The Christmas festive period is once again upon our door step. This is when it’s common to spend quality time with family and friends, reflect on the year that has been and muse aspirations for the coming year. In this article I am going to explore these three areas that so that as a trader you have more confidence, make more money and, most importantly, enjoy it!
For most people, the Christmas and New Year season results in a lot of social functions. It is a time when we tend to take a step back from the daily rituals and take pleasure in spending time with family and friends. As a trader it is important to be on top of any open positions so that if an adverse move occurs in your security, you don’t get a rude shock when you check your account or receive any unexpected calls from your broker. Thanks to technology in the form of online brokers providing advanced order types, it is easy for you to follow your trading plan—even if you are away from a computer for some time.
Many traders, when starting out, use either a handwritten or PC-stored trading plan. Should the security reach a certain profit, loss or time, the stock the position is closed. If this is you, it is time to take the next step and explore advanced order types where you are able to automate at least part, if not all, of your trading plan. Not only will this ensure your trading plan is adhered to, but it also helps remove the emotion and subjectivity from trading.
We have all been down the path of “I’ll get out at a 50% loss,” and once this has been reached “it is about to turn around so I will hang in there.” The next thing that happens is your position is down 80% and it is not worth closing. The trade stays open and you hope for the best. If you are currently experiencing this kind of thought process, it is detrimental to your trading. Once you have learnt how to use advanced orders, you will be more mechanical/systematic in following your trading plan, which will lead to greater confidence and success. Most brokers provide online educational material so that you can learn how to use advanced order types.
Personally, I find that when I am away from my daily pattern and I have a position open (with my predetermined stops in place!) I still jump at the chance to check up on how the overall market and my trades are performing. The best way to overcome this is to close any open positions before going on a holiday. As a trader you don’t have to be in the market 365 days a year. Taking a break from the market will enable you to remove any noise/stress that trading may have created and give you a clear head. It will also help you make the most of your time away from the market, reflect on the past year and plan for the coming year.
To become a better trader it is imperative that past trades are reviewed so that any mistakes are leant from and the positive areas are reaffirmed. What was it you set out to achieve at the start of the year and how does this compare to where you are at now? Did you focus on the one or two strategies you promised yourself you would? Everyone makes mistakes and there is nothing wrong with that. The problem is when the same mistake is made repeatedly. You know you shouldn’t be making it but when the time comes, fear, guilt or hope takes over. This is a vicious spiral that must be broken.
A great way to do this is to journalize each trade. This way you will soon see any common patterns where your trading psychology/system is lacking. It will also highlight positive patterns where the correct decisions were made. Once you have these patterns identified they will be a fundamental part of your trading plan. I suggest you summarize these and then hang them somewhere you will read it each time any market related work is conducted. Having it written down makes it more official and increases the chance that YOU will follow YOUR PLAN. For example, when I started trading, I went through the thought process in regards to stops described above. One of the points I see each and every time I sit down at my PC is “I will always trade with a stop loss in place.” Guess what? All my trades do have a stop loss in place and have for some time!
Once you have conducted a situation analysis of the past year it is time to plan for the coming year. As the wide adage goes, “Fail to plan, plan to fail.” Without a plan in place you will find that you journey down many different tangents, which in the end take you further away from what you originally set out to achieve. Your plan may include:
- Financial goals, e.g. return on investment of 12% per month
- Educational goals, e.g. attend Oasis and an Advanced Seminar
- Business goals, e.g. trade under a company entity by January 2009
When formulating a plan and setting goals, it is imperative that they are realistic—otherwise you are only setting yourself up for disappointment. Once you have your plan in place, each trading related activity should be scrutinized and the questions posed “Is this taking me closer to achieving my written goals?” Only those that help achieve your goals should be pursued.
This is the last article I will write for 2007 and I would like to wish each and every one of you a fantastic festive season. I have met so many great people through Optionetics and I am sure you have too. Stay safe, enjoy and I look forward to 2008—it is going to be a very exciting year!
Make it happen!
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