October 16th 2007
Top 5 Trading Clichés
Know any good trading clichés? You know what I’m talking about. Those trite pearls of wisdom oft spoken ad nauseam in major media outlets like CNBC. We all shake our heads solemnly in agreement when spoken. Of course there is truth to all of them, but they’re spoken so often in financial circles that we’ve become desensitized to their meaning. Here’s my top 5:
5. Bulls make money. Bears make money. But Pigs get slaughtered.
What does this mean? Greed is good, but to a point. Trader death can be brought on quickly by trading too much or trading too large.
4. Sell in May and Go away. An often heard, but less understood cliché. This is a top cliché because everyone knows it, but people don’t know its application or ignores it. The theory is that the first four months of the year are the best for trading. Once summer roles around, it’s time to go on vacation. Perception of market performance aside, this cliché is true because summer tends to be quieter with less volume. Low volitility and low volume decrease my edge. If your trading edge has been degraded by market conditions, sit it out. The market will give you better opportunity if you are patient.
3. The Trend is your Friend.
While still a cliché, the trend can your friend. When the market is up, my longs tend to move up faster. Vice versa for a down market. The point is that you need to put as many market variables in your favor. The trend is one of my top 5 trading decision criteria.
2. “stock XYZ is cheap”.
I just hate this cliché. I think it’s overused to describe a stock with a low PE ratio. Cheap relative to what? “Cheap” in stocks insinuates there is value. Maybe it’s cheap because it’s a piece of crap.
1. Buy Low/Sell High or Buy High/Sell Higher
Ok, I get the implications of these two clichés. Buying low and selling high is a general investment rule that is as obvious as it is true. I also get the momo version, buy high/sell higher cliché. But this isn’t even the best advice. What about volatility. Prices move quickly and then they slow down. Ranges contract and expand. Maybe someone who reads this blog and is familiar with this concept can enlighten us with a new, volatility-based cliché.
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5 Comments »
Bubs on 16 Oct 2007 at 5:50 am #
Sometimes I hate telling people at a party that I trade for a living. They always want to know which way the market is going to go and what’s the next big winner.
Tim on 16 Oct 2007 at 2:07 pm #
“4. Sell in May and Go away”
Comment - that quote is actually part of a bigger Wall Street saw where the period from May 1 through Oct. 31 is usually not so great for stocks. The corollary is that the period from November to April exhibits significantly stronger stock market growth on average than the other months.
Enjoy the blog, keep up the good work.
Jonathan on 16 Oct 2007 at 4:37 pm #
@ Bubs. I know what you mean. Unfortunately, I like blabbing about what I like and what I’m going to do. Probably one of the reasons I started this blog.
@Tim. Thanks for stopping by Tim. I appreciate you taking the time to visit my blog. It’s always interesting how much truth their are in cliches. This one included. I do tend to cut down my trading over the summer, but it’s due to vacation more than anything else.
thewild1 on 16 Oct 2007 at 9:35 pm #
I like to tell people about my trading; however, sometimes it gets annoying because people feel that they can easily just jump in and get the same success I am.
Bubs on 17 Oct 2007 at 5:58 am #
Jonathan I also love talking about the stock market, I also started my blog for the same reason. I just hate having the same conversation with my uncle who wants to short BIDU everyday because its up all the time.