Our research allows us to select trades that put the odds in our favor. However, it takes time to prove that the odds truly are in our favor. The statistics below demonstrate this truth:
Percentage of the time we make money in any day: 54%
Percentage of the time we make money in any month: 56%
Percentage of the time we make money in any 3 months: 64%
Percentage of the time we make money in any 6 months: 77%
Percentage of the time we make money in any 12 months :92%
Percentage of the time we make money in any 24 months: 100%
We do not have a crystal ball, so we do not know when this current losing period will end. However, we can look in the rear view mirror and see that when we experienced periods like this before, not only did we survive, but we thrived.
When I trade stocks, I want to put the odds in my favour. I believe that I am doing this by trading in the direction of the trend. However, even if you are trading with the odds, you will not make money every day or even every year.
Many traders believe that to make money in the stock market, they must find an indicator or system or chart pattern that will work at least 80% of the time. What I have observed is that most of the great traders, the one's that trade north of $100 million, are far from making money every day.
Incidentally, this is how casinos make money. For example, when a roulette wheel is spun, a casino has no way of telling what the outcome will be. Casinos, like trend followers, are not able to predict the future. But, casinos know that if a roulette wheel is spun enough times, they will come out ahead, and this is because the odds are in their favour.
On a practical level, one very simple way to put the odds in your favour in the stock market is, again, to trade with trend. A very basic rule of thumb that I follow in this regard is this:
There is more to trend following than this, but even if you follow this very simple rule, I think it will give you a small edge. If a small edge is repeated over time, the results can be surprisingly good.
Percentage of the time we make money in any day: 54%
Percentage of the time we make money in any month: 56%
Percentage of the time we make money in any 3 months: 64%
Percentage of the time we make money in any 6 months: 77%
Percentage of the time we make money in any 12 months :92%
Percentage of the time we make money in any 24 months: 100%
We do not have a crystal ball, so we do not know when this current losing period will end. However, we can look in the rear view mirror and see that when we experienced periods like this before, not only did we survive, but we thrived.
When I trade stocks, I want to put the odds in my favour. I believe that I am doing this by trading in the direction of the trend. However, even if you are trading with the odds, you will not make money every day or even every year.
Many traders believe that to make money in the stock market, they must find an indicator or system or chart pattern that will work at least 80% of the time. What I have observed is that most of the great traders, the one's that trade north of $100 million, are far from making money every day.
Incidentally, this is how casinos make money. For example, when a roulette wheel is spun, a casino has no way of telling what the outcome will be. Casinos, like trend followers, are not able to predict the future. But, casinos know that if a roulette wheel is spun enough times, they will come out ahead, and this is because the odds are in their favour.
On a practical level, one very simple way to put the odds in your favour in the stock market is, again, to trade with trend. A very basic rule of thumb that I follow in this regard is this:
- Buy stocks making new highs in bull markets
- Short sell stocks that are making new lows in bear markets
There is more to trend following than this, but even if you follow this very simple rule, I think it will give you a small edge. If a small edge is repeated over time, the results can be surprisingly good.
