How're you doing out there? You OK? Hanging in? Keeping your powder dry?
Yes, I know, this is a tough market. Very tough. But, sometimes the window of opportunity is open ... and sometimes it's closed. For now, it's closed (at least on the long side; my shorts are working out nicely.) So, you either bide your time, or you work your shorts.
But here's the thing I want to stress. A good year is sticking to your methodology and working your plan. A good year is
making a ton of money. Shoot, you can make a ton of money and be just plain lucky. In fact, many readers of this column
make a ton of money simply because they were lucky. Many of those same folks now wish instead they had stuck to a methodology and exercised some rigor. If they had, they might still be in the black instead of the red.
Along those lines, I always liked the golf analogy, that a good shot results from the ball simply getting in the way of a good swing. And, it's that thinking I want to emphasize today with a neat survey that loyal reader
sent my way. This survey appeared on
and Bill thought it was interesting enough to share with everyone. I agree.
The survey was written with daytraders in mind, but I thought the questions were relevant for my own trading. Therefore, for the sake of illustration, I went through each item one by one, using myself as subject. I uncovered a few good things, and a few things I still need to work on. Regardless of my own results, I'd encourage you to take this survey yourself and come up with your own plan for improvement. Remember, we cannot change the market. However, we can change ourselves and the way we trade the market.
Well, I suppose this could be called the hallmark of GBS, but truthfully, I still have some work to do in this area. A great example? Last Wednesday I went short about a dozen stocks, only to see them drop, but then ramp up so hard and so fast I thought the bottom had been reached. So, even though not one stock had hit my stop, I covered everything at the market ... only to see the
collapse again shortly after I went flat. Frustrating, and completely undisciplined.
Sometimes, but not always, as indicated above. The solution, of course, is for me to just not look at intraday quotes. It's a habit I've been trying to break for years, but to no avail.
I have to say, I'm pretty good in this arena. When the market turns bearish, my longs dry up and my shorts take over, so while I'm not immune to dramatic whipsaws and reversals, my drawdowns are tolerable, and I have very few horrid stretches.
Limit number of trades per day?
I'd like to think I limit my trades by quality, not by quantity. In fact, if you have high quality trades, you're working against yourself to limit them just for the sake of limiting them. However, I can see where this item might be more appropriate for daytraders.
Cut losses quickly?
No discussion required here. My stop goes into my broker as soon as I am filled. I've learned the hard way that a mental stop is almost impossible for me to follow.
Take a few days off after losing streak?
In fact, I do, but not to shake off the bad luck or anything. No, I take a few days off just to make sure it's the market acting badly and not my methodology. But, sometimes it's most definitely the latter, and if so, I papertrade any real changes until I'm comfortable playing again.
Go for singles instead of home runs?
The essence of GBS! See my columns on treating your equity as inventory. I'd much rather go for eight singles than two dingers!
Let profits run?
I don't let them "run" or "not run" specifically. Instead I take my profits at a set percentage. In fact, this is one old saw I'm not fond of, because letting your profits run can sometimes work to your disadvantage if you're not freeing up capital quickly enough to take advantage of other quality trades.
Go to great lengths to limit risk?
Oh, I don't know about "great" but I do focus very heavily on making sure I have a method that yields livable drawdowns! Remember, though, limiting risk is not necessarily a goal. Going to the logical conclusion,
trading at all, yields zero risk. Instead, focus on reward to risk. That's the equation you want to maximize, keeping in mind the bigger the reward, the bigger the risk will usually be.
Check back later for GBS' answers to the other half of the survey.
Gary B. Smith is a freelance writer who trades for his own account from his Maryland home using technical analysis. At time of publication, he held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Smith writes five technical analysis columns for TheStreet.com each week, including Technician's Take, Charted Territory and TSC Technical Forum. While he cannot provide Investment advice or recommendations, he welcomes your feedback at