Things are really getting serious in Europe with the UK basically turning its back on the new rules the EU wants to impose. In saying this, we are dealing with very difficult trading conditions. New news now almost comes out daily which really make the markets more volatile. Yes we have a secular bear market in stocks but in saying that, you just don’t know when the bear market will begin in earnest. All the new man seems to be doing in Europe is lowering interest rates. This may be good in the short term but bad in the long term. The world must cut spending and take the pain now if we are going to get out of this mess.
In saying that, I want to point out 3 rules that you must adopt if you are going to succeed in trading and investing in the markets today
1. Even though precious metals are in a consolidation phase at the moment, you must never ever short this market. In bull markets which is what we have in the precious metals sector, surprises always come up on the upside. So even though we may see some downside movement in the next few weeks, you must never short a bull market.
2. Leverage is such a dangerous weapon and you must avoid it at all costs. Unfortunately leverage practically always ends up in a blown out account. There are no exceptions to this rule. If you are using heavy leverage, you are playing with fire and really risking getting a margin call from your broker. Many investors have made a lot of money with leverage on the upside and then gave back everything and more when the market came back down. This is the problem with leverage, its a double edged sword and will wipe you out in a blink of an eye if you abuse it.
3. This is probably the most important point especially in these conditions. You need to be able to manage risk in your portfolio. By this I mean, you need to have a hedge or an insurance policy. You would never buy a house without insurance so why do average investors refrain from insuring their investments in the stock or commodity markets. Always have an exit strategy and plan for 3 market movements with your investment. The market can go up, go down or go sideways. What will your loss be if your investment goes against you? Professional investors never leave themselves exposed. If there investment goes against them, they have vehicles such as stop-losses, put-options or hedges to minimize their losses. Here is where you must control risk and when you do this correctly, the profits will take care of themselves.
