Who Wins? Who Loses?

Tewles, Harlow, and Stone (1974) report a study by Blair Stewart of the complete trading accounts of 8,922 customers in the 1930s. That may seem like a long time ago, but the human psychology of fear, hope, and greed has changed little in the last 60 or so years. The results of the study are worth considering seriously.

Stewart reported three mistakes made by these customers. (1) Speculators showed a clear tendency to cut profits short, while let­ting their losses run. (2) Speculators were more likely to be long than short, even though prices generally declined during the nine years of the study. (3) Longs bought on weakness and shorts sold on strength, indi­cating they were price-level rather than price-movement traders.

I should contrast this experience with the TOPS COLA philoso­phy discussed earlier. By taking profits slowly and cutting off losers at once, you will avoid the first mistake reported by Stewart. Second, by being a trend follower, you will avoid the next two mistakes. If you fol­low trends, you will be long or short per the intermediate trend, and avoid any tendency to be generally long. Third, if you follow trends, you will follow price movement, rather than being a price-level trader.

You will win in the trading business if you have a specific trade plan that contains all the necessary details. You should focus much of your ef­fort and energy on implementing the trade plan as accurately and con­sistently as possible. Thus, you must go beyond technical analysis, deep into trade management and organized trading, to win.

Beyond Technical Analysis 9