Evaluate underlying conditions but let the market lead.
The market can be irrational and deviate from the fundamentals.
Trading requires taking the right slice of time -- proper entry/exit.
- The hedge fund manager that found valuations to be entirely overpriced and shorted the dotcom bubble, executed too early and had a margin call and lost everything because although his research and analysis was correct, the technicals had not broken/reversed/etc. Lesson: Develop your investment/trade thesis, but don't execute and fight the trend until there's a very strong indicator/reversal--even then, set stops to exit a losing position because the primary trend could continue. Fundamentals = what; Technicals = when.
- Along with the Schiller P/E Index, it shows how volatile market valuations are overtime and that the market doesn't follow fundamentals and will deviate
Information is gushing toward your brain like a firehose aimed at a teacup.
I don't believe entirely in the random walk/stochastic calculus thought. I believe stocks trade within certain price ranges and have found that certain price levels are levels of support or resistance and that typically, support does become resistance and vice versa.
Individual investor attitudes toward investing are driven by fear and hope where fear drives one to security and hope drives aspirations. Both drive investors' tolerance for risk, which in turn affects the way they structure their portfolios.
A good trader trades his system and thinks about the long-term results. He is not outcome dependent, but he is decision dependent.
Majority of traders lose because they trade off of emotions. Thus, one needs to establish a trading system with set entries and exits.
Trade risk, probabilities, technicals, and fundamentals.
Stocks move on volume.
Entry: Better later than earlier
Exit: Positive - Better later than earlier (let profits run) Negative - Better earlier than later (cut losses, ideally without getting stopped out by volatility and missing the gains)
