Thursday, February 11, 2010

Guaranteed Losses

The following passage is from "Trend Following" by Michael Covel. Although he is writing about buying and selling stocks, he could just as easily be talking about training. Replace "trading" with "training", and "markets", "profits", and "price action" with performance, and it becomes a nice, short training article (if anyone's interested, I'll sell such a custom article to you). Let me know what you think. Enjoy:

There are a number of behaviors that almost guarantee losses in the markets. These behaviors, the antithesis of the way trend followers operate, include:

*Lack of Discipline: It takes an accumulation of knowledge and sharp focus to trade successfully. Many would rather listen to the advice of others than take the time to learn for themselves. People are lazy when it comes to the education needed for trading. Think about Bernard Madoff. People just wanted to believe.

*Impatience: People have an insatiable need for action. It might be the adrenaline rush they're after - their "gambler's high." Trading is about patience and objective decision making, not action addiction.

*No Objectivity: We are unable to disengage emotionally from the market. We "marry" our positions.

Greed: Traders try to pick tops or bottoms in the hope they'll be able to "time" their trades to maximize profits. A desire for quick profits blinds traders to the real hard work needed to win.

Refusal To Accept Truth: Traders do not want to believe the only truth is price action. As a result, they follow other variables setting the stage for inevitable losses.

Impulsive Behavior: Traders often jump into a market based on a story in the morning paper. Markets discount news by the time it is publicized. Thinking that if you act quickly, somehow you will beat everybody else in the great day-trading race is a grand recipe for failure.

*Inability To Stay In The Present: To be a successful trader, you can't spend your time thinking about how you're going to spend your profits. Trading because you have to have money is not a wise state of mind.

*[Inability to] Avoid False Parallels: Just because the market behaved one way in 1995 does not mean a similar pattern today will give the same result.

- Trend Following (Updated Edition): Learn to Make Millions in Up or Down Markets (pp. 197-198)


matt said...

Hey Boris,
Just wanted to share with someone. I got 200 on the snatch test today.

Thanks for all your help. Your tips were great.

Boris said...

Awesome Matt - you're a beast! We'll have to make time to train again soon.