Wednesday, February 06, 2008

Winners Trade to Win

As you already know, I am not a slave to conventional wisdom. It is my belief that most popular beliefs held by the masses are not wise at all. This applies to all walks of life, not just the stock market.

The latest bit of unwise conventional wisdom is the idea that one must "focus on not losing money in order to make money". Play it safe and protect your capital has been a popular mantra over the past month. What a load of crap.

You know what happens when you focus on not losing money? You lose it. Either that or you make meager gains (all hail consistency, as in consistently average!). It's akin to an athlete playing not to get injured. That is when you get hurt. The team that plays not to lose rarely wins.

In trading, playing not to lose will cause you to pass up on good trades and scare you out of trading volatile, yet lucrative markets. If you have put in the blood, sweat and tears that accompany hard work and dedication, know what you are doing, and have a sound methodology and edge, don't ever play not to lose.

Note that this doesn't mean you throw caution to the wind. On the contrary, a trader must be vigilant about managing risk, position size and ones emotions. These three factors, along with having an edge, allow one to play to win, rather than lose, and put on winning trades.

10 comments:

Ray Ting said...

word

Perry said...

Well spoken and very timely wisdom. Thanks for the post. I needed to hear that.

Anonymous said...

your a good trader but you should also become an adviser you have a great talent that can help a lot of people could you comment on that thanks

Tyro said...

Just to play devil's advocate...

Using your athlete analogy, if you see that the field is in terrible shape with gopher holes and mud and you're pretty sure that a couple guys on the other team just strapped on iron knuckles, then by not playing you're definitely going to lose but so what? By trying to play you aren't going to gain much and the damage you sustain could set you back weeks or months. (The sprint vs marathon analogy works well.)

I had always figured that's what people meant. I agree, "capital preservation" is a crumby way to say it, but maybe a better way is saying "when the odds aren't in your favour, stay away."


For the record, I totally agree with you that focusing on the dangers will kill you. As a novice mountain biker, I kept watching the rocks in order to avoid them and of course I got hurt. The way to thrive in adverse conditions is to be aware of the dangers but to focus on the path that you must follow. You'll end up where you focus, so you need to focus on your line through, not on the rocks.


FWIW, I've no idea what trading in good times are supposed to be like, but I'm still trading and I'm making as much money as I've ever done. Luck favours the bold!

The Market Speculator said...

Quick note that I am covering some of my shorts. I don't have time for a formal post, but hope to later today.

Anonymous said...

market speculator I Believe you should start a stock me member ship something like what Kirk does except in my opinion your a far better trader their are not many good traders out their that share their wisdom but your calls are great and you could make a living with giving advise and trading that is you calling I think. What are your thoughts?
sam

sb3 said...

true dat dog!!

The Market Speculator said...

Forgot to mention I also made a couple of pilot buys today. ANR and believe it or not, HOV, a homebuilder.

sb3 said...

why HOV?

The Market Speculator said...

Thanks for the kind words guys. Seems I'm not the only one that feels this way.

anon and sam: while i don't have an advisory service (don't have the time), I am available for private chats ($20/30 minutes).

Tyro: I see what you are saying, but I don't see this market the same as your analogy. This market is not hard to play, it's just different. Trust your edge, if you've got one. Don't whimp out just because the environment is different. Love the mountain biking analogy.