ONE GOOD TRADE:
I think as traders we all get excited when we are doing well. And I think it is easy for profits to cloud your ability to judge your true risk when entering new positions. What do I mean? Well for example with my own trading, the last 5 months or so have been very profitable for me (up 35% ytd in my portfolio, annualized it is a 84% return). I think sometimes as traders we get so caught up on the bottom line or performance number that we forget the basics until the market humbles us again (FCX was a great example of such a trade for me this month). We start to feel invincible as we make more money and our performance number increases that we start to make less attractive risk vs reward trades. I think that the biggest misconception that traders have is that they feel that they always have to be in a position or else they will miss out on profits, when the opposite is true. As traders we need to be able to sit on our hands when we don't really see any good trades for us. This doesn't mean however that all of the trades that we are convinced will make money will but in this game of probabilities if we only choose to trade really good setups (different for every trader) in the end we will be profitable.
I alluded earlier about forgetting what the basic goal in trading should be and that is "One Good Trade". Every time you make a good trade, you should make one good trade, followed by one good trade... It is all to easy to get overly excited and just start putting on positions to put on positions. I think we have all experienced what I have just discussed. It is something to think about.
With that said, I have taken a step back to get my bearings again to focus on the one good trade.
I've experienced this over the years as well with the stock market and gambling in general. Years ago I used to bet on football games before I became the house. You have a good weekend, or two weekends, then you start to think you can pick every game. The bottom line is you end up taking on more risk simply by being in more plays than usual.
ReplyDeleteFor me I find the occasional humbling experience good. Not that I want to lose money, but I do need to be reminded to stay on track. Ideally you would like to be in control at all times and never be humbled, but that's probably not reality for me.
Entitlement is so deeply embedded into everyone's psyche. Beware of it's corrosive effects. When we don't get our way we get upset and that's when you have to check yourself. Life and making money was never supposed to be easy. The government has made a mess of society's idea of risk/reward or work/play capitalistic model with almost a decade of easy cheap of money. If people don't have a strong sense of connection to their money they freely spend like money just grows out of their real estate trees which they believe will double in size every year.
ReplyDeletehttp://en.wikipedia.org/wiki/Entitlement
I think there's a lesson in discipline whenever you lose because you break your own rules, don't have rules or you don't have the right rules. I think it's okay to lose as long as you are able to stay in the game and learn something of value. The cost of doing business...