The Biggest Trading Lessons Thread

[Kimosabi]

I thought this would be an interesting Thread Topic.

I'm sure the learning curve for many increased exponentially last week, so what has been you biggest trading lesson/s?

My lesson last week last week was buying a speculative stock(with good potential) about 4 hours before China went south in a market that I knew is way over-inflated.

 

[AnalysisParalysis]

Always check that you placed a sell order, not a buy order.

 

[theasxgorilla]

The single biggest lesson that I can think of for a trader is how TIME and it's derivative, EXPERIENCE, must take their due course.

It is simply impossible (IMO) to short-cut the "experience gathering" process beyond a certain point. Reading all the books you can get your hands on, staying up all night, trading multiple markets and opening more and more positions just can't substitute.

I've said it umpteen times before, during the early days, as you are letting time pass and your experience build, rate limit your losses. If you've got 25k to play with, don't expose more than x% at any given point in time ie. based on what you'd lose if all of your trailing stops were hit in a given instant. Do this and your rate of loss may just be slow enough to allow your experience to catch up and put you on the path to ongoing profitability.

If you don't do this then a market like we experienced in the last few days of last week may cut your account in half and before your know it you're looking for another "less risky" money making hobby.

 

[nizar]

Always use stops.
No exceptions.

Each positon should carry a risk attached of no more than 2% of your total capital, the experts say.

And i personally think that figure should be <<1%.

At least by limiting your losses you should survive to trade again. Otherwise its game over.

Always think the worst case scenario and be ready for it.

 

[It's Snake Pliskin]

Always use stops.
No exceptions.

Each positon should carry a risk attached of no more than 2% of your total capital, the experts say.

And i personally think that figure should be <<1%.

At least by limiting your losses you should survive to trade again. Otherwise its game over.

Always think the worst case scenario and be ready for it.

...but we don't want to be too conservative to miss those opportunities.

 

[reece55]

That a down trending stock, no matter what the fundamentals are, is not a bargain until it forms a bottom a resumes an uptrend...... And personally, I want heavy confirmation that the down trend has ended.....

It is very easy to look at a chart (say ALL or CSL) and say "I knew that it would recover, it's a great business". The problem is if you buy when a stock is imploding, it's like playing stock limbo - you are never quite sure how low the stock can go!

I had to learn this lesson the hard way in 00 - 01. I bought MYOB because I thought it was a bargain at 2.35. The stock has never recovered - now about 1.20.

Other lessons - don't buy anything in the first hour of trade and don't buy anything where total sellers exceed total buyers in full market depth. You would be surprised how much my trading improved when I followed just those 2 simple rules!

Cheers

 

[IFocus]

It’s been drummed into me over many years to act not react to markets. Before the correction I watched analysis of the high possibility that the market could correct and at the same time a low risk short trade recommendation was issued
I never ever trade against trends… never

I know of valid strategies to do this I am just not that clever so the short trade didn’t make sense even if it was low risk, in hind sight it was simply low cost insurance to minimize the impact of a correction on other positions as we are currently experiencing. A professional at work acting not reacting

The lesson for me was a method of acting not reacting when the evidence mounts.

Focus

 

[vishalt]

Basic things imo, but always happens:

- Always check your pending orders before/after each trading session, i've sold shares at market and forgotten that I had a pending order... which made me short some shares that I didn't want to.

- Never put your eggs in 1 basket (don't buy just the 1 share).

- Never put a huge amount of money into the 1 share at the 1 price, e.g don't buy 5000 of BHP at $28, but rather $28, $27, $26, $25 etc..

 

[Nick Radge]

January 1970

 

[Julia]

Always use stops.
No exceptions.

Each positon should carry a risk attached of no more than 2% of your total capital, the experts say.

And i personally think that figure should be <<1%.

Are you saying that if you have investment capital of $100,000, no position should be for more than $1000?

Or have I misunderstood what you mean?

Julia

 

[nizar]

Are you saying that if you have investment capital of $100,000, no position should be for more than $1000?

Or have I misunderstood what you mean?

Julia

Hi Julia,
Sorry i mean $1000 should be RISKED ie. if you get stopped out you will lose $1000.

Eg. Buy JML at 1.14. Stop at, say, 1.06 (randomly picked)
How many shares do I buy?
I buy 1000(my risk)/(1.14-1.06) = 1000/0.08 = 1250shares.

Total outlay = 1250*1.14 = $14,250.

If I get stopped out, i lose $1000

Its called fixed fractional position sizing, taught to me by tech and michaelD and a few books have mentioned it.

Hope that helps.

