|
PureBytes Links
Trading Reference Links
|
At 11:16 AM 7/2/97 -0700, Rick J. Ratchford wrote:
>So then, what kind of trader are you? Are you flexible as the branch
>that bends with the wind, or are you rigid like the branch that tries to
>fight the power of the wind and ends up breaking in half?
Instead of ad lib flexibility, I'd suggest more preparation.
The difference is deciding what to do if....., before the choice
is thrust upon you. Don't improvise. Have a script. It's hard
to think clearly when the money is down.
The way to discipline, like all homework, is a drag. But it does
work. It is often advised to know your stop before putting on the
trade. Even this step can be hard when you're all excited about
the profit potential. The advice urges you to imagine your
prediction is dead wrong, and it's sound.
But you go a step beyond when you rehearse all possibilities.
It's a long list of things the market may do, but it's finite.
Make a checklist of every thing the market can do to you, and
answer how you will respond. Before placing your order.
Because everything possible will happen to your trades.
For example, you think this is at least a short-term low, to be
followed by at least 10 points up within 2 days, maybe more.
The things to know are not about the market, but about yourself.
What will (will, not "should") you do for example if:
You buy and it immediately sinks 2 points? 4? 6? 10?
It sits there near the low for two days.
It rises as expected today. Tomorrow it falls right back to slightly
under yesterday's low.
It goes up nicely for the day, closing at the high, looking good.
Next morning there is no follow-thru in the first 10 minutes.
It rises off the low for the day, but not by much.
It goes up even better than you hoped in the first day.
News that affects it is released.
..... The list could go on. There is always something worrisome about
the current trade, always signs of possible trouble, and always hope
that it may work out. The point is, these things will happen, and if
you don't expect them and know how you will respond, you can be
mesmerized with indecision, like a deer caught in the headlights
of a car.
You can cheat on the homework by deciding to sell if up 10 or
down 5, whichever comes first. That's enormously better than
nothing, but usually an oversimplification. It often depends
how and when it reaches those points (If it opens up 10 right
off the bat, you may logically expect more. Down 5 might be
OK initially as it's making a bottom, but not OK 5 days later).
If you don't know what you will do before you enter the trade,
it will be even more confusing once you're in it. The door
is open to self-defeat.
A novice trader might not even know where he will take a profit.
He sees evidence that he should make 10 points, with a chance for
20 or more if it's real good. He just knows it looks real good,
and indeed it is. So how does he lose?
If it dips 5 points, he can't sell because he'll feel awful if it
snaps right back.
If it rises 10, he can't sell because he'll feel awful if it keeps
going up.
If it rises 20, it proves it's hot and the sky's the limit.
The typical result is selling only when the pain is too great to
accept any more: either an outright loss, or a major retracement
of paper profit down to near zero. If you're afraid to feel awful,
you will only sell under two conditions: you get hurt, or, you
make an unexpectedly large profit so fast that you can't
believe it could possibly go higher. Most trades end the
first way, and the rest go higher:)
Wayne Moody
wlm95@xxxxxxxxxx
|