A few reminders to help with long term investing and trading success and at the bottom excerpt from my interview with Tim Bourquin on keys to trading success:
1. Always take profits, if you dont take them… 2 out of 3 times the market will take them from you.
2. See #1.
3. Never overbet on any one position
4. Trim some of a position on a 5-8% run, even if just a small trim relative to the position
5. Nobody ever sells tops consistently, stop pretending you are going to sell at the top every time.
6. Nobody ever buys at the bottoms consistently, stop trying to be a hero at the water cooler that you picked a bottom.
7. Buy good companies on strong pullbacks.
8. Dont panic when selling or buying…
9. Understand that any position you take could lose money, so control your risk and comfort ranges.
Dave Banister- Chief Strategist and Developer of the MRM crowd behavior based entry and exit trading method.
Excerpt from September 2011 “Trader Interviews” with Tim Bourquin Below: http://www.traderinterviews.com/free/2011-09-26_DaveBanister.php
Tim Bourquin: But it makes sense, I guess if 90% of all traders lose money to be on the other side of what they’re all thinking is obviously the way to make money.
Dave Banister: Yeah. You want to be on the other side of most traders that made your pivots, but you do need to have some type of formula that at least, you know, keeps you objective so that you’re trying as best as you can to keep your emotions out of the trade when you’re entering.
Tim Bourquin: How about the position sizing, how do you go about deciding what that is for own account?
Dave Banister: Well, you know, I have a pretty good sized trading account, but to be honest, I would say most of the times when I do enter a trade, I use a fairly small 10% maybe 20% of my trading capital on any one trade no matter how confident I am of the entry or the outcome. You know, one thing that traders can learn long term is that most traders have what’s called a boom and bust cycle. They can boom for quite a while and they eventually blow off their account. What you want to do is continually have your account slowly growing. You’re going to make some losses and you’re going to make some mistakes, but you want to keep those somewhat contained. End of the day, you want to see your brokerage account that you’re trading from, have your capital slowly rising like a nice staircase. You have to be willing to accept that you’re going to have some losers and be able to get back up on horse. So if you’re taking a $100,000 trading account and you’re betting $90,000 on one position, you’re not scaling in and you lose 8% you just lost 7000 bucks. You know your confidence is hit really hard and now all of a sudden your trading account is down to $93,000 and you’ve got to make back — you know, maybe a more aggressive trading get back to a hundred then you make another mistake and so forth. So, what I’ll tend to is when I go into a trade, I’ll say, listen I’m willing to deploy 10% or 15% or 20% of my total trading capital into this trade and I’m going to scale it in over my two or three-day window. I’m going to minimize my risk that way. I might make smaller percentage gains or dollar gains, but my account is steadily growing. [0:15:21] Now, if there’s a case where I’m feeling very convinced that we’re near a dramatic bottom or a major peak, there’s a good chance that what I’ll do is overweight the trade as I’m scaling in early. You know, maybe I’ll use 50% of my account. But as it reverses and I start to become profitable, I’ll be a little more quick to pull the money off the table is all.
Tim Bourquin: Are you monitoring a basket of ETFs or indexes that you’re choosing your trades from each day or will you take a look at the entire market and just see what’s moving?
Dave Banister: I look at the market. I mean this certainly applies to individuals stocks. One of my trading sites is I would say 90% of our trades are actually individual issues. When we talk about what I call active trades, those are my swing trades, 3 to 30-day type trades, I’m looking for the actual pattern in the chart, I’m looking for a combination of the fundamentals which I’ll be aware of. But I want to see where the pattern lines up as well so that we can enter that individual stock, you know, at a good, what I call a reversal point, where it could be something as simple as the stocks drop for three days in a row and we are entering into the tail end of the drop and we’re looking for it to recover at some portion of the drop. So we might make 8% or 10% or12% in a two or three-day hold period, but if you look at the 5-day window, the stock is still down 2%. But we don’t care, we made 8% because we timed our entry as the bottom was forming. So, individual stocks definitely I use quite a bit. In terms of ETFs, for the most part, I gauge that off of either silver, gold, or the S&P 500, maybe the Russell 2000 and when warranted, we prefer to use the 3X leverage ETFs to scale into a reversal trade. So if I think the S&P is topping out over a day or two between a certain point, 1195 to 1210 for example, I’m going to tell everyone that we’re going to scale into BGZ and short it in this 1195 to 1210 point range and then we’re going to hold it for the reversal.
