What I enjoy most about the movie is that it combines two key elements that I feel are vital to a great movie:
Sports and "schmaltz".
For other cinematic wonders that fit the description, please see The Pride of the Yankees, The Natural, Hoosiers, Rudy and, of course The Mighty Ducks. It is the ultimate male fairytale to observe the heroic struggle of the team or individual who overcomes all sorts of conflicts, both internal and external, and succeeds against all odds; all within the context of sports.
For those of you who may be unfamiliar with Field of Dreams, the basic premise is that while on the job one day, a corn farmer named Ray Kinsella, portrayed by Kevin Costner, hears a faint voice echoing through his corn field. The voice, being carried to him on the breeze, repeats a criptic message:
"If you build it, they will come."
At first, Kinsella is understandably confused. Yet, as he begins to trust the devine voice, which offers other vague clues as to his calling, Ray somehow realizes that he must build a baseball diamond, which he decides to clear out farm land in order to make room for, whereupon completion will become a Mecca for the ghosts of former baseball players.
Thus, Field of Dreams is a life-affirming tale of the power of faith, redemption, and resolve trumping doubt and reason, which are qualities that many successful traders possess in abundance.
There are countless glasses-fogging moments in Field of Dreams. Who can forget when the bewildered ghost of Shoeless Joe Jackson, one of the disgraced baseball players from the 1919 Chicago "Black Sox" team, played by Ray Liota, emerges onto the baseball diamond from the surrounding cornfield and asks, in awe of his surroundings, "Is this heaven?" Classic. How about the final scene when the ghost of Kinsella's estranged father, also a former ball player, returns to the ball field and has a catch with his son? Great stuff.
In my opinion the most poignant scene in the movie, the one that sums up the essence of the film, is the one in which Ray's brother in law, Mark, played by Timothy Busfield, whose bank owns the mortgage on Ray's farm, sternly warns Ray that he is about to go broke. He tells him in no uncertain terms that his farm will be repossessed and that he is basically a fool for undertaking this project of building a baseball field (on valuable farmland, no less), for a bunch of deceased ball players whom nobody seems to be able to see except for Ray and his wife and daughter. For obvious reasons, Mark believes that Ray's attention should be on keeping his farm productive and therefore profitable rather than destroying a large portion of it in the name baseball games that do not actually appear to even take place. Ray is undeterred as he and a couple of other "believers, " Terrance Mann and Doc Graham (played by James Earl Jones and Burt Lancaster respectively), blissfully take in a ballgame from their seats on a row of wooden bleachers that Ray had constructed along with his enchanted ball field. Mark is unaware of the ball game taking place just over his shoulder as balls whizz by his head and disgruntled baseball players have to hold each other back from trying to throw him off of the field, while he chastises Ray. Mark implores Ray to sell his farm, that he will not be able to borrow any more money and that he will bankrupt his family. Ray is still unmoved. He built his baseball diamond as a leap of faith when the mysterious voice came calling. What exactly the voice meant may never truly be known, but Ray interpreted it as a sign to create a baseball diamond smack-dab in the middle of his cornfield.
In listening to the "voice" and building his ball field, Ray puts his family at a major disadvantage because he trades something tangible and reliable (his farm) for something abstract and hypothetical (the baseball diamond and ball players). Mark makes this point abundantly clear as he pleads with his brother-in-law. Although we, as viewers have no choice but to believe what Ray sees and take it for reality, since it is from his point of view that the story is told, Mark is more sensible in both his concern and his anger because it is apparent that Ray has shirked all responsibility for some sort of fantasy. Therefore, the scene in which Mark confronts Ray represents a showdown between Ray's sense of faith and Mark's sense of reason. As you watch, you may notice how Ray's position, although entirely hypothetical to the common observer, appears to be on much firmer ground, as evidenced by his confident unflapability, a complete contrast to Mark's desperate frustration. Strangely, Mark comes across as the one who has something to prove, instead of the other way around.
