Here's an interesting article which discusses entries vs. exits. I certainly agree with the author that most people place way too much importance on entries and not nearly enough on exits. I know from my email that some of you are having trouble keeping your losing trades small. I used to have the same problem and the only way I was able to overcome that was to put in stop losses as soon as I was filled on my entry.
Most traders blow out because they hold on to losers. The winning trades take care of themselves. Focus on a game plan to exit when you are wrong and make sure it is in place when you place your initial trade. You will get your share of winning trades no matter what method you use to enter the market, but one or two big losing trades will ruin your chances of surviving long enough for the big, winning trade to come your way. And, like it or not, losing trades are part of the game. How you manage them is everything!! [read the rest...]
Says it all. If any of you watch Cramer---can anybody listen to that screaming for more than ten minutes at a crack?---anyway, those of you who watch can't help but notice the morons asking the questions have stayed in a stock that long ago collapsed. I know when to get out. Almost every stock that has ever gone down gives the same signals (and when they don't, they all cross the 50 day moving average) and getting out is part of the game. My sister has been in the same stock for thirty years and has made a major score, but through total ignorance and luck, not skill. I put up some tools today within another piece.
There are also plenty of callers into Cramer's radio show who claim to have ridden a stock like SHLD all the way to fame and fortune.
Anyway, I am curious whether my interpretation of this TraderDaily.com article is correct. The author seems to be making a pretty strong claim that ALL entry methods have a 50% chance of success, that is, winning is completely random (not sure what timeframe he is talking about). Taking this claim to its logical conclusion, it tells me that we can make money in the market randomly searching for stocks, buying them randomly, and exiting before a small loss becomes a big one. The probability of the big winner is high enough to overcome the probability of the numerous small losers. And this applies to ANY entry method. Am I correct? Am I missing something?
After reading "Fooled by Randomness" by Nassim Taleb and reviewing my time in the market (via various logs, diaries & blogs that I’ve kept), I have a "stronger" bend toward the markets being more random then we want to believe, but I don't believe that ALL entry methods (for lack of better word) have a 50% chance of winning.
Though I don't have any statistical datum to back that up...just experience with a few entry "methods" that were blow-outs.
I suppose that a poor entry is defined by an even worse exit.
Mike,
I resemble your remarks! I find if I determine my stops AND APPLY them at the same time I pick my entry points its almost like the decision is taken out of my hands. I can no longer rationalize why I am still in a stock.
Do you use a % loss, trend line, or MA for your stops?
Thanks,
Lisa
Howard,
Dave Landry made a comment last week about the large number of people asking him where to exit a position that they're already in. He made it clear that they should have figured that out before initiating the trade and said that he won't even answer such questions.
Duru,
Yeah, it does sound like the author's saying that. (Maybe you should ask him?) I've always felt that any entry signal is just an excuse to 'pull the trigger'. The money is made in how you manage the position (read: position sizing and exiting)
Lisa,
My initial stops are typically just under the candle that gave me my entry signal or a 5% loss, whichever is smaller.
Add GOOG to the list of stox Cramer callers crow about riding to fame and riches!