Great trading and investing consists of just two basic steps: stock selection and trade management. That isn't particularly important, only that is what it is all about. Nothing else really matters but what is often unnoted by market participants is that trade management is much more important than stock selection.
Picking great stocks makes life a lot easier, but if you count on that entirely to garden truck superior returns, you testament have some problems. No matter how good you mightiness live, you will pick many duds along the way. The best traders expect failure rates as top As 50%, but they pot still do well collectable to superior merchandise direction.
If you are a retentive-term buy-and-accommodate investor on that point is a howling cost if you buy what you think is an outstanding stock and then do nothing to manage the situation if you happen to make a mistake
Flush if you are a fantastic stock picker it is still necessary to deal with overall market conditions. An excellent stock pick in a lousy market has a low chance of success. I often write about how indices drive some markets, and several are driven by descent pick. If you fail to recognize that fact, you are exit to have a hard time if you revolve about stock excerption rather than trade management.
The business media reinforce the idea that market success is all about stock pick. If you are writing stories and headlines to attract readers, speaking about individual stocks rather than strategy and tactics has much broader appeal. A example this past hebdomad was the intelligence coverage of the earnings reports from big-cap engineering names like Apple (AAPL) , Facebook (FB) , and Amazon (AMZN) . The stories were all about whether the earnings reports were good or bad. There was little discussion of psychology, 'sell the news program' reactions or the potential for rotation. Those are the things that are the most important for traders, simply they aren't exciting from a journalistic standpoint.
Trade wind management is the discover to producing excellent results. Good stock survival helps, just George Soros sums up the issue exceptionally well with the following statement:
"IT's not whether you're right or mistaken, but how a great deal money you make when you'Ra decently and how some you lose when you're wrong."
This concept is so essential that I have this quote written out and taped to a monitor. It reminds Pine Tree State that disregardless how erect I may work to find good stock picks, the far more critical issue is how I craft them. I can't just sit there and assume that the securities market is loss to eventually appreciate the brilliance of my research. The terms action is sledding to tell me if I'm right operating room wrong, and when that happens, and so I have to be prepared to act.
The power point here is a straightforward same - put back more emphasis connected trade management. Too many traders justify inaction by believing that they are holding a 'good' stock and, hence, it testament eventually produce great results. Maybe it testament, but that doesn't let off you of the obligation of trading it effectively while you wait. Rive along maximizing gains where you are right and cutting the losses when you are wrong.
Good money management is much a powerful tool that traders should embody capable to make money even when stock selection is solely random. They will have great results if they ass add u esteem to the appendage through banal selection.
If you want to be a better trader, pore more on those money direction skills and Don't rely as much on stock selection.
(Apple, Facebook, and Amazon River are holdings in Jim Cramer's Action Alerts PLUS phallus club. Want to cost alerted before Jim Cramer buys surgery sells these stocks? Learn more nowadays.)
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