FOOD FOR THOUGHT ... Buying low and selling high. ..........
When most people hear the term buy low, they automatically think that means buy cheap.
I have spent most of my adult life in sales and I know there is a difference between buying cheap and buying a value.
Most people assume value means cheap. It doesn't. Value is buying quality at a reasonable price.
Price may seem expensive to those who can't envision true value. But from my experience, value is buying something at a price that will see whatever it is I'm buying increase in value or provide a terrific service in the event I need to use it.
Professional analysts know the majority of people focus on cheap, thinking cheap means value. Therefore, analysts will often enable those who think cheap into using market strategies that don't outperform the market over the long term. Professional traders need someone to buy cheap, to drive price higher so they can sell into those rallies.
If anyone has read the Market Wizard books, the most successful traders of all time follow the trend of the markets.
Study after study, that I have read over the years, continue to support the idea that trend following has the greatest amount of success over time, than any other system. Yet, most people are trying to find the bottom when buying stocks. And when that doesn't work out, they buy more of what doesn't work.
In perfect market conditions, finding the bottom and riding it to new highs is a terrific strategy. But how often do we have perfect market conditions?
Most people enter a trade on the philosophy that the trade is going to work out. They don't allow for trades that don't work out.
In putting sales plans together, I had to allow for margin of error. I had to have a plan in place to offset a plan going to hell. I had to know in advance, what to do when the plan wasn't going to work.
I learned that in the Marine Corps. You didn't send men out on a mission without taking other contingencies into consideration. You had to learn to measure risk.
To be successful over the long run in the market, we must learn to measure risk and learn how to respond properly when trades don't go our way.
There's nothing wrong with taking on a trade that has a high risk, high reward ratio, but we shouldn't do this with all of our trades. If you can afford to lose it, you just may.
I go in with the idea of protecting capital. That doesn't mean I won't have some large returns. GT, BRCD and RAD are a few trades where I have had large returns but didn't take on the risk at the time of entry.
When we learn to trade as a business, as though it was our livelihood, even if it isn't, we will become better traders.
Studies show that trend following is the most successful way of trading over time. Take the time to learn this strategy. Leave the bottom fishing to the novice. Trade like a pro.
dabum |
