Friday, March 01, 2013

Trading to win

There has been lots of excitement among some traders this week due to the increase in volatility in the indices, as the pendulum has swung one direction to another in a couple of days. Plenty of people have been proudly calling the top of this current upward movement, only for price to reverse the very next day, and in the case of the Dow, to hit new highs and get within striking distance of its all time high.

I gave up very early on bothering about intra-day 'noise' in the market. By simply identifying the trend of the price and following it, it has enabled me to let these kinds of movements wash over me. It has given me a degree of serenity and tranquility in my trading. Price is as price does. I can't control the markets, and agonizing over every move and trying to pick tops and bottoms is not for me. I let the market show me what it's going to do, and then I follow it.

That's far too simple to a lot of people, but it has worked for too many traders to be ignored.

I am reminded about a trader who Jesse Livermore talked about in his book How to Trade in Stocks. This trader made a fortune despite being totally detached from the markets. He lived in the Californian mountains, and made his trading decisions based on the quotations he received that were three days old. Think about that...

People may also recall Nicolas Darvas, who did very well in the 1960's and wrote the best seller How I made $2 million in the Stock Market, and his brief (and disastrous) foray into moving into an apartment close to Wall Street to be nearer the action, and the losses it caused in his account. Once he reverted to his tried and trusted method of ignoring intra-day fluctuations, and following his telegrams sent to him by his broker, he was able to make his profits.

In my opinion, there are a lot of people who get lured by short-term or intra-day trading, who would be far better off trading longer timeframes, and following the trends in the market, than trying to decipher every small gyration up or down in the market. Okay, it may not be as exciting as 'boring' trend following, but I don't trade for excitement - I trade to win.

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