5 Some Nuggets of Market Wisdom
Some of these I have picked up through my own experiences in the markets. Others I have heard repeated while more I have seen written in various places. From wherever they come, I consider them all to be worth repeating. And just in case you are wondering, I think I have been guilty of contravening every one of these nuggets at some time or other.
Don’t apply everyday logic to the market.
What may appear as sense to you will be ignored or avoided by someone else. Always remember that if you decide it makes sense or is logical to buy at a certain price, you can only do so because someone else has decided it make sense to sell at that price (or a bit lower if there is a broker involved).
Never average down on a losing position.
If you have a losing position then that is a bad investment. Increasing it is just buying more of a bad thing. Why do you want more of a loser? You want winners.
It’s not about being right, it’s about making money.
The best traders are wrong at least as often as they are right. They just accept they are wrong and move on. You must have a single objective or you will end up with contradictions. Worse, because you are certain to be wrong regularly you will experience emotional distress if your objective is to be right.
It’s the long term that matters.
Even someone who knows nothing or does all the wrong things can get lucky in the short term and earn money. But it takes skill to be profitable in the long term. You almost certainly won’t be lucky for long.
Always be flexible with your expectations, never with your rules.
This seems so obvious but consider how often poor traders do exactly the opposite. The try to mould the market to their wishes, they trade impulsively and randomly, and they refuse to accept when they are wrong. Exactly the opposite of what they should be doing.
Be patient with your winners, never with your losers.
It is one of the sternest tests of discipline to cut losses short and allow winners to run. All your instincts scream to do the opposite – to take your profits before they disappear and to give losing trades a chance to recover. Don’t leave it to chance – have strict hard stops.
Even breaking news will not give you an edge.
If the information is public then it will very soon be priced in. You need to be ahead. The only way you will do this is to act as momentum rises in line with a trend at a higher timeframe.
Trust you trading plan.
To a large extent you are on your own making your own decisions and taking responsibility for the outcome. You need to have a plan or else it can be very lonely. But if you don’t trust your plan and trade according to your plan then there is no point in having a plan. Trust your plan or get a new one.
Never fight the trend.
You don’t know what will happen next but if a market is moving in a particular direction then it stands to reason that it is more likely to continue to move in that direction than to reverse and move in the opposite direction. There is no guarantee but even a slightly greater probability may give you enough of an edge while attempting to fight the trend puts you at a disadvantage.
The market will act as it will.
It may not be logical how the market moves. It may not make sense or even be explicable. So what. Just accept it.
Bear markets are more violent than bull markets.
All the evidence supports this observation, suggesting that fear is the dominant driving force when compared to greed. The stock market will usually fall 3 to 5 times as fast as it rose over a certain price range. This does not really apply at short timeframes where market noise dominates.
Do more of what works and less of what does not work.
Sounds very sensible, but you have to know what is working and what is not. So you need to keep monitoring your actions and performance.
Never look for perfection.
There is no Holy Grail of trading even though you will find many people ready and willing to sell you a sure winning system for a reasonable price. Why don’t they just use it themselves to make a killing? Steady long term profitability is your objective.