Above the desk of one of the greatest traders of all times, Paul Tudor Jones, is a piece of paper stuck on the wall with the words written "LOSERS AVERAGE LOSERS". Wow this is powerful stuff people especially when one of history's greatest "Trend Trader" has this above his desk to keep him focused. But what does this mean? Why is this important to understand? Are you a loser? No you are not, but sometimes the truth hurts and when your losing money it really hurts. Cost averaging improperly can take that loss to a new level! OF LOSSES.
Ed Seykota one of the greatest trend traders of all times said this "If you can't take a small loss, sooner or later you will take the mother of all losses". I've been there, done that, and learned this expensive lesson. Many of you have found yourself in a similar situation. But how did this happen in the first place? Well quite frankly, you bought on impulse with out having a plan or a strategy to implement it! So were you trading or investing?
Trades: Trades are all in buys with which you have a plan to exit shortly after. You MUST adhere to your exit points regardless of a loss.
Investing: buying in with a small starter position, and a plan to add over time.This also has an exit point, just much lower than a Trade.
If your plan was to trade, and go all in at $380 and ride the final wave, you should have had exit points on both the profit and loss side to guide you. If your plan was to invest, at an all time high, then you should have bought a partial position with a strategy to buy more. But you didn't have a plan, you went all in blindly, and are now shooting from the hip thinking ahhhh "I'll cost average my position with fresh money on the way down or try and time the bottom". This makes send right? No it fails about 3 out of 10 times. And your now putting yourself at risk to lose money you never intended to bring into the trade to begin with! Your lack of planning was a strategy for financial disaster, if not now eventually! A bad trade will never be a good investment and a bad investment will never be a good trade. I know but gosh i'm down 50% it makes sense logically right?
Let's take a look at it logically. This is a specific trade. Buy @ $380 and sell higher. You didn't sell or cut losses so you say I'll buy again at $220. Your cost averaged in at $300 right? Kinda but NO it's a separate trade, you really have two trades, one for $380 and one for $220. If it get's back to $380 you broke even on the first and banked on the second. But that is an IF, and until then, all your money is on one coin! Say it doesn't recover, now you have 2 trades with losses. Augghghghg
So if you are bringing fresh money to make a 2nd trade, look at another coin. This way you have spread your risk over two or three coins. That's what we call RISK MANAGEMENT that is what I recommend.
So what do we do with the first trade. Well that's up to you. I'm not giving that advice, I would probably sell and trade it down here but that's your call. Regardless it's dead money, throwing good money after dead will not revive it. THE TRUTH HURTS! I know you can't afford that loss, well then you shouldn't have risked it! So how do you stop this from happening again?
Get your head straight and realize that failing to plan is planning for failure! Trading on emotions and impulse is a disaster waiting to happen. Understand what your doing and know your financial limits! If it's your first time skiing you don't say to yourself, "yeah I think I'll try that roped off area on the double black diamond run, here HOLD MY BEER". Ok I did that once, exactly that, broken hand, bruised ego, almost killed myself! But I did get a date with Pam the nurse at the emergency clinic. You too got lucky and something you didn't expect - A lesson you'll never forget!
Ed Seykota one of the greatest trend traders of all times said this "If you can't take a small loss, sooner or later you will take the mother of all losses". I've been there, done that, and learned this expensive lesson. Many of you have found yourself in a similar situation. But how did this happen in the first place? Well quite frankly, you bought on impulse with out having a plan or a strategy to implement it! So were you trading or investing?
Trades: Trades are all in buys with which you have a plan to exit shortly after. You MUST adhere to your exit points regardless of a loss.
Investing: buying in with a small starter position, and a plan to add over time.This also has an exit point, just much lower than a Trade.
If your plan was to trade, and go all in at $380 and ride the final wave, you should have had exit points on both the profit and loss side to guide you. If your plan was to invest, at an all time high, then you should have bought a partial position with a strategy to buy more. But you didn't have a plan, you went all in blindly, and are now shooting from the hip thinking ahhhh "I'll cost average my position with fresh money on the way down or try and time the bottom". This makes send right? No it fails about 3 out of 10 times. And your now putting yourself at risk to lose money you never intended to bring into the trade to begin with! Your lack of planning was a strategy for financial disaster, if not now eventually! A bad trade will never be a good investment and a bad investment will never be a good trade. I know but gosh i'm down 50% it makes sense logically right?
Let's take a look at it logically. This is a specific trade. Buy @ $380 and sell higher. You didn't sell or cut losses so you say I'll buy again at $220. Your cost averaged in at $300 right? Kinda but NO it's a separate trade, you really have two trades, one for $380 and one for $220. If it get's back to $380 you broke even on the first and banked on the second. But that is an IF, and until then, all your money is on one coin! Say it doesn't recover, now you have 2 trades with losses. Augghghghg
So if you are bringing fresh money to make a 2nd trade, look at another coin. This way you have spread your risk over two or three coins. That's what we call RISK MANAGEMENT that is what I recommend.
So what do we do with the first trade. Well that's up to you. I'm not giving that advice, I would probably sell and trade it down here but that's your call. Regardless it's dead money, throwing good money after dead will not revive it. THE TRUTH HURTS! I know you can't afford that loss, well then you shouldn't have risked it! So how do you stop this from happening again?
Get your head straight and realize that failing to plan is planning for failure! Trading on emotions and impulse is a disaster waiting to happen. Understand what your doing and know your financial limits! If it's your first time skiing you don't say to yourself, "yeah I think I'll try that roped off area on the double black diamond run, here HOLD MY BEER". Ok I did that once, exactly that, broken hand, bruised ego, almost killed myself! But I did get a date with Pam the nurse at the emergency clinic. You too got lucky and something you didn't expect - A lesson you'll never forget!
Comment:
I need to clarify now that I read this again. All In means the money you intended to use for the trade not your entire stack!
Comment:
I swear I miss more trend changes! As I was writing the trend changed!
