How To Trade In Stocks

According to the past master in stock/commodities trading, Jesse Livermore, there are 3 strategies to note before you start to trade stocks in the market.

1. Timing

Adopt a top down approach. From looking the big market trend, then industry group trend, followed by tanden trading (sister stock) and finally the actual stock.

We trade along the line of least resistance - the trend.
We shall not argue with the trend.
We are looking for pivotal point to make a transaction for an opportunity to profit.

2. Money Management

Before we start trading, we shall maintain a cash reserve. Do not get ourselves fully exposed.

Look at the risk reward ratio - how much to gain for the capital we committed. Is the trade worth well our time and effort?

Implement a stop loss.
Keep in mind on how much we are prepare to lose in each trade and that will be our stop loss.
If things go wrong, we must exit before our capital can be wiped out.

Jesse recommended a stop loss of 10% while we may devise our own limit. But a stop loss is a MUST if we want to be a successful stock trader.

Break up our trade into stages. For example, if we are thinking to buy 1000 shares of a counter, we go in to buy 20% = 200 shares. If the outlook is clear and well, we go in to buy further 20% = 200 shares. Then another 20% and finally the remaining 40%.

This gives us a buffer of time to confirm we are making a right trade.
In an event of a trade goes wrong, we can exit and thus reduce the impact to our capital.

We shall never average losses, also known as average down. Instead, we shall average up. Stick with winners until a reason to sell.

If the share price goes against what we expected, this is enough reason to sell.
We do not put in any more good money after bad.

And one reminder about margin call - when the margin call reaches you, close your account - never meet a margin call.

3. Emotional Control

We have to control our sense of hope, greed and fear. We have to remain calm and rational with regards to stock market. We go into stock market for profits, not sentiments.

We can beat a horse race but we cannot beat the races.

We need to have patience and wait until the action of market itself confirms our opinion then we move in. Do not anticipate.

Also we do not to have to be in the market all the time.

Market is never wrong - opinions often are.

GOOD LUCK TO ALL.

NOTE: Ideas from the book "How To Trade In Stocks" by Jesse Livermore.

智慧二谏

(先主）刘备在蜀，时天旱，禁私酿，吏于人家，索得酿具，欲论罚。简雍与先主游，见男女行道，谓先主曰：彼欲行淫，何以不缚？先主曰：何以知之？对曰：彼有其具。先主大笑而止。

　
简雍，河北涿郡（今河北涿州市）人。三国时蜀国的大臣，刘备的妻舅。平时为人耿直，不拘小节，幽默风趣。刘备当上蜀国皇帝后，某年因为天旱无雨，粮食欠 收，所以他下命令禁止酗酒，也禁止酿酒，甚至连酿酒的工具也禁止保存。一经查出，与酿酒、酗酒同罪。禁令一下，雷厉风行，老百姓叫苦连天，但刘备只装作不 知道，一点也不放宽。

　　有一天，简雍同刘备出行，看见一对男女远远走来，简雍就向刘备说：“这对男女将犯淫罪，可以将他们拘捕法办。”刘备惊讶地问道：“你怎么断定他们会犯淫罪呢？”

　　简雍的回答妙不可言：“很简单，因为他们身上都有淫具啊！”

　　刘备听了，也为之忍俊不禁，大笑之后，遂略有所悟，于是下令取消了不准保有酿酒器具的禁令。

********** ********** *********** ********** **********

齐有得罪于景公者，公大怒。缚至殿下，召左右肢解之，敢谏者诛，晏子左手持头，右手磨刀，仰而问曰：古者明王圣主肢解人，不知从何处始。公离席曰：纵之，罪在寡人。


周朝，春秋时代的齐景公，在齐桓公之后，也是历史上的一位明主。他拥有历史上第一流政治家晏子——晏婴当宰相。

当时有一个人得罪了齐景公，齐景公乃大发脾 气，抓来绑在殿下，要把这人肢解。古代的“肢解”，是手脚四肢、头脑胭体，一节节地分开，非常残酷。同时齐景公还下命令，谁都不可以谏阻这件事， 如果有人要谏阻，便要同样地肢解。皇帝所讲的话，就是法律。

晏子听了以后，把袖子一卷，装得很凶的样子，拿起刀来，把那人的头发揪住，一边在鞋底下磨刀，做出一副要亲自动手杀掉此人，为皇帝泄怒的样子。然后慢慢地 仰起头来，向坐在上面发脾气的景公问道：“报告皇上，我看了半天，很难下手，好像历史上记载尧、舜、禹、汤、文王等这些明王圣主，要肢解杀人时，没有说明 应该先砍哪一部分才对？请问皇上，对此人应该先从哪里砍起？才能做到像尧舜一样地杀得好？”

齐景公听了晏子的话，立刻警觉，自己如果要做一个明王圣主，又怎么可以用此残酷的方法杀人呢！所以对晏子说：“好了！放掉他，我错了！”