Iso... it's the divergence of thought along the way to a convergent goal, that makes it so interesting here on this thread.
ie: the trend is your friend, or don't fade/sell strength.
There are many different styles and techniques to trading successfully.
One of the keys; is knowing one's emotional & psychological makeup... knowing your own strength's & weakness's and the environments that you trade best within....and finding what works for you as well as what doesn't.
For me... it's identifying a HIGH Reward - LOW Risk; longterm cyclical opportunity and then.... "IF" you can enter at, or near a cyclical bottom; and even if you're early - effectively averaging down into an attractive historical average cost basis... to then trade the resulting Cyclical Up Cycle against the grain... continually selling strength and re-buying pullbacks...continually trading out front of the market and the cycle itself.
We've seen both the last couple OSX cycles as well as this initial upturn in the Gold cycle; move in stair-step higher highs and higher lows; but with continual backing & filling and profitable re-entry opps continually presented all along the way in the early to middle 2/3rds of the cycle.
I now try to lever that early to middle 2/3rds of what I view as the Sweet-Spot of a cyclical move.
That middle 2/3rds seems to nearly always be the easiest to trade and usually offers the High Reward/Low Risk underlying fundamentals as well.
If you can make 3,4 nice portfolio weighted entries & re-entry trades during that 2/3rds sweet-spot middle of the cycle - even if you sell out early in waves all the way up to the peak of the cycle and miss the exact top... if you add up all of those little scalps and most importantly the 2,3, maybe even 4,or 5 portfolio weighted entry/re-entry trades that you continually sold into strenth... your total returns will often be significantly higher than the entire total return from the exact tic bottom, to the exact tic top of the cycle from a buy & hold standpoint....that we all know is virtually impossible to time right... and it's that exit that is so punishing, so fast and so hard on the downside... ala the last couple of OSX/XNG cycle rollovers.
For me, it's easier to make 20-25-30 Index points; 3,4 even 5 times thru this Gold/HUI cycle that it would be to make 80, or 100 points in a single nearly uninterrupted buy & hold move, where you hope you capture a high percentage of the total move and exit at, or near the top before the cycle rolls over.
- Personally, I'd say 85% to 90% of ALL of the significant damage I've ever suffered as a trader; came in letting rallies roll over, then slowly stopping out in bits & pieces as these volatile commodity cycles rolled over hard, heavy & fast - giving back giant piece, after piece of my profits as I expected the stock,or sector to base and re-rally, versus rolling over and over and over to new low, after new low.... as unfortunately; these commodity cycles have all ended of late just like that.
- Personally, NOTHING is as demoralizing, or impacts my trading effectiveness as much, as seeing a stock run from $20 to $40, pull back swiftly to $35 and you hold - thinking it's just a normal pullback, backing & filling and basing for the next move to higher highs (just knowing it's going to $50 now (VBG)only it doesn't... as it rolls over some more, to $32.
Now at $32 you have to decide to lock in/take profits now (and how much ? 1/2 a position, 1/4, all of it ?); or instead of selling and taking the remaining profits - do you add here ? - perhaps even doubling down ! - since as you didn't sell at $40 - expecting it was going to $50... that $32 is now smellin' like quite a bargain isn't it(VBG) ?
Then you wait and add more, or even double down at $30 since $32 was sooooo damn tempting and you just knnnnnnnnnnnnew it was going to $50..... and then the #&!@SOB crashes to $25 in a beeline... where you then get physically sick (vbg)... (we've all been there & done that).
You let a damn double rollover into a 50% pop; bought more that then tanked and turned your former double, that turned into a 50% pop... into now what is a chip shot single, or at best a total break even trade; or God forbid... that ultimate sin of all sins... letting a homerun turn into a loss !?!?!?!
Obviously there is no carved in stone mathematical formula for taking profits, setting stops, re-entering, or exiting... and one has to rely on the gut at times, just the brain and nothing but the brain in others... and sheer fear in yet others... (I've learned to no longer act on "greed",,, as the Trading God's seem to use exponential punishment factors every time I do...(VBG).
...for me; it's like trading with the wind at one's back and you seem to retain so many more options when you sell & take profits a bit too early, rather than a bit too late... it's just feels better as well and it's worth 40 points on your Blood Pressure as well I've found out.
I've just found out over time; that I sleep and trade better long term; when I sell a stock that ran from $20 to $40 too early - seeing it ultimately run to $50; than when I let a stock run from $20 to $40 and either have to stop out at $30, or worse; average down into even greater losses, or let a homerun turn into a minnie,or even a loss.
So now, I stick to rules # I, II & III religiously.
Rule #1.
- always be early to the Party, but never, never, EVER - be caught hanging around at last call.
Rule #2.
- Pigs get Fat, but Hogs get Slaughtered...(always have, still do and always will).
Rule #3.
- it's both Easier and Safer to make a 100 point Sector Index return via 3 - 30/35 point trades, or 4 - 25 point trades; than it is to buy, hold and exit a continual 100 point sector run.
PS:
...Kudlow must be inhaling again... as he just called for a 20% move in the S&P for next year on CNBC's Kudlow & Cramer (vbg). |
