Don’t Just Do Something, Sit Tight

Trading

 One of the most common advice  for becoming successful is to start taking action.
Everybody is encouraging you to do something. It doesn’t have to be perfect at first. And it doesn’t have to be your end-product.
Often it is better to have some product on the market than no product at all.  By just starting and getting feedback from your customers you’ll learn to understand their needs betters.
This will help you improve the next version of your product to match better with the needs of your customers. Completely agile and according to the lean principle.
Off course it is great to have a solid long term vision, or a detailed picture of how your product should be.
But as long as you don’t execute and get it out there it will remain nothing more than just another thought or idea. The moment you start executing you’re becoming an action-taker.
That is what the world wants. People who take action and make things happen.
By getting started and moving on you’ll get the momentum which can be used to get in the right state of mind.
That’s why they often will say: Don’t just sit there, do something.

Does this apply for trading?

As you can see by the title of this post “Don’t just do something, sit tight” I stated exactly the opposite.
Why is that you may think? That is because I’m talking about the trading business.
Not about any other area where it can be good to just get your product out there and see how the market will react.
In trading the market won’t react to your actions.
Unless you’re one of the big hedge fund managers. But I think Warren Buffett and Ray Dalio unfortunately haven’t found this website yet.
As a trader you must learn to read the market and use it in your advantage. Most of the time you can be better of by sitting on your hands, than by actively trading.
I think this is one of the hardest things to do as a trader.
I can hardly sit still for an evening without having anything to do. Only when there is food and wine involved I’m able to keep seated and don’t bother about taking action.
For the rest of the time I’m mostly busy. Studying charts, reading, researching companies, working on this site. Or trying to work on my condition by running or cycling, or we might be planning our next vacation.
That’s why it has been very hard for me to learn this essential lesson to becoming a successful trader.
You need to learn to sit still and not do anything. Don’t force trades when there are no perfect setups according to you trading strategy.
You can’t force the market to go in your direction. 

Ride the trend

As a trader you must learn to anticipate the moves of the market and stocks.
To quote the surf-analogy that is often used: learn to surf the waves instead of going against them.
You must learn about the price action, what makes share prices move and how you can profit from these moves.
You can’t dictate any stock to go in the direction you want it to go.
Learn the signals a stock gives you just before a big move starts. Learn how to spot these subtle signs in time.
And all you have to do is look for them showing themselves on the charts you go over every single day.
When there are stocks that are lining up for a big move by showing you the desired indicators you must get ready to prepare your trading plan.
As the stock is continuing along your anticipated setup you only need to follow your trading plan.
Just be sure you always stick to the plan you’ve created. It is so easy to get lured in emotional trading and abandon your plan.
The great thing about planning your trade ahead is that you can keep any emotions out of it. Before your money is on the table you can be more rational about where your entry and exit points are. If your money is at stake it’s much harder to do so.

Don’t change your plan

So when there are no perfect setups that fit your strategy it is important to sit there, don’t just do something.
Don’t be tempted to try out a different strategy than you are normally using.
Don’t start making intra-day trades when you are normally focused on swing trading on a weeks or months time frame.
But also the other-way around, don’t start swing trading when you’re normally in and out a trade in a matter of minutes. Keep to what you know.
When there are no perfect setups go back to the study board. Continue reading, doing research and analyze charts.
Learn from the big winners that you have missed lately. Find the moment where you missed the perfect entry point on them and learn how to prevent yourself from missing more of the winners in the future.
Maybe you’ll get enough of being focused on your trading business for a moment and you might even get away from your screen for a while.
If you stay in focus on the market and really get bored you are more likely to start buying and selling stocks because you think you see something. unfortunately, or probably fortunately, trading is not a trial-and-error business. You don’t want to be killing your account by just entering random trades.
Sitting there is also a very important thing to remember when you are in a position.
When there is money on the table you soon will get emotionally involved in the stock. This may cause you to take sudden action not following your plan.
As the most money is made by letting your winners ride, you don´t want to be to quick to take any profit of the table.
Off course you need to trim down your initial position when you´ve got about 20% profit. but feel comfortable to let the rest continue to make you money.
Sure you must be closely watching how your stock (or stocks) are acting. And be cautious for any sell signals that might occur.
You don’t want to be giving away all your profit, even though you now have a cushion after taking a 20% profit.
Don’t feel rushed to sell your shares, let them ride.

Learn from the best

As the great trader Jesse Livermore said: “It never was my thinking that made the big money for me. It always was my sitting.”
He had already found the importance of not being too active in trading.
Jesse made his money trading stocks for the longer term. He focused on finding the market leading stocks and industry and buying them at the perfect time before making their big moves.
Then let them ride until you get clear signals that the trend is going to turn around.
Jesse Livermore’s quote can be explained both as not being in the market when times are tough, as in don’t sell your winners too soon.
Not being in the market when things aren’t looking that good is the best way to prevent yourself from losing money and blowing up your account.
You’re not going to be able to completely exclude losing money while trading. Although you must be be aware on the risk/reward ratio of your trades.
When things aren’t looking great your potential reward is too small regarding to the potential risk you take. In those times it is better to be sitting on the sideline.
Also Livermore inspires us with his quote about the philosophy of letting your winners ride until there are clear indicators showing you it is better to sell.
Never take profit because of how high the stocks has already gone. There is no reason why the stock wouldn’t be able to continue to go higher from there.
The only reason to take your profit is when the stock is giving you clear signs of upcoming changes in momentum.
When the momentum of the stock has turned around it can wipe out your profits easily. Don’t hold on too long on your position and hope it will bounce back.

It is important to take the right actions as a trader to become profitable. But it is even more important to not just do something. Learn to just sit there and prepare yourself for the moments your actions are required.

 Copy of Jesse Livermore quote_01

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