 

[ice]

1. Don't fall in love with your stocks.
(That cost me a lot of money in the early days.)

2. Set a stoploss
(That saved me a lot of money in my later than early days.)

3. Listen to the market, not the pundits.


ice

 

[money tree]

dont try and convince bull market geniuses that a crash is coming. They will argue non stop and belittle you until you take their point of view, and you will exit your shorts and buy the top.



another lesson - check your codes when buying options. I once bought XJO 2900 puts for 120c.....pity I thought I was buying 3200 puts.....2900 puts were worth 18c.....oops

 

[value investor]

I know I will not be popular. However I think that "stop losses" should be called "make losses". I think that when I pick a stock to buy that I am buying a part of the company, just as if I was buying my own franchise or whatever without the hassle of having to run it, only the benefit of owning a great company at a cheap price. If I felt that I needed a "stop loss" I would then feel like I have not researched the company enough and therefore would rather not buy it. If the price goes down then I would probably buy more as long as my original feelings about the company had not changed.
My biggest mistake so far has been not buying something because somebody else talked me out of it even though I believed it fitted my criteria and then I watched it almost double in a week and stay there.
If you can't tell I am fairly new at this and have read mostly Warren Buffett and Phil fisher. I am yet to see if these ideas payoff in the long run and I would love to hear any feedback on my views.

 

[Kimosabi]

Investing/Trading Lessons 101

Rule #1 Always make a profit
Rule #2 See rule no. 1

 

[MichaelD]

1. Losing more than planned for by ignoring my carefully constructed trading plans.
Lesson learned: In the heat of the moment, don't deviate from the trading plan, no matter what happens.

2. Wasting time on developing things that don't matter much, like being a little bit more right.
Lesson learned: My time is best spent working out how to skew reward:risk more in my favour and improving my money management techniques.

3. Wasting time in circular trading arguments both online and offline.
Lesson learned: Don't waste psychological energy on those firmly committed to being in the 90%.

 

[tech/a]

1. Losing more than planned for by ignoring my carefully constructed trading plans.
Lesson learned: In the heat of the moment, don't deviate from the trading plan, no matter what happens.

2. Wasting time on developing things that don't matter much, like being a little bit more right.
Lesson learned: My time is best spent working out how to skew reward:risk more in my favour and improving my money management techniques.

3. Wasting time in circular trading arguments both online and offline.
Lesson learned: Don't waste psychological energy on those firmly committed to being in the 90%.

I'm a slow learner!!

 

[theasxgorilla]

3. Wasting time in circular trading arguments both online and offline.
Lesson learned: Don't waste psychological energy on those firmly committed to being in the 90%.

Yes, I noticed you only have 200 odd posts since Dec '05. Wise indeed .

 

[wayneL]

I know I will not be popular. However I think that "stop losses" should be called "make losses". I think that when I pick a stock to buy that I am buying a part of the company, just as if I was buying my own franchise or whatever without the hassle of having to run it, only the benefit of owning a great company at a cheap price. If I felt that I needed a "stop loss" I would then feel like I have not researched the company enough and therefore would rather not buy it. If the price goes down then I would probably buy more as long as my original feelings about the company had not changed.
My biggest mistake so far has been not buying something because somebody else talked me out of it even though I believed it fitted my criteria and then I watched it almost double in a week and stay there.
If you can't tell I am fairly new at this and have read mostly Warren Buffett and Phil fisher. I am yet to see if these ideas payoff in the long run and I would love to hear any feedback on my views.

There are different approaches.

You describe an investors approach in which you are right, stop losses are inappropriate. They of course do apply to a technical approach.

This has been discussed often here.

 

[CanOz]

I know I will not be popular. However I think that "stop losses" should be called "make losses". I think that when I pick a stock to buy that I am buying a part of the company, just as if I was buying my own franchise or whatever without the hassle of having to run it, only the benefit of owning a great company at a cheap price. If I felt that I needed a "stop loss" I would then feel like I have not researched the company enough and therefore would rather not buy it. If the price goes down then I would probably buy more as long as my original feelings about the company had not changed.
My biggest mistake so far has been not buying something because somebody else talked me out of it even though I believed it fitted my criteria and then I watched it almost double in a week and stay there.
If you can't tell I am fairly new at this and have read mostly Warren Buffett and Phil fisher. I am yet to see if these ideas payoff in the long run and I would love to hear any feedback on my views.

First of all i respect your point of view, but i don't agree.

Research can lie, price action cannot lie.

Stop losses protect capital from lies, amoung other things.

These are my best lessons learned so far with the addition of "cut the losses short and let the winners run", and "plan the trade, and trade the plan" and stick with it!

Cheers,