Just came across a pretty interesting video (see below) by Ed Seykota of Market Wizards fame. Well worth watching for trend-following traders.
Quotes from The Whipsaw Song (the actual lyrics are here)
- You get whipped and I get sawed, one good trend, pays for them all! (the actual lyrics are “You get a whip and I get a saw”, but personally I prefer my version =))
Ride Your Winners
- Now what do we do when we catch a trend?
- We ride that trend right through the end!
Cut Your Losses
- Well what do we do when we show a loss?
- We give that dag-gone loss a toss!
Manage Your Risk
- Well how do we know when the risk is right?
- We make a lot of money and we sleep at night!
- Well what do we do when the price breaks through?
- Our stops are in so there’s nothing to do!
Stick to the System
- What do you when the drawdown comes? What do you do when it gets real big? What do we do when it’s even bigger?
- We stick to the plan and pull the trigger!
File the News
- Now what do we do with a hot news flash?
- We stash that flash right in the trash!