Whistling Past the Graveyard of Greed.
I spent some time answering an E-mail from someone this weekend, who admitted: "I do not have the skills or courage to day trade." Thought I would share it:
“Dear Mr. Temple ... Unfortunately I do not
have the skills or courage to day trade,
and am asking for your advice, and help.” -- Nick
Hello Nick:
First off, my name is not Mr. Temple (an understandable mistake which many folks make). Temple is my first name. Williams is my last name. Please use the first one :o)
Trading is the toughest business I have ever been in, and I have had (by my count at the age of 58) 3 successful careers (as a journalist/editor, as a marketing/multimedia consultant, and as a trader) and one failed career (as a mortgage broker/real estate broker).
Most people who try trading fulltime have visions of wealth without effort, and they quickly learn it does not work that way. But you know all this.
Discipline, obviously, is the key ingredient. And if you have, as you amusingly suggest, “perfected the art of cutting my winning positions short and letting my losses run” ... then your discipline is obviously overwhelmed by fear (on tight entries) and by hope (when trades go against you).
The reason I always use stops ... always ... is because they automatically eliminate running losses. If you have running losses, you are not using stops. Or you are re-entering losing trades too quickly.
The use of stops ... and a specific timeout period on re-entries ... are easy, mechanical ways to eliminate, totally and forever, the problem of running losses. But you must have the discipline to use stops and timeouts. Always. Without exception. You must destroy the fatal, egotistical will of “winging it.”
Stopless trading is nothing but ego, unleashed, naked, wearing a flashing, neon bullseye on the trading battlefield.
Avoid the rules of discipline once, just once, and you WILL be destroyed.
This business is built on trader weaknesses, not strengths. Weaknesses are this bloodsport's bottom line. Without an abundance of losers, there cannot be the paucity of winners. You must decide, once and for all, if you will pay the disciplined price of being one of the few.
Cutting winners short, and it's first cousin, Being Afraid To Pull The Trigger ... these are huge problems for every trader. They have nothing to do with discipline. They are emotions which discipline actually works AGAINST. Because a thin line separates discipline from ... running and hiding. This is a problem every commander has in war. It is the reason they invented body bags.
As you know, because you have watched me trade, I have learned to use my fear as a means of capturing dollars. It is not, however, blind fear. It is calculated fear. It is balanced against greed, weighed against it by the minute, even by the second.
Fear and greed battle in the open spaces of our minds, right in front of us, and if the greed warriors look like they are winning, even by the smallest amount, you MUST close the trade.
Of course, we often whistle in the darkness as we walk past the graveyard of fear. We pay no attention to the battle. They call it “blind fear” for a reason. But even in that darkness, there are flares sent up by the enemy.
When phrases like “geez, this could be a great trade” or “man, I am making a bundle here” enter the battlefield of your mind, then you know the greed warriors have pushed too far into fear territory ... close the trade.
Clearly, there is an intensely personal battle we go through on every trade. Sometimes we just have to walk away from it, if the trade is sound (with a trend, showing a profit, already “safe” with a lowered stop, perhaps even a slight profitable). Go for a swim, or admire the opposite sex, take in a movie, play tennis, golf, ski, whatever ... and then return ... often to a stopped out trade ... sometimes ... every now and then ... to a huge win. Good stuff happens.
I am still constantly working on this aspect of trading. Because I do leave too much of THEIR money on the table. I always have. Better than the alternative of leaving my own money on the table, for sure ... but it is an area where much improvement is possible for me.
It is the Fear Of Pulling The Trigger which remains the biggest problem we face as traders. This is a tough one. Its very source is lack of courage, lack of bravery ... both of which are very dangerous emotions in a business which rewards bravery and courage with ... body bags.
So how the heck do you pull the trigger with confidence, if at all? There are some tricks. And that's all they are. Tricks.
Of course, stops help. Because limited losses always give a little courage to a trade. It also helps to love your losses (a trick), because you tell yourself they are small, and the gateway to gains.
The best “trick” has been written about by many traders for decades now ... that is to enter the trade with 100% confidence, and then distrust it as soon as the floor accepts the trade. This is not always easy to do, because it requires a rather extraordinary leap of faith by a trading atheist.
But, perhaps the best trick of all, is calculated indifference (the key to most bravery and courage). How the heck can one find that?
The simplest answer remains the obvious one: bet well below your capabilities. Make the wager a small one. Instead of buying a large S&P Futures contract (a Spoo), buy an E-mini. Buy 100 shares instead of 1000 ... or an odd-lot 10 instead of 100.
You will notice that this is what I am currently doing with my own Position Trades. One crummy little E-mini contract. I have no problem positioning these trades with 10-handle stops ... something that would drive me nuts on a Spoos contract because I really HATE large drawdowns. But 10-handles on an E-mini ... heck, that's just 2 Spoos handles. That's a scalp. I lose those things all the time. Meaningless. Chicken feed. Beer money.
Of course, this is just a “trick” ... self-persuasion that, because I have bet well BELOW my limits, I can afford to have the courage of taking a “position”. So far, it has worked well. The day will come when I move the E-mini “position” trial into Spoos territory ... once I believe in the approach, once it has proven itself with real money (albeit small).
But the point is ... I have made the trade easy to enter with calculated indifference. By reducing my risk to a meaningless amount. The greed demons are dead. Hope does not matter. It is play money. Let the games begin.
Nick, I hope some of this helps you. If you have a chance, and you have more questions, please send them to me. I enjoy the discourse. It helps me as a trader.
Best regards,
Temple … Dec. 24, 2000
ps -- In the end, of course, if you still “do not have the skills or courage to day trade” ... there remains just one key to success ... don't do it. |
