When it comes to active investment in the stock market, the concept of Risk Management is about controlling the amount of capital that may be lost in the event that the market or a stock turns against your open positions. This week we will carry on from where we left last week’s post on Risk…

There are numerous risk and money management measures that can be adopted to protect capital but rather than focus on the varying methods of risk and money management, this post will look at “why you should apply risk management and money management rules to your investments”. What risk is there to manage you may ask?…

Here is a question for you. What is your analysis paradigm? Do you conduct analysis to try to: • eliminate moves in your favour that turned into loss trades? • eliminate trades that immediately moved in the wrong direction? • ensure that you don’t get out of a trade too early? • ensure that you…

Trading can be a very lonely game. As self investors we tend to internalise our feelings and emotions without sitting back and assessing where, we’re really at. Recently I was fortunate to be interviewed on JSE Direct – a South African radio program hosted by well respected South African media analyst Simon Brown. Simon’s interview…

A better way to think about bear markets The beauty of long bear and sideways market periods is that they are almost always followed by long rising market periods. The majority of the time, the longer and stronger the bear market, the longer and stronger the bull market that follows. This is how consistently successful…

Thinking about the markets from the market’s perspective can remove fear from the equation by creating a belief that down markets are a necessary part of market behaviour in the future and just as tradable as low market risk periods. If you think from the paradigm of your business, your job objectives or from your…

Research shows that the average down market lasts three to four months. However, it is not the short-lived down market periods that active investors should worry about, but the occasional longer and sustained down market periods, such as the one we are now experiencing. All ‘long’ strategies, whether they are Buy & Hold or more…

Once you have accepted achieving consistency as your major skills goal, what other skills goal can you set? Perhaps you could set a goal to become the ‘perfect trader’. What would this mean – no losing trades? Is this possible? I can assure you, it is not. Randomness will take care of this. A perfect…

Part 2 – Mechanical: The dictionary definition of mechanical reads: “like a machine, as if acting or doing without conscious thought.” Unlike the discretionary trader, a mechanical trader uses a set of unambiguous rules to guide his or her actions in the market. These rules determine: o when to buy and sell o what to…

Part 1 – Discretionary: Discretion is defined as: “freedom or authority to act according to one’s judgment”. Statistically most investors use discretionary decision making processes in the market rather than mechanical processes. Unfortunately, very few discretionary traders have longevity in the market and hence you could conclude that they don’t have an edge. A discretionary…