Tim Bourquin: One of the traders I talked to a couple of weeks ago said, and I’m just getting your feedback on this, playing devil’s advocate a little bit, that reversal traders will inevitably have one or two trades a year that really hurt them because they’re playing on that reverse when it just doesn’t happen. So whereas he was saying that if you’re playing with the trend, most of the time you’re going to be safe from that. What’s your take on that?
Dave Banister: My take is that traders tend to be not patient enough. They do a couple of things wrong, they’re not patient, they feel like they always have to be in some kind of a trade. You know, they want to get that excitement. And when I was a young trader, I was the same way. I mean I would wake up every morning just chomping at the bit, just finding a trade, something to get some money into to get some action. You will learn very quickly that that’s how you blow up your account. So as you get more experienced with the market, when I put out a trade, let’s say it’s either for myself or for my subscribers, we might wait several days and very patient and wait for the right setup where I think the risk has been largely squeezed out like a lemon. You know, I want to put myself or my subscribers into a trade where the lemon of risk has been squeezed as much as I think is reasonable so that we’re coming in with a reasonable downside, maybe 3% to 5%, we’re looking at anywhere from an 8% to 20% upside and sometimes you just have to wait for that. The other thing is traders make the mistake of thinking they’re smarter than the market and, oh, I know I’m right so man, I’m taking my $100,000 and I’m popping it in, I’m going short right now, I got this man. And then the trade starts to go against them and against them for the next two days and they panic out and they lose $15,000 and now they’re down to $85,000. So the reason that often doesn’t work is people don’t wait and they’re not patient and they don’t have kind of a roadmap in advance. So let me give you an example. Last week the S&P 500 had been on what amounted to an eight-day rally. We had gone from about 1111 in the futures lows to 1231. Now, everybody was felling pretty bullish 1220 to 1230 range, but I was telling my subscribers that there was an imminent reversal so you should take some — either hedge your portfolio or begin shorting the market or take some protection. And I pointed it out in the charts and in the Fibonacci that says why we’re likely to reverse possibly have a very steep decline. So it’s funny because when I’m sending that information out and I’m forecasting it, I’m getting a fair amount of emails questioning if my head is screwed on right, “Well Dave what are you talking about, it looks like we’re going to 1250.” Well, you know, it looks like that but I don’t think it is. [0:20:39] So we will wait patiently for, you know, 100-point rally in the S&P and let it happen and then we’ll begin to short. Because then the risks are much lower and the chance for your profits are much better. So I think the key takeaway is do not plow all your money at one time, do not think you’re smarter than the market, and be very patient, have a roadmap.
Tim Bourquin: All right. Dave, you’ve been very patient with all my questions and you’ve alluded to it a couple of times. Talk about your website and what you do there.
Dave Banister: I have two websites. One is the MarketTrendForecast.com. There are quite a few subscribers and that’s growing very fast because I forecast the S&P 500, gold and silver, and once in a while a few other indices. But that seems to capture most of the trader’s interest, people that are retired, people that are active traders, they’re a wide variety. And what I try to do is pinpoint in advance for people, here’s the likely rally point for the S&P, here’s the likely bottoming point and here’s why, here’s the chart in advance. I’m going to show you what I think is going to happen and I’ll draw it out. So people kind of have, you know, what they feel is a good roadmap to go by and they know what to watch for. The other site is a little more sophisticated. It’s called ActiveTradingPartners.com. We take the person who’s graduated from, you know, the basic forecasting classes and whatnot, learning through me and they’re ready to deploy some capital with some actual trades. And we hand walk people through every trade on that site.
Tim Bourquin: All right. Well, Dave, thanks very much for your time today. I really appreciate you sharing some of your ways that you look at the market, and listeners you can find out more about Dave by clicking on the links at the bottom of the transcript for this interview. Dave, thanks for your time.
Dave Banister: All right. Thanks so much.