Archive for June, 2010
Are You Too Motivated to Make Money?
June 7, 2010 at 1:38 pm
I know you aren’t lazy. The fact that you’re reading this tells me you care enough about your trading to hunt for clues that will make you better. You’re motivated.
Many of us think of ourselves as hard workers. Lazy gets us nowhere.
The problem is that when it comes to trading, motivation doesn’t always translate into greater profits. Incorrectly applied, motivation in trading can actually bring on some serious heartache.
The ‘O’ Word
It’s definitely true that the timeframe you trade should match your personality. Those who are patient can take longer timeframes while waiting for larger moves to develop. Those who are less patient will tend to find that the shorter timeframes suit their needs for knowing if they’re right or wrong.
But…that’s not what I’m referring to.
Regardless of your preferred timeframe, the fact is that you can still overtrade. Whether your average number of transactions per week is 100 or 3, there will still be a point at which you should be done. Perhaps the move of the day has already happened, and you’ve got a sense of that, but you keep pushing buttons in an attempt to make something happen. Maybe your P&L is flat, and you hate the idea of fighting to a draw. So, you lower your standards and take some trades in hopes of either making some money or losing some. Hey, at least you’ll have something to show for your time, right?
Or consider another scenario in which you’ve turned a quick profit, whether through an overnight position that gaps in your favor, or simply some quick trades early in the session which put you nicely positive on the day.
If it were 90 minutes to the closing bell, you’d probably shut it down, but it’s only an hour into the session and you’ve got no idea what to do with your day if you quit now. So…you stay and trade and give some or all of it back.
You hate yourself an hour or two later, wondering why you didn’t just ring the register on the early profits and call it a day. In hindsight, up a little is much better than flat or down. But your greed and your ‘motivation’ really cost you.
Sound familiar? It is to me. I’ve been there way too many times, so these are mistakes I’m all too familiar with.
The Real Meaning of Lazy
For me, it really stems from the (incorrect) notion that not trading = lazy. That’s dead wrong, but periodically I’ll operate under that mindset and later on wish I hadn’t. I’ve never been a lazy person, because there’s always something to do. I like the feeling of getting things done. And when the market’s open, I know what my job is – to trade. Or so I tell myself.
In reality, my job as a trader is to put money at risk when there’s an expected payout of greater proportion. That should translate into profits.
My job isn’t to continually churn my account, try to grab every stock on the move, or to hit a daily volume target. I need to feed the family, pay bills, and build my wealth through my trading. That’s it. Pretty simple, but easy to forget when quick gains come along or when I battle several hours and make no progress.
Oddly enough, being lazy as a trader involves sitting at your desk when you should be doing something else. It’s hard to get up and walk away when that ticker’s still on the move. The allure of ‘what if’ drives too many to stay right there in their seat for just a little longer, and it’s costly.
3 Tips to Stay On Track
There are several ways to stay on track with your trading, so let’s take a look at a few of them.
1. Remember your goal. This seems obvious, but a regular reminder of what you’re striving to achieve through your trading will be a tremendous help to you. Maybe you keep a photo of your family close by as a reminder that you can’t afford big down days, and it helps you walk away when you aren’t seeing the tape clearly. Or maybe you keep a picture of that boat you want to buy close to your screens, helping you to focus your efforts on only the cleanest chart patterns so you can reach that goal sooner.
It’s a fine line to walk between fixating on something that’s actually a distraction, versus keeping a reminder in front of yourself to maintain the proper mindset. However, if you’re keeping yourself reminded of what it is you’re after, you won’t leave yourself much room to stray from the route you’ve laid out to get there.
2. Define your job. The word ‘trader’ might suffice when you’re telling someone else your occupation, but when it comes to the daily tasks you set out to accomplish in your trading, some boundaries should be defined. With greater experience comes greater clarity, so this will be easier for those of you who have been in the game a while. Nonetheless, it’s important to outline for yourself which kinds of market conditions you’ll be active in and which conditions will warrant standing aside.
Outside the realm of market conditions, you also should have some general guidelines for your P&L on any given day, week, or month (depending on your trading timeframe). For example, as a day trader, perhaps you structure a typical max-loss amount which will mean no more trades. That might be $500 per day for some, or $5000 per day for others. But having it in place will serve as a system breaker and avoid overtrading when you’re clearly out of sync.
You can also designate a general target for gains, that when it’s reached, you’re then committed to retaining a certain amount of those gains. Suppose once you’re up $1000 on the day, you’ll commit to keeping $500 of it, no matter what. You can keep trading and add to it (if the right setups come along), but you’re going to book an up day regardless. These things will help to protect not only your capital, but your confidence as well.
3. Have something else to turn to. Simply put, if you’ve got a go-to list of things to tend to always at the ready, then you’ll have that much more reason to shut down your trading once you’ve hit your loss limit or booked nice gains on the day. Rather than falling into the trap of sitting at the PC and pushing more buttons out of boredom, you’ll always have something to move on to when the time comes. That might mean you run some errands, get organized, go for a bike ride, or grab a book. It’s not so important what it is, so much as you have another activity to turn to when you recognize you shouldn’t be trading. Have that ‘thing’ in place at all times, and you’ll avoid overtrading.
In summary, dirt-cheap commissions and sophisticated trading platforms with all kinds of bells and whistles are really great to have, but remember one thing…they only exist to help you do your job. Don’t use them as reasons to be active when you should be sidelined. Know your objective for the current conditions, for the next trade you take, and for the reason you’re trading to begin with – and be not distracted.
Trade Like a Bandit!
Jeff White
Swing Trading & Day Trading Service
www.TheStockBandit.com
Are you following me on Twitter yet?
Video Review of the Indexes 6-6-2010
June 6, 2010 at 11:33 am
For an abbreviated trading week, last week’s market action held nothing back. It was the opening and closing weakness which made the net difference, but there was plenty of action in between.
Friday’s selloff took the major averages to key support zones which will be the focal point heading into Monday’s session. If those areas are able to hold, then the bulls might gain some needed confidence. If not, all bets are off for this market which has shown a persistently negative reaction to any bounces.
As we head into a brand new week of trading, let’s examine some important levels in the indexes to keep an eye on in the days ahead. That will have the greatest influence on how individual stocks are going to move, so it’s where the trading week begins.
This clip was also posted over on the Trading Videos site (as always), and perhaps you’ve seen it there – but in case you didn’t, I wanted to put it here on the blog for you.
Let me highly suggest clicking the “HD” on the video player and then going full-screen for best quality.
Thanks for stopping by and I’ll see you here soon with more.
Until then… Trade Like a Bandit!
Jeff White
Are you following me on Twitter yet?
