Interesting Article on Stress from Street.com
Mr. Stress, an article for you!
Charted Territory: Seven Stressbusting Tips
By Gary B. Smith
Special to TheStreet.com
8/4/99 12:15 AM ET
Many different topics I wanted to discuss today, but instead, I think a follow-up to the Atlanta tragedy is called for.
First, I think it's fair to assume Mr. Barton may have had some problems apart from daytrading that caused him to go haywire. It's probably not a wild assumption to think the same thing could have happened had he been a doctor, an insurance agent or even a chemical salesman.
Nevertheless, his daytrading losses will certainly be cited as exacerbating any stress he might have been under. Given that, it's probably wise to deal with the subject of daytrading -- in fact, any trading -- right up front, as it's certain to become a topic of further discussion. In particular, I'll focus on stress, and some thoughts on how to handle it.
For the record, let me say I am most definitely not opposed to daytrading. I think it's irrational for the media to paint many daytraders as gamblers while in the same breath paint long-term buy-and-holders as the more saintly "investors."
Let's break it down a bit. If you're a fundamental investor who diligently reads the prospectus, the annual reports and the like, and therefore decide to invest in company XYZ, aren't you "gambling" a bit that your research has provided you the edge?
If your answer is no, then I think you're fooling yourself. There simply are no sure things -- fundamental, technical or any other way you choose to approach the market. Fundamental analysis is wonderful, and if you do your homework, it can certainly give you an edge in buying companies whose price should appreciate. But, all it does is give you an edge. There are no guarantees I know of. And if there are no guarantees, doesn't that fall into the overall spectrum of gambling?
Sure, you may feel, "Ah, but I have an edge!" and rightly so. But, is that "edge" any different than that of someone like me who uses price action and charts to gain an advantage? As an example, I know that a breakout from congestion will result in a higher share price five days after my entry, 70% of the time. I know this from historical and real data. I've done my homework, and I use this data no differently than a fundamentalist uses information from a shareholders' meeting. So, where's the difference, other than in methodology?
Okay, if you're with me so far, let me go one step further, and look at a daytrader. A good daytrader might do his homework, and know that if he buys whenever a stock takes out its previous day's high, it has a 60% chance of going up at least 1/2 point more. So, the daytrader buys every time this happens, closes his positions by the end of the day and consistently makes money.
Sure, the time frame is shorter than I trade in, and certainly shorter than a buy-and-holder, but other than that, isn't it all the same? Furthermore, I'll even go along with Herb G. and company, and stipulate that day trading is gambling. So we could then even stipulate that all investing/trading is gambling, with only the time frame and methodology being different!
Bottom line? Just about anything we do in life involves a gamble.
All that said, I am also most definitely not a proponent of daytrading. I think the odds are overwhelmingly against you every time you enter a trade, and even if you have a rigorous methodology -- which most daytraders definitely do not -- the stress of 6 1/2 hours of solid trading is brutal. I did daytrade, in fact, for a few months, with mixed results. In the end, I gave it up for a slightly more casual pace of position trading. See the archives for a few columns detailing my experiences.
Still, I know many of you are daytraders, and even if you're not, the stress of trading can be hard to handle. Therefore, let me not preach, but rather give you some things that work for me.
Stressbuster #1: Take naps during the day. I talked about this a few columns ago, and I suppose it's my form of midday meditation (which is also helpful, by the way). Whatever, I sure do feel better after 30 minutes of "downtime."
Stressbuster #2: Work out midday. This is such a well-worn tip, I almost hate to bring it up. But, it works. Swim, run, box, row -- basically do whatever you can to sweat and not think about trading for a while. It helps get those endorphins going. And that's a good thing.
Stressbuster #3: Plan your trades before the opening bell. This is a bit harder if you're daytrading. Therefore, I'd recommend at least knowing what stocks you'll be focusing on that day. Everyone else should know exactly what they're going to do preopen. And that includes having a target and stop in place (even if mental) for every new and existing position. Basically, it's called having a plan.
Stressbuster #4: Have an overall methodology. This is the logical precursor to #3, of course. By having an overall game plan, you don't reduce the stress of trading, but you do divert it. Every day you lose money it's not you who is wrong, but rather your plan. A small difference. A subtle difference. But, an important difference. In short, if you have a solid, battle-proven plan, and execute that plan, you've had a good day, win or lose. (For more details on building a methodology, see my column of 2/8.)
Stressbuster #5: Have one person who will listen to you vent. For me, it's my wife. I don't do it often, but when I do, all I want her to do is listen. I don't want a critique. I don't want an analysis. I don't want conjecture. All I want her to be is sympathetic. If I say the market screwed me, then I want her to agree. I want it to be us against the world, dammit! 100% unequivocal support is what I'm looking for. A few minutes is all I require. And then I feel better.
Stressbuster #6: Bet small. I didn't invent this one, but I wish I had. You're stressed out because you're losing money. More money than you wanted to. And you're doing that because that one %$%#%$ trade is killing you. In fact, it's not the trade so much as the amount.
You see, the trick is to trade only such an amount that if you lose it's no big deal. Think I'm cautious? I can lose on 100 straight trades, and still have enough equity to go to bat the next day. Sure, I won't be sharing Forbes covers with Bill Gates, but boy, I sleep pretty well.
Stressbuster #7: Have an alternate source of income or a large nest egg. Preferably both! I know there are a lot of you who jumped right from one full-time job into full-time trading. And there's nothing wrong with that if you were prepared to totally fail at trading.
Before my wife let me leave IBM, she wanted to make sure a) we had a lot of money saved up; and b) I had an alternate source of income. It wasn't until I had both in place that she gave me the green light.
Now ironically, I still make the bulk of my money through trading. But, there have been many, many days when I am thankful my wife still works, and that TSC sends me a regular check. Even if those two sources of income didn't amount to 50% of my trading income, it's nice to know that something or someone else is contributing to the bottom line. (For more background, see my 3/2/98 column.)
So, is that answer? Get married to a working spouse, or save a million dollars before you trade? Well, I don't know, but you have to have something to fall back on for sure. One of the keys to good trading is, ironically, not wanting it too much. When I've been almost cavalier about my trades, not affected if they turn out good or bad, is usually when I do the best.
So, those are my top seven, but I have plenty more. But, you guys have a bunch too, and given this increasingly difficult market, I can't think of a better topic to further explore. If you'd like to drop me a short line -- remember, short -- on some ways you deal with the stress of trading, I'll compile, edit and post so we can all share. As Jim Cramer has said, he considers TSC a club. And to that end, I'd like all our club members to maintain that even keel!
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