Friday, March 27, 2015

How will you know when you are wrong

This post refers to:

Adam asks this question: In trading, how will you know when you are wrong?

I am answering this question with my own thoughts. 

For Traders:

A stop is the only way to get this information. Always have a stoploss inside the trading system. Do not think you will know the point at which the trade is not working. 

For Investors:

This becomes much more difficult! I do not believe a stop loss should ever be used by investors. 

Investors buy into themes. We have to be clear on what the theme is. Then, we should regularly evaluate if the theme is valid. If it is, we have to stay with the investment, even when the prices are falling. If the theme is no longer valid, we have to get out.

This is not as easy as it sounds!

Investing is therefore much more of a risk than trading is. One way to overcome the increased risk is to manage your portfolio so that investment in stocks is an appropriate portion of your capital.

Finally, do read the Adam post, for which the link is given above.

1 comment:

RS Sethi said...

Dear Sir,
Thanks for sharing your views and thought process & also making good profits in the months of march through CNBC