Emotional Trading

The following video was passed on by a friend and mentor, Gino Poore.  This video, while funny, is, for some, very real.  Rather than blab a lot about emotional trading, let me just say that instead of trying to read a "crystal ball" we need to read the market.  We need to trade what we see, not what we feel.  It doesn't matter what we think of the politics of the day, or the fact that we may "love that stock," what matters is having a toolkit full of strategies that can be executed depending on the conditions of the market at that time.

Enjoy the market and have fun.

Medicine, Faith and the Greeks

Sometimes you just need Dramamine.  The world has its hot spots and the market goes through its peaks and valleys.  We ride the roller coaster and we take our motion sickness medicine.  It’s a time of upheaval and uncertainty.  We hear over and over that the sky is falling, but I continue to be the eternal optimist.  How can we be optimistic in world conditions that bring fear to so many?  Well, first I have faith.  I don’t want to sound like a arrogant practitioner of religion, but I believe that above everything else, there is a plan, an eternal plan, that if followed, brings peace.  I’m not ashamed of my faith or of my optimism.  That optimism is not rooted in naivety, but has solid footing. Frankly, I don’t think the world is going to become more peaceful, but does that sway me from living?  No!  Too many people tend to duck and run for cover the minute even a small sign of trouble looms on the horizon.  I love life too much to always stand under cover.  There will always be those that want to hide under a rock, but I am not going to live in fear.  Fear brings negativity and frankly the principle of self-fulfilling prophecy comes into play.  If we believe bad things will happen - they will.


What we need now, more than ever is resolve.  We need to continue to financially shore up what we have and, in the vernacular of today, we just need to “Man Up.”  Instead of expecting a hand out, we can collectively and individually give a hand up to ourselves and those around us.  It comes from work and from implementing solid trading principles.  It comes from continual education and having the foresight, vision and frankly “guts,” to step out of the proverbial box.  


As an Options trader and instructor I often hear that “Options are too risky.”  While Options have risk, it surprises many that Options, if managed correctly, are usually more safe than owning stock.  One of the flaws in trading today is believing in the old, antiquated and outdated philosophy that we should buy stock and hold it for 20-30 years and then sell it and retire wealthy.  If 2008 wasn’t a wake up call to re-tool that kind of strategy, then the current instability and rising volatility should be.


There has never been a greater need to have a trading plan.  That plan has to adapt to changes in the market.  As traders we MUST learn to react to current market conditions and apply solid strategies instead of hoping that the market will change because of our superior mind power.


Over the next few posts I want to talk about using the Greeks as part of a Master Trading Plan.  Learning about the Greeks is an essential part of the trader’s toolkit.  Some view the Greeks as forbidden territory, however they are absolutely necessary in having a solid plan.  The basic Greeks are Delta, Theta, Vega, Gamma and Rho.  There are other Greeks, but for now we are going to concentrate on the fundamental Greeks that can have a huge impact in the way we trade.


We hear from some, “Those were the days.”  For them, their life is in the past.  I think “These are the days!”  We have much to be thankful for and many opportunities to embrace.  Now is our time!  We will take the market and ride it.  Hang on - it’s going to be a lot of fun!

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.