A Secret Weapon for Self-Directed Investors and Traders

Congratulations! on graduating to the “Do-it-Yourself” movement of investors and traders.  You have made it past the fallacy of Buy & Hold to take better control of your investment returns.

And hopefully like many other DIY investors, you have experienced success and recognized that successful investing does not require a PhD degree in finance.

Yet just as access to the markets and trading became more democratized in the 21st century, there is now the realization that our capital markets do not function as they use to.  Technology and other market structure changes (i.e. release of ETFs) have created a radical change in behavior. Corrections were much more frequent then the industry publicized

It’s important to not let the past few years of a bull market lull you into complacency.  Those who experienced the hard lessons of the significant market drops of 2000-2002 and 2007-2008 will tell you – stay aware of ever-changing risk!

Individual investors are 50% more likely to sell a winning stock than a loser—even though, on average, the stocks these investors sell go on to outperform while those they hold onto underperform.

Source: Study by Terrance Odean of the University of California, Berkeley

“If you’re not willing to cut your losses short, you probably shouldn’t trade stocks. Would you drive your car without brakes?”  - William O'Neil , IBD

Understanding your Biases

Unfortunately too many DIY investors and even some traders focus mainly on the buy side of the equation. They find it fun to look at what stocks or ETFs to buy and spend most of their efforts there.

The reality is:

“Most investors are primarily oriented toward return, how much they can make and pay little attention to risk, how much they can lose.”
— Seth Klarman – legendary value investor and hedge fund manager

If you have the time for the initial research but anticipate having limited time for ongoing management, it is critical that you develop an investment approach that you can maintain – with the time you have available.

Investing can be a wild ride. Your portfolio is going to bounce up and down, and you will constantly be bombarded with scary headlines designed to elicit an emotional response from you. Do you have the discipline to fight off your cognitive biases in order to make smart choices? It’s not a matter of intelligence – it’s a matter of being human.

People tend to view their investment decisions through their own unique lens, relying on gut feelings and mental shortcuts, says Paul Bennett, managing director of United Capital’s office in Great Falls, Virginia, and author of The Money Navigator. Many of us don’t realize how our money and emotions are bound together. When you put it all together, you get a high tendency to fall into decision traps and miss out on possible gains.”

To grow your investments safely, you need to learn how to hold onto your winners longer and cut your losers sooner.   

Since we can’t control stock market risk, we have to implement risk management solutions that put the odds of investment gains heavily in our favor. Over an entire investment career, the amount and size of investment losses will most likely have more to do with your returns than the magnitude of winners.

To do this – you need a solid plan. It doesn’t have to be cast in concrete. As the markets are always evolving. Thus your plan needs to evolve as well.

It needs to be a plan for when to exit or when and how best to hedge. By defining this in advance, you reduce the potential towards freezing or irrational behaviors that our inherent biases will create. A great plan will guide you along every step of the way to help you meet and exceed your goals.

Imagine waking up every morning and going to sleep every night knowing that someone was watching your assets like a hawk, keeping you abreast of dangerous threats and opportunities so you can just do what you enjoy doing without needing to worry about anything

And that’s why SmartStops was created – to meet these exact needs of investors and trader. To remove individual biases and emotions, and help one to follow rational, intelligent analytical information to produce higher returns. Join Now. 

The Lesson to Learn – You Can Still Win Big With Many Small Losses

This “truth” is hammered into the very active traders – by calmly taking a small loss, you can look for the next potential winner. But many traders and DIY investors who need to, do not put this into practice.

“I tell my classes that I lose about 4 out of every 10 trades. The novices in the class react by asking themselves why they are taking an investment class from such a loser. The experienced investors nod their heads in approval. The point is that when I lose, I cut my losses quickly to minimize the costs. When I have a winner, I let it run. It works out to be a net positive as the winners more than compensate for the losers. For you sports fans, another way to look at it might be to ask: how much would a baseball team pay me if I hit only 6 out of 10 times at bat?”
Brett Steenbarger, PhD, Author of Trading Psychology 2.0 and more.

If you have gone down the path of studying the field of Technical Analysis (i) to learn how to better manage risk, then we applaud you. However it’s a field that can easily overwhelm with the thousands of mathematical approaches that one could deploy in trying to develop their own system. What happens is that too many investors default to using something too simple and too commonly adopted by others (i.e. Moving Averages, Support / Resistance etc.) Learn more about why these approaches are inadequate.

Fish see the bait, but not the hook; men see the profit, but not the peril – Chinese proverb

“Entry size is often more important than the entry price”  — Jack D. Schwager, Hedge Fund Market Wizards: How Winning Traders Win

Become one of the Smart Ones

That’s where SmartStops can help give you a distinct advantage. We put a sophisticated yet easy-to-use intelligent analytics approach to managing risk at your fingertips. Now you can be alerted when risk is truly rising and action needs to be taken to either protect profits or cut losses. SmartStops can also be used proactively with its auto-adjusting smarter trailing stop that give you the ability to “let your winners run”. Additional tools like our next-gen position sizing calculator can help you properly size your positions. Learn more about How SmartStops Works.

It Quickly Pays For Itself

Start using a powerful, advisor-level tool to minimize your losses and cash in on your winners – while maintaining the autonomy to manage it yourself.

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