Do you get impatient when you see markets moving around and you don’t have a position? Do you feel that the price is headed to the moon and you better buy now or you miss the opportunity of the lifetime?
A little while later, do you get the sick feeling that whatever I buy falls and vice-versa?
If the answer to this question is an overwhelming YES, it is your urge to trade which is a dominant force than the urge to make money.
Most traders lose money primarily because of chasing price or getting impatient and taking a trade at an unfavourable trade location. You must have a trade plan and more importantly you must trade the plan.
On interaction with numerous traders and market participants, I get the feeling that the Urge to Trade is a dominant psychological force and to cater to this urge, the trading community is flooded with recommendations in various groups, forum, online messenger service and of course mobile text messages, Tweets and what not!
It would not be unreasonable to say that a trader, on any given day, is often flooded with an average of 10-15 calls through various avenues.
Given that there is a finite amount of trading and more importantly emotional capital, should the trader not exercise caution while choosing the trades that needs to be acted upon?
Ponder over this question and Introspect.
Let’s address the key question of How does one decide which are the trades to take or ignore from the abundant flow of recommendations from various sources.
- The first obvious filter is the quality and consistency of the source from which the recommendation is dished out. If you come across a person or an entity that has been consistent in terms of accuracy, then the calls from that source takes precedence.
- Once you decide the recommendations that you are interested in, the next and the criritcal filter comes into play which is Risk-Reward. Concentrate on the trades where the risk-reward is 1:3 or better.
- And, if there are too many trades satisfying the1:3 risk-reward metric, use the next filter which is affordability as well as percentage returns. Choose the trades that offer better returns in percentage terms.
- If none of these filters work, then just don’t trade. Period.
Please control your urge to trade. It is not about always being in a trade or how many trades you executed during the day/week or month; it is all about making money and the profits that you take home. Nothing else matters.
Hope you find this post informative.