VOH – Victims of Hype – Part 1
VOH – Victims of Hype – Part 1
Most of the time, we have been approached to help traders whose trading accounts are either “IPIT” (trading account caught in a bad position) or “SUNOG” (trading account burned) saying that they got into the situation because they are VOH – Victims of Hype. We would like to state that we are not purporting ourselves to be trading doctors who hold the panacea for all trading ills. We try our best to share knowledge and information to help traders but we definitely cannot save a dying trading account.
An ounce of prevention is better than a pound of cure. To avoid getting burned, we offer the following advice.
- Your first Buy into any stock, either blue chip or speculative should be a test buy, never an “ALL IN”, whether you generated the trading idea on your own or it was given to you by a guru. Much more so if you got the advice from a guru. The most irresponsible advice I have seen from a guru is to go ALL IN (unless your guru tells you he has reliable inside information).
Why do a test buy? You never can tell whether the position you are taking is going to be a “Good Buy” or a “Good-Bye.”
What do we consider as a “Good Buy?” If your test buy moves in your favor by 3% to 5% within 5 days, then you may consider adding in tranches. What do we consider as “Good Bye?” If your test buy moves against you by 2% within the same time frame you can say “Good Bye”, cut your losses and limit it to just perhaps your “burger meal” budget.
- Positive thinking vs. Right Thinking. The stock market is one area where positive thinking does not work well. Right thinking works better. Positive thinking leads to wishful thinking and wishful thinking leads to hope. Hope leads you to cling to losing positions hoping that your position will improve. As we all know, hope as a strategy does not work well in the stock market. Right thinking makes you see the situation as it is and enables you to make the right decisions.
- Always trade with a trading plan. Most often than not traders get into trouble because of a lack of a trading plan. A simple drawing of trendlines, identifying support and resistance, and establishing profit and cut loss points would be sufficient for the purpose. The little time and effort spent doing this will save you from much trouble later on.
Good luck on all your trades.