Just finished up the footnotes on video 4 of "How to Make Millions" and decided I'd title this chapter "Discipline = Quality Control"
Video four starts off with Tim explaining that it's an important lesson to learn that you need to figure out your own comfort level with trading. Makes sense to me since someone may be fine giving a trade room to breath while others may not be.
It was mentioned several times that the quality of the trade is more important than the profit or loss. Because even though your poorly planned and executed trade may win you a nice gain, eventually you are going to loose and without the discipline to make good solid trades, your taking on way too much risk and you're going to get burned.
Tim defined discipline as formulating a plan, having an educated guess vs random, knowing your risk/reward ratio, following through with your plans and having the discipline to exit a trade when your trading plan tells you. YOU MUST HAVE DISCIPLINE and YOU MUST CUT LOSSES QUICKLY.
Tim's states that the best traders trade with plans, their almost like robots when it comes to their plans and emotions while trading.
The use of stops was also talked about and Tim explains why he's not a fan of using them. I've often used the trailing stop because I've like the idea of a safety net to protect your trade in the even of some unforeseen issue... like a computer crash, kid brakes an arm, or zombies attack... but Tim mentions that market makers can see your stops and often will manipulate the stock prices to fake you out of a position and drive the ticker up or down. He also explains that if a stock is moving too fast it may blow right through your stop loss and you could find yourself in a bad spot.
Tim talks about how you should judge every investment you make not by the potential for profits, but by the risk you take and how you can handle it.
You should never believe in the hype of the news / pr a company puts out and think of the CEO as cheerleaders... there's an image for you lol.
Contract winners and Earnings winners were then talked about and that you should be looking to piggyback on the momentum. Though Tim warned against going long mid-day because your putting yourself at risk since the stock could go either way. You need to be conscious of the daily volume and ensure that your position sizing is such that you can get out as soon as possible.
Tim prefers a solid earnings winner over a contract winner because they can run for multiple days, even months while a contract winner will usually spike up but can fade back down. He may even add to a position near the EOD if the trade is strong and continues to solid momentum, with the plan of taking profits the following day.
DON'T TRY TO PREDICT EARNINGS WINNERS
Don't hold a position ahead of earnings or the conference call because you cannot predict what they will say and you can get burned.
Tim explains that trading isn't just about trading good picks, its about mental and fighting your emotions, keeping a level head, sticking to your plan.
One of the benefits to trading earnings winners and contract winners is that pennies tend to get news and upgrades by analysts a day or more after the large companies, meaning that if you are looking for the biggest percent gainers of the day and getting in at the EOD, you have the potential of beating the crowd the following day if news breaks over the night or pre-market.
A few examples of contract winners that Tim mentioned are:
- Deals and contracts with third parties (prefer big companies, big gov)
- Winning court cases
- Winning patents
I think FDA approval would count, though Tim rarely trades bio and pharma. I'd also think that billionaire investments would count too such as $WTW and Oprah though Tim doesn't mention it in video 4.
That's it for now. Stay tuned for footnotes from video 5 soon, I've already listened to it and now I plan on going back to listen again and take notes.