In many ways, I share in Mark's frustration even if I sympathize with and believe Ray, I know that Mark is right. Mark presents Ray with a hard look at reality. He firmly informs Ray that he cannot support him in his ambition because he sees no evidence of what Ray sees and at the end of the day, it will not pay the bills. Furthermore, should Ray falter in his endeavor, his sister and niece will go down with him.
Although it has the "Happily Ever After" ending obligatory to fairytales, Field of Dreams is atypical as far as fairytales go for one big reason: In Field of Dreams, Ray has everything to lose, whereas in, say, Cinderella, our protagonist has nothing to lose. Therefore we can fully invest ourselves in Cinderella's desire to free herself from the oppression wrought on her by her evil stepmother and stepsisters, as she dreams of marrying the prince, because the alternative is not worth preserving. At the same time, while we may admire Ray's faith and resolve in building the baseball diamond, which will become a sanctuary for lost souls looking to atone for their sins against themselves, we in some ways want to cringe, smack him upside the head, and say "Dude! Enough with this. You have to feed your family."
To hope in spite of reality and to have that hope overcome reality is a fairy tale's secret to success, much like in Cinderella. The star of that narrative is a slave to her own family and were it not for her hoping against reality, Cinderella would have nothing at all. Ray Kinsella, on the other hand, is a man of means, who sacrifices plenty in his Quixotic quest, as he runs great risk in trading a comfortable reality for an uncretain abstraction.
Market Inferences: Not Always so Realistic.
Back when I was a teacher, in order to prepare them for their standardized tests in English, I instructed my high school students to apply a strategy called the If/Then hypothesis to their various reading passages. The purpose of the If/Then hypothesis was for the students to try and make inferences or predictions from reading, which would help them stay engaged with what they read. The students would make various inferences according to what they knew about the characters and the reading overall.
For example, we can apply this technique to Harper Lee's classic novel To Kill a Mockingbird, which was set in pre-civil rights rural Alabama:
"If Atticus Finch decides to defend Tom Robinson, a black man, in court, then ridicule and harm will almost certainly come to him and his family."
Presumably, a student who applied this specific If/Then hypothesis would read further to see if their inference was correct.
Every day, people base their lives around numerous If/Then hypotheses, trying to infer as to what course their lives will take if they conduct themselves in particular ways. As far as I am concerned, these If/Then hypotheses manifest themselves in three ways:
- Anticipatory (Higher probability): If I eat right and exercise regularly, then I should live a longer and healthier life.
- Hopeful (Lower probability): If I practice playing basketball every day, then I will become a professional basketball player.
- Reflective (Effects future probability): If I had known that my friend's cat was mean and might scratch me, then I would not have put my face so close to its face.
The higher the probability of the If/then hypotheses that you apply, the more realistic they are, and the greater chance you have that they will prove to be true. The first example given above is of higher probability because it anticipates a reasonable outcome based on proven lifestyle behaviors. The second example is of much lower probability because it assumes a more subjective outcome- that this person will become a professional basketball player -that is contingent upon factors beyond mere practice, such as physical attributes, natural ability, and coaching, to name a few. The final example should serve as a lesson that the person can reflect on: If I did one such thing to an unfavorable end when I was in a particular situation, then next time I am in a similar situation I will behave differently. Presumably we are able to learn from our mistakes in order hypothesize more favorable If/Then situations in the future.
***
Ah, yes; making a lot of money. That is the supposed outcome for a trader, right? In fact since it is so true that traders make a lot of money, I am surprised that everybody is not one. Therefore, the If/Then hypothesis we could apply to trading would be:
If I become a trader, then I will make a lot of money.
