Don't fight the Market - Milk it

Taking on the Market

I think one of the reasons people are daunted at the prospect of 'taking on the market' is that very phrase. Phrases very like that do feature in the publicity blurb of many a seller of systems ('Sign up with us, and you too can beat the market'). It helps those sellers to frighten people into believing that individuals cannot expect to survive without their expensive assistance, and that the market has to be fought.

'Don't fight the market - milk it' is a phrase I prefer. If you are short on a trade and get stopped out - it means the market is telling you something -that it doesn't like your bearish stance, at least in the short-term. There is obviously great delight to be had in anticipating a profitable turn in the behaviour of a share price - and thereby getting onboard before everyone else. But that is a very hairy and fraught business - and unnecessary. It's also hard work. I am content with capturing a few points within the upslope of a share price that is already rising - and jumping off prematurely at times. Maybe I'm just lazy. It does mean I can't boast as many points as the skilled macho trader. But I don't feel the need to. I am happy enough taking a bite out of the middle of the upslope - then moving on to another.

People are often warned not to follow the herd. But I find herd behaviour quite useful - as long as it is recognized as such, and as long as I can run alongside the herd awhile without being dragged along within it - so I can wheel away before it goes over a cliff.


There is another warning that "By the time you spot a bandwagon, you've missed it." Which is certainly true at times. Everyone knows it can be bad to hastily clamber onboard a share that rocketed from the off that morning, and which might drop back very soon after. And situations in which every newspaper that could identify a winning stock has already got around to doing so ('When even the bellboy is saying 'Buy', it is possibly time to sell.'). But I quite often hop onboard what I recognize to be a probably unsustainable bandwagon - for a brief ride and hop off again, as long as there is clearly sufficient momentum to last a few days or weeks.

I think another big barrier I come up against is people thinking that it must be impossible to trade for a living as 'if it was so easy everyone would be doing it'. Of course, it is anything but easy but I think it is possible to make consistent profits.

Again, as ever, these are personal observations and tactics, which might prove unwise for another player. Some contrarians apparently do OK at running against the flow. I always advise building your own manual.

Linda Bradford Raschke, in her various articles on trading techniques etc, makes the point that it takes 2-3 years for most newcomers to really know what's what - and to have by then encountered all the pitfalls one needs to know about.

Linda says:

'A lot of people try to out-think the market. They try and intellectualise and try to get too smart. They try to figure out all these scenarios. You shouldn't think too much during the trading day.. Keep it real simple'.

I think that's fabulous advice and it's why I have remained invested, and will remain invested, until such time as the market, or indeed my shares, turn down. It's pretty simple really.

Having mentioned Linda Bradford Raschke - one thing I would say is don't regard any of the named heroes of the trading and investment world as being the one role model you should follow - be it Linda Bradford Raschke, Williams, Buffett, Burns, Murphy, or whoever. Steal something from each but build your own book - and don't be afraid to dismiss some of what everyone else goes along with - if it doesn't work for you. I reject far more than I accept ;-).

In my experience, the most successful traders are those who develop their own system (which, though it will inevitably borrow from others' systems, will nevertheless be unique to that person), rather than just slavishly following other people's tips. One of the many problems with other people's tips is that you can rarely buy and sell at their entry/exit points. Another is that you may not be able to afford to lose as much as them ;-).

We all come into this from different backgrounds, at different ages, with differing amounts of start-up money, different circumstances and dependents, different mortgage or family responsibilities, different personality traits and attitudes. There are thousands of stocks, and hundreds of ways to play. Which is why it can take so long to settle into whatever is ultimately the best groove.

'There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly built into human nature, that always gets in the way of human intelligence. Of this I am sure.

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