Trading
is all about timing. You can significantly cut losses due to an ill-timed trade
by following the below simple rules.
The Advantage of Avoiding Margin
Being
terrible timer has pros and cons. But some poor timer traders are able to
succeed too because they predict the market accurately and the lust for high
driven price is not so influential on them. They know what to sell and when to
sell. For example in 1980 Rogers made a short trade in gold and sold it at
around $675 an ounce while the precious metal rose all the way to $800. Most
traders would not have been able to endure such unpleasant price movement in
their position. The reason for his success was that he used no leverage in his
trade and not employing margin. Rogers’s did not
put himself at the mercy of the market and could therefore execute his position
when he chose to do so rather than when a margin call forced him out of the
trade.
Slow
and Low is the Way to Go
Traders should enter into a trade deal slowly, with
very small chunks of capital and use only the smallest leverage to initiate a
trade.
Using
stops
Trader
should know where to sell/buy, stop at a loss and where to exit the trade.
Using the slow and low approach is successful but it does not use stops.
Because such trade can be susceptible to a disastrous event that can take
prices to unimagined extremes and wipe out even the most conservative trading
strategy. For example Gary Biefeldt initiated trade with bonds at 63 level but
they kept falling all the way down to 63. Bielfeldt did not allow his losses to get out of control. He simply took stops every time bonds moved against him.
Finally bonds prices finally turned and his approach paid, collecting profits
far in excess of his accrued losses.