Unfortunately, as many of us know all too well, the If/Then presented above carries a low probability of coming true. Thus, the faith, redemption, and resolve obligatory to successful traders are not acheived over night. They are, in fact, carefully developed and well earned. After all, one of the great maxims of trading is that there is as much money lost as there is made. So, at best, with all things being equal, my chances of making any money at all, let alone "a lot" of money, are 50/50. Then, there is the issue of exactly how I plan on making the money. Assuming that you begin trading with minimal experience in or understanding of actual markets, then your chances of making a lot of money are probably less than half. However, your chances of losing a lot of money are greatly increased. So, that very generalized inference that if you trade, then you make money is precarious at best.
In order to turn the lower probability hypotheses that we hope will come true into reality, then we need to build up to them by setting up higher probability hypotheses along the way that we can reasonably anticipate will come true as we hone our skills, as well as reflect on whatever mistakes we might have made that hindered our ability to make money. To this end, one can establish the rule for oneself:
If I practice a consistent and disciplined approach to trading, then I can become a better trader and have a better chance of making a lot of money.
Notice how this If/Then scenario does not necessarily assume any particular outcome but rather anticipates a fairly realistic one based on a tangible set of behaviors. It is the behaviors described- consistent and disciplined approach -that lay the groundwork for the desired outcome, leading to a higher probability for success. Of course, what it means to practice a disciplined and consistent approach is different for each trader; so building such an approach is also subject to all sorts of other If/Then hypotheses. Traders run into trouble, as will most anybody, when they assume an outcome without respecting the process that might lead to that outcome or by not calculating the risks involved. As traders, we are taught to weigh the risks of each and every trade against its benefits and if there is not a reasonably high probability of making money from our point of entry, then we should rethink the strategy. Let us say, for example, that the markets are orderly, are fairly range-bound, and basically trade between clearly distinguishable areas of support and resistance (wishful thinking, I know!). That being the case, you are looking to trade a stock that has consistently traded between $63 and $67. In this particular situation, we could say with fairly high probability, given the market conditions described:
If I buy long at $63 or sell short at $67, then I should make money.
The If/Then given above is realistic because it incorporates a plan based on an awareness of market conditions, that should work (until, of course, it does not). If a trader tries to get long near the top of the range, before the stock breaks resistance, at say $66.30, then there is a higher probability that he or she would lose money. Yet, should such a trader be paying attention to the market, to the movements of that particular stock, and notices strength, he or she might say:
If the stock breaks the resistance then it is strong and I can consider buying it near $67 once it dips back down to that price.
Once again, a higher probability trade, based on a reasoned and disciplined process. A realistic and therefore successful trading inference is always based on something tangible, such as a discernible move in the market, and is not simply a blanket assumption based on what we hope will happen.
Looking back to our original example, Field of Dreams, we can reasonably argue that Ray Kinsella operates under an extremely low probability If/Then hypothesis:
If you build it, (then) they will come.
Ray has very little to go on here. He knows that he has to build something, which upon doing, somebody will come. What it is or who they are is entirely unknown. In reality, an If/Then will most likely come true if there is some basis for truth and a process by which it will be realized. Even if the If/Then presented to Ray was more specific: If you build a baseball diamond in the middle of your farm, the ghosts of past baseball players will come and play on it -you might think that Ray had a few too many ears of corn between his ears if he actually went ahead and built the baeball diamond.
There is little wonder why Ray succeeds in the end, as the camera pans out to reveal cars backed up for miles, each making the pilgrimage to Ray's field, while he and his father's ghost have a catch under the lights: His story is not real.
It is a fairytale and in fairytales what could never happen in reality, actually does. When we watch a fairytale, we live vicariously through the protagonist. His or her artificial victories might inspire some to strive for similar triumphs, yet many would consider one naive to think that such unlikely circumstances breed success in actual life. More often, however, we sometimes just like to lose ourselves in the fake stuff, so we can at least convince ourselves that the impossible can happen.
