c18 JWBT016-Busby September 30, 2008 15:3 Printer: TBD
176 THE WILD CARDS
of the trade quickly enough if prices move against the play? Traders who
do not have experience executing the trading platform are often very fear-
ful, and rightly so. The solution to this particular problem is experience
and practice. Most brokers offer the opportunity to execute simulations.
If you are a beginner, do them and do a lot of them. By using the simu-
lation platform you are able to learn how to get into and out of positions
with ease. You are also able to experience the consequences of placing the
wrong type of order. All beginners have inadvertently executed a market
order when a stop order was the aim. Or they have executed a stop or-
der when a limit order was the preference. Only through experience can
these problems be avoided. Even very experienced traders make mistakes
with order types from time to time. Practice will keep this particular er-
ror to a minimum. Once you develop the skills to move in and out of the
market quickly and on your terms, there is far less fear with electronic
trading.
Unless traders understand the role that emotions play in making deci-
sions and executing trades, they are doomed to fail.Gaining Balance
One of the most important steps that I take to conquer fear and greed is
to balance the risk. By phasing out of positions at various profit levels, I
am able to relinquish some contracts to fear while holding others to satisfy
greed. I do this by trading multiple contracts or shares. I like to trade in
multiples of three. That is, I buy three S&P 500 contracts, or 15, or 30,
depending on the play and my faith in it. In that way, I am able to exit
portions of my positions at various prices. That allows me to take some
profits early and reduce my risk and my fear. I am also able to hold some
positions to appease greed by riding a trend to greater profits. I call this
strategy the “Three T’s of Trading.”
Assume I am buying the E-mini S&P 500 at $1335.75. Market conditions
favor my play, and I buy 15 e-mini contracts. Through observation and anal-
ysis of key numbers, I know that some resistance will likely step into the
market at $1337 and additional resistance at 1339. However, I anticipate
a move to the $1342 area or higher based on the strength of the market.
Therefore, I want to take some of my positions off the table quickly. I take
a few ticks of profit on one-third of my positions at $1336.50. With three
ticks of profit or $37.50 per contract, I am able to gross $187.50 on the lot.
I refer to this part of the trade as the “Tick.” Now my risk is reduced, as I
am holding only 10 contracts. I liquidate another five contracts at $1338.75.