Idle Thoughts
I have said this before and I'll say it again. I have learned more by P&F than by anything else I know about trading and investing. I have made some big, big mistakes by not following P&F principles. May I share a few random thoughts:
1. When stocks get extended, they are due to pullback. One must get used to it. Did anyone think the Nasdaq could never correct ? Good piffers (I am not in that category yet) took profits on the way up and held core positions.
2. I only make money when I follow the indicators and trade with the trend, both for the market and for the stock.
3. I only make money when I choose good risk/reward situations. Extended stocks are terrible risk/reward situations. Momentum traders can profit here, but they have to be good at it. I am not. I am learning what I am good at doing, and what I am not good at doing, and focus on what I am good at doing.
4. I only make money when I manage my money. As mad as I get when I sell a partial position early, I am thankful to have cash for another investment. The money management taught in Tom Dorsey's book works fine.
5. It is easier for me to trade stocks than indexes. I lost a lot of money last year when the indicators were oversold and I held index puts. It all goes back to risk and reward. Where was the potential reward when NYSEBP was around 30. Silly me. I have learned from this.
6. The first sell signal in a strong uptrend is often a shakeout (I am not saying this in the P&F technical sense). Look at charts like CSCO when it went down to 56 before it made its most recent huge move. I finally may have learned my lesson when I bought PSFT the other day at 20, sweated it out when it broke 18, then looked at the chart and saw that 17 would be a break of the BSL and decided to ride it out. I held the shares, sold some calls yesterday, and feel like I did something right for a change.
For me, its all about going with the trend, risk/reward and money management. My biggest problem continues to be letting winners turn on me. I buy for the objective, know the stop loss point, but what to do when the position is up 10% then starts down again ?
P&F is where it is at for me. Hopefully, I can do what I am supposed to do and profit.
Time to go to work.
David |
