Read? https://www.rainbowonfi.com/2021/12/year-end-reflections-2021.html#comments
I guess you have your "crash got sound" experience on the No.1 reason why most traders lost money - weak money/risk management....
Never let a mistake go to waste. That's how we veterans survived.
Now you may understand why I use Stop-Loss orders despite 70-80% of the time, if I had held on to these losing trades, eventually they will make money one day...
Its to prevent those 20-30% of the time if I didn't get out, they would have wiped out my trading account!!!
But that's my experience. You have to work out your own money/risk management strategies to survive losing trades/investments. And rest assured, we'll have them!
There are lots of other hedging methods if one don't like to use Stop-loss orders - for eg, Peter Lynch don't use Stop-loss orders. He got his 10 baggers to dilute out the losses ;)
Read? Relating to stop-loss!
Risk and Money Management And Absolute Positions Sizing Relative To Capital Base for consistency
Over 22 yrs as Panda retail investor and trader in boring and unaspiring local market!
No stop-loss and yet never blow out his account despites many losses and also 4 Zero-baggers (100% invested capital wipe out)!
We need to find out from ourselves the form of risk and Money management strategy and method that fixed into our money and investing Mind!
3 M's in investing : Method, Money Management and Mind
Posts
CW,
ReplyDeleteMerry Christmas!
When newbie retail "investors"/traders tell me they don't use stop-orders like Peter Lynch, I often ask them how many 10 baggers they ever got?
Silence.
Track record and "plans" are not the sane thing ;)
Just want to add for newbie readers that your choice of vehicle matters a lot too:
1. CFDs, options, futures, forex are highly LEVERAGED instruments of mass destructions.
2. Stocks WITHOUT margin are different.
Even if you use margin for stocks, the max is 3:1 leverage. 10:1 leverage is only possible if you become a proprietary trader with one of our brokers and register with SGX as individual trader - trade fulltime on your own account.
In simple England, the money/risk management rules I use for my futures/forex trading account are not the same as my non-leveraged stock portfolio.
Similarly, when I used margin to TRADE a stock position, the rules are not the same compared to my unlevered LONG TERM stock holdings.
A lot of newbies make this mistake of mixing things up.
We can apply trading rules to investing; using investing rules to trading, more often than not, is just a disaster waiting to happen...
Merry Christmas CW and all readers here.
ReplyDeleteI have never tracked the performance of the stocks that I bought and hold.
What I do however is to track the dividend payout and the networth figure. The networth is further divided into liquid (cash, stocks, CPF OA, etc..) and illiquid (properties, RA, SA and MA) networth.
So far so good. Dividend collected is not at the expense of our stock value. Meaning the networth is increasing at a steady pace.
And after 2016, our networth has increased annually at more than 100% of our salaries. A strong indication that our passive income has exceeded our annual expenses.
Happy New Year folks! :P
ReplyDeleteFew assets don't need stop loss e.g. MSCI World, S&P 500, freehold property.
That being said, if you need the money in 3 yrs time & it drops 50% in a huge bear market, you're going to have to eat that loss.
For extreme asymmetric vehicles (I wouldn't call most of them assets), no stop loss is probably the right move. E.g. lottery, meme stocks, NFTs, non-blue chip cryptos.
The only 2 things is to keep positions small & be prepared to lose 100%, and to be able to control greed & take profits.
Which is why Gen Z and Y looking to escape less than ideal jobs/careers are placing numerous $1K bets on various cryptos and NFTs, looking to hit 10,000% to 100,000% gains.
A couple of 50,000% hits with $1K positions will end up with $1M liao. No guts no glory. Kamikaze style ... sure die, but maybe just maybe you'll hit a hole-in-1 & sink an aircraft carrier.
Spur,
DeleteSounds a lot like venture capital no?
Most of the bets on unicorns will turn to dust...
But if 1 or 2 that turned out to be Alibaba or Metaverse!?
Clean house for the win!
Hi Uncle8888,
ReplyDeleteDifferent people might have different appetite for volatility, so 10% may be a good cut-loss point for some but not all.
In my case, I didn't manual stop loss (no auto available) for my one Twitter Option so it became "bad trade turned into investment" (still holding on to those shares).
To put things into perspective, my US trading account is a small proportion of my investments so my risk management for cut-loss wasn't very tight. Which is also why looking at the results I cannot rely on trading for a living!
SMOL is right.
(1) Risk management when leverage is involved must be more stringent
(2) The mindsets and rules when investing and when trading must be different