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Phaedrus
10-07-2006, 07:26 PM
I stumbled across this set of really good trading rules. (ie ones that I agree with!)

http://spahiu.wordpress.com/

Page through about 4 pages of junk at the start.

duncan macgregor
11-07-2006, 07:52 AM
Thanks for that PHAEDRUS. I did a print out to remind me from time to time ex stuff. macdunk

kittydashwood
11-07-2006, 08:23 AM
I could really see relevance in rule four on mental capital. After the last two weeks of playing for brokerage I can see how a few losses can make one feel gun shy and miss winning entries becuase of the negative state of mind.

discl.
Stopped out of VLO ADM this morning for a small loss.

Phaedrus
11-07-2006, 09:18 AM
It is interesting to see that his number one rule is about averaging down. I sling off at this practice quite regularly and every time I do, people pop up to argue in favour of it! You can actually observe proponents being wiped out doing this. I featured a classical case in the thread "A Magnificent Obsession?" (NZX) It's like watching a train wreck in slow motion. Tragic.

Never, ever, under any circumstance, should one add to a losing position … not EVER!

I'll drink to that!

whiteheron
11-07-2006, 09:37 AM
Thanks P

Yes, we must remind ourselves from time to time about time tested rules as it is easy to stray away from them

I used to think that averaging down was a smart move, but after being badly burned several times finally came to my senses
Why add to a losing position when there are winning positions there for the taking ?
Why not jump off the loser and on to a winner for the small cost of making the change ?

New investors take note !!

Cheers

KJ
11-07-2006, 10:39 AM
P
Thanks for this-I think it is a great article and a timely reminder for me on a couple of points.

Steve
12-07-2006, 02:27 PM
Thanks for sharing your 'stumble' with us, P. :)

Phaedrus
13-07-2006, 07:49 AM
I'm trying to say that I agree with this guy. 100%.

Stripped of all tautology, his No. 1 rule reads :-

NEVER ADD TO A LOSING POSITION.

Simple. Clear. Unequivocal.

duncan macgregor
13-07-2006, 08:10 AM
HIAWATHA, That is a very good rule. It assumes that you are already in such a share, and ought to be more concerned with your stop loss exit proceedures, than buying more adding to the problem.
Buying into a downtrend when you think it has bottomed is a different proposition all together. my rules for that are.
1, The company must be running in profit.
2, The reason for the downtrend is over.
3, The sector its in is coming back into favour
The people that make money are the people with simple common sense rules that they stick to, then read the market with an open mind. A zombie like buy, or sell approach, can get you into a rising dog, or flick you out of a winner. The one golden rule that i stick to is if in doubt get out. macdunk

KJ
13-07-2006, 09:05 AM
H-I understand where you are coming from.

For example-IMO-say buying FBU yesterday at 925 after earlier reaching 955 is not adding to a losing position because it is in an uptrend.

However buying DPC yesterday at 206 is adding to a losing position and should not be done as it is in a downtrend.

Halebop
13-07-2006, 09:26 AM
I like the rag trade analogy re sell weak performers, buy strong performers. A dog is a dog in any business.

Phaedrus
13-07-2006, 10:07 AM
KJ, The current trend and whether or not you hold a losing position are two different and distinctly separate things.
"buying FBU yesterday at 925 after earlier reaching 955 is not adding to a losing position because it is in an uptrend"
It IS adding to a losing position if you had [u]bought</u> at 955.

"..... buying DPC yesterday at 206 is adding to a losing position and should not be done as it is in a downtrend" It is only adding to a losing position if you already held DPC.



H, How can a losing position be anything other than a position that you are losing money on?

KJ
13-07-2006, 12:34 PM
Hi Phaedrus-I follow what you have said but...

Let me give you my current position with FBU as an example.

Recently I decided that FBU had started a short term uptrend and bought back in as follows:

(1)decided that I would buy 6000 in total and bought the first 3000 at $8.80-I normally buy 50% to start
(2)followed with another 1000 at $8.96-average price now $8.84
(3)Bought another 1000 at $9.45-average now $8.96
(4)Bought the last 1000 at $9.27-average now $9.01
I do not see my last purchase as adding to a losing position as I am not in a losing position.I see it as taking advantage of the market which got a bit ahead of itself.

I see this as quite different from the DPC example and would not average down shares that are in a downtrend.

Phaedrus
13-07-2006, 01:34 PM
KJ, your FBU buys are a perfect textbook example of averaging UP, not down. (Every time you bought, your average price went up). At no stage was this ever a losing trade. You were always in profit, and always adding to a [u]winning</u> trade.

Just as the man says we should. Well done!

It's adding to a losing trade that is the big mistake.

Steve
13-07-2006, 03:44 PM
quote:Originally posted by Phaedrus

KJ, your FBU buys are a perfect textbook example of averaging UP, not down. (Every time you bought, your average price went up). At no stage was this ever a losing trade. You were always in profit, and always adding to a [u]winning</u> trade.

Just as the man says we should. Well done!

It's adding to a losing trade that is the big mistake.


No offence KJ, but this appears to be a classic case of doing well without understanding what you are doing! WELL DONE!:D

KJ
13-07-2006, 04:01 PM
Steve
I assure that I do know what I am doing because it has been working for a long time.
If you look back at P's post at 10.07 am he thought that I was adding to a losing position when I was not (buying at 9.55 and later 9.25)
It was more to do with not explaining myself clearly.

Steve
14-07-2006, 10:07 AM
Well it certainly has worked for you so well done anyway.:)

COLIN
16-07-2006, 09:20 PM
quote:Originally posted by hiawatha


quote: H, How can a losing position be anything other than a position that you are losing money on?

I agree with that. So far I have never lost money buying into a down trend and I've bought into 3 or 4 downtrends in he last 5 or 6 years. There is a 1st time for everything of course and my case Telecom may be it. However time will tell.
hiawatha

But how long did you have to wait until the market price caught up with your buy price again, on the way up? Not "5 or 6 years" I hope?
Meantime you were incurring opportunity costs, i.e. the positive contributions you could have been reaping over that period, by investing in rising stocks - or staying out of the equities market and being in cash.
MONEY HAS A TIME VALUE!

Thanks, Phaedrus, for directing us to that article. Everyone should read, learn, and inwardly digest it.

trackers
16-07-2006, 09:26 PM
&lt;offtopic&gt; I want one of those clocks! &lt;/offtopic&gt;

On a more serious note: If it mentions Jesse Livermore I dig it