Five Cents Ten Cents

Flickr image "rule of thumb" by greeneydmantis

Many of us who are working our way towards financial freedom also engage in the frequent occasional bout of speculative activity of buying/selling shares and selling/buying intra-day or within a few days.

This type of activity comes with risks and rewards.

The risks are being stuck in counters and wishing one had not had a case of “itchy fingers”.

The rewards are both the “high” of thinking that one just managed to out-smart the market as well as earning some kopi money.

Panzer also engages in this type of activity on occasion and sometimes makes and sometimes loses money. In the end, Panzer learns more about the market and himself as he will encounter Mr. Greed and Mr. Fear whispering into his ear when he is thinking if he should “jeep” (buy or take a long position on a counter) or “pang” (throw or sell a counter).

Whether he “jeep” or “pang”, one thing’s for sure, his blood pressure and heart rate usually goes up. So Panzer has decided to put up his equity trading rules of thumb as he reflects on what happened when he made the right speculative bets.

Panzer’s Equity Trading Rule of Thumb (PETROT)

#1 Never buy when market chiong strongly

So far, most of Panzer’s punting mistakes are to “chase” a stock when sentiment is buoyant. To make money, you must either be in front of the crowd or 1 day before the crowd. So buy when people are selling, and sell when people are buying.

#2 Play with money you can afford to lose

Panzer generally hates to lose money as he is human. So he must keep reminding himself  to only bet with money he really set aside for “play”.

#3 Only bet on those counters you are familiar with

Panzer’s bobo-shooter targets that lost money for him were counters he didn’t have a good “feel” of pricing versus valuation. In general, he should limit himself to only betting on the list of his watch list and stick to it.

#4 You don’t always have to take a bet

As some esteemed forumer ever mentioned, the market is here for you. Even if miss the “boat”, the tide will ebb and flow creating opportunities for taking bets.

#5 Low can get lower, high can get higher

Panzer can never time the market all the time. What’s important is to bet within limit and to know that $10 profit is better than $10 loss.

What are some of your rules of thumb for speculative activity?

Be well and prosper!