The Best Offense is Often Great Defense

The following post was published inside the 12631 Trading Service yesterday. 

Hitting home runs (hugely profitable trades with sizable portfolio positions) in the stock market requires luck, regardless of skill. Luck, by definition, is streaky–Often frustratingly streaky and random, regardless of how throughly-researched a thesis may be, and regardless of any supposed privileged information about a stock or sector in question. Over the course of many years or decades, everyone tends to have the same amount of luck.

However, most traders become so enamored with the luck portion of trading that they fail to last long enough to even have a chance down the road. In other words, by damaging their capital base through a lack of risk management and discipline, when the time eventually comes for their style to flourish in a given market, they are either out of trading as a whole, or barely have enough capital to really strike while the iron is hot.

Being able to avoid getting caught heavily long during the lion’s share of nasty downdrafts or corrective periods in the market is often just as powerful to your capital base as hitting a few home runs when market conditions are better. This trading service will often err on the side of being conservative. But that is because we want our members to play great defense above all else, even when mistakes are made and trades go against us. We want you to be in a position to live to fight another day, above all else, and be in the trading business for the long-term which, odds dictate, is a challenge in and of itself.

Focus on playing great defense–Cutting losses quickly, position sizing, protecting capital and avoiding too many breakout plays when the market is corrective–and luck will eventually take care of itself on the offensive side of the ball.