Tuesday, November 21, 2006
Trade like a rock
Trade like a rock
The dictionary defines rocks as: “mineral matter of variable composition, consolidated or unconsolidated, assembled in masses or considerable quantities in nature, as by the action of heat or water.” But in this case I mean it to be a boring hunk of stone that neither thinks nor feels pain or emotion.
Becoming a professional investor, or at least a serious investor, requires an emotional disconnect between both your money and your status. When involved in such a volatile market you should not have any emotional attachment to an investment.
You should not invest in any company simply because you work for it. This is one of the biggest downfalls in the portfolios of many investors. Your future is in jeopardy when you work for a company and also have investments in the company. If the company goes under, you lose both your job and your investment.
When I trade short term and often high risk timeframes I like to set my trades and forget them. I always make sure to set my stop loss and take profit then leave from my trades. If a trader sits and watches his trades move up and down each point or pip at a time, they will be more likely to lose.
Emotions run thick in trading. Unfortunately, whether we are willing to admit it, we are tied to our money. Money has become a necessary evil in life. To earn in investing, one must first people able to accept a certain level of risk in order to succeed. Each time I make a trade, it literally marks whether or not I will be eating that week. Every gamble is an important part of my livelihood.
When we bring ourselves to worry about what may happen if the money is lost we start to assume unnecessary amounts of care. When I first started trading I had a habit that left me in the red, and only until I started to leave my trades alone did I recover. I would watch my charts as my positions gained and lost through normal daily trading. A small swing would send my heart pounding.
Many times I found myself closing out of trades because I was so emotionally stirred. I would sell way before my stop losses were reached and sometimes take profits of just a few dollars.
I later learned that in order to be successful I was going to have to care less about my trades. To participate in the markets I had already assumed risk with my capital and it was time to convert that risk to profit.
I don’t know when it happened or why but I started to set and forget. Set and forget became my new slogan. I would set my trades in the morning (before I left to go to high school) and come home to see my profit or loss. Often my positions were still open when I got home and I had to immediately leave my trading platform or I would be too overbearing on my account.
The key is to not micro manage your money. It is one thing to be a thorough investor, but you should not be sitting over your investments with a magnifying glass. Your portfolio is like an ant farm. Keep feeding it periodically and let it mature on its own. I could never disagree that watching your portfolio rise from pennies to thousands to your retirement is a delight, but we must make certain to know that watching can also be self destructive.
Trade like a rock.