The Trick October 23, 2007

Simple, but effective. From Jeff Macke:

The trick, of course, is never letting a bad trade become a long-term investment.

Have an exit strategy – never lose big.

When You're Wrong October 11, 2007

More trading advice from Quint Tatro – what to do when you’re wrong:

Accepting the fact that you are wrong…is the first step, however, correcting it quickly is step two. Many people at this juncture become paralyzed or zombie-like, not knowing what to do or what action to take. They realize they are wrong, however they start to rationalize the action and hold the stock starting to cling onto hope. Some will even invest more money thinking they are doing the proper thing by averaging in. Luckily, I have been in this situation many times, and knew the proper course of action was to correct myself very quickly, which I did by selling shares and moving on. The stock went on to creep steadily higher and I may have been better off waiting a few days, however the psychological effect the stock would have had on me would have kept me out of other areas that I played, making up the loss very quickly.

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The simple fact is that should you trade in the market, you will be wrong on numerous occasions. The key however is to never let this damage you for more than is necessary. Once you recognize you are wrong, correct yourself quickly and move on. Accept the fact that you were wrong and let it go.

No matter how good you think you or your methods are, you will be wrong now and then. Probably more often than that – but hopefully not too much more.

Learn to recognize when you’re wrong, recognize it quickly, and rectify the situation. Use the Gary Kaltbaum method: Be wrong quick, and be wrong small. Never lose big.

Find Your Style October 10, 2007

When it comes to trading the markets and investing, there are a million-and-one different ways to make money. Unfortunately, none of those ways are as ‘easy’ as many people believe they are. And it’s up to you to decide which ‘way’ suits your comfort level and personality. Then you must learn how to effectively trade in that style, as Quint Tatro explains today:

I have often used a line from trading great Jessie Livermore when talking with others about speculating in the markets. The most recent conversation came during a doctor’s visit. As my doctor was doing his normal ‘breath deep’ routine he asked how he could make some good money in the markets. Unfortunately, his question was met by a rather awkward pause in the conversation and I simply responded by saying “I’ll make a deal with you. I’ll tell you how to make some good money in the market if you tell me how I can make some good money practicing medicine.” He didn’t laugh.

Trading is a very unique craft with incredibly low barriers to entry, however in my opinion opening an account in order to buy a few stocks is far from trading. Though, I will be the first one to stand and say that I firmly believe anyone willing to commit the time necessary and possess the work ethic to study and hone the skill can become an incredibly successful trader.

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You see, like medicine, accounting or sports, trading or investing is a general term that encompasses a multitude of styles. It is arrogant to think one style is superior to the next. Rather, there are always people at the top of their style who are consistently performing exceptionally well. One of the biggest issues I see facing many people who desire to venture down the trading path, is not correlating the style they desire to learn with their personality. In my opinion that is the first and foremost way in which one starts learning to trade. Even if you have already started down a particular trading road, it may be beneficial to ask yourself some questions.

Go read the rest, and see if you can find your own style.