The defense or stop-loss method of Warren Buffett's investment system, broadly speaking, is based on investing in companies with a large margin of safety. Investing with a large margin gives you the advantage of entering a company at a point where its quote cannot drop any further or if it does, it won’t be by much. Then, it’s just about sitting and waiting. Of course, the difficulty comes from choosing those companies with a margin of safety in addition to the right moment to enter them. But the reality is that when you start in ‘this’ trading, you avoid stop-losses. 'If you wait for the right time, the quote always recovers.' This is what is always rumored in the market. But just reading the comments is enough to see the number of people who are trapped and waiting for the quote to recover after years, just for not using a margin of safety in their investments.
In the world of trading, especially in intraday trading, one of the biggest dilemmas is deciding what factors to consider before opening a position. Charts, news, macroeconomic data... the information is overwhelming. But what hidden dangers exist in the most common practices, especially when trading around key economic data? Today we will analyze one of the most critical and dangerous situations a trader faces: managing losing trades, particularly in the context of news-based intraday trading. We will base this on the premise that not closing a losing trade on time can literally mean the elimination of the trader.
Let's be honest. You're an experienced trader. You've seen markets rise, fall, you've won, you've lost. But how many times has an analyst's recommendation led you astray from your own plan? How many times have you entered a trade based more on the "authority" of another than on your own rigorous analysis? If you're here, you probably know something's off about that dynamic. Today we're not going to talk about basic technical analysis or miracle strategies. We're going to dissect why blindly following analysts, even the most reputable ones, is a dangerous trap for your capital and, above all, for your development as an independent trader. Forget pats on the back; this is about critical thinking and taking responsibility.
As always, experience rules. Buffet has been in cash for a long time waiting for exactly this. Sniper mentality and a lesson for those looking for market timing.
TIP: "Trade long-term and you will live much longer".
It is clear which 2 aspects are paramount to succeed in financial markets:
Capital:
The greater the amount of money in the account, the better the availability to correctly manage the money while limiting risk to the maximum and with controlled leverage.
The more capital you have, not only will you be able to cover a greater number of markets (and I'm not talking about diversification but about accessing those that require more money to open a position) but you will also be able to afford to fail without that capital being affected.
When your trading strategy is based on cutting losses and letting profits run, and you do not seek for your operations to close after having set a target, you will have to face various situations, not technical ones, but mental ones so that the final balance of your operation grows as much as it needs to grow. What I have clear is that by trading with targets I have never managed at any moment to achieve the profits I have achieved by letting them run. That said, it is not easy to do. Let's see why:
Much has been said about the need to isolate oneself to conquer the market. Rumors, gossip, predictions, etc. have caused a lot of harm to the accounts of many traders throughout the history of the markets. But more than isolating oneself from rumors, the successful trader goes further, isolating themselves from everything that does not relate to the markets. Why? Any topic that does not relate to the market will undoubtedly keep you away from it, both in occupation and thought, and the trader must spend most of the day thinking about their goal.
Warren Buffet currently has about 350 billion dollars in cash.
Money that he has been accumulating for quite some time waiting for a major market correction that seems to be near, and as he says: "When the markets go down, it's like going to sales"
But what I want to highlight is the following:
1°. The sell signal that he has been giving to all investors for a long time.
2°. How difficult it is, even for one of the best in the world, to follow the market timing, since even though he sensed that the market was going to drop, he did not know exactly when it would happen.
But by acting this way, without wanting to take the last dollar from the market, along with great patience (markets are not for hyperactive people) is how large amounts of capital are amassed.
People are in a hurry to get rich, and this bias works against them.
Who knows if the longevity of W. Buffet and his partner Charlie Munger (who passed away at almost 100 years old) is due to that long-term vision they have... 😀
It should be noted that when there is uncertainty, as in these times, the market tends to decline because investors retreat and do not want to expose their money.
It is when the situation is calm and there is confidence that money returns to the markets like snails to the sun after the ⛈️
Notice how in recent weeks certain events have marked market sentiment, considering that sentiment is shaped by the collective of traders and investors participating in it.
Trump, as a pro-crypto president, caused the market to rise almost vertically. Then it was not so significant and the supposed creation of a Bitcoin reserve disappointed investor expectations, leading to another decline.
The tariffs are not bode well for future economic prospects, which means we need to drop again.
And if that weren't enough, Trump announces that the US is going to go through a "small" depression. The declines deepen.
And in the background, the resentment of seeing how the Chinese (DeepSeek) dealt a lethal blow to the 7 magnificent (the 7 largest tech companies) that in recent years have been driving the North American stock market upwards.
