Stockscores commentary
Summer has arrived, and typical for this time of year, market activity has been slow. With a range bound market, this summer could be a hard time to trade making it essential to follow a set of rules that will help keep you on the right side of the trade
Limit Losses - most investors fail to minimize their losses because they hate to feel pain. Small losses grow in to big losses that can outweigh the gains of 5 or more good trades. Trading the stock market is a probability game where you will not be right all of the time. To ensure long term profitability, you must keep your losses smaller than your gains.
Trade the Abnormal - the stock market is efficient which means it is difficult to consistently beat the stock market if you fail to exploit breakdowns in market efficiency. The market fails to be efficient when there are investors trading on private information or when emotional trading is dominant. The greatest clue that these things are happening are when there is statistically significant abnormal price and volume behavior, something that is tracked with Stockscores.com.
Ignore Fear - trading decisions need to be the product of good analysis. If you ever feel that your decisions are based in fear you must stop and change the behavior. The greatest failing of traders is letting fear have a role in their decision making.
Let Greed Motivate, but not Dictate - in the Academy Award Winning movie Wall Street, lead character Gordon Gecko makes a memorable speech on the merits of greed and its power to motivate the best in people. That is true, and greed can be a powerful motivator for traders to work hard and aspire to beat the market. However, when greed affects your trading decisions, you are probably making a mistake. You should never hold a stock because you want to make a certain amount of money, or sell a stock before its time because you want to lock in a profit. Greed is an emotion that has no place in your decision making.
Lead the Crowd - when an investment idea has hit main street, it is too late. When the masses are talking about the great performance of an investment, it is probably time to sell. Bubbles burst when the mostly unlikely participant in speculation is active and encouraging others. Lead the crowd, don't follow it.
Don't Exploit the Public - information that you get about a company can either be public or private. Public information is priced in to the stock. If you make decisions based on what has happened in the past your success in the stock market will be random. No matter how good the fundamentals sound, if it is widely known by the investment community it is relatively useless.
Do What You Love - trading the stock market successfully is simple, but not easy. To do well at it, I believe you have to love the market. This will get you through the learning curve and the inevitable hard times. If you don't enjoy analyzing and trading the stock market, you should probably focus your effort on something else that you enjoy.
Don't Try to Make Sense of What Happens - the stock market, and how stocks move, is extremely complex. Trying to make sense of why a stock or market moves the way it does is a futile exercise. Simply recognize that the market is always right, even when it makes no sense. You can fight the market if you think it is wrong, but it is an expensive way to make a point.
If It Feels Too Risky, It Is - there is nothing wrong with risk so long as you are comfortable with it. If taking risk stresses you out too much, your emotions will take a role in your decision making and that will lead to mistakes. Risk only that amount of money that you are comfortable losing.
There is no substitute for conducting your own research
