If you want to be a successful investor, focus on one method or system. A surfer can't ride more than one wave at a time. In the same way, a trader or investor will not maximize profits if they switch from one trading system to another.
You must build a trading system around one indicator or market viewpoint. Something that gives you an economic edge for buying low and selling high. It must be a valid way of exploiting market prices, but it also must be compatible with your psychology.
If you get stressed and make mistakes when day trading, then develop a long term system. On the other hand, if long term investment strategies leave you bored and itching for action, then look at short term systems. Also, do you feel comfortable with leveraged investment vehicles (such as options or futures), or do you want to stick with stocks and bonds?
Once you have a system you like, that you are comfortable using, then you must treat it like a marriage and fall in love with your system. Use it "for richer or poorer, in sickness and in health". All systems have weak points and suffer draw downs in certain types of market conditions. These are the times you must resist knee-jerk tinkering, tweaking, or switching to other methods.
Research has shown that traders and investors who continually switch to the hot fund, stock, or method end up under performing the markets.
Think of a casino. They make tons of money because they have a razor-thin edge in their games. Gamblers frequently beat the house, but the casinos don't panic and change the rules of the games. Their games have well-established rules that have weathered the test of time. Instead, the casinos keep running the games, knowing they will profit in the long run.
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Praveen Puri has been a full-time trader, financial software developer, and a vice president at a major bank. He has appeared on MSNBC.com, NBC.com, The Wall Street Journal, FINS, and Wise Magazine.
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