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Posted by Kimberly Swartz on

Risk Management: A Key Indicator and 4 Things To Eliminate In Investing

Risk Management: A Key Indicator and 4 Things To Eliminate In Investing

There is a process you develop around Risk Management, after you have gained experience in the stock market, stock trading and being a financial professional; a Portfolio Manager in our case.  As different as we all are in our stock market world, we all have one thing in common; a process we learn to use to identify high-potential assets, sectors or individual stocks.

If we fail at creating, mastering and adhering to a successful process, we don’t achieve success. 80% and more of professionals and stock traders do not ever obtain the incredible results they thought they would. Those who do move forward and obtain success by consistently profiting in the stock market, with high-performance win ratio’s and small loss ratio’s, made it because they figured out the 4 Stock Trading Problems To Eliminate. Forever! It may sound rather simple, but it’s not, otherwise, there wouldn’t be an 80+% fail rate.
Failing can mean a myriad of things ranging from, “blew up”, losing everything, or something as small as failure to even outperform the S&P 500. One thing is sure: They failed to do these 4 things like a Jedi disaster.

Let’s go get Jedi Master Instead!

4 trading habits to break

1. ARE YOU TAKING PROFITS?

At a certain point the technical analysis red flags are all over the chart's and if you overstay, you will pay! YOU MUST KNOW YOUR EXITS! Do not get greedy on a profitable trade and fail to miss a blow off top or red flag candlestick pattern. Many people wipe out their profit before they take it all. You have waited and entered well, but held and held and held. What did you miss? There are 2 exits. There's the MAIN EXIT and then your "last chance of getting out EXIT." Know the Technicals showing you a break in trend.

2. SIZING OF YOUR POSITION

Know the size of trade you should be making relative to the size of your portfolio or that of your client's. If your consideration in your selection has frequent volatile moves your stop is going to be lower and looser than that of a smoother trading, lesser volatile stock, where you would keep a tighter stop just below a violation of the bullish trend line. Allocate more to the one that's closer to your exit point than on one that's a 10% drop before it returns to the trend line

3. CONFIRMATION BIAS

We asked David Moadel to share some of his insights and experience regarding Confirmation Bias and here is what he had to say.

"Eliminating confirmation bias is an absolute necessity for investors.  Confirmation bias means seeking out data that supports or confirms what we already believe to be true – and ignoring or overlooking data that contradicts our existing beliefs. 

'Confirmation bias is a powerful force; it has even been claimed that confirmation bias determined election results.'

See the CNBC video "Did Confirmation Bias Swing the Election?

Ignoring contrary facts is something we all do, more or less, but as investors, we can maximize our returns and minimize our losses by reducing confirmation bias. Since our confirmation bias is often subliminal and we don't even notice that we're sabotaging ourselves, the first step is to make a commitment to pay attention to our natural tendency to filter out information that goes against our current belief systems.  Then, it is necessary to seek out articles, blogs, videos, and books that don't agree with what we already believe.

Seeking out contrary facts and opinions isn't easy at first, but it is a worthwhile exercise that will help us, as investors, to open our minds and see both sides of any issue.  Taking this a step further, you can even deliberately engage in conversations, both in person and online (such as on message boards and chat rooms), with people who have an opposing viewpoint to yours.  The idea is to listen to these people, not argue with them.  You don't need to agree with everything they're saying – just keep your ears, eyes, and mind open.  With time and practice, you'll eventually be better equipped to view stocks, charts, and companies from multiple perspectives:  bullish, bearish, and neutral.  With confirmation bias eliminated or at least reduced, you'll be on your way to a well-rounded perspective as well as greater profit potential."

You can find David Moadels trading, stock market insights, and videos at the link.

4. Sentiment. 

It does not matter what they say, think or feel. What matters is what the price and charts are telling you. The short term, long term, the monthly, the macro and micro. Herding, crowd mentality ought not to be a deciding factor in your own investment plans or those of the portfolio's you manage. Remain objective to the sentiment but remember that sometimes sentiment can be an indicator;  such as the V shaped market rally post election, resulting in many losing out on 12% gains. Another classic to put in your book of stock market knowledge is this.  When you have to hold your nose to buy an asset class that has been so hated- think contrarian and seek solid technicals, as these hated stones, can provide unparalleled buying opportunities. i.e. $NBL at 44 year support and making a bounce. 

A Key Indicator

The Swartzcofski Crossover Strategy

The Swartzcofski Indicator for the S&P500.

One of our research techniques to gauge direction for allocation in our models or clients portfolio's is the Swartzcofski Crossover Strategy. The chart is of the S&P 500 ETF called $SPY. Each time the green line crosses above the red line is a time to buy and when the green line crosses below the red line, it is a time to sell and get defensive.

What does the current $SPY stock chart say to us after such a long bull market run?

Believe it or not; it says Buy.

The Swartzcofski Indicator for the S&P500.

Hope you find this information helpful. If your firm, fund or account isn't performing the way you planned, having a spare set of eyes assist you with entries and exits can greatly improve your equity curve. Call to discuss adaptable, risk adjusted growth solutions,

Kimberly Swartz

Posted by John Butcofski on

Let Me Out!

Nike Inc. $NKE Is breaking out of a bullish flag.  Positive momentum bullish divergence taking place which is also supportive of higher prices.

 

$NKE

$NKE

Have a nice day,

Captain John