Don’t Be Foolish

There is no doubt that today's markets are volatile.  Some day traders find that to be an ideal situation, but investors are having a more difficult time deciding whether to follow the general advice of adding to positions when markets decline or reducing their holdings.

Jeff, in his the Stock Bandit blog, discusses the factors that make for a 'good trading market:'

"There has been no shortage of excitement and movement for day trading,
which is great for those of us who are able to monitor the action
throughout the day…With all the wild price action, my personal tendency has been to lighten up."

Note that he has been reducing the size of his trades, even though he says this is 'great' for day traders.

I agree.  This is no time to be macho.  Preservation of capital should be your major priority.  I'm not suggesting that you pull out of the market – I certainly have no plans to do so – but extra risk is present (yes, extra opportunity also) and the risk manager inside you should be playing an ever-increasing role in deciding how much you are willing to risk when investing in today's market. 

Rule number One:  Don't go broke

Rule number Two: Make money

Rule number three: Build Wealth

Rule number four: Never, never forget rule number one

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2 Responses to Don’t Be Foolish

  1. Jim 09/27/2008 at 11:05 AM #

    Hi Mark,
    I want to trade ICs. I have your Rookies book and found it very useful.
    I’m stuck on figuring out when to close a losing position. It seems that closing too early is not good and neither is closing too late.
    Is that something that needs to be determined by back testing?
    Thanks,
    Jim

  2. Mark 09/28/2008 at 1:30 PM #

    Hi Jim,
    This is such an important question, I’m turning it into a separate post.
    Mark