Archive for September, 2009

Trading Quotable Quotes: Stocks Behavior

September 18th, 2009 No comments

“Like human beings, stock behave differently. Some of them are calm, slow, conservative. Others are jumpy, nervous, tense.

Some of them I found easy to predict. They were consistent in their moves, logical in their behavior. They were like dependable friends.”

~ Nicolas Darvas
Excerpt from book: “How I Made $2,000,000 In The Stock Market”
Chapter 5 – “Cables Round The World”

Importance Of Being Well Capitalized

September 14th, 2009 No comments

In general, it is better to be well capitalised when comes to trading.

If you have heard of the old adage: “It takes money to make money.”, it is true in the past, it is so now, and it will very probably be the same in years to come. It is simply human psychology – people tend to be ready to take risk when their capital is small, say 5 – 10K or less. The mentality is more of punting, wanting to get a quick gain, double the money – you get the point.

Whereas an investor with a higher capital, tend to think of percentage gain, protection of capital etc. Being well capitalized allow a person higher margin of error, last the distance to learn and hopefully improve from his past mistakes – and hence,  in the process becoming more and more successful in trading.

It always make me frown whenever I hear that someone has low investment capital end-up paying a good portion of that capital to educate himself without doing enough check on the training course itself and / or concern that by paying courses that deplete their trading capital substantially.

Do not get me wrong, I strongly believe in improving oneself when comes to trading, but, imagine if someone accumulated only 10 k in capital end up paying 5k, which is equivalent to 50% of his capital into a course, immediately, he reduces his tradable capital by 50%. To get back to the same level that he started-off with, he need to double his money i.e. 100% gain in capital. Okay, I digress.

Back to trading capital – the rule of thumb is simple, adjust your trade size according to the size of your capital (not forgetting diversifications, but we will leave that in another discussion).

The analogy is no different from someone trying to start a successful business, all else being equal, an entreprenuer with less mental worries about his finances tend to make better business decisions and could concentrate  on his business better.

In conclusion, it is always better to be adequately capitalized than under-capitalized – which would allow you to trade with confidence than with fear. 

Trade Well.

Trend Following: Never Too High Or Too Low

September 10th, 2009 No comments
“I remember trading in the summer of 1998. That summer saw the lowest commodity prices in decades. I was buying 30-year lows in hogs and grains, thinking they could not go any lower, only to watch them go to 40-year lows. I was trying to pick a bottom in crude oil at $17, $16, $15, $14, $13, $12 a barrel before giving up.  

The drop in price, in stocks in 2000 is another example: When stocks went from $200 to $100, people thought they were cheap. When they dropped to $50, people bought more. At $20, they thought, ‘Wow, what a bargain.” at $5 they gave it one last shot, thinking the market had gone down enough and was way over-done. One year later many of these stocks were trading below $5 per share with little hope of recovering. The big lesson I learned here was that a market is never too cheap or too dear. Trends will go on as long as they want to, not to a price one thinks is too cheap. A trader needs to pay attention to price action, not opinions.

~ Marcel Link
Excerpt From Book: High Probability Trading
Chapter 6: Trading With The Trend

Categories: Trend Following Tags:

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