Description
This article is from the A Guide to
Closed-End Funds (CEFs).
Trading Closed-End Funds: Traits of a Good Trader
Now that we have set some basic guidelines, here are some traits
that separate good traders from bad.
- Discipline:
A very important factor in trading successfully is the
discipline needed to adhere to a set trading strategy. The urge to
sell on bad news and when the market is sinking, and to buy on good
news and when the market is soaring is almost uncontrollable. Many
investors stay glued to the wires and sway with every piece of news.
The point of the whole strategy here is to filter out the news: face
it objectively, by the time the news reaches you everyone that matters
has already made their moves and the market has factored in the
news. The whole beauty of the above strategy with closed-end funds is
that the discount/premium automatically tell you when to buy and when
to sell---ignore the news. If the news is bad or the market fears the
worst, the discount will deepen sharply: thats the time to buy---in
fact, the system forces you to suppress your emotions and plunge in
disregarding the news. If the news is good or the market is soaring
too optimistically, the discount will shrink and the CEF will become
overvalued: that's the time to sell---again the system automatically
forces you to suppress your emotions and take profits.
- Patience:
Ok, the CEF was a steal, and you plunged in. Two weeks pass by,
and it looks the same, nothing has changed. Here is where patience
plays a key role: if the valuation has not changed significantly then
stay put. The reason that you bought the CEF in the first place was
that everyone hated it. They are not going to turn around
overnight. It might take a few weeks, but when the market moves,
investors will quickly remember how well the CEF did in previous
markets (and here's why the older funds are important), and jump back
in.
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CEFs, closed-end fund, premium, discount, volatility, trading, investing, leverage, yields, buying, selling, shares, money, funds, mutual funds, adventages, disadvantages, liquidity, commissions, brokers, source, information, reference
