Monday, March 12, 2012

Krasting's Trading Words To Live By

In today's volatile markets "Buy-and-Hold" seems a forlorn strategy in the opinion of many, increasingly being referred to as "Buy-and-Hope".  Even value investors are finding that the blue-chip dividend-paying stocks in their portfolio need to be monitored closely, and occasionally traded either to take profits or avoid losses.  Interestingly, it seems that everyone from newsletter gurus to day-traders like myself to investment club types and TV talking heads are independently arriving at some very similar trading rules.  The very sage Bruce Krasting (his blog at http://brucekrasting.blogspot.com is highly recommended), a retired professional trader who still trades currencies for himself recently summed up the thinking of many - no matter what it is they're investing in - as follows:  "Folks have asked me about where I set stops.  The answer is I don’t.  I do set mental levels where I will take a gain or a loss. I try to make 5% or lose 2%.  I try to ride winners; I’m good about taking losses. This is a winning strategy in a trending market.  It’s a cold loser when markets trade sidewise.  The hard part is to be disciplined and stay out of the markets when there is no action."  An intelligent approach that seems to be used by many these days; ride your winners and sell your losers - and be content with 5% gain short-term.  Then look for another value to invest in.  Trends for the foreseeable future are going to be short-term only, so learn to love volatility - it's not going away soon.