Wednesday, June 21, 2006

So, you wanna be like Warren, huh?

It doesn’t matter if you like Warren Buffett’s trading methods, because if you are like me, or the billions of other investors/traders, or stock market spectators, you cannot afford to dump and leave money in falling equity: you cannot afford to buy and hold equity right now.


Your enemy is volatility.

Today’s markets are just too volatile, that your investments will slowly shrink in a matter of days. I’ve seen it happen first hand, and let me tell you, it was absolutely devastating. The reason is that we are in a period where the nation’s economic growth is uncertain and that is governing bodies are trying to cool down the hot sectors. For this reason, we see a lot of volatility as investors/traders try to decipher what will happen in the future.
And you are seeing high levels of volatility due to market speculation.

But, all this is common knowledge; you can read these hints of “Bear Market” in many of today’s popular financial websites.

So, what does all this mean?

You need to learn how to read charts, because with all this speculation, the market price movements are based on emotion, and patterns, NOT fundamentals. And the main way to stay profitable at these times is to learn how to trade technically.

Technical analysis is based on price pattern recognition, and how to exploit the likelihood of future movements based on the completion of said price patterns. Based on this information, you can make target points of where you should remain in on a trade (let your profits run), or where you should get out of a trade. You can pinpoint exact prices where you should make entry/exit points – and in a time of volatility, you must be able to determine these points prior to getting into a trade. By doing so, you eliminate emotion in your trade, and you avoid getting ‘married’ to bad trades, and cut your losing trades quickly.

And with today’s divorce rate, sometimes you are better to not get married anyways.


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