RULES FOR SUCCESSFUL TRADING (PART3)
FIXING A PRICE OR POINT TO BUY OR SELL
The majority of people have a habit when they buy or sell a stock, of fixing in their minds a certain figure at which they expect to take profits. There is no reason or cause for this. It is simply a bad habit based on hope. When you make a trade, your object should be to make profits and there is no way that you can determine in advance how much profits you can expect on any one particular trade. The market itself determines the amount of your profit, and the thing that you must do is to be ready to get out and accept a profit whenever the trend changes and not before. Remember the market is not going to act to please you or go to certain figures just because you want to buy or sell at those figures. Many traders lose big profits by fixing the price at which they intend to sell. Stocks sometimes go within 2, 3 or 4 points of their selling price and start to decline. They hold on and hope. Just because it does not reach the point that they have fixed in their minds, they often hold on and hope until they lose all the profits and take a loss, refusing to see that the trend has changed. Hope will ruin any man who follows it in the stock market. To succeed you must face facts, and facts are often cold and stubborn and do not agree with your hope, but you must accept them for your own good. In nearly every bull or bear campaign in the market the general public gets certain fixed points in their heads where stocks are going to make tops or bottoms. The newspapers talk about certain favorite stocks going to 100, 125, 150 or 175. Everybody gets the idea that these prices are going to be made and they become “hope” prices, but are never realized. The man who tries to get the last point or the top or bottom eighth generally loses all his profits. You do not have to get in at the bottom and out at the top to make big money. All you have to do is to look over the list of the active leading stocks and you will find that they make moves of from 50 to 150 points between bottom and top every few years. Then, if you can get in after the stock has advanced 10 points from the bottom, and sell out within 10 points of the top, you certainly will be able to accumulate plenty of profits. Never get the idea in your head that you can or will hold a stock until it goes your way. This is nothing but pure stubbornness and is not based on any sound logic or reasoning. In case of doubt, get out. Do not hesitate. Delays are always dangerous. Do as the insiders do: If they can not get what they want, they take what they can get; if the market will not take what they have to offer, they offer what it will take; if the market will not go their way, they go its way. A wise man changes his mind, a fool never.
WHEN TO TAKE PROFITS
Never close a trade just because you have a profit. The time to hold on is when the tide is running in your favor. When tempted to close a trade just because you have a profit ask yourself the questions: “Do I need the money?” “Is the move over?” “Do I have to sell?” “Why should I take profits?” Look at your charts; do what they tell you. If they do not show a change in trend, wait. Protect profits with stop loss order, but do not take a profit too soon. This is just as bad as taking a loss too late. Patience to hold on when you are right and nerve to get out quickly when you are wrong will make a success.
ACCUMULATE A SURPLUS
A surplus must be accumulated before you increase your trading quantities. Margins are not to hold on with, only “lambs” do that. If big risks are required, do not make the trade. Wait for an opportunity when you can buy or sell and place a stop loss order 3 to 5 points away. It is financial suicide to take big losses when they can be prevented. You must not expand until after you have made profits. Every important business concern carefully creates a surplus and is proud to publish it. No business is run without a loss at some time and a speculator or investor must expect losses. Therefore, he must create a surplus out of which he can pay losses and still continue to trade. In very active markets, when trading in high priced stocks, as a rule it does not pay to take a loss amounting to more than two consecutive days’ fluctuations. If stocks go against you two days, they are likely to go more. Take your loss out of your surplus and leave your capital unimpaired and wait for another opportunity.
BUYING FOR DIVIDENDS
A great many people make the mistake of always wanting to buy stocks that will pay dividends. Do not buy stocks just because they pay dividends, nor sell them because they do not. Often people hold stocks because they continue to pay big dividends, only to see their capital half or more wiped out; then the dividend is cut or passed altogether. Look to the protection of your capital, not for dividend returns. Trade for points of profit, not dividends. Fluctuations yield more money than dividends and you will be able to tell when stocks are being accumulated or distributed for an advance or a decline If a stock is selling very low or out of line according to the dividend it pays, there is probably something wrong and it is a better short sale than a purchase. If a stock is selling very high and pays no dividend, there is a reason for it and you should not sell it short. Probably it is going to pay a dividend or it is in a very strong position. Otherwise it
would not be selling at a high price. Manipulation for a time will force stocks above or below their intrinsic value, but in the end Supply and Demand govern the course of prices, and values are based on these factors. I intend to teach you how to tell when Supply and Demand show the place where you should buy or sell. The word “dividend” means a division of profits or earnings, but often when you buy Curb or mining stocks the word means “divy,” or that you divide up your capital with the other fellow and later lose all.
