A FEW TRADING TIPS:
January 11th, 2007
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- There is no “cheap” or “overpriced” commodity. Price is an extension of demand and supply factors. When crude oil went past the $65.00 per barrel mark, I often heard from traders that it was just “too expensive” and that it would correct. Well yes indeed prices did correct but only after breaking above $80.00. How many traders can withstand this much risk?
- Contrary to popular opinion, “pyramiding” (adding positions on the way up or down) does not work in my opinion. If a market is going against you, get out. Adding positions on top of losing trades is illogical, again, in my humble opinion.
- Price dictates the trade. If fundamentals on any market are telling you one thing and price is telling you the opposite, follow price. Eventually fundamentals may prevail but this is not always the case. To use a recent example, OPEC cut production recently by 1.2 million per barrels per day not only once but twice and yet prices have tumbled more than $13.00 per barrel from 65.40 on 12/04/06 to 51.80 today (01/11/07). The other side of the fundamental equation on this market is that a warm winter and no shortages of Crude have contributed to driving prices down in spite of cuts in production.
- When in a difficult situation, let go of losing positions and keep the winners. Most traders will liquidate the winners because after all, you can bank the gains, but will hang on to losing positions in the “hope” that they will recover; because we’re trained from childbirth to win and not to lose. “Losing” is not a bad word and it can even be good if you know when to get out, because in the end you can still come out a winner.
- Don’t listen to the “experts”. Their opinion is just that: an opinion. Besides, if after extensive research you find that you are in agreement with their reasoning and take their advice, make sure that you employ money management to protect your capital because they won’t be there to do it for you. Every investor has a different level of risk tolerance. Do you know yours?
- Follow the trend even in short-term trading. There is a smorgasbord of trends available for day traders as well as position traders. Yes the trend is still your friend after all these years. If you pick the wrong direction, exit or reverse your position. Again here, follow price. If a commodity is headed lower (or higher) there’s a reason for it. Hop on board that train instead of getting in front of it.
- “Be happy, not right”. What I mean by this is that you’re not going to win on all trades. If you choose to be “Right” about your trade you might become very unhappy. But if you choose to be “Happy” about your trade you’ll probably get out of a losing position and have risk capital still available for the next trade.
- Human nature is really very simple: we are driven by hopes and fear. Put your emotions aside and detach yourself from what the markets “should be doing”. Instead focus on this: “What would Warren Buffet do in this situation?” That should give you a clue as to what you should do. If you still don’t know what to do, maybe you should have your money managed by a professional money manager.
- Protect winning trades by using sound money management. Profits are hard enough to come by and the trader who has a clear plan going into a trade won’t let profits turn into losses and won’t allow large losses. I’m sure you’ve heard this before: “People don’t plan to fail, they fail to plan”. It is imperative that you do your homework before entering a trade. Whichever technical indicators and/or fundamentals you choose to rely on are probably just fine as long as you stick to your game plan. Being flexible is also important in the context of the original plan. If conditions suddenly change, the plan can no longer be implemented as intended and must be modified. This could mean adjusting your stops or exiting the trade.
- Last but not least, you must have confidence in yourself and your “system”. Earn your “bread and butter” at what you do best and trade as if it were a second business endeavor. Wouldn’t you have a basic concept and plan of action for getting your “new “business” off the ground and ensuring its continuity?
Good trading.
Chad Geraigiri
Optimus Trading Group
1-800-771-6748
Past performance is not indicative of future results. There is a risk of loss in futures trading.
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