Quote:
The ability to LOON until the stock makes its U-Turn and come back up to erase all your paper loss is closely intertwined with
the size of your reserve army. The bigger your reserve army, the stronger your ability to LOON. And the size of your reserve
army is in turn tied to whether you did overtrade.
When you trade with a cash account, once you have used up all your capital, you stop buying. You pay for your shares and sit
out the rest of the downturn and patiently wait for the stock to find its bottom, U-Turn, and come back up to your entry price.
That' s if you stop buying. But if you didnt stop buying...you continued to do contra trades after you ran out of capital, that' s
overtrading. If the stock does not find its bottom and U-Turn within the contra period, you will have to cut and take the loss.
When you trade with a CFD account, observe your one-third rule. Use the 1st one-third of your capital to open positions. Open
wisely based on best prices under best conditions, not carelessly buy thinking that you still have two-thirds of your army. Treat
your troops with respect. Treat them like they are your brothers. You wont risk your brothers' lives and send them on a suicide
mission, will you? Ofcoz not. So when you start buying with your 1st one-third of your army, buy under best prices and best
conditions using your indicators and doing the best you can. If wrong and your 1st one-third is stuck, you can do nothing and
watch first. Wait for the selling to stop. Then use your 2nd one-third of your troops to nibble slowly to average down (or average
up if you are SHORTing). Bear in mind that your 2nd one-third of your troops has another function --- to pay com and daily interest
plus to buffer paper loss for your stuck positions.
You should never touch your last one-third to average down (or up) when the market is still falling. You need that last one-third to
give you that security blanket and confidence to weather out any further downside. It is this last one-third of your reserve army which
enables you to sleep well each night and get on with your life. When the U-Turn comes, you can either do nothing and let the rising
tide erase your paper loss first. When enough troops are converted from paper loss to Avaliable To Deal, you can use those converted
troops to add more positions. Or if you are aggressive, you can use some of your last one-third of reserve troops to add more positions
to ride on the recovery. How much of the last one-third reserve troops you can use --- there is no hard and fast rule. The more aggressive
and more risk-seeking you are, the more you can use. The more conservative and more risk-averse you are, the lesser you can use. Or
even not use at all. It all depends on your trading experience, your trading philosophy, your appetite for risk and your hunger for adventure.
With that, I leave you with these quotations....
" A pessimist sees risks in times of certainty.
An optimist sees opportunities in times of uncertainty."
" Be fearful when others are greedy.
Be greedy when others are fearful."
" The best time to buy stocks is when there is blood-letting on the streets, even if it is your own blood."
" When the enemy presents you with an opening, move in and penetrate immediately."
Below is my comments: It only apply to Blue chips and the company fundamental is still ok. Cannot use it to apply any other counters and esp penny and ultra penny counter . Sometimes we didn't see them recover. So pls trade within your own financial means ! Do not borrow or on high margin to play stock .I think You may get into serious trouble .. trade with extra cautious!
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