You have to manage risk and admit when you are wrong

It was a very short trade for subscribers of Dynamic System and it ended roughly breakeven, although unrealized gains were some 50 points in the S&P 500. This is the drawback for long term traders and trend followers, because we expect much more out of our trades and are unwilling to give up a winning position until we are definitely proven wrong. Our previous trade of over 180 points gain would not be possible otherwise.

At the beginning of my career as a trader and fund manager I acknowledged that the market cannot be predicted and anyone doing so is either lying or a fortune teller. I do agree that it is predictable to a certain degree but we simply do not know for certain. Our protective shield as trend followers is the stop loss order. This order is more powerful than you think, as it is not only a measure to limit loss but also one for protecting profits. It makes trading objective and passive because you let the orders work for you. Gone are the days when you have to sit at the screen the whole day. This is not required if you follow long term trends.

As I’m writing this post, the German DAX is rising strongly, breaking an important resistance at 5750. I expect the U.S. market to follow suit today and make it very clear to any bearish investor that they are not going to be successful.

Category: Performance