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I thought the good doctor's post was an excellent one. Very succinct!
And in it he makes a couple of very good points.
The first being that an experienced trader is above all, very
selective in their trades. They don't take every one that comes along,
but only those which have the kind of risk/reward characteristics that
really put the odds in their favor.
Secondly, he emphasizes the importance of considering what kind of
NEGATIVE developments might occur to ones position. But, those
considerations should be made in terms being prepared rather than
being scared. It is a conscious effort to stay aware (but not afraid)
of what MIGHT happen, and your course of action should it occur.
I think the more inexperienced trader does their analysis, takes a
position based on the perceived risk/reward characteristics based on
that analysis, and then cross their fingers in hopes that their
analysis was a correct one. This simplistic sequence typically leads
to the trader filtering out the bulk of market information that does
not support their position in favor of coloring every new piece of
information in terms which support the position.
The more experienced trader realizes that their analysis just MIGHT
have huge faults to it, that in an endeavor like trading, where
certitude just doesn't exist and a 50-60% success rate is doing very
good, one must have contingency plans. What kind of market
developments might unfold and what will you do about it? What kind of
behavior does the market need to exhibit to prove your original
analysis wrong and what will you do about it? What does the market
need to do to convince you to reverse your position? All these
questions should be answered even before the trade is initiated.
To sum it up in a single sentence;
Successful traders are VERY selective and VERY prepared.
Bob Hunt
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BrentinUtahsDixie wrote:
>
> RT's,
>
> A recent post by our fellow member Dr. OEX was interesting to me.
> Especially the last part. I wrote to the Doc and I'm awaiting his reply if
> any until then I would like to ask you for your opinions on what this is
> about and how this applies to world class traders being able to trade more
> successfully then lessor traders. If follows:
>
> Brent
>
> I'm of the opinion that there is actually a TRADING SECRET used by the best
> traders in the world. I think they all share a common....uncanny ability.
> They
> don't feel secure about there ability to complete winning trades. They
> don't
> really know how to make money. Their ability is their superb ability to
> NOT
> LOSE money. I firmly believe their ability is analyzing the risk reward of
> any
> trade. They don't know how to get rich..THEY DO KNOW HOW NOT TO GET POOR.
> A
> huge difference.
>
> Peter Lynch has it.
> George Soros has it.
> Warren Buffet has it.
> I could go on
>
> I am yet to meet a world class trader who was really ever made a trade that
> they couldn't justify as an excellent risk reward.
>
> The mistake commonly made by "less than world class" traders is they
> measure
> risk with a naive view of possible loss based on a stop. It astounds me
> how
> many traders repeatedly enter into trades with a risk/reward based on a
> stop as
> opposed to some "series of expected outcomes."
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