What Lies Beneath - Trading-Lab

Leth · #1 04-11-2008, 05:29 PM

I've seen alot of websites that say they have some secret to wealth in the markets or some hidden formula. Well, since I am not aware of any secrets going back 200 years in market history; here is what I believe to be the keys to trading success...

First, it's extremely important that I have a diversified portfolio in order to improve the odds of my long term survival (The amount of instruments one decides to trade depends solely on how much a trader can comfortably manage). Here is an example of one such portfolio which uses stocks taken from the Dow30.

AA
AIG
AXP
C
CAT
DIS
GE
HD
HPQ
INTC
KO
MCD
MMM
MRK
PG
TLT
UTX
VZ
XOM

Now that I have these stocks in my portfolio,what do I do with them?

Well...if the overall long term trend is bullish on the SP500, I take only long trades. If the overall market is bearish, I take only short trades.

But how do I know if im in a bull or bear market?

As a technician, the 100/200 rule is a pretty good gauge. This rule simply states that, if the 100 day EMA is above the 200 day EMA, your in a bull market. If the 100 day EMA is below the 200 day EMA, your in a bear market.

Ok, so now that i'm following the overall trend, how do I actually trade my stocks?

Ride winners
Cut Losses
Manage Risk (Keep bets small)
Repeat

Next, with these underlying principles in the back of my mind, I choose a trading methodology that works in harmony with my personality (e.g. short, medium, or long term) and stick with it.

Then what do I do?

Pull the trigger.

*Disclaimer: Your personal choice in trading methods should be based on your evaluation and understanding of risk.

newbie · #2 04-11-2008, 06:52 PM

easier said than done. how do I find a "trading methodology that works in harmony with my personality". I may have to try several ones and before I find the right one my money is gone.

Leth · #3 04-11-2008, 08:11 PM

One way to narrow it down is to ask yourself some questions.

1. Do I wanna make my everyday living out of the market?
2. Do I already have a day job and want to trade for retirement purposes?
3. Will my risk threshold (gut) allow me to keep overnight positions without losing sleep?
4. How much drawdown can I handle?

After finding your answers to these questions and others, you may consider reading some books such as the Market Wizard series. This will help you look into the minds of the many different types of traders. Then, model one whose trading personality is in sync with yours.

Just an Idea.

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#1 04-11-2008, 05:29 PM
Leth Super Moderator Join Date: Oct 2007 Posts: 621	What Lies Beneath I've seen alot of websites that say they have some secret to wealth in the markets or some hidden formula. Well, since I am not aware of any secrets going back 200 years in market history; here is what I believe to be the keys to trading success... First, it's extremely important that I have a diversified portfolio in order to improve the odds of my long term survival (The amount of instruments one decides to trade depends solely on how much a trader can comfortably manage). Here is an example of one such portfolio which uses stocks taken from the Dow30. AA AIG AXP C CAT DIS GE HD HPQ INTC KO MCD MMM MRK PG TLT UTX VZ XOM Now that I have these stocks in my portfolio,what do I do with them? Well...if the overall long term trend is bullish on the SP500, I take only long trades. If the overall market is bearish, I take only short trades. But how do I know if im in a bull or bear market? As a technician, the 100/200 rule is a pretty good gauge. This rule simply states that, if the 100 day EMA is above the 200 day EMA, your in a bull market. If the 100 day EMA is below the 200 day EMA, your in a bear market. Ok, so now that i'm following the overall trend, how do I actually trade my stocks? Ride winners Cut Losses Manage Risk (Keep bets small) Repeat Next, with these underlying principles in the back of my mind, I choose a trading methodology that works in harmony with my personality (e.g. short, medium, or long term) and stick with it. Then what do I do? Pull the trigger. Disclaimer: Your personal choice in trading methods should be based on your evaluation and understanding of risk. __________________ Nothing is more difficult than the art of maneuvering for advantageous positions. - Sun-Tzu Trade with the trend, Ride winners, Cut losers, Keep bets small, Use Stops - Old School Last edited by Leth : 04-22-2008 at 07:07 PM.*

#2 04-11-2008, 06:52 PM
newbie Member Join Date: Oct 2007 Posts: 45	easier said than done. how do I find a "trading methodology that works in harmony with my personality". I may have to try several ones and before I find the right one my money is gone.

#3 04-11-2008, 08:11 PM
Leth Super Moderator Join Date: Oct 2007 Posts: 621	One way to narrow it down is to ask yourself some questions. 1. Do I wanna make my everyday living out of the market? 2. Do I already have a day job and want to trade for retirement purposes? 3. Will my risk threshold (gut) allow me to keep overnight positions without losing sleep? 4. How much drawdown can I handle? After finding your answers to these questions and others, you may consider reading some books such as the Market Wizard series. This will help you look into the minds of the many different types of traders. Then, model one whose trading personality is in sync with yours. Just an Idea. __________________ Nothing is more difficult than the art of maneuvering for advantageous positions. - Sun-Tzu Trade with the trend, Ride winners, Cut losers, Keep bets small, Use Stops - Old School Last edited by Leth : 04-22-2008 at 07:09 PM.