Come on, we can be as optimistic as we want, but the great overbought situation affecting the North American stock market, due to the pernicious stock buybacks (the cause of the 1929 crash), and remember, with a high correlation to cryptocurrencies, and the enormous global debt, does not bode well.
They say that money doesn't disappear, it simply moves from one market to another in search of profitability.
But where is it and where could it be headed?
Money is clearly in the stock market, in a market at historical highs surrounded by uncertainty and to which, as always, interest rate cuts favor.
Moreover, the sharp drop in oil somewhat curbs inflation, so for now, there should be no fear of an interest rate hike in the short and medium term.
It is said and confirmed that tariffs and the abandonment of globalization do increase inflation, but in the U.S., they are seen more as a threat to achieving goals than as a true desire to maintain them.
There doesn't seem to be much problem then from this side.
Money is also in gold and, paradoxically, this is indeed rare because it usually doesn't stay so strongly in two places at once. It shouldn't be long before changes are seen, either in the stock market or in gold.
We have said where the money is, and we still need to say where it is leaving. It is clearly leaving fixed income (interest rates are falling) and oil (the market is flooded).
Therefore, and although overbought, the stock market remains a priority, gold as a safe haven asset, and cryptocurrencies (at the pace set by their correlation with the stock market) as a long-term bet (buy and hold the most capitalized cryptocurrencies) since the future demands greater adoption of them.
I could also talk about currencies, but they are very controlled by central governments and their movements are marked by changes in their policies. Strength of the Yen due to the rise in inflation in Japan. After that, not much more, in the medium term the Euro should appreciate against the Dollar.
The most concerning and potentially destabilizing factor for the markets that could generate great opportunities: The massive existing global debt. This should be the scenario that investors should be most vigilant about right now.
Waking up at whatever time you wish or when you hear the dog stretching.
Starting work today at 10, tomorrow at 11:30, the day after at 8:00, and the following day from 5:00 PM to 8:00 PM. Flexible schedule. Taking a break at any moment to stretch your muscles and take a stroll to the fridge to see what's there.Not hearing the voice of the tyrant boss or being on alert for where they might appear.Having breakfast, lunch, and dinner with your family.Going down to the school for a moment to see what the little one is doing in the yard.
What do you achieve by diversifying? Answer to the question: nothing, when you exceed 5 or 6 assets. Clarifying: it depends on what you want to achieve, but here we are talking about making money with trading. If you want to diversify, you are not a trader, you are an investor. If you want to diversify, it is better to buy shares in an equity fund that replicates the Index. The result will be the same or better, and you will save on commissions. But if you are a trader and really want to make money, once you have confirmed that you put a stop-loss on each of your trades without skipping it, then diversification makes no sense for you.
I was starting to doubt the market. Yesterday's increases were not normal for some simple statements without any confirmation.
Many people trapped at the day's highs. Many traders who took advantage of the increases to close positions at a loss.
The cryptocurrency market is no longer the same. At first, the chart was empty, but now it is increasingly filled with supports and resistances that will help temper the large volatilities of this market.
Be very careful with FOMO because while it is true that you do not lose as long as you do not sell, it may take you many months, even years, to recover your investment, or you may run out of liquidity to continue trading.
Why You Shouldn't Follow an Automatic Trading System?
I have spoken many times about the uselessness of trading based on an automatic trading system. Every time I affirm this, there is always some opposing comment. First of all, let me say that by "system" I mean the one you prepare or over-optimize through hundreds of backtests. The one that automatically tells you, thanks to certain parameters, where you should enter and exit. It is normal for this to happen; everyone has their opinion, but I will still continue to position myself against those who still believe that trading, consistent profits, or high percentages of return reduce to a mere buy-sell system.
Yesterday Trump clearly stated which cryptocurrencies you should buy (surely well advised by his crypto experts) and hold. No more!
Many traders think they won't make profits in the market if they don't work hard (clearly because they don't separate trading from a regular job). Nothing to do with it.
But markets don't work that way and sometimes they reward the patient and opportunistic more than the hardworking.
The stock market is going to collapse with crypto behind it.
Starting with the US30, the downward signal on the weekly Time Frame is textbook and it will not turn bullish again until it surpasses 45,000 points.
The Nasdaq 100 is more of the same. The index is heading towards the base of the bullish channel. If it breaks that base, it will turn very bearish.
With all this, Bitcoin has confirmed the break of the bearish double top pattern, which gives even more strength to the movement. The next support is marked by Fibonacci at $75,000.
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