The four worst words in trading

So there’s an old joke in the real estate market when you go in and looking at a spot with your husband or wife and what are the worst words you could possibly hear is “honey, I love this place” because then it’s not a function of negotiating for the price, it’s the person who’s emotionally invested and needs to get the house at almost any cost.

So there’s a kind of similar situation in trading when you’re in a position and it works against you and you hear or you say and you’re speaking with somebody or you’re kind of negotiating with yourself and you’re like, “well let’s wait and see.”

This expression is going to open you up to untold losses because if you’re in a spot where should be taking profits but you don’t want to because you’re afraid that thing’s going to rally in your face after you take the loss or get out flat or whatever it might be, realize like that’s an early indicator for losing a lot of money when you get into that space.

I would almost make that a rule. If you have this hair trigger response, which I know is a sensitive term for many guys and you find yourself, well it’s not really working out, it’s not losing me money or it’s not losing me a lot of money, I’m just going to “wait and see.” Now you’ve become an investor. And whereas I do believe trades can become investments, especially if they’re up. You don’t want losing trades to become investments. But I’ve held winning trades in the futures markets for six weeks or more. Same position. So I don’t want to hear anything about how you have to offset stuff at the end of the day. Yeah, I know some of these funding platforms force you to get out of trades, but for the most part, you’re going to be better off holding onto your winners in your own account for as long as you possibly can, because the market will do the work for you.

There was a time in, I think it was the March Sugar of 2006, that thing went parabolic and I had been buying it from 8, 9, 10, wrote it up to 14 and I didn’t get out of the trade late September. It was late September through October where I was adding and then I didn’t get out until early January and I got stopped on a piece because I was trailing my equity. And then several days later the up trend continued and I actually came in twice as much at the time it was trading at historic highs. But those instances are out there where you can just ride the thing for as long as possible.

Position size to the point where you can withstand emotionally the daily swings. A good thing to do too is to get off of the machine. You don’t have to sit and watch it all day because that will induce you to do stupid things with your money. You think it’s putting you in control, but it actually works against you as far as having things work against you. It reminds me also to bring up the concept of time stops. If you put on a trade and you bought something at 25 and it’s sitting there for two days, it’s time to go because whatever you thought was the catalyst – presuming it’s a trade and not an investment – whatever you thought the catalyst was, it’s not working. And so you have to offset the trade that’ll save you a lot of money. It seems like you did a lot of work for nothing, but the main thing is to play superior defense, and that means to preserve your capital.

So if you find yourself in the mindset where you’re like, “Well, let’s wait and see how it goes,” you’re kind of delegating responsibility to some non-existent person in the future when you should be doing that. Taking action right now, especially if the thing is down. Good trades, meaning profitable trades start to make you money very, very soon right away because you’re buying with other buyers. And if that’s not happening, you have to look not necessarily at the price, but what are your criteria for entering and adding risk to your portfolio? So again, I find that very, very valuable. If you’re kind of lassez faire about something, you have to remember there’s money we’re talking about.

And if you’re going to be lassez faire and be like, Well, we just wait and see it. It seems to be a negotiating tactic that people use with themselves to kind of stop from doing what they should be doing, which is taking out sub-optimal trades out of their portfolio.

Anyway, keep all the questions coming, folks. I appreciate it. I don’t have all the answers. I only have those that I can speak to from my own subjective experience and if that helps you, then great. But I always appreciate the feedback and the new questions. Thanks for very, very much for being here, folks.

This is a computer generated transcript.

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