Bulkowski On Making Money

Written and copyright © 2011-2013 by Thomas N. Bulkowski. All rights reserved.

I have received several emails that say a curious thing: "I've been trading for two or three years now, and I'm still losing money."

Whenever I read something like that, my first question is, why aren't you making money?

Here's the list of performance numbers for the Dow industrials, close to close, as of Friday, April 12, 2011.

• 2009: up 18.8%
• 2010: up 11.0%
• 2011: up 6.9% (so far)
• Total: 36.7%

The Nasdaq did even better...

• 2009: up 43.9%
• 2010: up 16.9%
• 2011: up 4.8% (so far)
• Total: 65.6%

If you did nothing but buy and hold you would have made 36% in the Dow and 65% in the Nasdaq. If you bought after the end of the bear market, you could have made substantially more. That's what I did.

Making Money: Buy and Hold

Is that all hindsight? Of course, but if buy and hold can make money, then doesn't that give you a clue about making money?

The answer is to stop trading.

Let me put it another way. If you're a day trader, perhaps you'd do much better if you hold until the day's close. Or how about holding overnight or even for a few days, maybe a week or two? Yes, the risk increases, but so does the opportunity for profit. If you can't afford to hold overnight, then you shouldn't be day trading because you're undercapitalized. If you can't bear to not trade, then you're trading for the adrenaline rush and making money is secondary. Lots of people trade for the high they feel, so you're not alone. Emotional trading is not a way to profit.

Try this experiment. Move your trades into excel and determine the hold time for each trade, preferably if you've held positions for days or longer. Compute the median hold time (use the "median" function). Then compute the gain for trades held longer than the median and those held shorter than the median. See if a longer hold time makes more money. If so, then you know what needs to be done: hold onto each trade longer.

-- Thomas Bulkowski

Written and copyright © 2011-2013 by Thomas N. Bulkowski. All rights reserved. Don't worry about what people think of you. They're busy worrying about what you think of them.