Today, I plan to share the investment insights Benjamin Graham, Warren Buffet’s mentor, gleane...
Being Right or Making Money?
07/07/2015 6:00 am EST
Frank Kollar, of Fibtimer.com, warns that making a trading decision based on emotions, news events, market rallies, etc. is basically akin to trading on a wish. Rather, he feels that having and sticking to a concrete trading plan is the only one way to be certain of being profitable.
When a market timer (or any trader or investor) makes a trading decision based on a news event, fear of losing out on a rally, or of losing money in a sell-off, or even the stock broker neighbor's trading tip, he or she is trading on emotions.
Wishing You Were Right
Trading on emotions, news events, market rallies, etc. is basically trading on a wish.
There is no basis for the trade, at least none that can be counted on to last. There is nothing but the moment the trader wishes he or she will be right.
Odds of Winning...Slim
Trades made on wishes have no plan behind them. There is no exit strategy. Invariably, the trade is held until losses become painful enough to force the trader to emotionally sell at a loss.
In fact, probably the worst thing that can happen is for a market timer to make a trading decision based on such an emotional event and then be profitable the very first time.
Not that there is anything wrong with being profitable. But very soon that same trader will be looking at a losing trade and the confidence of that first win is likely to cost him or her dearly.
No one makes money on Wall Street without a trading plan. No one.
Sure, the person with an initial profit can feel great for awhile. And really, really long-term investors, those who can afford to watch several bear markets whack 50% to 80% off their savings every ten years or so, will eventually make money.
When we say long-term, we mean 20 to 30 years. If you sit tight, you will likely make a profit. That is, as long as you do not panic and sell at a bottom or become greedy and double up with margin (almost always at market tops). And, as long as you do not reach retirement age at the same time a multi-year bear market starts.
There is only one way to be certain of being profitable.
"...a successful trading plan that creates unemotional buy and sell decisions will, over time, make even the most emotional person a successful (profitable) market timer."
By having, and following absolutely, a finely tuned trading plan that capitalizes on trends in the stock market.
Market timers who have a strategy for entering and exiting positions—and who follow their rules on a timely basis without hesitation—make money.
Those who trade by daily news events, daily or weekly rallies and declines, and TV hype, will always end up losing money. Remember, for every winning trade in the stock market, there is a losing trade on the other side. Only those who follow a plan consistently make the winning trades.
One of the most important questions you must ask yourself is:
Do you want to be right for a short time or do you want to make money for a long time?
Winning Market Timers Know the Secret
Ignore the news. Ignore the daily ups and downs. You have no control over them anyway. No one knows what the next day will bring. No one.
Wishing will not help. Watching the financial news religiously will not help. There is just no way to know what will happen tomorrow, or even, what will happen next week.
But a successful trading plan that creates unemotional buy and sell decisions will, over time, make even the most emotional person, a successful (profitable) market timer.
All you need do is follow the signals.
But a few simple rules do apply.
- Subscribers should make sure they know how each of our timing strategies works. They will help you build confidence in the trading strategy.
- Be sure you know your own emotional ability to handle trading. Aggressive strategies require more trading. If this keeps you up at night worrying, consider one of the active or conservative strategies. Remember, you do not need to trade aggressively to do well, you just need to follow the buy and sell signals diligently.
- Subscribers who are new to market timing should not jump right into an aggressive timing strategy. No matter how positive you are that aggressive timing is for you, it is better to start with something a bit tamer in the beginning.
- Diversify. It is not a good idea to place all your timing funds in one strategy. Consider three or even more.
Build confidence by starting slowly. When you are confident, you will follow the signals. And following the signals is the key to being profitable.
By Frank Kollar, Editor, Fibtimer.com
Related Articles on STRATEGIES
I spend a lot of time talking about block trades. These are the huge trades that show up on your opt...
I have been tracking a set-up for the SPDR Gold Trust ETF (GLD), which I analyze as a proxy for the ...
AllianzGI Equity & Convertible Income Fund (NIE), which yields 6.8%, invests in convertible equi...