard someone at Goldman said they were a buy."
Yahoo's all time high was $500.12 per share on January 4, 2000. One year later Yahoo was trading at less than $30 a share. Since then Yahoo has not broken $59.00 a share and currently trades in the $15 area.
Later in 2001........
Goofy : "Uh-huh, uh-huh, hey Larry, I got a winner this time. Let's buy some Enron. They are on fire!"
Logical Larry: "I dunno Goofy, I did a lot of research and it looks like they might be cooking the books."
Do your homework!! Think for yourself (more on that one later). Even a Warren Buffet "buy and hold forever" strategy takes a lot of time. The less time you are willing to devote, the more you should consider using a professional to assist in your investment decisions. Nothing personal, but THIS IS BUSINESS folks.
2. Have a BUSINESS PLAN and follow it. Every business needs a plan. Those that do not have a plan rarely succeed. Can you imagine opening a new car dealership or a dental office without a business plan? NOPE! Can you imagine the look on your banker's face when he asks to see your business plan and you look at him with a straight face and say "Huh? Oh, I don't have one. I'm just going to wing it". There goes your business loan in torrents of laughter!! Nothing personal, but ...........THIS IS BUSINESS folks.
3. A business plan requires a trading plan. DUH! Make one. Follow it. Follow it even when your emotions tell you otherwise. Keep your emotions out of the equation. Know your entry price. Know your exit price. Know your maximum allowable loss. Limit your losses and accept them as any other company does, knowing that losses are just the cost of doing business. I look at losses as one of the costs of trading. I have no problem executing a trade and taking a PLANNED loss. And I have no problem executing a trade and taking your money!!! Nothing personal, but......... THIS IS BUSINESS folks.
4. Money Management - This is the most important aspect of trading. No if's, and's, or but's. There is no Holy Grail. You will have losses. Losses are a part of any business. Plan on them. Manage them. Keep your losses low and let your profits run. Personally I believe that if I am only right half the time, but manage my losses, I make a nice profit. You heard right. I only need to be right 50% of the time. The trick is being willing to take a reasonable loss without letting your emotions get in the way. Losses are a part of doing business, a part of trading. Nothing personal, but .............. THIS IS BUSINESS folks.
5. Check your emotions at the door!!! No one likes to lose money. So often people let emotions rule their decisions and they lose their arse!
"Oh, no, I have a loss! Oh darn!! I can't sell now. I can't be wrong. It's gotta come back. I'll ignore my plan and keep this baby. Oh, wait I don't even have a plan!"
Then the loss gets bigger and bigger until they cannot stand the pain anymore. Then they sell and wonder what happened. A trading plan and money management helps keep emotions in check. Nothing personal, but........................................ THIS IS BUSINESS folks.
6.. Trading, Investing, or some combination? Berkshire Hathaway style, Hedge Fund style, Swing Trader, Position Trader, Day Trader? This is part of your business plan and your trading plan. Know your style. Know the plan. Nothing personal, but.................... THIS IS BUSINESS folks.
CURRENT VOLATILITY - Not for the Faint-Hearted
I think to play the market now requires some big adjustments. At least until Europe gets their act together. Those adjustments depend on your trading-investing style. But here are some things I have considered and/or enacted. Take what you like and leave the rest.
**Reduce exposure. Trade smaller lots. That's right, reducing your exposure helps to reduce risk and reduce losses.
** Widen the stops, especially on winners. I tend to use trailing stops and have made them much wider. The trailing stop does not advertise your position to everyone. This is an especially good way to play positions with a really nice profit. With those stocks I'm willing to change my trailing stop to as much as 40% of current profits. That keeps a reasonable amount of my profit and hopefully dies not close out my position on this insane volatility.
** Reduce your required profit goal. Taking 5% NOW is less risky than holding for a longer time frame in hope of getting 20% later.
**Let a swing trade become a day trade. Often, if I have hit my profit goal the same day I enter a position I get out the same day. This eliminates the overnight news risk. Can you say Greece and Prime Minister? Besides, I hit my profit goal. So there is no need to keep this position. Don't be greedy. Greed is a dangerous emotion. Remember: Pigs get fat, Hogs get slaughtered.
**Keep more or all your money in cash. You've heard me use the phrase many times "Keep your powder dry". Sometimes it's better to wait out the storm, letting cash accumulate so you are ready to strike when the time is right. Remember that the great Will Rogers used to say......."I'm more concerned about the return of my money rather then the return on my money".
**Buy quality companies that have a high degree of survive-ability during this volatile time. In better times I used this only for long term trades. But in today's world, if you ain't a quality company, and if you ain't makin' a net profit, I don't want you! Way too risky for this boy.
**Buy and Hold - Buffet Style. Nuff said!
**Buy quality stocks that pay a dividend. And a lot of great companies are selling at discounted prices and paying a nice dividend. They have less wiggle in price and will never be a 10 bagger. But their price stability and nice dividend puts your money to work with low risk.
Finally I am reminded of two great quotes. The first is a Chinese proverb that is credited to Lao Tzu the founder of Taoism. It reads:
"Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime."
The second is by Don Worden. He gave me the most important words I have ever heard. It is simply:
"Think for yourself"
Both of these apply to trading and investing. Those who listened to a certain high powered analyst in 2000/2001 lost a ton of money in the Internet Bubble. Think for yourself! Even if a supposed professional is assisting you with your trading-investing.........think for yourself. Make your own decisions and learn to fish for yourself. Do not blindly follow anyone. Have a Business plan, a Trading-Investing Plan, a Money Management Plan and stick to them. Think for yourself! Remember that losses are a part of doing business and to leave your emotions at the door. For every winner there is a loser. And I will happily take your money on the next trade.
Because ................................
as we all know.......................
yes...say it with me.................
Nothing personal, but .............
THIS IS BUSINESS folks!!!!!!
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