The Traders Journal

You Bought It! Now What?

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ChefI’ll confess that my students have referred to me as tough, irreverent and leathery – and those are the kind comments said to my face.  Guilty as charged, with the caveat that perhaps some of these comments are by students with objectives that are not on the same page as mine.  I think of this weekly blog as a sort of view from the kitchen.  Mine is not some candy-coated representation of a non-existent financial Valhalla being pedaled by someone who is trying to sell his black box with the holy grail formula.

This is a weekly experience where I invite you into my trading kitchen and let you look over my shoulder as I blend a lot of essential ingredients into what becomes a tasty profitable investment dish.  Is it simple?  Hell, no!  That’s the point.  I make it clear that it takes a lot of study, practice and work.  If you can’t stand the heat, get out of the kitchen.  Find a money manager to take over your assets and learn to live with mediocre results.  If that’s the road you chose, I hope I helped you make the right decision. 

If, on the other hand, you want to make real money, then make the commitment to join me in the kitchen and teach yourself to cook up a investment lifestyle that is tasty and enriching. 

 


 

 

Okay – if you are still with me, let’s carry on.  Consider this:  your mind in its untrained state is not a truthful instrument for perceiving reality because it is too emotional and will lie to you.  Now combine that with the fact that Wall Street is a sophisticated disinformation machine that’s intent on manipulating investors into believing what the markets deem as appropriate, and you can see that what you have is a “perfect storm”.

To become a successful investor, you must aspire to train yourself to become a virtual stock market ghost-buster.  I can even suggest a theme song.  Let’s assume that you’ve organized your office and written out your investment goals and trading plan.  Moreover, you’ve read a couple of books about the investor self, done a thorough market analysis, followed your carefully laid-out routines, stalked your trade and finally bought your equity.  You are understandably satisfied and a bit exhausted.  I call it “destination relief”.

Sorry to break the bad news, but you have only completed half the journey.  You are only 50% of the way there before you can start harvesting the profits you anticipated.  So now what?  I strongly suggest you have a checklist handy – one that might have items similar to the following 8 on my To-Do list:

  1. For every equity, ETF or mutual fund you purchase, you should do a brief point form write-up detailing why you bought it, your source for the idea, the equity’s strengths and weaknesses as you presently perceive them, as well as a comment or two on your trade execution.  I also like to do a first cut on both bullish and bearish scenarios for this equity so that I can start to get my mind to accept different futures playing out.
  2. However you set your alerts and stops – be it on your broker’s website or an annotation on your charts  -- do it now.  Also note the upcoming earnings dates.
  3. Add the equity to your market monitoring routines.
  4. Customize your charts with indicators that are appropriate for the equity.  For example, I use different optimized moving averages depending upon the equity.  Here I also save PerfCharts, including sister stocks, the corresponding sectors and industries all on one chart.   I also recalculate my upside price target using Point & Figure charts.
  5. Once a week, I update the fundamentals on all my equities.  This includes recent news headlines and whether analysts earnings projections are trending up or down.  I also check out second opinion sites, such as Morningstar.com and Investors.com.
  6. Twice a month, I review my percentage allocations to rebalance amongst my portfolio positions.
  7. I use three different physical systems to archive this information.  The largest is digital files, but I also use binders and a war room type of bulletin board that helps monitor and organize my routines.
  8. Lastly, when I close out a position, I rate my trade and review my performance on both winners as well as losers.

Remember that the market’s motto is “if you want my profits, you’ll have to earn them.”  Welcome to the trading kitchen, fellow chef!

Trade well; trade with discipline!
-- Gatis Roze

Gatis Roze
About the author: , MBA, CMT, is a veteran full-time stock market investor who has traded his own account since 1989 unburdened by the distraction of clients. He holds an MBA from the Stanford Graduate School of Business, is a past president of the Technical Securities Analysts Association (TSAA), and is a Chartered Market Technician (CMT). After several successful entrepreneurial business ventures, Gatis retired in his early 40s to focus on investing in the financial markets. With consistent success as a stock market trader, he began teaching investments at the post-college level in 2000 and continues to do so today. Learn More
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