Thursday, August 19, 2010

Its all part of the game

It was one-way traffic on Wall Street today with the numbers, well, coming in worse than expected to put it mildly. In fact, if I was forced to come up with one positive for the bulls today, it would be that the markets did not end lower than it did. And as happens on a day like this, you see a lot of panic on the blogosphere and twitter, with predictions of new lows and comparisons with The Great Depression being thrown up in the air. All I have to say to all this is - Relax!

OK! Let's figure it out together. The data was horrible. The market is down 150 points.  Maybe we will make new lows. Maybe the market will crash. Big deal! We still are above the lows of the week, for crying out loud! Maybe you were long going into today. It happens! As a short term trader, even if you are right only half of the time but are good at risk management, you can still make money. As a short term trader, it's important you focus on what's important and block the noise. What's important is your sticking true to your trading style and having the ability to deal with whatever the market throws at you. What the market does is not in your control. What the economy does is also not in your control, so why bother about it. Instead, focus on what you will do and what your reaction to whatever the market throws at you will be.

And it is important to plan all this before you enter a trade because that is when one is most objective. Once you enter a trade, no matter how good a trader you are, you become biased because obviously you want your trade to work out well. That's why it is important to have your stop loss placed (mental or hard - I recommend mental) before you enter a trade. Even if we have a 400 point down day, but you stick to your stop loss, and get out at a predefined point, then what's the worry? I know taking a loss is easier said than done, and I personally found it to be the hardest thing about trading when I first started, but once you master this art, trading becomes a painless exercise. I highly recommend the following book by Mark Douglas to which I give a lot of credit for where I am as a trader presently. Though a bit verbose at times, it is a must read in my opinion. I will do a full review of it when I get the time one of these days.

I thought a post like this made a lot more sense, specially for all you newbie traders out there, rather than the daily review today. We all know how today was and I doubt if I could have provided any insights about today other than what you might have already noticed yourself or read somewhere else. Just remember, trading is not about being right or wrong, it is all about making money.

Take care and good luck!


The Average Jay said...

good post

Anonymous said...

Great post, this is the best article I've read today, much better then thos double dip...another leg down stuff!!

positiontrader said...

Thanks guys! I try :)

praveen said...

Nice article..I like these kind of articles that focus on psychological factors.

positiontrader said...

Thanks Praveen. I like to do such articles once in a while when I am in the mood or the situation demands it. But requests for anything in particular are also welcome!

Anonymous said...

Thank you for the great post. How to deal with stop loss has been the biggest problem for me and I stuck with quite a few losers now. The trouble is when I had a stop loss in place, that stock would turn around just after my shares were sold and it looks like a stupid loss to take. Some say the computer seeks cheap shares to get and don't set stop loss. So here I am with several stocks more than 30% down.