Hi Rich,
I haven't read those, but I know the Lefebvre book is a classic.
I have read other similar things, but I guess I have learned mostly from my own mistakes... a very expensive school!
The sorts of things I have learned caused me to want to seek out ways of investing and trading where the emotion is minimized, or hopefully even absent. I especially got interested in mechanical systems, e.g. moving average crossover systems, Dogs of the Dow, using various screens for specific criteria, etc. etc. etc.
So that's why I like technical and chart analysis. There are fairly objective criteria defining a buy and sell signal that have nothing to do with the company itself, so it is not necessary to even consider anything further---in fact, doing so can often be counterproductive because you risk inadvertently and imperceptibly bringing into the process emotional issues that work against you. For example, you start to become a "fan" of the company management, or the particular technology they have, or their brilliant patent portfolio, etc. etc. Well... just as an example of the latter, Lucent has more patents than you and I together have had hot dinners. They crank out several patents a day, every day of the year. And yet:
139.142.147.218
That's not to say I ignore non-technical/chart factors. I do not, and I will often consider a variety of things. But I understand that doing so inevitably brings some risk because of the effects on bias.
When you find yourself "rooting" for a stock the way you root for a football team or something, I think you are on thin ice. You will not be able to objectively interpret or even see the signals that are there. The classic example of this on a mass basis is March 2000. And the lesson there is that this is not a phenomenon that happens to them, that you or I are immune to because we are so smart and sophisticated---rather, we are just as susceptible as anyone else, and just like everybody else, we will be the last to recognize it.
The only antidote I have ever found is to try in various ways to take the emotion out of things. So, I like to go short and long, and I have specific things I look for in a chart, and no matter what the company, if it cannot satisfy my prerequisites for whatever reason, I move on and forget about it. And, I look for ways to take the decision out of my hands by making the criteria objective.
An example was what I posted to you about DISH. I can tell that you "like" the company, and I can tell therefore that this is potentially dangerous to you. So... if you establish a written plan of action (or inaction) carefully and specifically defining the reasons for the trade, what your potential entry will be and why, what your initial stop will be and why and how that will be adjusted and when, and what your intial profit target price will be and why and what you will do when it is reached... that is the only way I know to counteract the bias that creeps into your decisions unwittingly and uninvited. So, I detailed the outlines of how I would plan a trade in DISH. There are other approaches, but the main thing is to have a plan, and don't make it up as you go along.
Or... simply put,
1. If you don't have an angle, then you are the angle.
2. Plan the trade... then trade the plan.
3. There's never going to be a shortage of opportunities. Pick the best. And YOU define "best", not some joker at the water cooler or some ranting raving foaming at the mouth Yahooligan. Insist that a stock do YOUR bidding, and if not, then find one that will and never compromise.
Sure, you'll miss stocks that have phenomenal rises, but as you know from those books, it is not the home runs that define successful traders/investors... it is defense, and lots of base hits. Sticking to the above will, IMHO, not make you a home-run hitter, but it will sure increase your batting average.
Remember, "Mr. October" Reggie Jackson? Everybody remembers those memorable home runs during the playoffs and World Series, but not many know that he still holds the record for strikeouts!
In the markets, strikeouts cost money, and lots of it. Defense and risk management are the critical keys that all the big boys use, and that's why they are big boys.
If you start out with $10,000 and make a paltry 0.5% per day on that and re-invest profits, at the end of the year you will have just about quadrupled your money. The moral is that modest but consistent profits with minimal losses can be extremely rewarding. Maybe it won't allow you to crow about how you made 100% on options in two days, but you'll be richly rewarded a day at a time just the same, with far less risk, and far fewer losers.
Okay... enough of my soapbox!
T |
