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The recent failings of Long Term Capital illustrate the first and most
important concept for a new trader, exit strategies and bail out points. I
don't care about AMI, Elliott Wave, astrology, systems, fundamental
analysis or Moses speaking from up on high, if you don't have a point at
which you will exit every position, you will eventually go broke. You are
not different or special. No exit, no money. This group had Salomon
Brother's ex-bond chair, 2 Nobel Prize winners, and an ex-Federal Reserve
vice chairman, yet they forgot the number one rule of trading, cut losses
short. I don't care what you think, what your model says, or that the
market can't go down because of XYZ, you must have a level at which you
will not lose anymore money. There, literally, is no other way. Most
things in trading can be done multiple ways. This is not one of them. If
you are trading without a stop or exit level, stop before you lose all your
money. You will. V. Niederhoffer (?), the other large fund to recently go
belly up, was famous for trading without stops, too. (Isn't it odd that
these two groups had one thing in common and they both lost all their
money.) No stops may work for a decade, but the historically off the
standard deviation charts move is coming at some point, and if you have no
exit, you will go broke.
If you disagree with these premises, I encourage you to respond with your
points. The ensuing discussion may save you quite a bit of money because
you are faulty in your reasoning.
sb
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