These are 14 rules that I will share with you for long-term trading. Answers that led investors to a false sense of security in view of the size of the risk that everyone takes instead of purely for strong central bank interventions, and to be familiar with the definition of trading-related risk to understand the importance of those rules, Howard Marx says in a great article for him.
If you ask what the risk is in investment markets, then you will say: the risk here is losing money.
But there are two dangers that lie in wait for those in the market that you cannot reduce together: the first, the missed opportunities, and the loss of money. But to limit the risk of one of them you have to ask here: How do you protect yourself from these two dangers with safe positions? ?
It’s like a comedy, about a person making a decision. On his shoulders an angel and a demon sit. The angel tells him not to do something like this, because this is not a good idea or a suitable one for you, and it will throw you into trouble.
On the other side, Satan mites, you have to enter, to make a fortune. In the end, the devil wins.
Others see caution, maturity, and the right decision-making as past things. Hence price bubbles are created in the markets, the desire to get rich outpaces any desire, and that desire creates in the markets fraudsters as well, like Bernie Madoff. ”
Free from feelings
Howard continues to discuss the importance of depriving feelings when managing a portfolio.
How to avoid falling into the trap of Satan?
I do not have abundant feelings as someone who entered the field 45 years ago, in which I gained extensive experience. In fact, most of the investors I know are not aligned with their feelings. If you are passionate and lead your feelings you will buy from the top, in the case of enthusiasm that includes everyone. It will be sold to the bottom when everyone is desperate in the market. You will sacrifice like everyone else, and you’ll always be on the wrong end of the game. “
So the lack of feelings is one of the most important criteria in creating a successful investor. If you are not able to take away your feelings, you should not invest your money, points. Big investors take positions against the market, and here they do not take them once, but this is how they work. This method consists of making rational decision in times of high tension, and their decisions are usually against what everyone else does. That is why stripping yourself of feelings is one of the main reasons for opposing the markets. “
What you are seeing in the markets now is not new, the risk is shaken off by the dust of March, the corona spray, the federal system floods the American financial system with cheap cash, and the media praises the progress, and individuals are sweeping the markets at the present time.
Greed and fear
Here the role of emotional deprivation in dealing with your money stands out.
To win their rewards from the great opportunities available, logic now allows everyone to participate in the feast, but the feelings of “fear” and “greed” increase an individual’s exposure to risks, increase his anxiety about the many things he has reached in his hand at the present time, and makes him up for any breakdown to lose His nerves are full. And usually emotional decisions have the worst results over time.
As Howard points above, at these times an individual has to set aside feelings, and strictly adhere to investment discipline. For this reason, I decided to share the rules that contribute to the enjoyment of investment discipline.
I follow a simple set of rules and I am usually marked as pessimistic, to rely on fundamental analysis, to look at the data in front of me, and not what I hope to reach. In fact, she is neither pessimistic nor optimistic. Which forms the core of my investment portfolio. Here I focus on managing long-term risk and generating returns.
Did he make mistakes? Absolutely
Do feelings creep into the decision-making process? Undoubtedly.
One tries to mitigate mistakes by looking at price and economic and fundamental analysis,
Which form the basis of exposure to risk and asset allocation.
In conclusion, we are human beings, we all suffer from the same things to varying degrees.
The following rules are the “control limits” that we want to enjoy:
The 13 rules
1- Sentiments based on decisions do not lead to any success (buy at high price – sell on low) so set realistic goals that can be worked on (without a specific goal, all deals will become arbitrary).
2 – You have to stay on the safe side and rely on the long-term as you follow the trend (80% of the performance of investment portfolios is determined by the long, monthly trend. While the simple tide contributes to lifting all boats, the islands also sink everyone – meaning that short trades can Be profitable and destructive at the same time,
3- If you are not prepared to bear the losses when they occur, you should not invest in the first place. The investment discipline is useless if it is not followed by losing the money.
4- Go ahead with the winning positions and reduce your loss positions.
5- Don’t let the trading opportunity transform the course of your long-term trading (rule number one, all purchases are deals, until your theory is correct.
6- The investment process greatly improves your chances of success when the fundamental analysis confirms the technical movement of prices (this applies to bull and bear markets).
7 – Do not under any circumstances increase the position of a loser (only the losers increase their loss, according to Paul Tudor Jones).
8- Markets are either bears or bulls, at a time when bulls prevail, be long (sell) or neutral positions. And at the time of the bears, it became selling or neutral positions (it is the bears and bulls that determine the direction in the long term).
9- When markets trade at or near extreme cases, the herd is opposed
10 – If you have tested something and succeeded, repeat it again. If it does not work, do not try to overdo it.
11. Buying and selling signals are only feasible with their application (management without controlling for sale or purchase is designed to fail.)
12- No strategy works 100% accurate all the time. You have to be consistent with yourself, control your mistakes, and increase your chances of winning.
13 – Managing risk and volatility (controlling the variables that lead to errors, to generate profit as a side forum for the class