The Biggest Trading Lessons Thread

[CanOz]

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.

What about Enron and HIH Wayne? I bet it was investors that got hurt, not traders using stops......I guess thats what i don't like about research.

Anyway, without :horse: i'll leave it at that.

Cheers,

 

[Wysiwyg]

During a bull run.....DO NOT sell out too soon.I often see the experienced traders saying to sell half or all at around 20%.Looking at free carried or a hard and fast cut off point.

I have sold out of what turned out to be two 10 baggers,two 5 baggers and lost count of double ups.I estimate I done myself in on 150 to 200 k by not holding.

Funny thing (and slightly suspicious) is the ones that I held tanked or achieved little and after I sold went better.

According to Charles H. Dow the cycle of optimism is about 5 or 6 years which looks at 2008 or 2009 before the slide of pessimiism chimes in.Market vigilance will pay off for those with the time.

Yet to experience a bear market so i`ll keep the 20% rule in mind.

 

[It's Snake Pliskin]

During a bull run.....DO NOT sell out too soon.I often see the experienced traders saying to sell half or all at around 20%.Looking at free carried or a hard and fast cut off point.

I have sold out of what turned out to be two 10 baggers,two 5 baggers and lost count of double ups.I estimate I done myself in on 150 to 200 k by not holding.

Funny thing (and slightly suspicious) is the ones that I held tanked or achieved little and after I sold went better.

According to Charles H. Dow the cycle of optimism is about 5 or 6 years which looks at 2008 or 2009 before the slide of pessimiism chimes in.Market vigilance will pay off for those with the time.

Yet to experience a bear market so i`ll keep the 20% rule in mind.

Accept a level of risk and trade it.

 

[nizar]

What about Enron and HIH Wayne? I bet it was investors that got hurt, not traders using stops......I guess thats what i don't like about research.

Agree wholly Can.

 

[>Apocalypto<]

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

U poor bugger and I guess it was a CFD!

Man owch! You pick it up quick?

 

[Dan_]

When you reach your stop...sell

Never hold on and let emotion take over.

Also the most important figure you can look at (including profits) is the bottom line.

 

[nizar]

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.

ASXG.
Good post, doesnt really matter if its 25k or 250k though, stringent risk management is wise.

Just to elaborate a little, that x% is a % of everything (cash plus shares), so when your losing money, your risking less in $ terms, and as your account grows, you risk more in $ terms.
(probably obvious but i wasnt doing this, until recently i was just using x% of initial starting capital).

 

[tech/a]

Nizar.
Its known as portfolio heat.
Have a google.

 

[AnalysisParalysis]

U poor bugger and I guess it was a CFD!

Man owch! You pick it up quick?

It was on ILU. I had a sell order in the market (just in case it rallied while I was at work). I thought I was renewing the sell order, because they expire after a week or so. 24 hours later, check email and there it was. The buy confirmation from my broker. I bought at the open of a big red day. So it doubled the losing position, which I'm still holding. It's coming back ATM, so I'm OK.

I was tired, and made a careless mistake. It is unlikely to happen again.

 

[Chorlton]

Hello All,

Here's some of my own list (in no specific order) - and apologies if they have already been posted by others.......


1) BEFORE placing a trade, know where your stop will be and where you aim to take initial profits. If you can't quantify these levels then you definately can't calculate your risk associated with the trade. Trading without knowing the risk (and potential reward on offer) will ultimately lead to a short trading career!!!

2) NEVER adjust your stop level unless its to capture profits. A stop which is temporarily ignored (or adjusted) as a result of an unexpected price movement for example, is not a stop!!!

3) NEVER catch a falling knife (ie. Average down). I used to do this when I first started trading and I can honestly say that, overall , I ended up with bigger losses!!! If you trade using TA and the SP moves against your initial position, then obviously you should do something about it but this does not include adding to ones position!!!

4) NEVER fall in love with a stock. It will seriously cloud your judgement in times of uncertainty. It did for me in the past........

5) Have a trading plan and trade it accordingly. This way consistancy can be maintained and controlled over time. It will also help to take the emotion out of trading which on its own can cause major problems to ones trading account.

6) Never subscribe to websites, newsletters, etc if the only intention is to receive hot stock-tips for example. This is a surefire way to lose money very quickly. If you want an easy way to make money, then stick your capital in a savings account offering around 5% and take up golf instead!!!!

7) Treat trading as a business and not a hobby unless you like the idea of only spending money.

8) Ensure you have enough funds in your account to allow for a string of losses. There is a lot of material written about levels of risk. No more than 3-5% of overall capital per trade to be risked for example. If this level of risk is too small in terms of $ amount for you, then maybe you should question the size of your account, and whether you have enough to trade for the long-term?

