Stanley Kroll’s Essence of a Basic Stocks & Futures Strategy

cw123en

2013-01-25 Modified by cw123en, Chapter 2 of  Dragons and Bulls Profitable Investment strategies.

If we would like to make money on the stocks or futures market, we have to be bold and we have to be right. If we are bold but wrong, we shall go down with the ship.

The necessity of a first class, viable strategy is part of success in most fields of endeavour. The common denominator lies in the fact that success, or victory, involves both technical as well as strategic considerations. With so many players nowadays equally qualified in the technical aspects of their trade or profession, the thing that will distinguish the winner from the almost-winner is the consistent and disciplined application of first class strategy and viable tactics.

The correct utilization of good strategy is especially crucial in stock and commodity speculation. The basic rules are commonly known, but consider those traders who have never experienced a winning year regardless of how long they’ve been at it. Unfortunately, it’s a relatively high percentage of speculators. Yet, they have surely heard , and can probably recite verbatim, some of those tried and tested maxims:

* THE TREND IS YOUR FRIEND.
* CUT YOUR LOSSES AND LET YOUR PROFITS RUN.
* THE FIRST LOSS IS THE CHEAPEST LOSS.

Here is winning strategy in its most basic form, and probably all traders know them from memory. But, while consistent winners share a single-minded adherence to these basic winning strategies, consistent losers, on the other hand, are just as purposeful in their avoidance and violation of the strategies.

The Essence of a Basic Strategy

1. Participate only in those markets which are trending strongly or which are in the process of developing into a major trending formation. Identify the major ongoing trend of each market and take positions only in the direction of this dominant trend, or stand aside.

2. Assuming that you are trading in the direction of the trend, initiate your position either on a significant breakout (such as a gap opening on high volume) from the previous or sideways trend, or on a measured reaction from the ongoing major trend.

(a) In a major downtrend: sell on minor trend rallies into over-head resistance or against a strong down trendline, or on a 45% to 55% rally (or the third to fifth day of the rally) from the recent reaction bottom.

(b) In a major uptrend : buy on minor trend reactions into support or against a strong up trendline, or on a 45% to 55% reaction (or the third to fifth day of the reaction) from the recent rally high. In this regard, it is imperative to note that, if you misread
or choose to ignore the trend of the market, and are buying against an entrenched bear market or selling against an entrenched bull market, you are likely to spill lots of red ink, and feel pretty silly, as well.

3. Your with-the-trend position could result in a big favourable move, so you should try to remain aboard for the ride. By premising that every with-the-trend position could result in the big move, you will be encouraged to resist the many temptations to trade for the minor swing，or to scalp against-the-trend trades .

4. Once the position is going your way and the favourable trend has been confirmed by your technical analysis, you can add to the position (pyramid) under specific conditions, as noted in Chapters 11 and 15.

5. Maintain your position until you are stopped out, and your trend analysis indicates that the trend has reversed, At that point, if you have been attentive to the market, you should be positioned for the newly formed trend.

In Chapters 11 and 15, the specific and detailed tactics of exiting a position will be discussed. However, if you have liquidated a position, and subsequent market action indicates that the major ongoing trend is still intact and that you have liquidated prematurely, get back on board. But, do it carefully and objectively, again initiating with-the- trend positions as discussed elsewhere in this book, notably in Chapters 11 and 15.

6. Run quickly. But, what if the market moves adversely, not with you as it's 'supposed' to? First of all, how will you know if it's a position gone sour? If you can't work it out, the daily equity run will 'tell' you in no uncertain terms. As a rule of thumb, you should probably not risk more than 40% of margin on a stock trade, or 70% on a futures trade.

And finally, while a consistent, viable strategy is clearly the main-stay of successful speculation, three additional traits are required: discipline, discipline and discipline.

Investors who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a market operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he learns to trade, than hundreds did in the days of his ignorance.

---Jesse Livermore

elep_elep

cw123en 大哥，您看来在英文上很下过苦工，这文章您要得空能帮忙翻译下吗？我的水平实在是很抱歉啊，哈哈！