|
PureBytes Links
Trading Reference Links
|
A few thoughts on this. First, I agree that knowing when to exit is more
difficult than knowing when to get in. The reason for this is that we can
be much more selective with regard to our entry criteria, as we can sit back
and wait for what we are looking for to happen. Not so with exits - as we
are now locked into a particular play, and must make our decisions based
upon the performance of this single instrument. There is much more room for
second guessing ourselves as well on the exit, since the decision is an
ongoing one in a sense, whereas the entry would probably just consist of a
yes/no decision.
However, oddly enough, it is often the entry decision that poses the most
trouble for traders, or at least its share of it. Pulling the trigger
places one at risk, whereas one's capital leaves the safe confines of cash
and becomes placed in danger. While in the trade, it is in danger already,
so to speak, so the transition involved in pulling the trigger is a less
dramatic one. Of course, one's psyche can cause one to err on this side of
the trade as well - either through greed or by refusing to accept a losing
position.
We may think that this is a matter of building confidence in techniques that
have shown themselves to be sound, but this isn't the whole story.
Confidence must be placed in context of the amount of pressure that a trader
is under generally. For instance, the extreme of this would be the trader
who has a very small account, and although he knows that his system should
be sufficient to allow for its growth while keeping drawdown acceptable,
each trade is going to be more meaningful, and thus more pressure-filled,
than the trader with a much larger account, who needn't worry at all about
its short-term performance. Whatever psychological obstacles the smaller
trader may have will be brought out in full force under these conditions,
and he or she will have to work harder on this. The good thing about
having to trade in such an environment is that, if you survive, you will be
much better off for it, and will have been *forced* to overcome these petty
but powerful obstacles to proper technique, which ought to pay dividends as
time goes on.
Generally, assuming our trader has adequate skill and confidence, the more
of this type of pressure one is under (measured by how meaningful the
results are or are perceived to be), the more mechanical one's approach
ought to be. No matter what the circumstances, it is the ideal that one not
focus on results at all while either considering or in a trade - all this
does is corrupt the process at best. Having a clearly defined plan and
ruthlessly sticking with it will develop the discipline necessary to be
successful. As one becomes more comfortable with one's situation, a more
discretionary approach may be used, as long as these decisions can be made
with a clear mind, focusing on the pattern of the decision over time, and
not being anxious at all about this particular instance.
By learning to focus on technique in the context of results over time, we
develop a habit of looking at particular moves in terms of their odds in
succeeding, rather than being anxious about the results of the trade at
hand, which can only cloud one's judgment, and often does so dramatically.
By being more decisive, we ensure that we take advantage of opportunities in
a timely manner, and capitalize on our sound preparation and planning rather
than abandoning it by giving in to anxiety and doubt. There is plenty of
time to re-examine technique during off-hours, when one has both the time
and the proper mind-set to do so.
In conclusion. in my view it is critical to first develop a sound plan while
attempting to refine it when necessary - but even more importantly, to act
upon it in a decisive and timely manner, only deviating from it when it is
clear that another approach would be better in the long run. Even the best
trading strategies are worthless if not acted upon correctly.
Regards,
A.J.
|