Issue #149
Dear Member,
No one likes getting stopped out of a position. But let me be perfectly clear:
A. It comes with the territory. You cannot have winners without having losers any more than you can have day without night, fall without spring, summer without winter.
B. Even the biggest and best traders in the world get stopped out, sometimes frequently, especially as they position their portfolios for major trend changes. And …
C. It’s not how many winning trades you have versus losing trades that counts. It’s how you limit your risk on the inevitable losers versus how much you earn on your profitable trades that counts the most, and that makes the difference between success and failure.
Indeed, one of my long-term trend models I follow has a win/loss ratio of roughly 1 to three, meaning for every one winning trade, there are three losers. Yet the model spins off over 21 percent annual gains.
How so? It’s simple. For every one dollar lost on losers, the model wins over five dollars on every winner.
Do the math: Three losing trades that lose a dollar each, total loss $3, versus one winner that earns five dollars. Net result: Up $2, even though 75 percent of the trades (3 out of 4) were losers.
I am not telling you this to justify the recent stop outs. Obviously, the more times you win, the more you make — but only if you tightly manage your risk on the losers.
I am telling you simply because I want you to become successful investors and traders. And to do so, you have to psychologically accept the fact that there will be losers and losing streaks. They come with the territory and they are part and parcel of becoming a successful investor.
That said, right now the lackluster summer doldrums continue to take their toll on nearly all markets, with low volume, low liquidity and jittery price moves.
This is especially true of gold and silver, where the precious metals are caught between Europe’s severe deflationary forces, the improving U.S. economy, and jitters over the global geo-political situation, which is deteriorating but long-term very bullish for the metals.
Yesterday we were stopped out of two positions, shares in JNUG and in USLV, the leveraged silver ETF.
Nevertheless, gold and silver remain poised to rally. As I pen this issue, gold is up more than $7 from its Tuesday lows, and the pattern unfolding appears to be the start of the major rally I have been expecting. Ditto for silver.
I’ll need a wee bit more action to determine our next moves. So for now, hold your shares in KGC and SSRI with your protective sell stops in place, good till canceled, and be patient.
If the rally is now starting, as I expect it is, I will be pulling the trigger on a fresh round of trades very soon.
Best wishes, as always …
Larry
