With markets falling this week and trader’s minds being challenged, I thought we might look at a newsletter I wrote well over three years ago. At that time I was lecturing around the country and the negativity I met from people was overwhelming. Here is what I wrote then, it’s as relevant now as it was April 2015.
“what if” is a question I hear from many investors and traders.
What if interest rates rise
What if the housing market collapses
What if the stock market collapses
What if global stimulus doesn’t work
What if the global debt sends the world economies into another great depression
What if we have hyper inflation and money becomes almost worthless
What if we have deflation and assets become almost worthless
What if there is a war
What if Europe falls into total chaos via a collapse of the Euro
What if China collapses
What if it’s all just a global bubble and a house of cards destined to end in certain disaster
Some or all of the above could be valid concerns, which one of the “what ifs” should we worry about the most?
What ones are more likely and in what order will the above scenarios unfold? How safe will we be and how do I support my family and friends? The safest thing to do is probably nothing, it’s all too uncertain and dangerous. Investing and particularly trading is for mugs.
Ask not why, but what
When I was living in the Buddhist meditation centre, one of the most thought provoking and arguably wisest statements I heard was “ask not why, but what”
The philosophy is this: if you continually ask why something has happened, or is happening (particularly to yourself) it sends you down the path of wanting and needing to know the reason behind everything that has or will happen.
To ask what is happening will give you a clearer answer, and puts your mind in a place to respond accordingly, instead of worrying incessantly about needing to know why. A good trader does not ask why his trade is moving in or out of favour, but asks what is happening and then responds. It’s rising, buy, its falling, sell. Action is decided upon according to your rules. The reasons why are nearly always given after the fact.
More from my newsletter “what if” (written April 2015)
What if interest rates stay low for many years
What if the housing market does not collapse but slows to a steady long term growth
What if the stock market does not collapse
What if global stimulus does work
What if the global debt slowly erodes via steady growth and a rebuild of confidence
What if we have moderate inflation stimulating healthy asset growth
What if we have deflation in areas that assists the economy eg: energy costs continue to decrease stimulating households and business
What if there is not a war
What if Europe does not fall into chaos and slowly rebuilds
What if China and India pick up the European slack and drive the Northern hemisphere economies
What if we are on the verge of an incredible period of prosperity like never witnessed before, driven by technology, emerging economies, global co-operation and competiveness.
So that was written over three years ago. Interesting to note that NONE of the negative “what ifs” have happened, and nearly all the positive “what ifs” have.
The best thing to do if you want to trade
I trade and teach trend trading. Its called trend trading because the methodology focuses on investing in assets that are rising and using risk control in case it does not perform. Not performing does not mean that you (or me) got it wrong, but that the particular scenario did not pan out the way we had hoped. It’s just a process based on probability, no magic or “guru” stuff.
Nobody knows what will happen. The above lists of “possibles and probables” is impossible to ascertain to any degree to what extent or what order any of those things may happen.
Here is what we do know
We know that people that do not plan, sometimes make unmeasured decisions and fail. People that do plan, make measured decisions based on probability and risk control, often succeed.
One plan. The eBook system is just one plan, one method. No method is perfect but a set method gives you a place to start, to build confidence and learn about trading. More importantly learn about yourself. It is my experience of trading and teaching now for 22 years that many do not really know themselves that well.
The eBook was published November 2016. Assuming you read it and then implemented the method after the Christmas/ New Year holidays, how has it done? Below is the graph with the system starting mid Febuary 2017. (the first trades were on the 10/2/16)
The system had a slow start for the first 6 months. This is common for trend trading systems as it can take a while for winning stocks to trend up and for the systems process to assert itself. The system has done 62 trades with a return on capital in 20 months (reinvested) of 62%.
The worst trade was IPD losing 35%. Trend traders note it’s still falling, a reason you should take your exit signals.
The best trade was A2M making 303%. Trend traders note, you wouldn’t have made this much if you did not take the buy signal and hold until the sell signal.
As I said before, nothing is perfect, no person, no method, no system. As a trader it's imperative you find a method that suits you. The method discussed above may not be the one, but its interesting to note what is possible when we put aside all the “what ifs” and get on with the job. That job is Buy your signal, Size your trade, Sell your signal, Repeat the process.
Buy, Size, Sell, Repeat.
52 week closing highs
Every week I list the 52 week closing highs for stocks in the top 500