17 Feb The Two Most Dangerous Words in Trading: “Diamond Hands”
The Two Most Dangerous Words in Trading: “Diamond Hands”
Feb. 17, 2021
It looks like retail trading is here to stay.
Which is a good thing.
That could end very badly.
There are some buzzwords going around this new retail world.
These words are designed to:
- Sound cool. (What’s the point of being online if you can’t use cool jargon?)
- Provide advice on how to make money.
The words? “Diamond hands.”
And it might be the worst advice any trader has ever heard.
What does it mean?
It means that a trader should hold on strongly to his/her position. When the going gets tough, don’t sell. No matter what.
Be tough like a diamond.
Should we then have “diamond bones” and hold our position as a bus barrels right at us?
Should we have “diamond skin” when surrounded by flames after setting our house on fire?
Seems like dangerous advice.
Yet, on a recent podcast, a nice guy who never plays the market says he took a position in GME at $350.
And why did he take it? Stock message boards.
What was their advice?
Have “diamond hands.”
Hold it. Don’t be a &%$#. You gotta hold on if you want to make money and stick it to the billionaires!
One, we already know that the Fatcats have made hundreds of millions trading GME. Holding on now does not stick anything to the billionaires.
Two, hold GME stock with an entry of $350??
As of this writing, GME is in the $50s. Let’s do some math.
A $10,000 FOMO “investment” in GME at $350 would now be worth…
The reward for holding strong? Losing almost all of his money.
The poor trader could have just used a simple breakout trading system instead.
A basic breakout system would have gotten him in around $10 in 2020. He’d be sitting on a 5x win at worst.
But if he caught FOMO later than that, he might have tried a breakout over $150. Silly, but it happens.
However, if he used a trading system instead of diamond hands, he would have been stopped out with a small loss. It’s even possible may have even made a little money or stopped out at break-even despite entering at a lofty price.
The big point is this: Dangerous internet advice can help us lose everything.
Trying to tough out 85% drawdowns on risky stocks (or any instrument, for that matter) doesn’t make anyone rich.
Huge funds have made millions NOT having “diamond hands”.
Having rules for buying-and-selling can capture the big gains innocent buy-and-holders are searching for without ever having to watch a trade go from $350 to $50.
If we want our financial lives to change, if we want a happy ending, don’t have diamond hands.
Have a trading system.
Talk to you soon.
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