Friday, March 26, 2010

The Crystal Ball

As an instructor, I get asked all the time about my favorite strategies in the market.  Someone will say, "Do you have a favorite strategy?" and I will reply "yes" and I won't say anything else.  This is a less than exciting answer, I know, but it is given because it doesn't matter what strategies I like, or use, what matters is that the individual trader finds a strategy that they like and then really learn that strategy inside and out.

Emotional trading is dangerous at best and can set a pattern of failure within the market.  One student once said, "I have my favorites listed on a chart hanging on the wall - when I want to find a stock to trade, I throw a dart."  This kind of trading would make a freight train take a dirt road.  You might as well sign up for "Psychic Quarterly" or just ask your neighbor for the good "hot stock tip."  It would be just as effective.  There is no Holy Grail or Crystal Ball.

Take the emotion out of the trade.  Develop a Master Strategy Playbook and live by your rules and guidelines.  Yes, you will have to tweak them once in a while and when you do, tweak them carefully and with small increments not a gigantic swath.

Virtual trading is excellent as you try new strategies in the market.  However, don't let this become your trading instead of the real thing.  Virtual traders don't make a dime but it is a great learning experience.  So if your goal is to make monthly cash flow, then virtual trade for a set time and then get into the real market.  No great swimmer just sat at the side of the pool and did the backstroke for 10 hours a day and then won a gold medal.  

Last but not least - keep positive.  Even with all the craziness in the market and the government and our social climate, I believe that things will get better.   I believe the words of Ronald Reagan as he said, "I know in my heart that man is good, that what is right will always eventually triumph and there is purpose and worth to each and every life."

If you get thrown from the horse - you get back on.  If you miss a step in trading, then re-frame and re-boot and get back to basics and try again.  As traders we must never give up.