Sunday, January 04, 2009

The market is truly designed to destroy MOST


The market is truly designed to destroy MOST.

I don't mean to sound pessimistic, since I've done well in it, but after an exhaustive study the past month of monster stocks and my own past trades using both CANSLIM and Darvas, I found that unless you're truly willing to hold through alot of early fiddling around and nasty volatility in the middle, trying to hold out for those promised 100's of percent gains is EXTREMELY difficult. I've bagged the triple digit winners in the past, but only because I did not try and trade around corrections and be too precise. I bought the initial pivot, allowed for the initial fiddle, and patiently waited out the week to see if the stock closed above or below the 50dma, unless the break was just enormous and near an already long bull market or the stock went climactic, as it scaled the chart (there are other reasons not to wait, but that's for another time).

In 2006 and 2007 even though I was able to bag some impressive winners (none over 100%, even though there were plenty), I found I did not really maximize the gain for the exact reasons I mentioned, I was trying to be too fine. The precision allowed me to get out near a top of an intermediate correction, but made it difficult to get back in because of the increased volatility as a stock scaled the charts. There are times for this type of precision, but that's too difficult to explain without illustration.

The reason for the title, most look at these monsters and just assume in hindsight that the moves were easy because of the way it looks in it's entirety. Most don't bother to measure the corrections a stock undergoes day to day, week to week. In many monsters, intra-week volatility can exceed 20% without violation in some cases of even short term moving averages (10 and 20). This simple oversight and misunderstanding leads MOST to overtrade, enter at the wrong time, and then in frustration of all the exhaustive non-profitable trading, become long term holders just as the stock is topping FOR GOOD (the laws of gravity eventually get them all, even if it takes decades, GM). Of course losing the majority of what they invested over typically the next few weeks and months.

Moral of the story, the only way to succeed is to study, study, and study some more and then execute your rule book. YOU MUST create your own rule book. No book or mentor can create it for you. They can get you started, guide and keep you on the right path, but in the end, you must understand how the different variables change and interact from year to year by learning it (repetition). Even though it's the same, there's enough of a difference to cost you plenty. YOU MUST write it down, your memory won't hold it or process it all when money is on the line. Your emotions will make your decisions. But if you learn to recognize the change, you won't be fooled because you will have a rule to handle the situation. It will take years to get it right, but the path is worth the trip once you do.

Most of you know this already, but thought it would make for a good new year reminder.



PS

Some have asked about mentoring in the past, if you're still interested please let me know. In some cases I do it on a barter system for help in other areas.

Hope everyone had a nice NEW YEAR and all the best wishes going forward.
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