Time to Rest? NO!


The sentiment was extremely bad today with the CI continuing its losing streak.

Are you stressed-out already? Wanna take a break? No, you shouldn’t. This is part and parcel of trading. Don’t avoid it. Face it and learn how to deal with the emotional stress. No, Im not telling you to keep trading, but instead open your eyes wide and observe every single stage of the downtrend to familiarize yourself with a bear market. Spend more time on doing research now and try to identify shares that are beaten down not because of deteriorating fundamentals but due to panic selling, so that you are ahead of the others and can take immediate action once prices have stabilized.

Apart from that, now is also a good time to ask yourself some serious questions. You need to know yourself better in order to strive in this industry. You need to know why is it that you succeed or failed, so that you can duplicate your successes and reduce your mistakes in the future. Here are some of the questions that you may want to ask yourself:-

1.) Are you an investor or a trader?

If you are a true long-term investor who doesnt look at charts, the temporary setback should not be your concern. In fact, the recent dip should be taken as an opportunity to add more gems into your holdings. As long as you are holding a fundamentally good stock and there’s sufficient “margin of safety” for the price that you’ve paid for your shares, you should not be worry. If your emotion fluctuates with the market, probably trading suits you more. Yes, I understand that you might not have the time to monitor your shares or to do your homework after work but hey, I’m not suggesting that you do intra-day trading or swing trades. You can always be an intermediate-term or even a long-term trader. Knowing how to draw simple trendlines and identify possible inflection point will help tremendously in managing your portfolio, not to mention the reduced stress.

2.) Why is it that you lose money?

If you are one of the victims of the latest financial catastrophe, ask yourself this question and please, BE VERY HONEST to yourself. It’s OK to be a victim once in a while, but you want to be sure that the next time around when the bear hits again, you are safe. And to be able to do that, you need to know the source of your problem. Why is it that you make losses? Fear of missing out and chase after a share after it had made a run? Had your trading plan but was not discipline to follow it? Trade in denial because the losses was larger than you’ve expected? Wasn’t patient enough to wait for share price to stabilize before jumping in, or even averaging down (assuming you are a trader)? Choose not to do anything with your portfolio (even when its an obvious sell) because you do not know what to do or think that you would look stupid if it rises subsequent to your selling?

These are some of the deadliest mistakes that could wipe out a trader’s capital. If you are making either one of these mistakes, I’m pretty sure that you are putting profit maximisation as your priority. Just so that you know, the greatest investors and traders in the world emphasize more on capital preservation. Yes, no doubt that your objective is to make money in the stock market but that doesn’t mean you should take excessive risk. There are always opportunities to make money the safe way. You just need to be patient. Like I’ve always tell my students, you can make a mistake and lose a lifetime opportunity, but never make a mistake and lose your lifetime money. If you hold on to this advice of mine, I’m sure you will still survive after years in the market. Do anything to protect your capital, even if that means going against your latest judgement. You trade to make money, not to look or sound smart.

3.) Will you do things differently if you can rewind time?

Well, with hindsight, the answer is obviously a yes. But knowing that alone is not enough. Try looking back at the price movements, the hysteria of the market during the previous bull run, and other minor details for the past 2-3 months that you can gather to help you analyse the situation so that in the future when similiar patterns appear again, you know you should stay cautious and be prepare to run while others are still in denial. Histories do repeat themselves.

Hopefully, after knowing the answers to these questions, you can be a better trader in the future. Remember, capital preservation is more important than profit maximisation.