Trading is an Eagle’s World

Many people hate uncertainty. It drives them crazy.

And this isn’t something new.

The saying ‘a bird in the hand is worth two in the bush’ has been around for centuries. One variation dates back to the 6th century BC.

The meaning of this age old phrase is simple. A small certain result is better than an uncertain larger one.

I think this says a lot about how humans are ‘wired’. We instinctively look to shut down risk.

And this is sensible.

Risk management is at the core of our physical, financial, and emotional survival. It’s what keeps us safe.

But can we be too safe?

I think risk avoidance can go too far. Being too quick to stamp out risks limits our potential. Sure, removing risk provides maximum safety. But it also removes the possibility of future benefits.

Take exercise for instance. I run most days of the week. This exposes me to the risk of injury or accident. Staying at home eliminates these risks. But the cost of this is foregoing all the benefits exercise brings.

Trading is similar.

People often tell me that ‘you never go broke taking a profit’. They seem to think it’s the frequency of profits that matter…not the size.

This is much the same as a bird in the hand. The two phrases are about locking in the present in case tomorrow is worse.

But what if the future is better?

I want to share some comments from a member of my Quant Trader service. This is something I think you’ll be able to relate with.

I read with great interest your recent report regarding trading style, your use of a wider stop, and allowing winners to run. I agree with this “style” but struggle with how to live it.

Let me explain:

In search of double and triple digit gains over a medium term it is extremely difficult to hold your nerve when a particular stock may have gained say +30% and then starts to retrace.

Do I hold on for the ride down or take my profit?

How do I live the trading style if I am always protecting my profits?

I know exactly what he means. Every successful trader must come to terms with this.

You might remember a trade I wrote about recently. It was essentially this exact situation.

Let me show you the chart again.

This is one of my own trades.

Within only a few weeks I was up 30%. The bird was well and truly in the hand. But I let it go without hesitation. I was ready to ride this trade back to near my entry point.

I’m sure you remember what happened next.

My recent exit from this trade was at $1.65. I made 60% on my money in about 15 months.
You see, trading — like life — involves risk. That’s really the only way you can stride forward.

Quant Trader is a trend following strategy. It works on the basis that there are plenty of birds in the bush. And the statistics say a few of them should come your way.

The key is not to let uncertainty get the better of you.

I’ve got a few suggestions if this is an area you struggle with. These are strategies I use myself.

  1. Trade smaller. You’ll probably worry less when the stakes are lower.
  2. Try not to think in money terms. It’s just numbers…take out the emotion.
  3. Don’t look at your portfolio every day. Set your exit point and walk away.

Let’s go through them.

Trading smaller is a relative thing. It will be different for everyone. The idea is to trade a size you can manage. There’s no point taking a bigger position if it causes too much stress. You have to be able to live with it.

A 19th century Wall Street saying captures this nicely. It says ‘sell down to the sleeping point’. What this means is simple. If your positions are keeping you up at night, then it’s time to trade smaller.

The next point is about how you think.

I remember receiving some excellent advice when I was starting out. A wise older trader told me not to think of my trading stake as everyday money.

He said $1,000 could buy a holiday or a new suit. The trick is not to mentally link a trading profit to something real. It will just increase the pain of giving back that money.

Think of trading funds as the score. A rising balance shows you’re playing well.

Lastly, don’t get hung up on the day-to-day fluctuations. Take a step back. You’ll find the bumps a lot easier to handle if you don’t feel them on a daily basis.

I’ll finish with a quote from Chicago Bulls coach, Tom Thibodeaux. He says, ‘You gotta learn to be comfortable being uncomfortable.’

I don’t think trading has to be an entirely uncomfortable experience. But Tom makes a good point.

Success is about pushing boundaries. It involves uncertainty and risk.

We need to use strategies to make the unknown more tolerable. I believe this is the key to uncapping our potential.

So let the pigeons go. The sky’s full of eagles!

Until next week,

Jason McIntosh
Editor, Quant Trader

PS. Earlier this week we ran a free course from Jason McIntosh, titled ‘Outsider Trading’. It has received rave reviews, such as this from subscriber Tim M:

I just finished watching the quantitative trading video and I’m looking forward to your email so I can hook up to that s***. At 37% off I’ll be making money right from the start.

I was never very good at maths but I can see the benefits of algorithmic trading as an early warning system and a bail out system.

It’s fascinating stuff! Thanks again and I look forward to receiving your email.

The email he’s talking about is this. It’s a one-time invitation to join Quant Trader at a massive 37% discount. But this discount only stands until midnight next Tuesday. That day, 30th June, is also the end of the financial year. Meaning you could be eligible for ANOTHER discount on top of the 37%, in the form of a tax deduction.

What is ‘Outsider Trading’? Why have we received more glowing testimonials for Quant Trader than any other service we’ve published? And how can you lock in a 37% discount today? Click here to find out. 

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Jason McIntosh

Jason McIntosh

Jason is a professional quantitative analyst. Before he graduated in 1991 he joined Bankers Trust — a Wall Street investment bank — to be a trader. After Bankers Trust was taken over in 1999, Jason, already financially independent, co-founded a stock market advisory and funds management business called Fat Prophets. At 37 he sold his part of that business and retired. These days, he’s a private trader and system developer. In 2014 he launched the wildly successful trading service: Quant Trader.

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