Eight Keys To Unlocking The Super Performance

The author suggests 8 keys to unlock super performance with low risk. 

Out of these, four keys address the upside, while the other four focus on limiting the downside and protecting a trader's capital and confidence. 

The Four Keys To Generating Big Performance:

Key 1: TIMING 

Money needs to be compounded promptly to generate big returns. The accuracy required to enter and exit the positions at the most favourable points means timing the buys and sells.

To time the market, a formalized strategy with rules needs to be employed that enhances the possibilities of capturing above-market gains. Charts are vital. Mark uses a chart blueprint known as the volatility contraction pattern (VCP).

Key 2: DON’T DIVERSIFY 

If widely diversified, the returns will be diluted. To achieve consistently big returns, one needs to be centralized among the best names (maximum 4 times 12), depending on the risk tolerance. 

With a concentrated portfolio, a close watch can be kept on every stock and quick decisions can be made on entry and exit. Speed is a big advantage. Another reason is diversification gives a false sense of security because one can easily forget about so many stocks. This thinking is exactly the opposite of the one required for super performance.

Key 3: TURNOVER IS NOT TABOO

Turnover can be good if one has an edge and a concentrated portfolio. However, money should always be moving towards reaping the best performance and moving out of apprehensive situations that pose risk to the capital.

Key 4: ALWAYS MAINTAIN THE RISK/REWARD RELATIONSHIP 

Here, all the keys of super performance are compiled. By continuous balancing of the risk and reward, one can neutralize any downside by being highly concentrated among a few names in the portfolio. A short-term approach must be adopted to losses and a moderately longer-term approach to profits, which means, cutting losses and letting the winners run.

The Four Keys To Limiting Drawdowns

After addressing the upside, it’s time to evaluate the downside. Every trader wants to limit losses by setting a stop loss at a predetermined level. However, they must be set at a sensible level to control risk concerning reward. If that correct balance is not maintained, one might end up taking a big risk for a small payoff. However, the objective is just the opposite- taking small risks for big potential gains. 

KEY 1: SELL INTO STRENGTH 

It is always better to sell early when there are eager buyers than to sell late. However, beginners think that the rising stock will never go down again. 

If one waits too long to sell, the uptrend will cease and the stock will come down crashing. In that case, the profit is greatly diluted just because of the fear of missing out on more upside. The equity value is at its highest point when sold into strength. To maintain a consistent equity curve, traders must learn to sell with decent gains.

Key 2: TRADE SMALL BEFORE YOU TRADE BIG 

One can increase overall exposure when correct. During such effectiveness, they can trade more aggressively because they have built a cushion. 

The key is to build on success. However when things don't go well—maybe with correct analysis but off timing- one can’t continue aggressively. Then they have to slow down or must take a break to evaluate the reason. This is the true meaning of letting the market guide, rather than following the feelings or opinions.

KEY 3: ALWAYS TRADE DIRECTIONALLY

One will seldom be correct if he goes against the trend. 

If significantly tight stops are used, even a small reduction can stop out and generate a losing trade. These losses can accumulate, so the objective is to buy at the exact moment when the risk of loss is least.

KEY 4: PROTECT YOUR BREAKEVEN POINT ONCE YOU’VE ACHIEVED A DECENT PROFIT

When a trade is entered, a stop is set below the entry point at a predetermined loss. However as the trade becomes profitable, the stop loss should be moved up to the break even. It’s also important to hold off on raising the stop loss until the price moves up an adequate amount, otherwise there will not be enough room to allow normal fluctuation and the trade will be called off.