The secret to picking stocks - Magic Magnifying Glasses, LOL and ... (with Bob's permission) He actually has been blind in one eye since birth, but recently went through cataract surgery (botched by the way) - he talked the DR. out of his $5,000 custom fitting lenses until they can correct the surgery in August. Don
LOL, well actually - Bob has gone for years without taking a loss in a trade - some stocks just get de-listed or sold off the to bond holders. In all seriousness, he does tend to hedge off "bad" trades vs. taking losses quite often. Using ETF's or options etc. to make a bad trade - good. Don
There is actually a tidbit of wisdom in what Don just wrote that is probably lost on a lot of traders. Trade Management is as important as trade entry and good trade management can turn a poor entry into a winning trade more times than not. Consequently, poor trade management can turn the best trade entries into losers.
And in the fullness of time against the background of cost/benefit, has this strategy proven itself to be better than simply exiting bad trades?
Here's an Ian McAvity tidbit from 25 years ago (still applicable today).... "There are 2 kinds of capital.... financial and psychological. Blow either one, and you're out of the game".. IOW... Trade with stop discipline.
Yeah, this is a carryover from the years on the options floors (in the good ol' days) - we would search the various options classes to find the "best" option to sell to adjust overall deltas etc. Instead of buying stock, we might sell OTM puts or something. And, yes...we teach our people that they are now, basically, Fund Managers - and should treat their trading and portfolio's accordingly....don't leave "dead money" in pairs that aren't moving etc. - gone are the days of "daytrading" as we all know. (Before I get cards and letters, LOL - of course we all day-trade - just differently than in the past). All the best, Don
That's all well and good. But I have a very unsophisticated understanding of the markets. Barring possible liquidity constraints, I just don't see how hedging an outright position that has gone bad is better than simply exiting it.