for the final time....

Seems plenty of people here are holding onto sunstantial losses via holdings in LUM.

Now Im not going to pick on LUM but am going to use it as an example of how not to get yourself into a losing position and why.

The first rule of trading(and beit a cliche)is that the trend is your friend...we've all heard this one over and over but it seems so difficult for people to apply it.
Why is it so difficult...I think because people dont actually understand the rule.
The problem a lot of traders have is that they dont like to buy stocks when they are going up as they are scared they are buying too high.
Sure none of us want to buy a stock that is too high...but you never know where the high is until the game is over.
Its not like buying a car ...for example a new BMW worth 50k for 70k...you are buying a completely different asset..its not made up of nuts and bolts but speculation.
If the 50k car is for sale for 30k you automatically think its a bargain...people use this same mistake when buying a stock..eg lum was 90 odd cents and when it fell back to 70cents people thought it was a deal.
The difference is that the car selling for 30k is selling for 30k because there is rust(cancer) in the car which is killing it.On the outside it may seem no different but on the inside is completely different.

Second point with buying with the trend is that if you buy a stock in an uptrend the odds are in your favour the stock will keep rising because of momentum...and there are more buyers keen to buy the stock than sell.
Along with this goes the fact that people arent excercising stop losses in a stock thats rising(unless they are short),this reduces selling pressure.
Also the psychology of people in the stock is bullish because they are in profit..this may not seem to be important but it is.

Now a trend is easiest to see on a chart..one quick glance and you will more than often know if a stock is going up down or sideways.
You can trade very proftibaly not even knowing what a stock does but just from looking at the chart.
Crap you say...well think about it...people in the know (directors accountants brokers)will know good news is coming so they start buying...this gets the trend going..they tell their family and friends and then the brokers start telling clients and the trend gets stronger.
Others hear rumours and see the price is going up and think what a great story (usually a story a broker has basically created)..the trend goes up on a sharper angle.

Where most punters sit in this list is at the end..the last to hear about it.
All they hear is the good news that was already known by those in the know...the stock doubles or triples and those in the know decide to take profits because they dont know of any more good news to come in the short term.
The stock consolidates for a bit...the uptrend stops so technical traders stop buying as hard.
All the punters are in and so basically you have nobody left to buy...the old supply demand comes into place and the stock begins to fall.
The good traders exit due to stop losses quickly..then the punters begin to panic and down she comes and the majority are left sitting on a losing stock.

What has changed with the story...nothing.

Value has little place imo for a trader in the market...Sheesh you can take the biggest stock in the asx NCP...how in earth did NCP go from $10 to $30 then back to $10?
How much changed in that time...almost nothing and still you are talking of a chnage in market cap of 10s of billions.

Same story goes for bucket loads of stocks and even indexes...look at what the nasdaq did 2k to 5k back to 2k in a 3 or 4 years.

Take an old stock like pasminco...was worth a couple of billion with a share price of a couple of dollars...one of the worlds best zinc deposits.
The stock falls from a few $ to 50c...everyone thinks what a bargain..the 50k bmw is now selling for 30k.
But its full of rust and the stock eventually turns to nothing.
How would you know how bad pasmico's position was unless you were an expert on hedging...brokers were still putting out buy recomendations.
The answer was in the trend...the trend was down.

You do not buy a stock in a downtrend ...simple!!

Trading is a game of odds...very similar to life in general...every decision you make you weigh up the pro's and cons..the odds.
if the odds are in your favour you play and you have to come out on top...the odds say you have to.

If you buy a stock in a downtrend the odds are automatically not in your favour and vice versa.
As much as you want to beleive your information is good you really dont know...even the directors quite often dont know the future of their companies..how do you expect to know them.


To understand how to trade you must find the best oppurtunities in the market...where the smart money is going
How do you do this you ask...there is only on way...from the use of charts imo.
Who could possibly understand hedging commitments...the worth of weight loss drug..the value of 5g/t of gold in a pit that has to go down 300m..interest rate factors on a companies debt..the value of a tree plantation..what a gun that shoots 10 thousand rounds a minute is worth.
Its impossible imo for the common joe to understand the intricates of even a couple of stocks in the market.
Even if you do understand them what is to say that you are being told the truth by the company/directors.

Lets get back to LUM.

Lum listed at 20c in 2000 and did little for a while...the company then built its first sign at the aberdeen in Perth and before you knew it the stock was trading at 60c. The market cap tripled on one sign...why did the stock rise so fast...because of speculation LUM was going to takeover the world in the sector of neon signage.
What happened..the company talked about its rosy future and signed a couple of parteners and deals not long after only to see the stock evtually fall back to 5c as people got bored about the potential...once again most the punters lost out.

Now if you didnt even know what LUM did and you were a pure technical trader you prolly would have looked at an entry around the 40-50c mark...much higher then lum had recently been trading at.
If you were this same trader you would have seena clear break in the uptrend around the 80 or 90c level and then got out...beit through a stop loss or trend break etc..whatever method a good trader users.
You would not have entere lum since because the trend was down.

You dont need to even know what the co does...you dont need to have listened to friends or directors or anything to have made these profits and to have exited out.

Anyways back to the situation most here seem to have gotten themselves into.
its obvious that you have made a paper loss if you bought lum recently..this hurts but its not the main damage.
The damge lies in the effect this has on your psychology...you lose confidence.

