WHEN one is trading on the stock market, it pays to set a limit and have the discipline to stick to it, whether in a good or bad economic climate, says Australian trader Stuart McPhee.
This strategy, he adds, is crucial in protecting one's money. It helped him reap 'several thousand dollars' in a day's work of trading derivatives in 2006.
Citing discipline as a vital factor when dabbling in stocks and shares, the former air-defence- system artillery captain tells my paper: 'Consistency is key. Being disciplined in sticking to your original trading plan sounds boring but it's important.'
Mr McPhee, 37, was one of the guest speakers at the Share- Investor Invest Fair held at Suntec Convention Centre. The two-day event, which attracted 25,000 visitors and ended yesterday, was organised by Singapore Press Holdings' online trading platform ShareInvestor, in collaboration with The Business Times.
A self-confessed 'conservative trader', Mr McPhee - the author of financial guidebook Trading In A Nutshell - shares some trading tips with my paper readers.
What are the most important things a trader must consider?
He has to know when to cut his losses. That means knowing when he is losing trades and exit the market when that happens. Don't trade randomly. Stick to a simple trading plan.
What is your trading plan?
I go by the 150-day moving average rule that author Stan Weinstein mentioned in his book, Secrets For Profiting In Bull And Bear Markets.
Basically, I don't trade when the market falls below the moving average, or closing prices.
Last August and September, I didn't trade at all because the market was so volatile.
What advice do you have for trading novices?
Know under what conditions you should get into a trade and be clear about how much money you want to put in. Most importantly, know the conditions under which you should get out.
How long did it take you to crack the market?
There is no such thing as an easy solution, so be realistic.
If you've just started trading, don't expect huge profits. Instead, be prepared to lose money for the first 12 months.
For example, I began trading full-time in 2000. That was when the Nasdaq crashed and I lost about A$150,000.
How do you trade with your head, not your heart?
Be disciplined and stick to your plan, whether you want to or not. As American general Norman Schwarzkopf said: 'The truth of the matter is that you always know the right thing to do. The hard part is doing it.'
