When I was coming up through the ranks and trying to establish myself as an independent trader, I heard a mountain of advice directed to newer traders. Most of it was cataloged away in my mind with a “that sounds logical” footnote, but the problem with getting too much advice when you’re a n00b is that you don’t really have the experience to give it context.
And I would find that all that advice really was correct, if I had stopped to apply it. I suppose some things are better off learned experientially instead of by reading them. So after all this time, what advice would I want to pass along to others that were coming up through the ranks, as I did? Let me boil it down to the top three:
I’m sure that I have many more lessons that I’ve yet to encounter, but these are my top three for today! . In your corner……..Doc Severson Click Here to Get a Free 14-Day Trial of Doc and Dave's Services Recently in our live trading room, I talked about the concept called “The Dip.” When we start out on a new venture, we’re optimistic about how this will change our life going forward, so we put all of ourselves into this new gig.
And that lasts as long as we’re making progress. The very first moment that we encounter opposition, which in trading could be your first loss on a new strategy…we tend to get discouraged as it triggers off a lifetime of memories where we encountered similar disappointments. The brain says, “Oh no, here we go again.” This is “The Dip.” As a result, we quit and go back on the hunt for the next “new thing.” And the cycle continues, ultimately leading to future disappointment down the road when THAT new thing fails as well. Aren’t you tired of it? If so, perhaps the solution is to stop looking for the shortcut. You actually want the LONGcut. The DIP is where you will forge ahead through your persistence as you begin to learn how to tame a strategy, and come out on the other side far better than if you had quit like everyone else. So when a strategy stops working, ask yourself “why?” Exactly WHAT changed to prevent the strategy from continuing to work? What changes in price, time decay, or volatility have you observed that would change how the strategy works? Digging your heels in and finding out the real answers is absolutely the key to you eventually attaining your goal, because then you can fight back with adjustments. You know, there is a reason why a steering wheel was inserted into your car’s dashboard; life was meant to be lived through adjustments and adapting to changing circumstances. The Marines have an expression: “improvise, adapt, and overcome” and this is precisely what we need to do. Hit a brick wall? Strategy stopped working? Start to dig and find the REAL answers. You’ll look back on that moment years later and realize that it was precisely THEN that your trading began to take a turn for the better. In your corner……..Doc Severson Click Here to Get a Free 14-Day Trial of Doc and Dave's Services Ever been in a tough spot in the market, and the pain is so bad that you just want to pull the plug to make the pain go away? You can literally live and die with each tick in the market, depending on which way it goes.
And at the end of the trade, when you’re finally out of it and can think straight…did you notice that literally NOTHING that you did during that bout of anxiety…had anything to do with where the price ended up? There is a quote that says: “If you are depressed you are living in the past. If you are anxious you are living in the future. If you are at peace, you are living in the present.” Most of us get anxious with price movements because they remind us of some scar that the Market left in our soul at some point in the past. But guess what? The market has no memory. Every moment in the market is unique, to quote Mark Douglas. This is why I think it’s important to acknowledge that we have zero predictive power as a human being. We literally cannot predict the future. What you CAN do, however, that will immediately reduce your stress during these situations…is to MAP OUT EXACTLY WHAT YOUR FUTURE ACTIONS WILL BE. If the price goes up later today, what will you do? If the price stays in this same range, what will you do? If the price drops later today, what will you do? Those are actions that we have CONTROL over. The market? Not so much. Try living in the present while you trade. It’s much easier and you’ll live longer. In your corner……..Doc Severson Click Here to Get a Free 14-Day Trial of Doc and Dave's Services I literally just wrote an email to my wife five minutes ago outlining the need for us to sit down and map out how we need to plan out our “sell” points for our alternative investments, (like Bitcoin) and I thought this might make an interesting reminder for this weekend after we’ve seen such bubble-like behavior over the past couple of months/weeks.
You see, human beings are really terrible at predicting the future, and by proxy, managing long-term investments. I don’t care who you are, we all fall victim to euphoria/complacency at the top, and “fear of loss” at the bottom. I’ve been at this for over twenty years and only now do I feel as if I’ve attained a mediocre proficiency at it. If I could boil down my current stance on managing long-term investments, it’s this:
Spotting the “top” of any market trend has been one of the most impossible tasks that I have tried, and failed continuously at. What makes the beginning of the “end” any different from a normal pullback in a trend? Answer: no difference. You’ll only know it later on when a “lower high” is formed. (Conversely, spotting a market “bottom” is far easier) And for those of you that want to hedge at the “top,” I wish you luck as well. You will tire of spending the money to keep buying long puts and flushing your money away on a regular basis, most likely ceasing this hedge right before the “real” move lower…and then spending far too much on a wasted hedge when the price unfurls rapidly. This scenario gets a little trickier if you are trading assets in a cash account and a sale becomes a taxable event. If you wish to avoid paying taxes on your core investments, then you can replace the “exits” in the above plan with “hedges.” You must learn to hedge, or play “defense” during times of peace, and not “war” when the price is rapidly being dismembered. Your goal then is to understand when to take profits on the hedge trade. But don’t get wrapped around your axle on a complicated scheme, especially if the assets in question are ones where you don’t intend to pass down to others. Just come up with a simple plan on how to take profits, and then program yourself with these actions. Don’t think about it, just DO when the time comes. You will be far better off than those that say “I’ll figure it out when the selling starts.” In your corner...Doc Severson |
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