Danger, Potholes Ahead!
By Gary B. Smith
Special to TheStreet.com
7/29/00 12:30 AM ET
If you've been trading for a while, you can skip this column. You already know this stuff.
But, if you're new to the game, I wanted to highlight some of the potholes that lie ahead. They're deep, they're treacherous, and they make the bunker at the Road Hole feel like a small puddle.
Here then, are the Top 10 reasons why trading is so darn tough:
You can be very good and very awful, but the good never seems to balance out the awful.
Look, many of us had a terrific first quarter. Made more money than we ever imagined. But, the past few months have been rocky. Maybe we're at break-even. Maybe we lost just a bit. But, I guarantee you this: Most of us have completely forgotten how good it was, and can now focus only on the negative.
You can lose more money in one day than you made in an entire year in your previous life.
I remember the first time I got really nailed. Lost more money in a single day than I made in my entire first year at IBM. I remember it vividly because I found myself in a position I'm rarely in: speechless. Or, maybe it was closer to catatonic.
Nontraders never understand.
Look, I have the greatest wife in the world. She not only understands trading, but she understands how I trade. But, unless you're there, you never really get it. You just don't know how devastating a really bad day can be. So, you have to keep a lot bottled up inside, because even if you have the best of trading buddies online or in the same room, no one really wants to hear your sob stories.
The market is relentless.
It has a mind of its own. Experienced traders know this and respect it. Case in point: This choppiness is killing me lately. And every day, I come in fresh and think, "OK, it just can't continue forever." But, day after day, for months now it seems, it just keeps going on.
Or, a different example. If you're short a stock and it suddenly starts going up like a rocket, you think, "Shoot, it gapped up 10%, and now it's up an additional 10%. Surely it'll back off, and then I'll cover." But, when you're wishin' and hopin', they never come in. Never.
Self-doubt always creeps in.
Look, I'm a method man. I have data. I have research. I have tested theories. But, I'll tell you this: Day after day of losing can shake a man, any man, even this man, to the bone. You start questioning not only your method, but your ability to trade. It's most devastating and probably the number one reason the washout rate for traders is so high.
There's always someone doing well when you're doing poorly.
Misery loves company, right? So what hurts is for you to take a shellacking and then find out your buddy made a killing during the same period. Sure, you know every dog has its day. But you'd feel a lot better if all dogs had their day only when you had yours.
You're never as good as your model.
No stock available to short. Slippage. Gap openings. Lousy fills. Boy, the odds seem almost insurmountable at times, and they never -- ever! -- seem to work in your favor.
When you can't trade for a day or two, it's always those days that would have yielded your biggest profits.
I still have a vivid memory of my worst nightmare. My wife and I were lucky enough to be able to go to the Olympics in Atlanta in 1996. Thrilling for me. But, at the time, every chart told me we were going to have one heckuva move up. But, I had to shut down my trading to travel to Atlanta.
And, wouldn't you know it: We're at the ballroom, we're doing the convention check-in thing, and in the background CNBC is on, talking about a record-setting up day! Hey, I love Michael Johnson. But seeing him cost me a ton of money.
If you make a mistake the Trading Gods know it, and punish you.
You ever buy CA instead of CL? KO instead of KR? Put in an order to buy, instead of sell? Oh, I have. Done them all. And you know what? Those mistakes never work in your favor. The Trading Gods always know and then take you behind the shed and give you a whuppin'. And that's a fact from someone with a red behind.
For a good part of the year, your methodology stinks.
The market either trends or it oscillates: Those are the only options. The problem is, most methods can handle one kind of market or the other -- but not both.
I have a trending method, so I killed it from January to March. Others have an oscillating method and are loving the past few months. But no one has the answer to every bob and weave of the market.
Yes, it would be thrilling to have a signal by which you knew to change methods. And maybe there is one. But, if there is, it's known by only one person: the richest -- incognito -- man or woman in the world. And he or she sure isn't sharing it with everyone else. No, everyone else has to suffer!
OK, ready to toss in the towel? Well, don't do it yet. Tomorrow, 10 reasons why trading is great. |