9) Keep your trading positions to yourself. In other words don't share your positions with friends or family. In you do then this IMO will add unwanted additional pressure on you to always pick winning trades. To make money in trading, losses need to be openly accepted.

10) The realisation that to make money in the markets, one needs to forget about making a profit but instead focus on minimising losses!!!!!!!!!!!


Chorlton

 

[CanOz]

Heres one:

Know thy instrument....and know it well.

Cheers,

 

[Knobby22]

1. Don't sell too quickly!

Nick Radge's excellent book presses the point home. I know of a few cases where people have been on a good thing and the sell due to a 5% dip. Crazy.

I know one guy who had literally 800,000 shares in Oxiana bought at a very low price and he sold nearly all of them when they went up 60%. if he had of held he would be a millionaire. There must have been investors in early on paladin, some of which sold when the price doubled, bet they regret it now.

2. Know the fundamentals.

This is related to point 1. You can buy and sell based on technical analysis but get to know, in detail, the company. You may then not make mistake number 1. This means work, time and analytical knowledge however. If this is not possible then ignore this point.

3. Stop losses are dangerous and should not be used on low liquidity companies and very carefully used even where there is high liquidity.

APG is a classic. I bought these at a good price and watched them nearly triple. Someone decided there were too many traders and sold a reasonable amount of shares to lower the price so he could get more. He/she probably short sold. The price halved as all the stop losses kicked in. I backed up the truck and bought more and I am sure the guy who started the selling made a killing. Look at the chart.

 

[CanOz]

1. Don't sell too quickly!

Nick Radge's excellent book presses the point home. I know of a few cases where people have been on a good thing and the sell due to a 5% dip. Crazy.

I know one guy who had literally 800,000 shares in Oxiana bought at a very low price and he sold nearly all of them when they went up 60%. if he had of held he would be a millionaire. There must have been investors in early on paladin, some of which sold when the price doubled, bet they regret it now.

2. Know the fundamentals.

This is related to point 1. You can buy and sell based on technical analysis but get to know, in detail, the company. You may then not make mistake number 1. This means work, time and analytical knowledge however. If this is not possible then ignore this point.

3. Stop losses are dangerous and should not be used on low liquidity companies and very carefully used even where there is high liquidity.

APG is a classic. I bought these at a good price and watched them nearly triple. Someone decided there were too many traders and sold a reasonable amount of shares to lower the price so he could get more. He/she probably short sold. The price halved as all the stop losses kicked in. I backed up the truck and bought more and I am sure the guy who started the selling made a killing. Look at the chart.

Post something else Knobby, your numbers of posts scares me!

 

[nizar]

Post something else Knobby, your numbers of posts scares me!

So does his avatar!!

But getting a bit more on topic:
Notice how the old adage: Cut your losses short and let your winners run is totally against the way we are naturally psychologically wired as human beings.

Knobby your comment about PDN i was actually discussing it with some family members this morning. The bottom in 2003 was i think 0.007. A 5k parcel then would be worth in excess of $7million today. Did anybody hold the whole way?

I suspect none - or perhaps very few did - because its quite hard to hold onto a winner for that long, unless you are a top trader. But top traders wouldnt have bought the bottom!!
Human nature says to sell it - look in the profit - dont be greedy - leave some $$ on the table - damn PDN hasnt done anything for weeks, look at XHK and HUA fly by! (random codes).

But is there any1 out there that are holding onto losing stocks that have gone from $10 to 0.007 ?? (tech stocks)
In my opinion theres PLENTY
Why?

Because selling at a loss is very hard, its like admitting you were wrong, and of course those champion fund managers who i quoted the other day about worldcom, have the approach of, its never a loss until you sell LOL

 

[CanOz]

So does his avatar!!

But getting a bit more on topic:
Notice how the old adage: Cut your losses short and let your winners run is totally against the way we are naturally psychologically wired as human beings.

Knobby your comment about PDN i was actually discussing it with some family members this morning. The bottom in 2003 was i think 0.007. A 5k parcel then would be worth in excess of $7million today. Did anybody hold the whole way?

I suspect none - or perhaps very few did - because its quite hard to hold onto a winner for that long, unless you are a top trader. But top traders wouldnt have bought the bottom!!
Human nature says to sell it - look in the profit - dont be greedy - leave some $$ on the table - damn PDN hasnt done anything for weeks, look at XHK and HUA fly by! (random codes).

But is there any1 out there that are holding onto losing stocks that have gone from $10 to 0.007 ?? (tech stocks)
In my opinion theres PLENTY
Why?

