Monday, October 6, 2014

Good Traders Stay With Winning Trades

Today, I continue to review "Trading in the Zone" by Ari Kiev.

This is a fantastic book.  I will review it for the next week or so.

In the beginning of the book, Kiev lays out what I think is the key to successful stock trading:

The best traders do not get attached to their stocks.  They recognize that there are forces they cannot understand.  Like Zen masters, they are able to be in the now and evaluate where they ought to be based on where the stock is and where it is going. They take a loss, clear their heads, center, and focus, and don’t try to make it back in that same stock.

Face the truth and be honest with yourself. 

Play your winning names.  

Avoid stocks that don’t move. 

Most successful professional traders make most of their profit from 3-10% of their trades.  Most of their trades are not making profit.  

Success is not about picking the right stocks.  It is really about how well you do once you are in the trade.  

Good traders stay with winning trades.  

They keep adding to those positions.  If one goes bad, they get out fast.

The master trader has a longer-term focus, a goal, and a strategy to reach that goal. Because of this, he is able to tolerate the pain of losing.  This requires learning the meaning of trading with no ego- letting the trade happen and getting out of the way.

I especially like the idea of staying with winning trades.  I heard a value investor once say they sold early all the time because they sold when a stock hit a certain valuation metric.  I try not to make this obvious mistake.  Winning stocks often get to high multiples and keep going up for years before a major correction. Why should I miss so much upside just because of a metric that I've made up myself that may or may not be correct in the first place?  Examples: TSLA, AAPL, etc.


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