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  • Trading Stories - Cocacola Bottle Trader


    Market Overview
    (Friday, January 16, 2015 for Chinese and Hong Kong stock markets. Thursday, January 15, 2015 for US stock market)

    According to our proprietary systems, there are no immediately buyable stocks for the US, Chinese, and Hong Kong market today. So we can take a break and tell a story.



    Van K Tharp, a well-known trading psychologist said: "Chuck LeBeau helped me make the link from the famous trader’s axiom-'Cut your losses short and let your profits run'- to the importance of exits. Think about it. Cutting losses short is all about aborting losses - exits. Letting profits run is all about exits as well. The entire axiom is all about exits."

    Today we share with you a story that was told by Charles LeBeau and David Lucas in their book entitled "Computer Analysis of the Futures Market". This story illustrates the importance of exits, both the stop loss, which is a pre-planned exit point for losing trades, and the profitable exit. The thesis of this story is that even with a random entry, as long as you have good exits, you can make money in the market.



    Messages from Outer Space


    We once knew a trader who claimed he received entry signals from mysterious beings in outer space. He claimed to receive these messages via his "interplanetary cellular phone" constructed from a Cocacola bottle with a broken piece of radio antenna sticking out of the top.

    This fortunate (or unfortunate) trader actually made money because he had a knack for exiting his trades correctly. He couldn't bear to lose money and endure the taunts of the other traders sitting around the boardroom, so he was very qucik to close out a losing trade. he would blame the loss on static or some sort of cosmic interference that had garbled his secret message. When he stumbled into a winning trade, he wuold prolong the experience as long as possible, so he could brag to his cronies about the validity of his messages from outer space and poke fun at their seemingly futile efforts to make money studying fundamentals and charts. He was brutal in his criticism of conventional trading methods and gloated at his own success. He was absolutely unbearable when he was on the right side of a market.

    This fortunate trader was in the habit of cutting his losses and letting his profits run, so he made money. His success was the amazement of the boardroom, who joked about the talking Coke bottle and the crazy trader who talked back to it. As crazy as he was, this trader was unconsciously following an excellent exit strategy that allowed him to make money. However, if you asked him, he would swear his success was due entirely to the entry signals he received from the Coke bottle.

    Not surprisingly, many popular entry systems today are based on theories even less valid than the Coke bottle messages. If you stop and think, what is the difference between receiving perceived messages from a computer hooked to a satellite dish or receiving imagined messages from a Coke bottle? If you believe in what you are doing and act on the messages, you are starting out nearly equal, and the trader who is best at exits will make the most money. In spite of what anyone might claim, those wo succeed in futures trading all shares the common denominator of good exit strategies.



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