A Buy And Hold Strategy Is No Longer A Viable Option
Have you noticed how the market has changed? We have a completely different share market now and therefore I have found that some of the usual methods are not as good any more. The market is very volatile, up one day, down the next.
A Buy And Hold Strategy Is No Longer A Viable Option – In today’s market, you are doing a disservice to yourself if you buy stocks and forget about them. With all of the variables coming into play (credit worries, oil prices, recession, stagflation) you need to take an active role in managing your money. This means protecting profits and even more importantly, limiting your risk. Placing stops below critical support levels will lower risk and give you the best chance for a profitable trade. Even if you do buy a stock and you are okay with it having a big drop because you “know” that in the long run, it will come back, how much of your money is going to be tied up in this stock, for how long and how much could you have made if you put that money somewhere else? Don’t forget about it, take an active role in managing your stocks.
Where to from here?
“End of the world as we know it!”
Anyone who is reading newspapers or has tuned in to various TV and radio programs has heard these statements of doom and gloom. They may or may not be true.
But what should we do now?
We are not in control of what happens to the economies of the world.
However we ARE in control of how we handle our personal finances in light of these possibilities. As traders, we can choose how we take advantage of all situations, including this one. Or should I say, especially this one.
Traders know that price action is to a large extent a consequence of what is perceived to be, not what actually is. We know if we take a position and employ money management techniques, then if we are wrong in our position, we will get stopped out with a reasonable loss, but not drowned. We can survive and move ahead again.
That should be the way of a good trader.
When most individuals are hiding behind excuses, the good trader can leap into action and grab opportunities as they arise. We as traders are lucky indeed. But don’t fool yourself. Being a good trader is not easy.
I look at markets in turmoil, as they are now and I feel bad for the average trader. Judging by some emails I am getting, the average trader has every good intention, but lacks the two basic elements to a consistent trading success. Those emails mention that they are scared to make any moves in this volatile market, asking what they should do, who should they listen to, who can they trust.
The answer is pretty simple as to who you can and should be relying on – yourself.
Now is not the time to panic and sit on the sidelines doing nothing but complaining. Now is the time to step up and improve your skills, improve your education, develop or improve your trading edge.
A good trading plan is the first element. And having the mental and emotional discipline to run that plan is the second element.
The good news for the average trader is that it doesn’t take years to elevate your level of trading. It mat take months, yes, but not years.
We are in times which most of our traders have never experienced. The opportunities that will unfold over the coming weeks, months and years could result in windfall profits for those traders who choose to master the two elements mentioned above. Shake-outs like we are experiencing now in the market will yield new trends that may be followed and ridden to the top by those who are prepared.
So should we stand aside while the market displays its current violent ways? Only you know the answer to that.
Are your two basic elements solid?
Is your trading plan constructed to handle extremely high volatility? For the average trader, this is the type of market that exploits his or her weaknesses.
For the good trader, it is time to re-group and prepare yourself for the opportunities that are about to present themselves as the fog starts clearing.
Start now to make the development of your trading a priority. Without commitment to the two elements of a solid trading plan and the mental and emotional discipline to stick to it you will not succeed on a consistent basis and will not be able to take advantage of the opportunities to come.
Now is not the time for excuses.
It is up to you to realize if in fact you have these two elements or admit that you don’t and work now on building them up.
I’ve been trading for quite a few years now and I must say that I made quite a few mistakes; each of them could have been avoided by honing my second element, the one of mental discipline. But every time I made a mistake, I learnt from it. I can say with confidence that the opportunities that are about to unfold will be tremendous. Don’t miss them. Be prepared for them.
The disciplined trader with a tested trading plan and possessing solid trading discipline will be successful. We will soon experience trading opportunities of a lifetime! If you are too afraid to step in, at least paper trade. Work on improving your skills, improving your confidence. You will begin to feel confident knowing that you do have the ability to take care of yourself. You don’t have to rely on the economy.
Grab those books you’ve been meaning to read. Scan the seminar notes you promised to review. Practice those new trading ideas you’ve been meaning to try. The important thing is to get moving.
But that is all just my opinion, I did not use any argument whether the market is overpriced or under priced because I, like anybody else, do not know. At the moment, my opinion is as worthless as anybody else’s opinion. But we must be prepared.