Sunday, December 10, 2006

Thoughts on Trading

Let’s be real…..Trading is not as easy as it is made to seem on those infomercials. Buying when you have three green lights may or may not work, but in my experience it is rarely that simple. There are many different styles of trading and it is important that everyone find the style that works best for them. I remember many years ago reading the book Market Wizards by Jack D. Schwager. In it he interviews James Rodger’s. Mr. Rodgers explains upfront that he does not consider himself a Trader but rather an investor as he typically holds trades for years at a time, and he says “I never get in at the right time”. Being a young trader at the time I found this quite strange. How could a highly regarded and successful trader like Mr. Rodgers consistently enter markets at the wrong time and hold trades for years at a time! To say I was skeptical is an understatement. I did not believe that anyone could hold positions for an extended period of time. I was a “scalper” and believed that everyone made money the same way (certainly everyone around me did just that). These thoughts changed a few years later when while sitting in a weekly strategy session a coworker commented that I had said the same thing about my positions for the last 6 months (upon further review it was really 18mths). I had a similar interest rate and spot position (varying degrees depending on my confidence level) but always the same direction. My thoughts went back to reading Market Wizards. Clearly I had evolved in the markets (although subconsciously) and never planned to do so. That is not to say that no one makes money “scalping” the markets anymore. It is just that I found a style that suited my personality better. The most important thing to me is to always keep your self in the “Game”. You cannot be profitable if you can no longer participate in the market. As a friend of mine once said, it is not the smartest guy at the poker table that wins but rather the guy with the deepest pocket. Keep your position size to a level that when the market moves against you (and it will) that you can ride out the storm in anticipation of it coming back. Remember these are styles which have worked for me and everyone is different. But evolving in the markets are an important part of success.

Thoughts? Coments?



Anonymous Caravaggio said...

I agree that everyone has to find a style to suit them, always vigilant of the dangers of entering a short-term position and then being fooled in to treating it as a long term trade when it is out of the money. Or conversely, of entering a long term trade and then being overly hasty to take profits as soon as they appear. Resolve is important.

The point about deep pockets is interesting. I also believe having the correct level of capitalisation is paramount to one's trading. I also think capitalisation without trading intelligence/discipline, perhaps ought to be thought of as having a major hole in one's deep pocket.

8:47 AM  

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