Because selling at a loss is very hard, its like admitting you were wrong, and of course those champion fund managers who i quoted the other day about worldcom, have the approach of, its never a loss until you sell LOL

Thought provoking Niz, you know I have absolutely no problem selling after a loss, like when the stop gets hit, but trying to let it run, now theres my challenge. Exits lately have been discretionary, and so far I've picked some nice ones using price weakness, but I have some that still haunt me today.

The other thing too thats worth considering, is that someone holding a stock thats gradually going up, may be tempted to sell and use the gains to fund more positions...something I've also been guilty of. Not in the 7 months though!

Cheers,

 

[nizar]

you know I have absolutely no problem selling after a loss, like when the stop gets hit, but trying to let it run, now theres my challenge.

I have the same problem.
Im very ruthless with my stops, but letting winners run.... Hmm.... improvements can be made...

 

[nizar]

Hello All,

Here's some of my own list (in no specific order) - and apologies if they have already been posted by others.......


1) BEFORE placing a trade, know where your stop will be and where you aim to take initial profits. If you can't quantify these levels then you definately can't calculate your risk associated with the trade. Trading without knowing the risk (and potential reward on offer) will ultimately lead to a short trading career!!!

2) NEVER adjust your stop level unless its to capture profits. A stop which is temporarily ignored (or adjusted) as a result of an unexpected price movement for example, is not a stop!!!

3) NEVER catch a falling knife (ie. Average down). I used to do this when I first started trading and I can honestly say that, overall , I ended up with bigger losses!!! If you trade using TA and the SP moves against your initial position, then obviously you should do something about it but this does not include adding to ones position!!!

4) NEVER fall in love with a stock. It will seriously cloud your judgement in times of uncertainty. It did for me in the past........

5) Have a trading plan and trade it accordingly. This way consistancy can be maintained and controlled over time. It will also help to take the emotion out of trading which on its own can cause major problems to ones trading account.

6) Never subscribe to websites, newsletters, etc if the only intention is to receive hot stock-tips for example. This is a surefire way to lose money very quickly. If you want an easy way to make money, then stick your capital in a savings account offering around 5% and take up golf instead!!!!

7) Treat trading as a business and not a hobby unless you like the idea of only spending money.

8) Ensure you have enough funds in your account to allow for a string of losses. There is a lot of material written about levels of risk. No more than 3-5% of overall capital per trade to be risked for example. If this level of risk is too small in terms of $ amount for you, then maybe you should question the size of your account, and whether you have enough to trade for the long-term?

9) Keep your trading positions to yourself. In other words don't share your positions with friends or family. In you do then this IMO will add unwanted additional pressure on you to always pick winning trades. To make money in trading, losses need to be openly accepted.

10) The realisation that to make money in the markets, one needs to forget about making a profit but instead focus on minimising losses!!!!!!!!!!!


Chorlton

Solid post Chorlton.

8) Ensure you have enough funds in your account to allow for a string of losses. There is a lot of material written about levels of risk. No more than 3-5% of overall capital per trade to be risked for example. If this level of risk is too small in terms of $ amount for you, then maybe you should question the size of your account, and whether you have enough to trade for the long-term?

Just to comment on the above, i used to risk 2% of capital per trade, i found it was far too much though. Now i use 1% or less.

 

[purple]

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,

well, hypothetically, what if your choice of stocks consistently dip before an uptrend, and you get stopped out consistently? that would erode your capital too.

just a thought. of course one can position stop losses below support levels etc etc but there is still that minute possibility of stop losses slowly eating away at you.

 

[nizar]

Purple.
I think one has to look at what the purpose of a stop is.
Its to stop loss.
If your stop loss, is in fact, not stopping further losses, than that means you're placing it too tight.

A stop loss should be telling you to exit your position if the price action is as such that you no longer want to be holding that stock ie. the reason you bought is no longer there.

And if you are in a position where if you get stopped out its a disaster for you then you need to review your money management strategy (or start implementing one).

Just my opinion,

 

[purple]

Purple.
I think one has to look at what the purpose of a stop is.
Its to stop loss.
If your stop loss, is in fact, not stopping further losses, than that means you're placing it too tight.

A stop loss should be telling you to exit your position if the price action is as such that you no longer want to be holding that stock ie. the reason you bought is no longer there.

And if you are in a position where if you get stopped out its a disaster for you then you need to review your money management strategy (or start implementing one).

Just my opinion,

yup...agree. my earlier post was a very hypothetical one. if your stop losses keep getting hit, then it is indeed a time to overhaul the whole trading system!!

back to the thread title, i think the biggest trading lesson learnt for me is :

See the Big Picture

it's always important to never let this stock market control one's life. the current bull market that we're in, one can easily spend hours researching the countless uranium juniors to invest in.

need to keep reminding myself of my mission in the stock market - rake in little profits (or big ones if it happens). once i start getting greedy, my vision is clouded and i can't think clearly.