You hear it over and over and over in books, forums and chat rooms. Fear and greed, fear and greed, fear and greed. Emotions are a trader's worst enemy. What should we do? We are human after all. People have emotions. We can not just throw a switch and suddenly behave as "Data" on Star Trek the Next Generation.
So what is the answer for the aspiring entrepreneur?
It all comes down to two main components:
1. Having a plan
2. Having a suitable trading style
You hear often the first point. Unpleasant little phrases like "Plan your
trade, trade your plan "are thrown around as if it was really just that simple.
But without the second part, the first part is useless. What good is a plan if
you do not know what kind of plan is suitable?
For example, you could plan your commute to work is expected to create 30
mile trip in 20 minutes, but if you walk that plan is not going to work
very good is it? The plan was simply not suitable for you in that situation.
There are any number of possible trading methods and styles, from
chart reading to fundamental analysis, cycles to Fibonacci retracements,
intraday, Dogs of the DOW, options, futures, forex, Pork Bellies, Arbitration -
it can make you feel like your head will explode! But what you trade not
out almost as much as how, or perhaps why you trade.
Why should you trade?
Are you the type who likes to play video games, loves fast action, and has no
problem is glued to a screen all day? Then maybe intra-day trading 1 and 5
minute maps of high volatility stock options is for you.
Earlier check your trades maybe every few days, or maybe once a week? Than
perhaps swing trading currency pairs is more your style.
Rather sleep easy at all times, never worry in the least about your
trades because you knew in advance that they would benefit? When my friend,
arbitrage trading is calling your name.
Each style has its advantages and disadvantages, risks and rewards, but
the important thing is that the style of the trader must match. If you jump on the market
believe 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 have your own temperament well enough to determine what you want
trade, and exactly how you will act. Your money management rules, your
tolerance for losses, ie costs, your willingness to change the trade if you
consultancy market is proven wrong - that are the real secrets of the trade
separate the novice from the veteran. With this in place, emotions can be
reduced if not eliminated.
After all, what would you most at ease? Driving through an unknown
city alone, unaccompanied, driving with a map or driving with a full color
street-level detail GPS navigation system?
I will take the GPS thank you.
So before you trade, consider the following your first, or next:
a. Do you understand what you trade and why?
b. You know what you will do given one 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 that you are on the market, and will survive your trading trade another day when you do that?
These are all part of what you need to have. In your plan I urge you to have at
if they thoroughly before risking the least amount of money in a
real trade.
Emotions - "You can not trade with 'em, and you must act without' em."
Jonathan van Clute is a full-time real estate investor, educator, speaker, and online options trader. In addition to his business activities, he is also a musician, video editor / animator, and one of the world's largest Segway Polo athletes. He can be reached via e-mail
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