The Winding Path of Trading Success

Success-winding-road

If only all trades were successful, if only all investments went up.  Wouldn’t that be great!  Of course, the reality is that this is an impossible feat.  No matter if you are investing for the long term or trading in the shortest time frames, there are inevitably losing positions.

It’s how you deal with the inevitable loses that makes the grade. It’s how you manage your trades, or your investments that decides if you are going to be a winner or a loser in the long term.

The truth is, no one knows which direction the market is going to go, particularly in the lower time frames, there are just too many variables, from disasters to economic news etc..I could go on.  So the best we can do is develop a systematic approach that manages our risk and give us a positive expectancy over a period of trades.

I became a trader as investing for the long term was too slow in terms of capital appreciation, and I simply didn’t want to hold onto an investment that was going south on me.  Not that there are no merits in long term investing, I think Warren Buffet stands as a beacon that it works.  However, I don’t want to be looking to make stock market returns or slightly better, I want to knock it out if the park while managing my risk very carefully.

As I said, there will always be losing trades, but they key is to anticipate the big mega moves that happen.  A few or more times per year huge trends show up in every market and it’s my job to get in early and ride them till the trend is over.  This is the philosophy that the HowDoITradeStock.com system is built on “Let your winners run, cut you’re loses short”.

Just as the picture in the post shows what success really looks.  The same is true in terms of ultimate success in the stock market, it is not a straight path.  But I firmly believe that with a proven system, you can invest with certainty, the certainty that success will come, albeit via a winding path.

Just like the story of the tortoise and the hare, too many people are trying to get rich fast.  YOU CANNOT GET RICH FAST, it just about always leads to ruin.  You must slowly and steadily compound your money by using a system that has extremely good risk management, wins more that is loses and when it does win, the winners are 3 times the size of the loses.

However, even more importantly avoids the potential for “Murphy’s Law”.  Murphy ’s Law being, what can go wrong will go wrong.  This law is alive and well in riskier assets and strategies that are difficult to manage risk in.  I am pointing to things such as Futures, Forex and Options trading.  The lure of the small amount of money growing at a tremendous pace to make people millionaires in a short time frame…simply doesn’t work!

As an emotional human being, (in fact, sometimes an emotional basket case when my trades are going against me!), it’s difficult enough managing my risk in diversified, relatively slow moving ETF’s as it is without trying to manage my trades in a extremely fast moving environment like, Futures, Forex and Option trading.  These market places are not for the faint of heart and 90%+ of people fail trying to trade them, not because of a bad strategy, but because of the speed at which these markets can move against you.

I am of course talking purely from my own experience and from my own observations over the years, it’s your money and you can decide what to do with it, but if you want certainty, and I mean a certainty that you will be able to follow a system without feeling like you can’t sleep at night, then I would encourage you to take a look at what we are doing here at HowDoITradeStocks.com.

It’s not perfect, as no system is, but it does know how to win via the winding path.  therefore, no matter what the market throws at me, and in-spite of my emotions, I already know that 2015 is going to be my best year yet.  Stay safe and good trading!


It All Comes Down To Patience

quote-patience

Given the myriad of complexity that makes up the global markets and their minute by minute direction.  I find it funny that this week it all boils down to one word:  “Patience”.

The FOMC are getting ready for another meeting to decide simply whether to include or disband with the word “patience” in their statement on Wednesday to the waiting world financial press.  The Federal Reserve has created a mountain of debt that they are slowly trying to control, hoping that the slow moving economy can soon stand on its own two feet and allow the debt burden to be gradually reduced.  They are this week tasked again to use very carefully chosen words so not to spook the financial system they have sought to save.

Therefore, on Wednesday, the trading world will be looking to hear the word “patience” in their statement.  If it is not there I would expect a sizeable sell off.  If it is there, we may get beyond the possibility of a lower high on the S&P 500 and shoot back towards a new all-time high.

Currently my system is keeping me out of today’s move back up from last week’s low.  So I have no choice but to remain patient myself.  Only time will tell if I am missing out or if the system is rightfully protecting me from further downside should a short term lower high be put in this week.  It can be difficult having patience, sitting on the sidelines, especially when you see a good rally come and go.  However, too many times has my patience been rewarded to concern myself with any short-term moves.  And as stated in the quote above, patience is bitter, but its fruit is sweet!

