Figuring out what works
Lately I’ve been engrossed by a pretty interesting book written by Matt Fitzgerald: RUN: The Mind-Body Method of Running by Feel. One of the main points he makes is that if you listen to your body you can pretty much figure out what works and what doesn’t in your training. Certainly use pre-set plans as a base, but over time rely — and trust — your own feelings and intuitions. By doing that, you’ll run faster, enjoy it more, and have less injuries.
Anyway, I’ve been thinking about that a lot with my trading and I think the thrust is the same: there are thousands of ways to trade. But, there’s only one way YOU should trade and you really need to create your own feedback loop to decide what works and what doesn’t.
The problem is that too often we rely on guru’s to guide us. Jim Cramer says “buy” but Gary Smith says “sell.” Peter Schiff says gold is a bargain, but Tobin Smith sees a top.
Warren Buffett is all about the “long term” but Bob Froehlich is all about day trading. (in reality, Bob Froehlich isn’t about day trading. No one on TV is ever about day trading, although a ton of people on wall street actually ARE day traders!)
In any event, you get my point. Each and every one of these people have figured out a method that works for them, and that most likely — if followed blindly — won’t work for you.
So, how do you find “what works for you”? You have to try a lot of approaches and let your intution and results guide you. Some suggestions:
— Pairs trading
— trade options instead of stocks
— Day trade (i.e. go home flat.)
— Buy and hold (soooo out of style right now, but still valid IMHO.)
— Invest in dividend stocks (I used dividend.com as my guide.)
— Trade breakouts and breakdowns instead of the conventional, buy-on-dips approach.
Now I’ve tried each and every one of these and many others. Some aspects of each work for me, but others I can’t get my hands around or they just don’t feel right. For example, I just don’t have the constitution to buy and hold. I see my position go up 5% and I want to sell and move on to the next trade. I’ve tried holding out for the big win, but it bothers me when the stock pulls back even a smidge. So, I don’t fight it and sleep a lot better at night.
And maybe finding what works really is as simple as that: when you can sleep at night, no matter how the market is doing, you’ve probably hit upon a reliable approach.
It might take years to get there — I’ve been at this nearly 25 years and still toss and turn on occasion — but it’s worth it.