Friday, August 25, 2006

Dentists Would Make Good Economists

The reality of economics is what sounds good in the short term is almost always bad in the long term.

Most of what passes for economics is like a bad dentist prescribing candy bars to cure hunger. Since hunger and nutrition is not his field - the results will cause pain and loss latter.

We have been told that the fix for a slowing economy is "borrow more money and spend it on SUVs and big houses." Lots of money is provided cheaply by government - lots is then borrowed - and tomorrow the economy is hungry again.

And weaker.

And sick.

A good dentist tells you candy is bad for you. He tells you to brush your teeth and do other unremarkable and steady tasks. The dentist will also grind away at decay. A dentist's methods are not very pleasant at all.

But your teeth will be stronger, and brighter, and last longer.

A good economist would be someone you should see once a year, not daily on TV as financial entertainment.

Those economic prescriptions that lead to a healthy and strong teeth economy are frequently unpleasant in the short term.

  • avoid debt
  • save money regularly
  • invest knowledgeably
  • start your own business
  • create long term business goodwill
  • engage in free markets and free trade

The short term results may not be sweet, but long term results will continue to shine brightly.

The bad economist would leave in dead teeth and rotting decay believing that perhaps the other teeth can support them. They ignore the bad apple and pretend it won't ruin the whole bunch.

The good dentist knows that removing dead teeth and restoring rotting gums will not be pleasant - but the durability and beauty of your bite is a long term proposition. Even more important is the information provided on how to extend the life of your teeth.

Sound procedures applied with a view to the future.

Not quick fixes that meet momentary desires.

Smile for me.


Friday, August 18, 2006

We Will All Be Wrong - Frequently

If you don't like the implications of the above title - don't invest.

The first requirement of successful wealth creation is to realize it is far easier to lose money than to make money.

Those not infrequent times when it becomes easy to make money are short lived and dangerous. Four letter stocks in 1998 and 1999, housing in 1981 or 2004, perhaps commodities in 2010 or 2012.

Make your bundle - but keep taking chips off the table. When the run ends it is likely the chips you removed from the main game are all you will retain.

Look to the next market that will move and put in a few of those chips too early.

"When I've heard all I need to make a decision, I don't take a vote.
I make a decision." - Ronald Reagan

Hedge your bets - you will be wrong more often than you will be right. Even if you guess right better than fifty percent of the time - you have to be right on several investing components, price, time, size of move, etc to win. Being wrong on just one can cause you to lose.

That is why we have speculation rules like cut your losses short and let your profits run. It is the guideline of rules that keep our money growing.

When money is laying on the ground - pick it up. You should be aware though that there is a time limit and if you overstay your grabbing at dollars you may lose them all.

Frequently we keep more if we want less.


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Saturday, August 12, 2006

Evaluating Your Risks - Risk Management

Many of our speculation rules deal with risk management.

There are many risks you can strive to understand before you enter your trade, this constant evaluation is an important part of speculation. You can then weigh these anticipated risks against potential gain and decide to pull the trigger.

Then everything changes.

Before the trade you knew there was no way to find all the risks, you just considered ones that you could locate and understand. After you are in the trade your personal psychology tries to take over.

  • "It's just a small drop - it'll come back."
  • "I have a profit - no one goes broke taking a profit."
  • "I've been in this a week and nothing has happened."
  • "The government did what? - Maybe I'll just sit and wait."

Your decision making process is always the least clouded when you are out of the trade. That is the time to make your important trading decisions including:

  • When will I enter
  • At what point, time and price, will I know I was wrong
  • What is my target for the move
  • At what exact point will I exit if I am right
  • what would be a good distance for a trailing stop loss

Write this down in a personal trading journal before you trade - and follow your own clear headed decisions.

If a major surprise happens in the investment landscape - consider exiting and subsequently evaluating without having your money in play.

When you are out of the trade - write down the results, what you did right, where you can improve. Your trading journal may become one of your most
valuable trading tools.

A couple of old investment saws that you can use as speculation rules:

If you fail to plan - you are planning to fail


Plan your trade - then trade your plan


Thursday, August 03, 2006

Using A Futures Trading System

A Futures Trading System Can Make You Rich!

Some of the most popular futures trading systems today deal with specific futures markets such as foreign exchange (forex trading or fx). Most forex trading systems are a black box - they give you frequent signals you are expected to follow blindly.

An upfront warning -
any futures trading system can be very dangerous to your wealth. Standard warning - this is not trading advice - I am not a trading advisor - the risks are all yours. Past results will not be duplicated in the future - future results are always an unknown.

There are extremely successful and wealthy futures traders that use systems - but with systems they developed and understand. Your competition in futures markets will be:

  • well financed - trading millions of dollars
  • experienced - years or decades of trading
  • and
  • math and computer savvy - with full time main frames available to drill deep in statistics.

Someone that developed a system on their home computer and then optimized it for past data may never make money with it - unless they sell it to you. That is the black box they ask you to buy. They may believe in it - it may work for a while - but it will eventually lead to disaster for those that buy it.

The frequent trades recommended by a futures trading system lead to profits for a saber toothed broker, not for his clients, or for you.

Over a period of years, a low leverage, longer term and fewer trades futures trading system can make you rich. But be honest - is that what you really want?

Most investors enter futures markets for a quick financial kill, and the excitement of trading. They only get the excitement. Do you remember all those articles about ex-taxi driving, stock market day traders, that retired to their dream homes in 1999? Most are back washing taxis today.

The desire to trade frequently and big will doom most futures investors. Another danger is the need to over ride a system that actually works based on a "gut feeling."

Do you really want to know how to start and be successful with a futures trading system?

  • start very small - use mini contracts if necessary
  • start your trading in one less volatile agricultural commodity - say wheat or corn
  • use the seasonal charts to enter a planned purchase or two - in the annual bottoming area
  • use a trailing stop loss to exit the trade - automatically
  • In the second or third year add another agricultural commodity to your system

Will this be exciting?


Will it make you good money?

Very good money - perhaps wealth within ten to twenty years.

If you trade small and closely observe your entry points and stop losses, this simple futures trading system may make you rich - get your excitement somewhere else. Maybe play rugby or drive race cars - something safer than any futures trading system.

Everyone gets what they want from speculation - do you want to go broke in an exciting way - or -

do you want to build true wealth with your own futures trading system?