Saturday, September 4, 2010


Once upon a time, when I frequented the Motley Fool website, I used to be preoccupied with "multi-baggers". These were stocks whose share price increased many hundred fold percentage points. I really believed that I could be the next Nicolas Darvas, riding out monster stocks to 300%+ gains with in a few months. Although I did have some semblance of a system that could facilitate this, I never stuck to the rules! Whenever I looked back at stocks that I took trades in a few months later; I would notice that some of them went on to become multi-baggers but I never got more than a few points out of them.

Anyways I wanted to make two points. Firstly, do not let your self become preoccupied with catching monster moves unless you have system that you know inside out and believe in and catching monster moves is a natural by product of this system. For example, CANSLIM. There is no question that CANSLIM catches monster moves in growth stocks. However, if you trade a swing system it is quite clear that your not going to get monster moves! So do not focus on monster stocks. Instead focus on grinding out the edge in your system that will allow you to make money over time.

This leads into my second point. Even when people are using systems that can catch monster moves most of them never end up doing so (like myself in the past). The reason for this is not sticking to clearly defined and repeatable exit rules but instead exiting on impulse which more often than not is not going to allow the trader to hold for the full extent of the move and also not going to allow the edge in the system to play out. So the second lesson stick to your rules not your emotions. Rules can be repeated day and day out and make money over time but EMOTIONS will not! Just ask the 90% of traders who fail!

Hope this was useful. Good luck and good trading!

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