By David Popper
When I first began to trade, I felt a bit like a person who goes through the cafeteria line for the first time - it is overwhelming. In a cafeteria, you can choose a balanced meal or find desserts, or mashed potatoes, or an all vegetable fare. You must make the choice, you pay the price. One person can enter the cafeteria every day and be healthy. Another can enter the cafeteria every day and eat so poorly that he needs medical attention. Most people would fall into the middle category and have mediocre results.
So too, in the market, the freedom is overwhelming. One person can turn $10,000 into a retirement, while another can lose it all quickly. It all depends on how we choose to play the game. Often beginning traders become intoxicated with the concept of easy money. Beginning traders tend to measure their success against the very best traders and feel intimidated when they don't measure up. Traders often trade with no visible goal in mind and no strategic framework placed to achieve any goal. To me, the most important concept in trading is to trade with your goals in mind.
What are reasonable goals? For each person it is different. As for me, I have two accounts with two different goals. I have a cash account and an IRA account. In the cash account, my goal is to achieve a 5% return per month. This allows me to do "the extras," like a better vacation, painting the house, buying my daughter a car, etc. The 5% can be achieved without extraordinary risks. Because it can be achieved, and the risk is small, I can count on it today, next week, and hopefully next year. Greater risks may yield better results, but I want the consistency. In the IRA account, I can be aggressive. Time can make up for errors. Cash does not have to be produced today. I have 20 years to achieve the results. In this account, I shoot for 10% per month, knowing that some months I will fail. I find sanctuary in the thought though that $10,000 compounded at 50% per year will easily bring a retirement in 20 years.
Once goals are established, then groups of stocks must be selected that will most reasonably help you to achieve that goal. For me, there is no question that techs are still the place to be. Again, I operate from the premise that the technology revolution is here to stay, and therefore, dips are buyable, and earnings are tradable. I am cognizant that they are subject to major moves, therefore, I trade very conservatively, meaning I use no margin, buy no options and keep a comfortable amount of cash to buy the dips.
After a couple of years, I realized that OIN, Investors Business Daily, and other sites were constantly talking about the same 50 stocks. I chose to really learn 20 of these stocks. I review their charts, know their news, understand their sectors and learn their business. I understand how these stocks typically react to earnings and what price they generally split. I learned their trading ranges. The more I understand their subtleties, the better I trade them. I can achieve all of my goals on these stocks. Occasionally, a stock will have a problem and will be dropped from my list, but not often. They say that experts are people that know more and more about less and less. That may be true, but experts make money. By knowing more and more about fewer and fewer stocks, my focus is sharpened. By having my goals in mind and knowing my stocks, greater peace of mind is achieved and better results are obtained.