Saturday, June 21, 2014

Be prepared to accept what the market will give

Some people go into trading and set themselves a specific monetary or material target for each day, week, month, or year. This may be possible for an experienced intra-day or short-term trader, but not for a trend follower.

Trying to trade and make a set amount within a certain timeframe can be a recipe for disaster. As much as anything, the prevailing market conditions play a big factor in whether you can make a profit at all.

In the case of a day trader, they generally need intra-day volatility to make money - therefore whenever this is low they tend to struggle. Similarly, a trend follower who potentially can hold winning trades for weeks or even months, needs to get into positions where trends develop to make money. It is far easier to achieve these type of profits in a low volatility, trending market environment rather than a volatile, non-trending one.

Even when those favourable market conditions are with us, it is dangerous to try and achieve a set monetary goal or percentage return. You can only take what the market is prepared to give. Trying to 'force' the market to give you a specific result can lead to overly aggressive trading, or the taking of sub-optimal setups, possibly with a reduced regard for risk.

For a good example of this, refer to Mark Weinstein's interview in Market Wizards. In it, he talks about a soybean trade he put on with a view to profiting sufficiently to purchase a French chateau:

"The biggest mistake I made was having a specific target of what I wanted out of the trade." 

"I didn't consider the risk and took on too large a position."

"I was being guided by my material desires."

So, if this can affect a Market Wizard, then it could affect anyone.

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