You remember (they show it on TV every year) the running of the wild bulls in Pamplona, Spain. Some of the nuttier people get out their capes and stand in their path as they come roaring down the street.
Our would-be matadors wave their home made cloaks at the bulls hoping the bulls will charge at it and not at them. The list of casualties at the end of the day is sometimes quite large, but, fortunately, not too many are killed.
These two participants, the bull and the make-believe matador remind me of the those same participants in the stock market. The bull is Mr. Market and the matador is the make-believe investor.
Why do I call him a "make-believe investor". Because as a former 17-year exchange member, floor trader and brokerage company owner I have had many clients who thought they were "investors". As a professional I would watch many of the dumb things (like standing in front of a charging bull with a rag in their hand) that clients would do with their money. Many times I could talk them out of it, but others they would insist on being gored.
The professional trader learns very quickly that you cannot stand in front of a charging bull who happens to have the shape of a stock market that is going full speed either up or down. Investors love those upward moves, but a few will say I have a nice profit now so I'll cash in and take the money only to see their stock, mutual fund or ETF (Exchange Traded Fund) continue its skyward journey.
The problem was they were guessing that their price was at or near the top of the move. Is there any way to know what is the highest price? Actually 'NO', but there is a way to catch a very large percentage of the price advance and have Mr. Market tell you when to sell. How? Let me show you the time-honored secret of the long-term professional traders.
Stocks do not make an orderly procession to a top and then turn down in an orderly fashion. They move in stair steps up sometime 2 steps up and one step back or 3 steps up and one step back. Many times they will rest for long periods and consolidate. What you can do is place a stop loss order that should be moved up as your equity advances.
Suppose you bought AT&T at $50 several years ago and had followed it up with a 10% or 15% stop loss order. It went over $100 and then started down to below $15. If you had been following with your stop you would have sold out about $85 or $95. The charging bull when it changed direction would not have gored you.
There is nothing to fear as long as you are protecting your investment with stop loss orders. The bull is your friend as long as you have protection when his direction changes.
Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know. Copyright 2005.
Stock trading remains a very competitive field and the stock... Read More
Ever turn down a street, get half way and suddenly... Read More
Every day I see in the financial section of newspapers... Read More
Now that you have some money burning a hole in... Read More
Unfortunately, most of you who are reading my column are... Read More
It has been said that low cost or even free... Read More
Inverted interest rates? What's that? Who cares? Even if you... Read More
The fight continues to rage among traders who use technical... Read More
When most analysts, financial planners, fund specialists and investors try... Read More
Why? Because I am going to shatter your conventional wisdom... Read More
Carefully thinking through your goal as a trader is of... Read More
Someday you may want to retire and continue to live... Read More
So you're started trading, you bought some positions with your... Read More
Both the stock market and oil prices rallied recently, which... Read More
Hello Inflation, it has been awhile, I see you on... Read More
After finding the price of a particular stock, usually the... Read More
In 1960 an engineer working for a watch company in... Read More
The Bollinger Band theory is designed to depict the volatility... Read More
The bear market that showed up at the end of... Read More
Profitable day traders recognize that momentum trading is among the... Read More
Today's society gives special recognition to alcoholics, sexaholics, binge-aholics, shopaholics,... Read More
If you don't know where you are going any road... Read More
I cringe every time I hear a novice investor tell... Read More
I often play a little game with myself when I... Read More
"There is nothing more frightful than ignorance in action!" Johann... Read More
After the publication of the first part of this two... Read More
Ever notice how behavior in one area of life can... Read More
Its dinnertime and the phone rings. It's Joe Noname with... Read More
When purchasing mutual funds we are cautioned to read the... Read More
Let's first define insanity. It is doing the same thing... Read More
As I have said many times before in this column... Read More
How do you invest? What do you really pay? At... Read More
One of the great "secrets" of successful people is discipline... Read More
If you haven't heard of the technical indicator with the... Read More
There is nothing more exciting than finding an undervalued stock... Read More
When it comes to stock market trading it PAYS to... Read More
One of the big advertising kicks today from mutual funds... Read More
I often hear from people, "I don't trade. I invest.... Read More
Congress recently passed another new law that is supposed to... Read More
The Shadow knows. There used to be a radio program... Read More
If you don't know what a Roth IRA is then... Read More
In my opinion, due to the volatility of stock market... Read More
Inverted interest rates? What's that? Who cares? Even if you... Read More
Day trading is all about making buy and sell decisions.... Read More
You'd have had to be living on a desert island... Read More
If you are serious about making and keeping money by... Read More
The greatest stock market myth is the idea that investing... Read More
Every Wall Street analyst, financial planner and broker will tell... Read More
You remember the story about the frog that was put... Read More
I'll bet with almost anyone that has stocks or mutual... Read More
Stocks & Mutual Fund |