As always, I will remain a humble servant to the market taking only what it will give me and waiting patiently for my opportunities.

Market News:

U.S. stocks closed more than 1 percent higher on Monday as investors cheered a pause in the dollar rally and eyed renewed weakness in oil prices ahead of Wednesday’s key Fed meeting.

The U.S. dollar index fell nearly 1 percent on Monday to trade below 100. The index gained nearly 3 percent in the last week as the euro dipped to 12-year lows below $1.05.

The Dow Jones industrial average gained more than 225 points, with all the major indices advancing to hold in the black for the year.

The Federal Open Market Committee holds its March meeting over the next two days, with the release of its statement on Wednesday. Investors are watching to see if the key word “patient” remains in the statement, an indication of when short-term interest rates might go up

Central bank policies continue to diverge from the United States’, with China’s Premier Li Keqiang suggesting more stimulus in the region and the launch of quantitative easing in the European Union last week. Shanghai equities surged to five-year highs and the DAX hit a record on Monday.

U.S. stocks mostly sold off last week amid more than 1 percent swings as investors weighed the implications on an interest rate hike from the dollar surge and mixed economic data.

However, many analysts were surprised that the fear gauge, the CBOE volatility index (VIX), remained near 16, below the expected 19 to 20 range.

In the lull before companies begin reporting first-quarter earnings in mid-April, few firms post results this week. Economic data is also light.

Home builder confidence fell two points to 53 in March, down from a high of 59 last September.

Before the bell, the Empire State Index posted 6.90 for March, below February’s 7.78. Industrial production rose 0.1 percent in February, below expectations, with capacity utilization slightly lower at 78.9 percent.

Tuesday:

Earnings: Burlington Stores, DSW, FactSet, Adobe Systems, Oracle

FOMC meeting begins

8:30 am: Housing starts


The Market…Impossible To Predict

predictions

Having just come out of a nice winning trend from the month of February and going to cash as of yesterday morning, I was obviously pleased to see the market strongly sell-off without me today.  We don’t often get what we want from the market, but…this is exactly what I wanted!

So as I find myself watching the carnage from the sidelines today, I now get to wonder when the next trend will begin.  As Einstein’s contemporary, Niels Bohr said, “prediction is very difficult, especially if it’s about the future”.  This is especially valid when it comes to the stock market.  The stock market is a dynamic animal that is impossible to predict from one day to the next.  However, there is one thing that can sway the odds in your favour, and that is staying with the trend.  The saying “the trend is your friend” is almost as old as the market itself, and for good reason.

All the big money is made following the trend in the market, it’s where all my big winners come from. The downside is that the big ones only show up 3-4 times per year.  The first one we had this year lasted the entire month of February.

So who knows when the next one will show up, but the system will be there to take advantage of it when it does.  In the meantime, let the market fall some more!

Market News:

U.S. stocks traded more than 1 percent lower on Tuesday, pressured by a surge in the dollar and some weakness in oil.

Job openings for January at 5 million were the highest level in 14 years, the U.S. Bureau of Labor Statistics said.

Wholesale inventories for January rose 0.3 percent, beating expectations for contraction.

The National Federation of Independent Business’ small business index for February was an encouraging 98.0, little changed from January’s 97.9 but above the key level of 96 that Hogan recommended as a benchmark.

Fifteen years ago on this day in 2000, the Nasdaq set its all-time closing and intraday highs of 5,048.60 and 5,132.50, respectively.

U.S. stock index futures indicated a sharply lower open on Tuesday, following weakness in Europe, as a fresh dip in the oil price weighed on investor sentiment.

Also on Tuesday, the U.S. Energy Information Administration revised upward its 2015 domestic oil production outlook, but lowered its 2016 forecast because it expects the slump in global prices to weigh on the country’s shale boom next year.

Wednesday:

Earnings: Express, Vera Bradley, Box, Home Inns and Hotels, Krispy Kreme, Men’s Wearhouse, Shake Shack

7:00 am: Mortgage applications

1:00 pm: $21 billion 10-year notes auctions