Three Moneymaking Secrets of a Champion Trader
The Investment U E-Letter: Issue # 307
Thursday, January 22, 2004
Three Moneymaking Secrets of a Champion Trader
By Dr. Steve Sjuggerud, President, Investment U
David Ryan can teach you a few things about being a champion trader and winning in the stock market
With an astounding 161% return, Ryan won the stock division of the 1985 U.S. Investing Championship. To prove his results were no fluke, Ryan returned to the contest in 1986 and duplicated the feat, registering a 160% return.
Today, I’ll do a quick study of Mr. Ryan’s methods and show you how we can still use three specific points of his 18-year-old strategy to produce triple-digit returns for ourselves.
Strategies Of A Champion Trader Market Wizard
David got started early. He bought his first stock at 13. By 16, he was attending investment seminars and reading stock charts.
After graduating college, Ryan followed his dream. He went to famed investor William O’Neil and offered to do any job just to get his foot in the door. He even offered to work for free!
All of David’s hard work paid offhe eventually became a professional money manager and one of the elite traders interviewed by Jack Schwager in the book Market Wizards.
Ryan helped O’Neil make the “buy high and sell higher” strategy popular.
This method of investing, which O’Neil calls the CANSLIM method, is one of the best stock-selection methods available to the individual investor, and Ryan is a master of it. But there are a lot of good ways to pick stocks, and I’m interested in aspects of Ryan’s method that can apply to any investor or trader whether they’re using CANSLIM or not.
How Ryan Follows “The Golden Rule of Trading”
Despite being an expert stock picker and working seven days a week, Ryan claims he’s right on only half of his picks. But he follows the “golden rule of trading,” which is cut your losers short and let your winners ride.
Ryan follows a rigid sell strategy of cutting his losses quickly and making big money on a few stocks that double and triple in price.
Ryan’s success is simple and can be followed by all of us. I learned three lessons from Ryan that I’m constantly using to become more successful in the markets.
- Most traders are right “only” half the time. But they stay in the money by cutting losers quickly and riding the winners.
- Ryan makes it a point to learn from every mistake he makes. Starting out, I tried to forget my losing trades. Now I keep a journal and go over every trade to learn how I could have done a little better.
- Ryan knows what will cause him to sell a stock before he buys it. I follow his example and set a stop loss on every position. I think of it as “worst-case scenario” thinking.
Of these, I think the best lesson I’ve learned from David Ryan is learning from my mistakes (I’ve made so many I should be genius by now.)
It may not sound like a big “secret,” but making sure you don’t repeat investment mistakes will bring you much bigger returns than the next best thing in biotechnology.
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Today’s IU Cribsheet
- One of Dr. Steve Sjuggerud’s most essential investing tools - and one I use, along with many other savvy traders - is the “stop loss.” Here’s how it works: You limit your loss on any investment by deciding, in advance, on when you’ll sell it. Most stop losses will kick in when an investment closes the day 25% off its high. In other words, if you buy a stock at $10 and it soars to $20 before it begins a downward move, you’d sell at $15 - that’s 25% off the high of $20. The trick is to stay disciplined the stop-loss approach doesn’t work if you “cheat.” To read more about stop losses, check out IU E-Letter #250 - Getting Out With A Profit.
- Right now, Costa Rica offers a good place to hunt for potential investment bargains. That’s why we’re inviting you to join world-class investor and Investment U friend Barry Strudwick as he leads a four-day investing expedition to Costa Rica’s beautiful Pacific Coast. The Costa Rica Symposium (Feb. 26-29, 2004) will combine cutting-edge economic theory with practical, hands-on advice from experienced developers. Barry, who also hosts Public Radio’s “Mutual Perspectives,” will combine business with pleasure as the group tours not only the rainforest but also several investment opportunities. The $2,500 tuition includes the seminars, all hotels, meals and local transportation. To learn more, just visit http://www.delpacifico.net/mailform/signup.htm, or call 1.800.466.5623.
Good investing,
Brian
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