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The Intelligent Trader's - Long and Short of It
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From: Robert A. Christy Editor/Publisher, ‘The Intelligent Trader’ http://www.intelligent-trader.com http://www.christyinvestments.com
Date: August 16, 2009
The Numbers
Bullish Percent
Sector Bullish Percent
When to Say When?
Las Vegas Part II
Everywhere I went in the casino, I was constantly reminded to gamble responsibly and know when to say when.
It’s rare that somebody leaves Las Vegas with more money than they arrived with. The house has the odds in its favor and dangles enough hope in front of you so that you’ll dig just a little deeper to spend what little you have in your savings account.
Everything in a casino is there for a reason. Once you come to understand that, you have a chance at succeeding.
Think about the following:
No windows no concept of time Loud music makes it easier to concentrate Free drinks alcohol loosens your grip Air conditioning cold air keeps you awake Air scent filtered air keeps the non-smokers from complaining and fresh air keeps you at the tables longer
A casino is the ultimate playground and black hole for your money. It’s one giant distraction. The silver lining is that everyone is looking to hit the big one and leave flush with new found cash.
What’s make a gambler successful isn’t all luck. The reason people win or lose boils down to money or risk management. They know when you play, when to walk away, when to press their bet and when to put their chips away and go for a walk.
The same can said of the stock market. The failures blame the system and call it luck and gambling. Investors achieve success because they have their house in order and understand all aspects of what they doing.
I have used the following for years. I have no idea where I found it or where it came from, but it has served me well during those times when it feels like the wheels are coming off.
Spend some time with these questions – in fact print them out or copy and past them onto a word document and title it ‘My Risk Management Plan’. Keep it handy and refer to it once and a while especially when things aren’t going as planned.
Part I – Self Assessment
How much time during the day do you have to devote to trading?
When you are trading, how many distractions can you expect to have?
How much time do you expect to devote to developing your trading system, to doing your personal psychological work, and to working on your business plan for trading?
What are your computer skills? What skills do you need before you begin this trading venture?
What do you know about statistics?
How would you rate your market knowledge?
What are your psychological strengths and weaknesses in terms of personal discipline?
Do you tend to get compulsive (i.e. do you get caught up in the excitement of trading), do you have personal conflicts (that is, do you have a history of conflicts in your family life, at your job, or during past trading experience), or do you have any emotional issues that constantly crop up, such as fear or anger?
Based on your personal inventory, what do you need to learn, accomplish, or solve prior to beginning trading? How will you accomplish this?
Part II – Defining Your Objectives
What is your advantage or edge in trading? What is the particular concept that you are trading that gives you an advantage?
How much money do you have personally? How much of that money could you afford to lose? For example, most funds stop trading at 50 percent. How about you? How much risk can you afford to take on a given trade?
How much money do you need to make each year? Do you need to live off that money?
What if you don’t make enough to live off it? Can you make more than you need to live off of so that your trading capital can grow? Can you stand regular withdrawals from your trading capital to pay your monthly bills?
Are you being realistic, or are you expecting to trade like the best trader in the world? For example, suppose you have a very good system that is right half of the time and gives you profits that are twice as large as your losses. In that system, just by chance, you could still easily have 10 losses in a row. Your system is still working as expected, but you could easily have 10 losses in a row. Could you tolerate that?
Do you have time to trade short term?
How much social contact do you need?
Can you work by yourself day after day? Do you need one or two people around, or do you need a lot of other people around? How much do those other people influence you?
In summary, what do you expect to make each year as a percentage of your trading capital?
What risk level are you willing to tolerate in order to achieve that?
What is the largest peak-to-trough drawdown you are willing to tolerate?
How will you know your plan is working, or how will you know when it’s not working? What do you expect from your system in various kinds of markets? Trending? Consolidating? Highly volatile?
Part III – Trading Ideas
What kind of markets do you want to trade? Is it appropriate to specialize? Do you want to trade only liquid markets, or are there some illiquid markets you’d like to trade?
Do you want any conditions to set up before you enter the market? If so, what are those conditions?
What beliefs do you have about entering the markets? How important do you believe entry to be?
Given your goals in terms of returns and drawdowns, what kind of initial risk stop do you want? If it’s close, will you be able to get right back into the market so that you will not miss a move?
How do you plan to take profits? Reversal stops? Trailing stops? Price objectives? Contrary to popular opinion, much of your emphasis should be in the area of stops and exits. (Note – this is the most important area)
What do you do in terms of position sizing?
That’s about it for now. Gambling or risk management? It’s up to you.
Let me here from you if you have any questions.
Robert Christy
P.S. We continue to make changes and upgrades each month at the Intelligent Trader. In addition to our blogs, you can now sign up and follow us on:
Twitter: stcktradr Facebook: The Intelligent Trader and/or Robert Christy (Atlanta area) Skype: stcktradr
P.S.S. The currency market (forex) is the place to make money this year. If you’d like to know more about how you can participate in this, just send me an email and I’ll send out the information to you.
P.S.S.S. Please fee free to forward this to your peers, friends and anyone you think would benefit from its contents. They will thank you for it - and so will I!
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Robert Christy is a professional currency trader, stock trader, money manager, author and speaker. Mr. Christy is the President CEO of Christy Investment Group, Ltd., a fee-only registered investment advisory firm. He is also the Managing Partner and Portfolio Manager of Crabapple Capital Group, LLC and the editor/publisher of The Intelligent Trader, a subscription based long/short trading service. At the time of publication, Mr. Christy may from time to time write about stocks in which he, Christy Investment Group Ltd, Crabapple Capital Group, LLC or The Intelligent Trader has a position. In such cases, appropriate disclosure is made. Under no circumstances does the information in this column represent a specific recommendation to buy or sell stocks. Mr. Christy appreciates your feedback and invites you to send it to rac@intelligent-trader.com .
Robert Christy The Intelligent Trader
The Christy Investment Group P.O. Box 625 Alpharetta, GA 30009-0625
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© Copyright 2009 Robert A. Christy, The Intelligent Trader
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