Readings: Week 17 - 23 Jul 2017

Knowing When A Trade Is Worth The Risk - Jack Rabbit Trader

The concept of Risk vs. Reward. For long term positions (aka investments), I don’t even look at them. Yup, you heard me right. Don’t even look at them. Two reasons.

The first is I want to be in these trades for months, not weeks, so I rely on the weekly charts to know when to get into and when to get out of the position. While you can identify an obvious area of resistance on a weekly chart, they don’t really carry the same weight because I fully expect to watch the position go up, and then pull back and then go up again, or maybe go sideways. The key point here is as long as the stock continues to trend higher, I want to be involved.

The other reason is I trade my long term positions (aka investments) with a pure trend following mentality, meaning all I am doing is managing my risk and letting the stock tell me when it’s no longer trending higher. I am not looking to sell into strength, but instead looking to add to my position on pullbacks or new breakouts.The goal with investments is to be in them for months or even years, take small losers and capitalize on big winners, like triple digit winners.

This One Mistake Can Keep You From Millionaire Status - Jack Rabbit Trader

I've done a great job of keeping losses small, but I haven't done a great job of letting winners run. Profits were taken way too soon at what I perceived were key levels on the trade. I also experimented with taking profits prior to earnings, which if you were a follower of the Turtle Follower, was a no-no.

The only difference between the two results is I removed myself from the process, you know why? Because I am not smarter than the market.

I was trying to grab every little piece of a move that I forgot about the overall trend. I was so worried about giving back profits that I took them too soon which actually hurts your performance in the long wrong.

Things I Wished I Knew When I Started Trading - Steve

  • In trading less is more, less activity generally leads to more profits and smaller positions sizes leads to better odds of keeping profits over the long term. Less activity costs less commissions and less activity in trends allows an easier way to make money. Less position size leads to smaller losses when wrong.

  • Only check prices on a time frame that is needed and required for your method, watching ever single tick is not optimal for the vast majority of trading methods.

  • The big profits are in the multi day and weekly trends not the intra-day range.

  • Only trade liquid markets, stocks, and options. Wide Bid/Ask spreads can make a good system unprofitable.

  • If you trade in the direction of the trend for your time frame, manage the risk of ruin, and stay disciplined you can make money in the markets, but if one of these are missing it will cost you money to trade, sometimes a lot of money.

What Does It Mean if a Stock Price Goes Up or Down With Little Volume? - ZACKS

  • Stock moving up or down on low volume is usually a warning sign: proceed with caution.

  • Low volume means few investors are putting little money at risk. You cannot trust such price moves, as they are fickle and can easily reverse.

  • Indecision or Uncertainty: When things are unclear many investors tend to stay on the sidelines and stop trading, so the volume dries up

  • Manipulation: It is easier to manipulate a stock when its volume is low.

  • Thinly Traded Stocks

The best advice on buying shares

Patience doesn’t lose you money.

  • Finding a good company to invest in is 75% of the battle for most sharemarket investors.

  • So when we do find one, we often rush to buy it. Many (most?) do so without even thinking about valuation. Valuation puts the odds of success in your favour.

  • The thing is, if you find a good company and rush in to buy without considering its value, you are immediately putting 100% of your money at risk for 100% of the potential gain.

  • However, if you are patient and keep your money in a cash account earning 3% while you wait for a compelling valuation (Warren Buffett calls it “a fat pitch”), your downside is limited to +3% (or whatever you are earning in interest). In addition, you have the opportunity to take advantage of that unlimited upside potential if (not ‘when’) the company’s share price falls into a more compelling price range.

  • You could still lose money, of course. But in the meantime, you’re nearly guaranteed to make money.

  • It’s a subtle but important difference.

  • Good long-term investors know it too well.

  • Patience doesn’t lose you money.

Winners and losers from a strong Aussie dollar - LIVEWIRE

Exporters will benefit when a currency falls, importers will benefit when it rises.

Beneficiaries of a higher AUD include businesses that are consumers of US dollar denominated goods and services, or beneficiaries of an increased desire for foreign goods and services by Australian consumers. An example of the former might be retailers or certain health care providers, and the latter would be airlines and travel service providers. Sectors that suffer from a higher AUD include all exporters, i.e. mining and oil and gas companies and most manufacturers.

One area that could see a positive impact is distribution businesses particularly in areas such as IT that have structural tailwinds. Whilst there is no direct benefit to these companies from a rising currency, we may see increased volumes as offshore products become more affordable for local businesses.

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