Trading Philosophy

Jul 9, 2010

Trading Philosophy

Today I'm sharing some of my trading/investment philosophy.  These ideas work for me and I believe are universal.  However, these are based on my experience and may not work for everyone.  My reason for sharing them is to suggest that you consider them.  Just thinking about specific issues allows the trader/investor to decide if this idea is suitable for his/her situation.

1) To succeed over the longer-term, losses must be minimized. Thus, risk management is the essential skill for any trader

2) Your trading/investing goal is to make money and see your account value steadily grow

3) **It does not matter from which specific stocks you earn your profits.

4) No specific stock ‘owes’ you a profit. If you lost money the last time you traded one stock, do not force a borderline trade in that same stock in an attempt to ‘get even.’

5) If you have a losing position that exits your comfort zone (too much risk going forward):

a. Do not increase position size in an attempt to get even

b. Do not hold, hoping the stock will reverse direction, allowing losses to be recovered

c. Do not alter (adjust) the position solely because you refuse to accept a loss

 i. Adjust the position ONLY when the adjusted position is one you truly want as part of your portfolio

 ii. The adjusted position must suit your investment criteria. That means both the reward potential and risk must be acceptable. That's the potential risk/reward for the future. What’s lost is lost. Don’t dwell on it. If you cannot find a position you want to own, then forget this stock and find another.

6) **It does not matter from which specific stocks you earn your profits.

7) If you believe one stock offers a good trading opportunity, then that’s the place to invest your money. Referring to #5 above, you would be better served to get out of the risky position and move to one that that you believe is better for your style. Your goal is to make money for your account.

This is a difficult concept for some people to grasp. The ‘need’ to recover losses from one specific stock blinds them to finding an opportunity to make money elsewhere. Which would you rather do: a) Recover losses, even if it takes a year, or b) earn three times as much money by trading a different stock? The answer should be obvious to all. Remember, it does not matter from which specific stocks you earn your profits. (This cannot be repeated too often.)

Mark D Wolfinger

Expiring Monthly: The Option Traders Journal


Mark D Wolfinger
Partner and Director of Public Relations

Expiring Monthly: The Option Traders Journal