The majority of people have a habit when they buy or sell a stock, of fixing in their minds a certain figure at which they expect to take profits. There is no reason or cause for this. It is simply a bad habit based on hope. When you make a trade, your object should be to make profits and there is no way that you can determine in advance how much profits you can expect on any one particular trade. The market itself determines the amount of your profit, and the thing that you must do is to be ready to get out and accept a profit whenever the trend changes and not before. Remember the market is not going to act to please you or go to certain figures just because you want to buy or sell at those figures. Many traders lose big profits by fixing the price at which they intend to sell. Stocks sometimes go within 2, 3 or 4 points of their selling price and start to decline. They hold on and hope. Just because it does not reach the point that they have fixed in their minds, they often hold on and hope until they lose all the profits and take a loss, refusing to see that the trend has changed. Hope will ruin any man who follows it in the stock market. To succeed you must face facts, and facts are often cold and stubborn and do not agree with your hope, but you must accept them for your own good. In nearly every bull or bear campaign in the market the general public gets certain fixed points in their heads where stocks are going to make tops or bottoms. The newspapers talk about certain favorite stocks going to 100, 125, 150 or 175. Everybody gets the idea that these prices are going to be made and they become “hope” prices, but are never realized. The man who tries to get the last point or the top or bottom eighth generally loses all his profits. You do not have to get in at the bottom and out at the top to make big money. All you have to do is to look over the list of the active leading stocks and you will find that they make moves of from 50 to 150 points between bottom and top every few years. Then, if you can get in after the stock has advanced 10 points from the bottom, and sell out within 10 points of the top, you certainly will be able to accumulate plenty of profits. Never get the idea in your head that you can or will hold a stock until it goes your way. This is nothing but pure stubbornness and is not based on any sound logic or reasoning. In case of doubt, get out. Do not hesitate. Delays are always dangerous. Do as the insiders do: If they can not get what they want, they take what they can get; if the market will not take what they have to offer, they offer what it will take; if the market will not go their way, they go its way. A wise man changes his mind, a fool never.
WHEN TO TAKE PROFITS
Never close a trade just because you have a profit. The time to hold on is when the tide is running in your favor. When tempted to close a trade just because you have a profit ask yourself the questions: “Do I need the money?” “Is the move over?” “Do I have to sell?” “Why should I take profits?” Look at your charts; do what they tell you. If they do not show a change in trend, wait. Protect profits with stop loss order, but do not take a profit too soon. This is just as bad as taking a loss too late. Patience to hold on when you are right and nerve to get out quickly when you are wrong will make a success.
ACCUMULATE A SURPLUS
A surplus must be accumulated before you increase your trading quantities. Margins are not to hold on with, only “lambs” do that. If big risks are required, do not make the trade. Wait for an opportunity when you can buy or sell and place a stop loss order 3 to 5 points away. It is financial suicide to take big losses when they can be prevented. You must not expand until after you have made profits. Every important business concern carefully creates a surplus and is proud to publish it. No business is run without a loss at some time and a speculator or investor must expect losses. Therefore, he must create a surplus out of which he can pay losses and still continue to trade. In very active markets, when trading in high priced stocks, as a rule it does not pay to take a loss amounting to more than two consecutive days’ fluctuations. If stocks go against you two days, they are likely to go more. Take your loss out of your surplus and leave your capital unimpaired and wait for another opportunity.
BUYING FOR DIVIDENDS
A great many people make the mistake of always wanting to buy stocks that will pay dividends. Do not buy stocks just because they pay dividends, nor sell them because they do not. Often people hold stocks because they continue to pay big dividends, only to see their capital half or more wiped out; then the dividend is cut or passed altogether. Look to the protection of your capital, not for dividend returns. Trade for points of profit, not dividends. Fluctuations yield more money than dividends and you will be able to tell when stocks are being accumulated or distributed for an advance or a decline If a stock is selling very low or out of line according to the dividend it pays, there is probably something wrong and it is a better short sale than a purchase. If a stock is selling very high and pays no dividend, there is a reason for it and you should not sell it short. Probably it is going to pay a dividend or it is in a very strong position. Otherwise it
would not be selling at a high price. Manipulation for a time will force stocks above or below their intrinsic value, but in the end Supply and Demand govern the course of prices, and values are based on these factors. I intend to teach you how to tell when Supply and Demand show the place where you should buy or sell. The word “dividend” means a division of profits or earnings, but often when you buy Curb or mining stocks the word means “divy,” or that you divide up your capital with the other fellow and later lose all.