Think of a sporting team...when it gets on a roll it seems unstoppable...it can win 20 games in a row...this is the team you should be betting on to win again.
Why bet on this team...because its oozing confidence and not self doubt...it wants to make moves that are winning moves not defensive.
Eventually it will lose 1 then 2 then 3 games and the confidence falls away.
Relate this to winning and losing trades and holding onto those positions.
If you drew a trend of these teams you could clearly see uptrends etc...and the same team that was a winning team and in an uptrend can become a losing team in a downtrend even though its the exact same team on the field...its because those in the team have lost their confidence imo.

What happens is people will barrack for the team usually nomatter what.
If they have the worst team with the worst losing streak they will still go for it to win(apart from the fact of loyalty).
Its because they are in love with their team like people fall in love with their stocks.
You know what they say love is blind and its so easy to block out things and pretend your losing team is still the same team it was when it won the grand final last year....or the same stock that was at $1 and is now 50c.

Most often people will go for their team because that is the team they picked for whatever reason (quite often because it was succesful when they started following that sport) and when it wins they see it as a reflection of themselves as a winner.
They will defend that time no matter what because they feel they are defending themselves..their judgement/ego etc.
The same reason people here defend their losing stocks.

Sure you may support a team but you really have little bearing on how well that team will do no matter how much you love them,the main thing i think people are supporting is their own ego to prove they are right and thye are on the winning team.
face it if your team is a losing team its a losing team..you may have loyalty to it so will have to grin and bear it but it really has no reflection of your character.

The same goes for trading...if your on a losing stock your on a losing stock...there is no need for loyalty...no need to defend why you bought them...get off the bandwagon and move onto the winning team.

We are here to make money are we not...not too bost our egos.
Those who put their ego's before their trading will ultimately lose.

You get on a winning team...you ride that team for as long as its going strong...once it begins to lose you dump it and move onto the next winner.

You cant trade saying to yourself...I shoulda done this...if only I bought then...if only i sold then.
There is nobody to blame for your trading mistakes than yourself...be humble.

If you bought LUM at 80c and are holding the stock now you are in a very bad situation.
Why...firstly youve lost your confidence...your winning run will not be there and you will be concentrating on defence not attack.
You are also sitting on a very large loss...experieced traders never sit on a loss of that size because it is too hard to take.
The loss should have been taken roughly within 10% of your buy price maximum.
Now you just sit there hoping it will at least get back to your buy price(so is everyone else so it means more selling pressure)...your funds are tied up..your on hotcopper all day writing posts that really mean nothing except defending your losing team.You agree with everybody that has the same opinion as you as it makes you feel better and disagree with everyone with an alternative.

Remember the best lessons are learnt from mistakes you have made...learn from this one.


Anyway I could ramble on but I reckon thatll do for tonight...hope some people get something out of it...think outside the square a little with your trading ideas...I can personally tell you it helps a bundle.

Good luck and dont forget the trend is your friend and keep those stops tight.



and Part 2 for the LUM sooks


Well looks like I need to follow up on my original post already...

Now after writing what I thought was an informative post on how not to lose a bundle of money my intentions are being seen as dishonest...an ulterior motive.


Why?

Because I changed teams...I have somebody pasting a post of mine when I was in LUM and it was trending up...in that post I provided a lot of information that people could debate or agree with..thats what a forum is for.

Why did I promote LUM in the first place...because I thought it was a good stock with potential therefore speculation could easily be priced in causing the stock to run.
Is it wrong to promote a stock...tolhurst and balleius promoted LUM at the same time putting buy reccomendations...I even have a broker working at burkett and young that put out a buy price on lum when it was in the 70's.
If I am a sinner for promoting the stock so are all the brokerage houses that also promoted the stock...arent they??

What if we didnt promote stocks we thought were good..isnt that the reason for these forums..I mean Im more than happy to discuss trading tactics and have done so a number of times but the responses are lacking.
So if we cant discuss stocks we are in then you shouldnt think newspapers magazines and brokergae reports should exist...all they are doing is promoting their stocks.

The real reason people are upset with me is I changed teams and this goes back to my original post in this thread.
those who are attacking me shoul re-read that post and then think about what defending their stocks is really worth...think about falling in love with your stock and relating your stock to your ego.

When did I start bagging lum...When the stock went into a downtrend...basically I was putting people off buying the stock as it was falling...I bet I saved people a lot more money than stolwyk or gaga did...they have been promoting the stock all the way down.

Because Im now bagging LUM does this mean I wont re-enter it...of course not...if the trend goes up I will buy it..I will change teams once again whether you like it or not.

Whilst you sit there and attack my posts and ideas and defend your losing positions you are missing out on all the other stocks that are moving.

If you make a bad decision thems the breaks...get out of it and move on...there is nobody to blame but yourself.

Most of those people holding LUM do not have a trading plan.
A trading plan is an idea that when applied to 100 trades should mean that you make money...it means you place the odds in your favour.
Things that go into a trading plan range from money mangement...stop loss techniques...pattern charting etc etc.

The main thing a good trader needs is discipline..discipline to follow those rules that are in their trading plan.
If you have a plan that places the odds in your favour and you keep following thta plan then you must win.

Concentrate on finding a good trading plan if you dont have one already...dont worry about where you next trade will come from if you dont have a plan.
Spend the next few weeks developing a plan that works..the market will always be there tomrrow for you to apply your succesful formula.

If you are thinking you dont wont to miss out on the next good trade this week then think again because the odds are you will lose again this week and the week after.


What trading plan should you use is up to you as it will depend on your own personality.

Good luck y'all



Hope that clears it up...