Check this out…then read my commentary below. I also left this for the author, but it hasn’t been approved yet to go in the comment section. I want to elaborate on a few of these points so I think I’ll take #4 and #5 and break them down into 2 separate posts. As for #’s 1, 2, and 3, see below.
Nice article, just some thoughts I’d like to share if you don’t mind. Points 1, 2 and 3 are contradicting. I agree with point 1, but subsequently don’t agree with 2 and 3. I have several ideas I would like to discuss – which I will do over at my blog for any of those interested in reading my ramblings.
#1 is important, don’t trade until you understand this. Otherwise, you might as well play Russian Roulette with 5 rounds instead of one, this is how bad you will get burned…
#2 frustrates me as a successful trader. The statement of “They stopped trying to pick tops and bottoms years ago” is a cop-out for not putting your reputation and money where your expertise as a trader is. Now, I may have stopped picking the exact bottom or top but I do pick an area where there is a better statistical chance it will either go up or down. When you stop picking areas where the market is going to turn or stall, you stop trading effectively. How do you make money in real estate? You buy at a discount and add value, wait for an opportunity and sell at a higher price than you paid (hopefully enough to cover the fees and taxes). You bought that real estate at a level that you thought was the lowest it was going to go, not on its way up (and if you did, you secretly picked a top, just one that wasn’t near your purchase price…). Trading is just like the real estate deal, if you don’t buy at a discount (or sell at inflation when shorting) then you are just waiting to go broke. If after the real estate deal the property values keep dropping do you sell it? Or, do you continue to add value waiting for the market to turn because something in your RESEARCH told you that this was a good investment. The trick here is do your homework, cut your teeth on some tough trades and make a trade…if you’re not sure, don’t take the trade. You have to pick up or down, I don’t pick either one until I see a discount (hint – discounts hang out near the areas of tops or bottoms).
#3 is much simpler, if a trader plans his trade as state in #1 then he has allowed for a certain amount of “Win” and a certain amount of “Loss” or drawdown so the statement of “They are patient with winners – and ridiculously impatient with losers” can not be true. They must be patient with their PLAN and let it work itself out in the event of a loss or gain.
Sorry if this got long, but I am going to elaborate more in a place where I don’t feel guilty for wasting space. Thanks!