Weekend Food For Thought – Feb 11, 2012

This week’s thought comes from my reply to someone who asked me something about the market in a way that most people would ask – as if Traders knew the future …

Conrad,

where do you see the economy heading? …

what do you think the market is going to do? …

is XXX a good buy now? …

will the property market collapse? ...”

Many people have this perception that I am some Visionary, Guru or Master … I am not. I am just a trader, some say a really good trader. That is all I am. In their wrong perception of who I am and what I do, they get the notion that I am able to tell what the market is going to do or which stock is going to make the next move.

I don’t. Like everyone else, I can’t see the future.

I can’t know if the market has priced in the worse because I don’t know what the worse will be or was supposed to be. In our business, there is so much noise, manipulation, crime, lies and underhanded dealings that one can never know if something is going to bubble over or pop in our faces tomorrow.

All I do is analyze and form an opinion. It is all analyses based on numbers, statistics, patterns and a good sense of market behavior so that I can form an opinion and bet on that opinion.  If it pans out, I make money. If it doesn’t, I cut my losses quickly. That is what I do for a living – calculate risk. I’ll bet on a small risk and avoid the bigger risks. Its common sense.

But how I remove risk is a complex and long drawn process. People think I make easy money but most don’t know how hard I have to work for my money. My students all know this because this is what I teach them.

We just take our positions and prepare for the worse if it should happen. We protect ourselves in many ways like hedging, stops, position sizing, budgeting and financial management.

More than 70% of the time, those bets are profitable. But when they are not, I cut the losers out very quickly without question, hesitation or reservation … now that takes practice and training … lots of practice and training so that discipline is instilled and execution can be meted without emotion.

In some cases, I don’t cut out the loser but instead, hedge against it. Now that takes experience. Experience takes time … a long time with lots of practice and training etc, etc, etc … and you cannot rush the training or the practice because you cannot rush time therefore you cannot rush experience.

Trading is a SKILL. It requires Knowledge, Application, Mentoring and Effort.  Learn. Train. Practice. Work Hard. There is no other way.

If there was an easier way to make money, I would love to be the first to know about it so that I won’t have to work so hard. If there was a get-rich-quick way to get rich quicker than what I am doing now, I truly would love to know how.

I hope this sheds some light. Trading is not what a lot of people think it is. Serious trading as what I do as a profession is more taxing than anything I have ever done in my life (and it has been a tough life) and requires a lot more discipline and control than most would care to imagine.

Have a Great Weekend everybody!

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Comments

Spot on :) a lot of hard work and humility needed. Humility especially, lots of it.

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