Flawed trading quotes

Tallinn 2023

At the beginning of my trading journey I was fond of trading quotes and I used to write them down in a file together with an explanation of how I understood each one of them. This was part of training the mindset. Through experience and while becoming more mature with my own strategies, I have actually come to realize much better which quotes have merit and which ones are meaningless cliches to me. I have listed the quotes I don’t like, at least not anymore, starting from the bottom and moving to the top. I’m explaining why that’s the case as well.

5. Buy low, sell high

It’s obviously something we all would like to do in the stock market. But how do you define high and low?! It’s a relative measure to some price, often used in the context of being smart in hindsight. At the right edge of a chart we can only compare highs and lows to the past, and a low can go lower just as a high can go even higher in the future. Showing the market high of January 2022 on today’s chart as the beginning of the bear market is only being smart after the fact, because nobody knew at the time it was going to be the high. The market was trending up. When the bear market is eventually over and price is at new highs, picking the lowest point on the chart to claim the start of the bull market means everyone was supposed to pick the bottom at the time. Clearly biased.

On a side note, I feel comfortable buying “high” and selling higher. A stock breaking out to new all time highs is the most bullish signal in technical analysis. With no upside price history, there is no upside resistance.

4. If in doubt, get out

A systematic trader could never be in doubt about a trade if he or she is just following the system, but this is something related to discretionary trading that involves subjectivity. It means that if a trader is unsure about the position, then it should be closed and not held just for the sake of holding on to it. But here lies the ugly truth. If you’re a beginning trader, you’ll always be out when following such discretion. It is because in uncertainty that the right edge of a chart provides, beginning traders will always be in doubt. Sometimes you’ll be right, more often probably not, but in the end it will be a crapshoot from lack of confidence. The context of this quote is basically to let fear dictate trading decisions.

As we can’t know about the future of our stocks, we are always in doubt. Getting out of a position is not a solution to it. Having a trading plan and following it through thick and thin is the right way.

3. Sitting in cash never lost money

Being in cash may seem like a good position to avoid losing money, but staying in cash during big bull market runs can be detrimental to overall performance. There is definitely opportunity cost involved if one is sitting in cash too much of the time. Don’t confuse it with sitting on hands due to lack of quality setups. A trader should not trade just to do something, there needs to be a setup that matches a strategy. Furthermore, beating the benchmark index with as little market exposure as possible is a good thing, because more exposure introduces more risk. However, holding cash too often due to lack of confidence or strategies is an obvious way to underperform the market. Therefore, one always needs to have a plan to re-enter the market after having gone to cash. Otherwise, fear and ego will keep the trader out of the market when it has already turned to the upside.

2. Nobody lost money by taking the profit

You may think that it’s impossible to lose money while locking in profits, but honestly, let me explain why it doesn’t make any sense at all. Try taking the profits early all the time and look at the overall expectancy. It’ll be negative, meaning the trader is losing money in the long run. It’s a short-sighted quote paying attention to a single trade, something usually done by inexperienced traders. So if a trader cuts winners short and allows losers to hit a stop loss, it will most probably be a losing game going forward. That means you can lose money (overall) by taking the (small) profit.

1. You can’t lose if you don’t sell

Isn’t this the silliest thing you’ve ever heard in trading?! Open trade equity has real dollar value in the account just like cash does. If one buys bubble stocks and rides them all the way down thinking he or she will never lose, and in the end some stocks go bankrupt, others take 10 years to recover to new highs like seen after many market bubbles, you really think you haven’t lost by holding on to it?! I bet anyone thinking like that would not even hold through the 10-year recovery period and probably sell in the (hindsight) bottom. It doesn’t matter if you hold $1000 worth of cash or $1000 worth of Apple stock, it’s still worth $1000 even if you haven’t sold the stock.

That’s it for now. I hope it was as interesting and fun to read as it was to write this post!

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