Trade to Trade Well
In an episode of the TV Reality Series, “Fear Factor”, a seemingly dumb-blonde-Barbie-Doll-like babe made it to the last round for a shot at the $50′000 prize. She got there not because she qualified for it. In the first round, a hunk of a guy made a mistake and got the boot and in the second round, another girl sucked more than the babe.
So here she is in the final round and everyone is making fun of her and saying mean things about her. She seems to be miles away in her airhead when Joe, the host, asks her if she was ready for the final challenge.
The clock starts and she stays perfectly put with her eyes closed while everyone is shouting at her to get going. She takes her time, takes a breath and executes the task. Although she completes the task, her time sucked so she takes the walk of shame.
As she walks away in slow motion, you hear her thoughts;
“I will go away from this knowing that I didn’t lose because I lost. Every stage of the competition I completed was a victory to me because I didn’t lose to myself. I had a plan, I executed the plan and I didn’t give up till I completed the plan. I go away, knowing that I will be stronger and better, simply because I will never allow myself to give up, even when it’s obvious that I can’t win.”
The trader’s single most common bad habit is that they never plan. How many times have we heard of traders jumping into a stock and getting stuck in it because they didn’t know when to sell it? Some of those stories even end up in losses.
It’s a very common trait because most traders don’t plan their trades. They either don’t know how or are too proud to admit their shortcomings. And when push comes to shove, they often react too slowly while continuing to accumulate losses. If it’s tough for them to get out on a profit take, its more difficult for them to get out of a losing trade because they definitely didn’t plan on losing either.
Then we get the phenomenon that is the Growing Portfolio. This is not the same as Portfolio Growth where your investments experience growth. The Growing Portfolio is a growing list of trades that have gone out of control simply because the trader never planned on closing out the older trades and bought into new ones every time the older trades weren’t profitable.
Planning a trade is about doing a thorough research on the underlying then planning to trade it. You plan an entry and more importantly, an exit. The exit is based on a time target and/or profit target. The timing of your entry into a trade is not as crucial as the exit because the art of exiting a trade is based on looking for an excuse not to stay in the trade.
Money is the key reason traders falter when it comes time to execute an exit. Greed takes over when the trade is profitable and the trader will always be tempted to go a bridge too far. Then when the stock goes south, Fear runs wild and makes exiting even more challenging. What if we could eliminate the money factor? What if we treated those numbers as units instead of money? That means you shouldn’t be trading with money you can’t afford to lose. When you put yourself under pressure to perform, the stress can be quite overwhelming and mistakes will be made and compounded.
The only way to overcome these problems is to plan your trades and stick to the trading plan no matter what happens. When you trade to trade well instead of trade to make money, you will find your trades becoming more and more consistent and the losses will lessen considerably. By treating the numbers as units and not dollars, the element of fear and greed fades enough for us to make sound decisions without battling fear and greed.
Focus on trading well. Give it 100% and stick to the plan. Taking comfort from a well executed trading plan is more satisfying than getting an accidental win. Plus by trading well, you inevitably adopt the habit of trading consistently.
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