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Author: Jonathan Van Clute Article source: http://freezinesite.com/. Used with author's permission.
You hear it over and over and over in books, forums, and chatrooms. Fear and greed, fear and greed, fear and greed. Emotions are a trader's worst enemy. What are we supposed to do about it? We are human after all. Human beings have emotions. We can't just throw a switch and suddenly behave like "Data" on Star Trek the Next Generation.
So what's the answer for the aspiring trader?
It all boils down to 2 main components:
1. Having a plan
2. Having an appropriate trading style
You hear the first point often. Obnoxious little phrases like "Plan your
trade, Trade your plan" are thrown around like it was really just that simple.
But without the second part, the first part is useless. What good is a plan if
you don't know what type of plan is appropriate?
For example, you could plan your commute to work expecting to make the 30
mile trip in 20 minutes, but if you're on foot that plan isn't going to work
very well is it? The plan was simply not appropriate for you in that situation.
There are an unlimited number of possible trading methods and styles, from
chart reading to fundamental analysis, cycles to Fibonacci retracements,
intra-day, Dogs of the DOW, Options, Futures, FOREX, Pork Bellies, Arbitrage -
it can make you feel like your head will explode! But what you trade does not
matter nearly as much as how, or perhaps why you trade.
Why do you trade?
Are you the sort who likes to play video games, loves fast action, and has no
problem being glued to a screen all day? Then maybe intra-day trading 1 and 5
minute charts of high volatility equity options is for you.
Rather check your trades maybe every few days, or maybe once a week? Then
perhaps swing trading currency pairs is more your style.
Prefer sleeping easy at all times, never worrying in the least about your
trades because you knew up front that they would profit? Then my friend,
arbitrage trading is calling your name.
Every style has its advantages and disadvantages, its risks and rewards, but
most important is that the style must match the trader. If you jump into trading
believing that just because someone else can do it this way, then so can you -
you may be in for a very painful surprise.
Never trade someone else's plan. Never trade someone else's style. You
absolutely must know your own temperament well enough to determine what you will
trade, and exactly how you will trade it. Your money management rules, your
tolerance for losses, i.e. costs, , your willingness to change the trade if your
market opinion is proven wrong - these are the true secrets to trading that
separate the novice from the veteran. With these in place, emotions can be
reduced if not eliminated.
After all, which would put you most at ease? Driving through an unfamiliar
city alone with no guidance, driving with a map, or driving with a full color
street-level-detail GPS navigation system?
I'll take the GPS, thank you.
So before you place your first, or next, trade, consider the following:
a. Do you understand what you are trading and why?
b. Do you know what you will do given any of the possible outcomes?
c. Are you ready and willing to admit you were wrong about the trade, and if so what will you do about it and when?
d. Are you comfortable with the thought of losing the money you are putting into the trade, and will your trading account survive to trade another day if you do?
These are all part of what you need to have in your plan. I urge you to have
considered them thoroughly before risking the slightest amount of money in a
real trade.
Emotions - "You can't trade with 'em, and you must trade without 'em." Jonathan van Clute is a
full time investor, educator, speaker, and online options and sports arbitrage
trader. In addition to his business activities, he is also a musician, video
editor/animator, and one of the world's greatest Segway Polo athletes. He
can be reached via email at jonathan@PMLinvestments.com and on the web at http://www.PMLinvestments.com, and is speaking at an upcoming teleseminar, visit http://www.snurl.com/emote1 for details.
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