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Why Sticking With A Proven Strategy Beats Ditching It


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Investing can be frustrating. The psychological toll is sometimes just too much.

Many people have still remained on the sidelines during this great bull market because of the mental (and financial) toll of the 2008 market crisis. It's those same types of emotions that cause many of us to hold onto a losing position for far too long. We have difficulty cutting our losses, as we "hope" the stock will get back to our entry price so we can break even.

As a trader or investor, you'll have days where everything seems to be going right in your portfolio. The euphoria makes you feel invincible. You're up handsomely on a plethora of positions only to have those gains, and then some, washed away the next day for reasons you may not understand (such as a tweet from a President).

On the days when your portfolio is in the red, you wish you would have sold everything the day before. Watching gains evaporate can really take a toll emotionally (again, a big reason why many investors struggle to cut their losses).

You begin to question your strategy, your investment thesis, or why you even put money in the stock market in the first place. After all, had that money been sitting in a savings account, at least you'd still have your principle left.

If you've had any of these "second" thoughts, you're not alone. All traders and investors endure those feelings at some point. Every successful investor out there has had to stomach massive drawdowns, tough days, and even going bust. Yet, they stuck with what they knew and (sometimes) learned from their mistakes, and went on to make fortunes.

One such example is the notorious trader, Jesse Livermore, who made and lost fortunes in the market several times. In his first six months of trading on Wall Street, Jesse went bust. But he rebounded and turned $10,000 into $50,000, then turned that into $250,000, then into $3 million.

Then he went bankrupt trading cotton futures.

Jesse eventually traded his way back to profitability and amassed $100 million by shorting the market during the crash of 1929.

Livermore stuck to his strategy and what he knew. In fact, the trading principles that he established continue to be studied and used today. Jesse believed that prices were never too high to begin buying, or too low to begin selling. His investment approach relied heavily on trading with the trend, as well as paying attention to the behavioral and emotional aspects of trading. (If you're a Maximum Profit subscriber, this no doubt sounds familiar.)

I'm sure that at times (especially when he lost his fortunes), Livermore questioned his strategy and approach to the market. Yet, it was that approach that made him the fortune in the first place. But the key to his success was finding a strategy that worked and then sticking to it... even during times when it seemed fruitless.

One of the most difficult parts about investing is staying disciplined and remaining patient. It's easy to give up on a strategy or system after a string of losses. It's frustrating. But that doesn't mean the system is broken.

As for my subscribers and I, we are simply following the rules or the Maximum Profit system . We are cutting our losers short and letting our winners run.

We are sitting on a handful of nice winners, like the 42% gain from Okta, Inc. (Nasdaq: OKTA ), a 51% return in Shopify (Nasdaq: SHOP ) and even 21% in the old, stodgy chocolate maker, Hershey (NYSE: HSY ) -- all in six months or less. And this week we took profits on our longest-tenured stock. This trade not only endured the fourth-quarter market beatdown, but held steady and went on to beat the market by an incredible 16 percentage points.

This is what happens when you stock to a proven, winning strategy. And if you feel like you don't have much of a "strategy," then my staff and I over at Maximum Profit are here to help. To learn more about how our system works, simply visit this page .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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This article appears in: Investing , Stocks , Investing Ideas



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