Thoughts about trading
I have now completed close to 2 years of trading. I am up close to 25% over the last two years. Being a newcomer, I had a rough beginning trying to understand the intricracies about the market, but I never had the huge single drawdown like the ones you read master traders having. I was close to one, but I managed to get out in time. I remember being 800 shares deep in a pharma company (that was close 80% of my account) and in the midst of a FDA review. Trading was halted and my heart was in my mouth. Fortunately, the review was favorable and though there was no spike in the price, I managed to get out at a breakeven. That taught me one of many lessons. Here are some of them, i hope they help you. I hope they help me by getting reminded everytime I read this post.
1. Position size and Risk size every purchase. If you cannot, do not take the trade. If you are on a bad streak, reduce the sizes. It does not matter if you have to take odd lots, there is no rule in the world that tells you to buy multiples of 100.
2. Always have a stop in mind. Mental stops are fine. I understand that it is difficult to tell the market where you are planning to sell, expecially if the market is not highly liquid like the index funds. You would not show your next 5 moves in chess would you? Have hard stops if you are going to be away from your computer for the whole day.
3. Have greater tolerance for index funds like SPY, Qs, than individual stocks.
4. Stick to liquid stocks. Daily trading value should be atleast 50 million dollars. I know there are others who say that you should stick to stocks with a min daily volume of 1 million or more. But would you trade a stock that trades at 5 dollars with a million share avg daily volume. That would be stupid as you have to buy 1000 shares for a 5000 dollar investment.
5. Do not.... let me repeat Do not buy pharma and bio tech stocks. They are highly news driven. If you do intend to go that way, stick to an index fund like XBI.
6. Do not bottom feed. Only toxic feed lies there.
7. Do not try to catch a falling knife. unless you see a big jump in volume showing a exhaustion and bounce pattern. Lower your position size and have a slightly wider stop in this case. Stick to index funds in this case.
8. Confidence is everything, over confidence will get you nothing. There is nothing wrong in losing small or missing out on a big move.
9. Dont follow market gurus. Trust your own judgment.
Good luck
1. Position size and Risk size every purchase. If you cannot, do not take the trade. If you are on a bad streak, reduce the sizes. It does not matter if you have to take odd lots, there is no rule in the world that tells you to buy multiples of 100.
2. Always have a stop in mind. Mental stops are fine. I understand that it is difficult to tell the market where you are planning to sell, expecially if the market is not highly liquid like the index funds. You would not show your next 5 moves in chess would you? Have hard stops if you are going to be away from your computer for the whole day.
3. Have greater tolerance for index funds like SPY, Qs, than individual stocks.
4. Stick to liquid stocks. Daily trading value should be atleast 50 million dollars. I know there are others who say that you should stick to stocks with a min daily volume of 1 million or more. But would you trade a stock that trades at 5 dollars with a million share avg daily volume. That would be stupid as you have to buy 1000 shares for a 5000 dollar investment.
5. Do not.... let me repeat Do not buy pharma and bio tech stocks. They are highly news driven. If you do intend to go that way, stick to an index fund like XBI.
6. Do not bottom feed. Only toxic feed lies there.
7. Do not try to catch a falling knife. unless you see a big jump in volume showing a exhaustion and bounce pattern. Lower your position size and have a slightly wider stop in this case. Stick to index funds in this case.
8. Confidence is everything, over confidence will get you nothing. There is nothing wrong in losing small or missing out on a big move.
9. Dont follow market gurus. Trust your own judgment.
Good luck
Labels: THOUGHTS ABOUT TRADING.
posted by Rajaram Pai at 9:38 AM
0 Comments:
Post a Comment
<< Home