TRADING IDEAS
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AN INTELLIGENT INVESTORInvestors profit by recognizing new trends in the economy and buying into them before the majority wakes up to opportunities. A knowledgeable investor can earn huge percentage gains by holding his position without being terribly active.Investing requires a great deal of patienceand an immense supply of self-confidence. To buy Chrysler after it was rescued from the brink of bankruptcy or Internet search engines before anyone knew what those words meant, you had to have a huge level of confidence in your ability to read the trends in society and the economy.All of us are smart after the fact; very few are smart early in the game, and only the tiniest percentage has the emotional strength to make a large bet on their vision and hold on to it. Those who can do this consistently,like Warren Buffett or Peter Lynch, are hailed as Superstars.
AN INTELLIGENT TRADERTraders make money by betting on short-term price swings. The idea is to buy when our reading of the market tells us prices are rising and sell when the uptrend runs out of steam. Alternatively, we can bet on a decline and sell short when our analysis points to a downtrend, covering when the downtrend starts bottoming out. The concept is simple,but implementing it is difficult.Beginners often assume they can make money because they’re smart,computer-literate and have a record of success in business. You can get a fast computer and even buy a back tested system from a vendor, but putting money on it is like trying to sit on a three-legged stool with two legs missing. The two other factors are psychology and money management.
Balancing your mind is just as important as analyzing markets. Your personality influences your perceptions, making it a key aspect of your success or failure. Managing money in your trading account is essential for surviving the inevitable draw downs and prospering in the long run.Psychology, market analysis, and money management—you have to master all three to become a success.counter trend strategy. It involves betting against the deviations and for a return to normalcy.
Countertrend traders sell short when an upside breakout starts running out of speed and cover when a downtrend starts petering out. Beginners love to trade against trends (“let’s buy, this market can’t go any lower!”), but most get impaled on a price spike that fails to reverse. A man who likes peeing against the wind has no right to complain about his cleaning bills. Professionals can trade against trends only because they are ready to run at the first sign of trouble. Before you bet on a reversal, be sure your exit strategy and money management are fine-tuned
To succeed in trading you need several innate traits without which you shouldn’t even start. They include discipline, risk tolerance, and facility with numbers. A big fat guy who is often drunk and can’t kick a cigarette habit is unlikely to make a good trader—he lacks discipline.A nitpicker who obsesses over each dime is too tense to live with market risks. A daydreamer who cannot do simple arithmetic on the run becomes lost when prices change rapidly.In addition to discipline, risk tolerance, and ease with numbers, successful trading requires 3 M’s—Mind, Method, and Money. Mind means developing psychological rules that will keep you calm amidst the noise of the markets. Method is a system of analyzing prices and developing a decision-making tree. Money refers to money management, which means risking only a small part of your trading capital on any trade; think of the way a submarine is divided into many compartments so that it won’t sink if one section becomes flooded—you have to structure your account this way. Psychology, trading tactics, money management—you can learn these skills.
You can succeed in trading. It has been done before, and it’s being done right now, today, by people who started from scratch, learned to trade and are making a good living at it. The best ones make fortunes. Others fail, out of ignorance or lack of discipline.
Trading is a journey of self-discovery. If you enjoy learning, if you are not scared of risk, if the rewards appeal to you, if you are prepared to put in the work, you have a great project ahead of you. You will work hard and enjoy the discoveries you’ll make along the way..
