c18 JWBT016-Busby September 30, 2008 15:3 Printer: TBD
Psychology and Discipline: The Winner’s Edge 177I make three points on the play, or $150 per contract. I now add that $450
to the $187.50 I have already earned. This is what I refer to as the “Trade”
portion of the maneuver. With $637.50 in the bank, I am far less fearful of
the trade. I am now holding only five contracts. I can move my stop to $1335
and my total exposure is only $187.50. Or I can place my stop at my entry
point and use the market’s money to finish the trade. Now my risk is small
and my fear is tamed. Now I am in total control and fearless. I can take my
profits and exit the market. Or, I may wish to hold the position and ride to
more profits. My losses have been limited, so my greed is free to run. The
final portion of the trade is the “Trend.” By phasing into or out of positions,
fear and greed are balanced, and I am able to focus on the numbers and the
indicators and make money.
Emotional balance is very important to trading. Brad Johnson, a fa-
mous floor trader from the S&P pit, said it best: “Money flows in direct
proportion to a trader’s emotional net worth.” Having the analysis right is
just not enough. To win, you must keep your emotions from destroying
your trade.Avoid the “Victim” MentalitySome traders never take personal responsibility for their trades. They al-
ways see themselves as victims of the market. Until you take personal re-
sponsibility for your trading, you will not improve. Admitting errors is not
easy. A loss seems more bearable if it is someone else’s fault. The trader
looking for a scapegoat might say, “A friend gave me that tip. Boy, is he
an idiot!” Or, “I listened to the talking heads on CNN and they missed the
mark.” Or, “Those hot stocks in that blog cost me thousands.” It is easy to
put the blame on others and hard to admit that that you took the trade and
you alone bear responsibility for it—win or lose.
You are the person who decides whether to act on those tips or let
them die. You are the person who clicks the mouse or phones the broker.
You are the person who decides to risk your capital or not. The responsi-
bility for the trade does not lie with your friend—it lies with you. If you
hear some advice on television, check it out. Does it seem sound? Are you
willing to take the trade? If so, you take and you manage it. The person act-
ing on the advice is not sitting behind a desk on CNN; he is sitting in front
of your computer, and that is the guy who bears full responsibility for the
trade. Traders who pass the buck and do not accept personal responsibil-
ity for their trades do not improve. With each failure, they blame someone
else and repeat their faulty actions again and again.
However, traders who own their trades are able to analyze them and
improve them. That is the strategy that results in success.