Saturday, September 20, 2014

Some food for thought for you

Here's a couple of things I want you to ponder over:
  • There are thousands of different ways to make money from the markets. However there are only a couple of ways in which you can blow up your trading account;
  • Trading is not so much you against the markets. It's more you against yourself.
Think about this a bit more - go on the internet or on social media and there are tons of different methods and interpretations about how you go about making profits. If a method has a positive expectancy, you can make money trading it. While they basically into a few broad categories, there are almost an infinite number of ways in which you can tailor them to your own requirements, timeframes, and your personality.

That in itself should tell you that entries and exits are the least important component of your overall trading plan. Read books like Market Wizards - all those successful traders have different methods, unique to them. They can make money trading the same instruments in totally opposing styles, and they can both make money.

So what about the few ways you can blow up? These can be summarised as follows:
  • Poor risk control and position sizing;
  • Poor emotional control.
That's it. Issues like overtrading, self sabotage, being influenced by the opinions or predictions of others etc, all fall in one of those two basic categories. Major price shock? That should be considered and and factored in your risk management.

Think about the big blow ups - Nick Leeson and Barings Bank. Long Term Capital Management. Amaranth. Julian Robertson's Tiger Fund. These aren't Joe Public like me and you. These are the big boys, who 'supposedly' have systems in place to stop this sort of thing happening. And if it can happen to them, it can happen to you.

The point is these issues are totally preventable, and are totally within YOUR control. Who decides how much to risk on each trade? Who decides to listen to others? Who decides to override an exit signal?

These issues have nothing to do with the markets or what they do. Nothing to do with what the talking heads on CNBC or Bloomberg say. Nothing to do with Cramer. Nothing to do with your broker. But they are all to do with YOU.

Think about it.

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