Trading is the fight against a sea of random waves and adverse winds. Most events are not foreseeable and many stock market participants, most notably the bigger ones, have significant advantages over the small, private trader.
What is the promised trading secret here? Having a robust trading system, like an unsinkable sailing boat beating into the wind!
For some of you the emphasis is here on trading system. Many traders don’t have one at all or they have one with contradictions in itself, which would be a non-working one.
For all others the secret is that it must be robust, by which I mean:
- It has to work under different circumstances, not necessarily making a profit, but making the loss less likely and at least prohibiting substantial losses.
- It must be executable – by you.
Is there such a trading system?
The latter point suggests that the system must fit to you, or in other words, there may be trading systems that won’t match your trading personality.
Another problem is of course that a working system can be used only by a minority, which inevitably means it has to be some sort of secret.
What is now the concrete secret for traders or investors of the stock market?
There is one advantage the small guy has and the bigger one hasn’t: The stop loss method. Big positions can’t be exited by using the stop loss technique.
If you want to trade, position trading or scalping, not arbitrage, you are going to exploit a regularity, perhaps a hidden one. Often it is not hidden at all. The master of all regularities is the trend.
Diving into market situations of coherence and executing the stop will yield you a gain, splashing about in the random waters and playing the stop will bring in nothing. Forgetting about the stop will sink the bravest diver.
This is the first part of the secret, which leads us to the second one.
The difference between investors and traders.
- A trader trades with a stop loss, otherwise he is no trader.
- An investor invests without a stop loss, otherwise he is no investor.
All of those who try to mix these behaviors, perhaps inadvertently, are the poor souls who drown and feed the sharks.