W well, no, that would be a new trader, who doesn’t go short, doesn’t have a need for cash flow all the time, is trying to learn not to go against the trend, and is working on being more disciplined. And is long only. Am I the first trader in history that is long only? Doubtful. but whatever. It’s semantics, whatever floats your boat
We are approaching a very dangerous phase in the stockmarket. This is just my opinion but, I have a feeling that the stockmarket is due for a huge crash. When? I do not know. Maybe, within the next 6 months. It is too frothy and a lot buying on the dips. These rallies to the upside are short term moves that probably, will not last for long. If you do anything, do not risk a good chunk of your capital now. Save your monies for the biggest bargains still to come, when the stockmarket has that huge crash that wipes a good amount of equity on most stocks that are way overvalued. Patience is rewarded at the end.
Very curious to know your basis for this. Any hard evidence, technical,or fundamental? Or is it just a gut feeling? I’m not concerned as overall I have a small 25% of my total assets in equities, much lower than I’ve ever been. But I’m curious as to your rationale.
Please note that these rules do not apply to others. It might be applicable to you only So having it in STRATEGY BUILDING seems not appropriate.
One is the stockcharts which shows weakness in a lot of stocks as well as the indices. There is buying at these levels and while, some stocks have fallen quite a bit, those stocks are still over valued relative to their earnings. Most stocks will take earnings hits as the US economy contracts due to people having to deal with high inflation. Oil is inflationary and has hit $122 a barrel today. I do not know how high oil will go. Some predict as high as $185 per barrel, without Russian oil. I am assuming a lot of the buying at these levels are from retail traders. So, eventually, the retail traders will run out of monies to buy stocks, just as the stockmarket crashes. They will not be able to hold the stockmarket up with buying drying up. I keep my exposure only to 10% of my capital. I want to have monies when the opportunities arise. Then, I will buy those stocks that are trending higher. I commit my capital as I see buying opportunities.
You can have a bunch of losses come up no matter how careful you pick your trades. That is reality. If you are risking 8% per trade and you end up losing 7 trades x 8%, you have already lost 56% of your capital. A pretty big hole to get out of. The recommended 2% risk per trade is more realistic. Even if you have 7 losses x 2% =14%, you lost only 14% of your capital with 86% left to re-start trading again. Risk management is very important in trading or investing in stocks. And risking only 10% on a worst case scenario, you can still make a lot of monies on 10% of your capital. Just be more selective of trades you take. You want quality not quantity.
Thanks for your thoughts. I do think there is more to come, not sure about a crash. But if the market went down 50% FROM HERE, at 25% invested, I could handle it, as I have a ton of cash (70% of my liquid assets) in cash, another 5% in bonds. It wouldn’t affect my life. I’m actually sort of hoping we get another leg down. it’s been suggested here that if I don’t go short, I’m not really a trader. I think that’s BS. Nothing wrong with sitting and not making major moves in an environment like this. I actually do know one high profile strategist personally, who agrees with you, and I believe it’s possible you are correct.
I think your math is off. say I have 100k capital committed to trading. I invest $10,000 in a stock with a max loss of 8%. My loss is reached and I lose 800. If I do that 7 times, I lose $5600, or 5.6% of my capital. Also, 8% is an absolute max, I generally don’t let a trade get anywhere near that loss level before cutting bait. still feeling my way around.
You do not have to go short. Instead, you can trade inverse ETFs like SQQQ for instance. It goes up when QQQ goes down. SQQQ looks headed up although, it had a huge pullback of late. The advantage to shorting stocks (using put options) is you can make monies both ways----so more trading opportunities.