Finger On The Trading Trigger
ready to squeeze off
You always pull the trade trigger with
incomplete information. Here are some simple definitions
of investment and speculation. Which makes the most
sense to you?
is a long term bet based on incomplete information.
is an indeterminate term bet based on incomplete information.
Information will always
be incomplete - even after the fact.
With an investment you
first discover an opportunity. Next you may discuss
your investment options with an investment broker to
find a good way to put money behind your conviction.
Then you wait and watch as your chosen vehicle raises
Trading profitably in
investment markets also requires a willingness to pull
the trading trigger - and the
ability to change targets.
With a speculation, when
you pull the trigger and enter the trade - you have
a good idea of when and how you will exit the trade.
If the trade does not work as anticipated - if there
is a loss - you will probably get out quickly.
With an investment it
is usually buy and hold. Most investors will hold until
their emotions get too high. They will either sell when
the price drops enough to seriously depress them or
has risen enough for them to feel good about a victory.
With this emotional criteria they tend to let losses
run and grab at small profits - they lose overall.
A speculator should understand
before they enter how they will know if they were wrong
about the market or the timing. Speculators seek to
protect themselves from large losses by pulling the
exit trigger quickly. The other side is to hold on to
profitable positions - giving themselves maximum opportunity
for large gains.
When you hear of a big
winner in speculation - it was not that one speculation
that made them successful. If they are to stay successful
they will cut losses short and let profits run. This
is done most frequently by planning your exit points
before you enter.
That large speculation
win is the symbol of many victories comprised of cutting
losses short. Protecting your chips so you can win big
when you are right is a major victory also.
The exit point does not
have to be a number, in fact for profits it probably
won't be a number.
If pulling the trigger is determined by emotions, the
investor has probably made a mistake.
Our emotions tend to reflect
the emotions of the herd. The herd is right for short
periods in the middle of a trend - but emotions are
not high there.
The herd is wrong at extremes
- emotions will be high - wrong choices will be made.
The defense to emotions is to, as much as possible,
eliminate emotions as a trading criteria.
An old speculation rule
states this quite well.
Plan your trade - Trade your plan.
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