them to act quickly while watching the market. It's a strategy that leads
them to trade or take action in line with objectives rather than in terms
of old habits and beliefs about what is possible.
At a periodic trading review, Dirk, an experienced trader, brought
up his strategy for staying with airline stocks. "The numbers I want are
somewhere around two hundred thousand dollars a month until I get
consistent. This month, it's seventy or eighty.
"I can take a huge amount of risk," he added. "In the past, I wasn't
taking the right risks." To begin with, he had to get his ideas "all
squared away." When he stopped doing charts on the weekend, thinking
they gave him "too many ideas," he wound up losing money for
two consecutive days. This made him so defensive that he feared he had
"missed the whole market." He saw himself "going back and forth, following
my reactions," instead of having more of an opinion.
"I have to go back to trading to make money," Dirk vowed. "If I
play by these rules, I'm going to win more often. I won't make sixtytwo
hundred dollars, I'll make sixty-two thousand dollars, and it will be
less aggravating."
Commenting on Dirk's observation, Benny, another trader, said to
him, "The rules are there. All you have to do is to follow the rules. You
don't have to do anything but follow the rules and it will make your life
very easy. Obviously, you know how to pick stocks and you know how
to trade. But if you follow the rules, there's less of a burden on you.
Last month you didn't have to think that much. You were in the zone.
When you're not doing well you've got to go back to fundamentals and
consistently do things the same way."
Benny listed some specific rules: "Don't play takeover stocks; be patient—
you can come back to them. Don't take home losers. Don't average
down. Eliminate the things you do poorly. And stop rationalizing
your mistakes by pointing to how well you're doing."
He summed this up by saying, "In a nutshell, do the things you do
well consistently. Make the commitment, create your own lists, and live
by the lists. Consider what you are willing to do so you don't lose. Can
you make a list of ten things you're not going to do to save yourself
money? Make it up before you get in the game."
Benny concluded: "If you are sticking to it and you're losing, then
the list doesn't include all the things you need on it. The one thing that
has to be on the list is to be brutally honest with yourself; you have to
be honest enough not to allow yourself to screw up."
Benny's methodology helps him make choices and make sense of
the volume of data that is available at any given time. He develops skill
at his own personal method while also empowering colleagues to help
supplement and expand his ability. He can then create research, statistical
analyses of operations, and analyses of statistics so as to determine
where he needs improvement. He also has a risk-management method
for assessing the negative characteristics of the trade in both the in and
out positions. When put together, this amounts to a set of guidelines
for evaluating positions, measuring the effectiveness of trades, and improving
subsequent trades.
Four Pertinent Questions to Ask Tourself
before Going into a Trade
1. What amount of capital am I willing to risk in a trade?
2. What will be my exit point?
3. If I lose a predetermined amount of capital, do I retreat and
take a breather?
4. When I am losing overall, do I cut down on trading size of
only the losing positions and enlarge the winners?
The master traders' strategy takes their competition into consideration
but leaves plenty of room to execute their own vision. They have a
positive mental image of the actions needed to make money. They may
get much input from others, but ultimately they choose their own goals
and targets and remain independent, trading and developing their own
ideas rather than simply following the choices of others.
To be a super-trader, you'll need an edge to overcome the laws of
probability and the uncertainty of the marketplace. That edge comes
from information flow, the ability to correct your habits in terms of the
market's characteristics, and being able to take risks, cut losses, expand
your information network, ferret out ideas, and take recommendations.
To do this, you will need to develop a trading strategy that is suited
to your personality and temperament. If you are naturally cautious,
build elements of this personality characteristic into your strategy. If you
don't like the decision-making aspect of trading, then find more mechanical
or mathematical models. The point is to know yourself well
enough to develop a strategy that fits your temperament so that you can
push the envelope of success.
Truth, Confidence, and Creativity
In trading, telling the truth is what separates the big people from the
little ones. Are you willing to face the truth about your trading? Or are
you inclined to withhold the truth from yourself?
One of the most critical characteristics of a successful trader is an
ability to take responsibility for results. A pro who blames others and
the market, or the seasons, for outcomes cannot get to die next level.
That's why you will need to admit vulnerability and identify problems
in order to deal with them and reduce uncertainty. The only acceptable
uncertainly in trading is the uncertainty found in the gap between what
is present and what is possible, not in the realm of hope and wishes.
While super-traders own up to mistakes and do not rationalize failures
as being at the mercy of market forces, they are also willing to surrender
to the market, recognizing that they have no control over it.
This does not mean that they trade willy-nilly. They do not fight the
"elephants" and get crushed. They go with the trend of the big players,
follow the momentum of stock movements, and don't short a stock at
the bottom when it is certain to go up.
The positive value of committing to the truth is that it will not only
optimize your trading results but transform your capacity to be more
fully present to your trading experience. Facing the truth about the
market and yourself will allow you to remain an independent thinker,
not dependent on how other people are trading. Follow the trend of
the market, influenced by huge mutual funds—the elephants—which
create momentum by the size of their orders. You can thus make your
own assessments and stock choices with confidence and go into the
trading day with the expectation of winning more often than not.
Your belief in yourself will grow by testing your own hypotheses,
facing the truth, improving your performance, and developing confidence
that you can avoid losing money, develop methods for getting
new ideas, and, finally, learn how to let the winners run. This set of
skills will give you the confidence to trade successfully. Without them, it
is easy to trade and not succeed.
Read More : Strategy—The Hallmark of the Super-Trader
