Investment Strategies - Why Logic Is Important
I've been an active investor for about 20 years of my life. In using either my tried and tested strategies, or trialing new ones, one thing I have realised is that the more an investment strategy makes logical sense, the more successful it tends to be.
Lets face it, you could spend 2 life times trialing all the investment strategies people offer you. There are so many out there and I am sure most of them have some merit. What I have found though (and this in no way passes judgment on the merits of any investment strategy) is that if I really think logically about many of the investment strategies which have come my way, there are often holes in them... big ones at that too.
Strategies generally make sense. The problem I am talking about is not about making sense, it concerns completeness. When these strategies do not cover all possible scenarios, you can be left in a position where you need to make decisions that are not following the strategy. The amount of judgment you can bring to such forced decisions depends on how close this situation is to others covered by the strategy. In a worse case scenario, it could be a complete guess.
If a trading strategy leaves you guessing, when you make these guesses, you are gambling. A proper trading strategy will leave no contingency for guesswork. It will cover all scenarios taking human error out of the equation. It will be systemised and complete.
The other problem with this is that no matter what happens to your returns from that point, you will never know if it happened because the strategy worked or because of the guess you just made. This also can create problems as it must impact your confidence in the strategy. If your confidence is impacted, this may further cause you to divert from the strategy in other circumstances, exacerbating the problem.
So if you have a new strategy which looks promising, apply your logic to it first. Try to understand all the trading scenarios you may face and ensure the strategy stands up to all of them and deals with them. This simple piece of advice could save you thousands.
And once you are happy with the logical analysis you have applied, don't forget to dummy trade for a while too. In dummy trading you will probably find a number of scenarios you never thought of. This gives you the chance of ensuring the strategy deals appropriately with them too, without risking any money. Good luck. - 23210
Lets face it, you could spend 2 life times trialing all the investment strategies people offer you. There are so many out there and I am sure most of them have some merit. What I have found though (and this in no way passes judgment on the merits of any investment strategy) is that if I really think logically about many of the investment strategies which have come my way, there are often holes in them... big ones at that too.
Strategies generally make sense. The problem I am talking about is not about making sense, it concerns completeness. When these strategies do not cover all possible scenarios, you can be left in a position where you need to make decisions that are not following the strategy. The amount of judgment you can bring to such forced decisions depends on how close this situation is to others covered by the strategy. In a worse case scenario, it could be a complete guess.
If a trading strategy leaves you guessing, when you make these guesses, you are gambling. A proper trading strategy will leave no contingency for guesswork. It will cover all scenarios taking human error out of the equation. It will be systemised and complete.
The other problem with this is that no matter what happens to your returns from that point, you will never know if it happened because the strategy worked or because of the guess you just made. This also can create problems as it must impact your confidence in the strategy. If your confidence is impacted, this may further cause you to divert from the strategy in other circumstances, exacerbating the problem.
So if you have a new strategy which looks promising, apply your logic to it first. Try to understand all the trading scenarios you may face and ensure the strategy stands up to all of them and deals with them. This simple piece of advice could save you thousands.
And once you are happy with the logical analysis you have applied, don't forget to dummy trade for a while too. In dummy trading you will probably find a number of scenarios you never thought of. This gives you the chance of ensuring the strategy deals appropriately with them too, without risking any money. Good luck. - 23210
About the Author:
After years of successful trading, Gnifrus Urquart enjoys reviewing his favorite investment strategies and giving general investment guidance
posted by X - Men @ 1:41 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home