My $0.02: A Couple Trading Advices

Reader Peter commented on my post "Portfolio Update: Long Again" and I thought both the comment and my reply would benefit other readers as well:
Good timing considering what is happening over the weekend ! Maybe this will give a pause in the decline and an upward push to the markets. If the pattern repeats itself, next downard push will come from either a substantial deterioation in spain og rather Italy entering the bailout speculation fase - that is my take but I have no idea about timing ....damn the timing thing is the worst!
 And my reply was:
The timing thing is indeed the most difficult thing, and it's actually quite impossible to be sure you're right. Indeed, the best way I've found to know whether a trade will be making money or losing, is to introspect myself as I'm submitting my trade: am I scared of losing money? or am I being greedy and aiming to make a bundle? 
When scared, chances are, it's the right time to enter the position. When greedy, chances are, I'm going to lose money. In both cases, you need to have stops in order to avoid a disastrous outcome (learnt from years of experience and a few too big to tell losses). 
The second best advice I can give you is: "The news do not drive the markets, the markets drive the news." 
See for example today's case: When markets open in Europe and the US, depending on whether the jump or dive, you will see:
  • Markets jump on optimism about the Spanish banks bailout and confidence Europe will solve their issues 
  • Markets slide on fear that the Spanish bailout is not enough and contagion will spread to Italy.


PMS said...

Hello PEj - thanks for the advice - and I can only agree and add my own barometer which is : when I have made a good trade and sold - I am normally very eager to re-entry the market - I have a feeling that I am "king of the world" and it is easy money to trade - from (costly) experience I know that in those moments I am NOT my own best friend :-) I have my eyes on the USD index for how long the retracement is going to be - assuming it is an retracement - the USD got to crowded but I still think that the USD is going much higher.

Thanks for a great blog - peter - copenhagen

pej said...

Yes, good ones!

That said, markets have resumed their decline.
Sell the news might be the name of the game, and maybe even the decline will resume? I'll give it a few more days, but nobody knows what will happen from here...