Thursday, July 1, 2010

The Daily Note - The Colors of Trading

As traders we like to pride ourselves in finding the perfect spot to get in/out of a trade or at least predict the turn. Some think it is the bottom and the top, yet those are really not the best for it's usually where most get hurt. Virtual and real trading rooms are awash in blood of traders trying to catch the perfect bottom and tears for awaiting the perfect top.

I oft remind myself, and my trading group, about "The Colors of Trading" especially during times like this when it is so tempting to search for that market bottom. The problem is not that one takes a calculated risk; the problem arises when one tries to prove themselves to be correct. The temptation to stick with a trade on the wrong side is ego driven which can lead to ignoring stops. Of course it usually ends in bleeding.

Equally ego driven is the "perfect exit" at the max as if that extra penny or two will make a new record of profits gained. Well maybe, but that can lead to tears while waiting for that penny; gains are washed down the drain as the trade turns but the hope for a new high/low does not.

So if you can identify with these scenarios, next time remember "The Colors of Trading":
There is only one shade of green.   Which means profit is profit not matter how much, if you can take it to the bank, it's a successful trade.

On the other hand,
There are two shades of red: "Pink and Blood".  Realize that being stopped out of a trade means you limited your loss to a tolerated level, therefore the loss is pink with a only tinge of blood. Yet if you ignore your stops or don't use one at all, your trade can bleed you death.
 "Pink" losses allow you to trade again, but "Blood" losses may stop you from trading all together. So don't discount the discipline and the control of your own trading destiny.

Happy Trading, Living and Dancing

Today's Single Note: RIG

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