Wednesday, September 12, 2007

Minimal Participation

Sure, you want to have as much capital as possible involved in an upswing, but it's painful having a stake while the market slides.

Unfortunately, you have to keep dipping in your toe. At the apparent end of a long slide, or when a correction appears to run its course, it's time to dip in that toe. What happens when you end up tossing your coins into the fray and the market rejects your advances?

All you can do is repeat the same. On a downturn, open up a new position. On an upturn, release the last toehold and climb down a notch. At some point, perhaps in a day, or in a week, assuming the overall trend does not reverse, you'll have to catch and ride an upswing. Heck, even if the overall trend does reverse you should still catch an upswing if you are patient.

Then, as I blogged about previously, during the upswing you want to maximize your involvement. You want to jump in, safely, as your locked in profits rise, to ensure that all the losses from toe dipping pale compared to the wins you eke out on the return. Winning a multiple of the amount lost will be worth it.

You have to play to win... but you certainly don't have to put a lot into it until you see that you have the upper hand.

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