Reality. No Magic Wands Here
OK, so maybe it's not fair to condemn fairytales as complete bogus. The basic end result, happiness, is attainable in real life and according to our nation's Bill of Rights, we are entitled to pursue it. So, while every farmer might not necessarily get his magical baseball diamond, we cannot deny that an unlucky young girl, ostracized and belittled by those around her, may someday get her prince. In real life, it is the means to the ends we see in fairytales that we know cannot be. We can find our way from poor-house to penthouse but there will not be any fairies, fairy godmothers, magic pumpkins, magic spells, mysterious voices, or dead baseball players to help us along the way.
In order to truly succeed as a trader, you must take realistic steps toward success and, just as importantly, you must be in touch with reality at all times.
People often try to convince themselves that they are better off than they actually are. It is not uncommon to draw confidence by minimizing and rationalizing your faults. As traders this very basic element of human nature is all the more glaring because the volatile swings in the markets and the plethora of ways in which we can interpret its movements can cause constant second-guessing and uncertainty. The difference between making money and losing money is often a matter of paltry seconds and petty pennies. Therefore, we tend to take solace in our near misses. You may be very frustrated by your loses, your missed trades, or by getting stopped out of a position only to see it go in your favor the very next instant. Despite the frustration at having gains cut short or taking losses when you very well could have been highly profitable, you might still take solace in knowing that you executed trades in the right areas, that your thinking was "basically" correct but you just had a few unfortunate bounces; maybe you got swallowed up by some unexpected volatility and just came out down for the day. You rationalize the situation by telling yourself that although you did not have a good day trading, you are still a good trader because you had a good initial sense for the market but, just as both traders and the markets are imperfect, things just went against you. You resolve to fine-tune your approach as needed, iron out whatever bad habits you have that may have complimented the market, and have a better day tomorrow.
Now, this is all well and good, and yes, there are bad days in trading when you lose money; such is a reality of trading. But, what happens when you have loss, after loss, after loss? When does a bad streak turn into incompetence? When do you admit to yourself that you really might not know what you are doing? What happens when you promise yourself that you will break your bad habits, yet you keep making the same mistakes? There may come a time when you have to face reality and and admit that you are not doing well trading and that you will have to find a way to become better at it or move on from trading altogether.
There is no magic solution for successful trading. The Fairy God-trader will not appear out of thin air, wave her wand, and turn you into Benjamin Graham. The success comes from within you and is cultivated by you. As previously discussed, a disciplined approach, that takes into account appropriate risk and market conditions at that moment, which you customize to your own personality, would be a good starting point. But, to make your own personal trading system work for you is a process that can take a very long time to implement with consistent success and will require a lot of trial and error, all of which will cost you time as well as money.
Living in the Moment
As you perfect your skills as a trader, you will undoubtedly experience countless growing pains and more ups and downs than the crude oil market at options expiration. While it is of vital importance that you keep track of your progress as a trader throughout all of the triumphs and tragedies, so you can gleen perspective from your strengths and weaknesses, you must also keep aware of where you stand as a trader at that specific period in time, when you are still a work in progress. Chances are, unless you prove to be particularly gifted at trading, some sort of prodigy, you will not be anywhere near as good at the beginning of your career as you one day will be; assumming you survive your own learning curve. Therefore, you will be much better off in the long run if you accept the reality that you might not be a very good trader early on. If you are in touch with reality, you will prevent that pitfallof an If/Then hypothesis; If I become a trader, then I will make a lot of money from getting you into serious trouble.
Like most anybody who anticipates one day becoming successful, many traders try to act like they've made a lot of money before they have actually done so. After all, when operating under the idea that If I become a trader, then I will make a lot of money one might very well conduct one's lifestyle as if they have already made a lot of money, or at least with the assumption that the money will imminently be their's.
I have heard stories from older traders about the "Rio Spread". What is the Rio Spread, you ask? The Rio Spread refers to when a trader would come down to the floor with one goal in mind: To make enough money trading to pay for the two airline tickets to Rio de Janiero that he just bought for himself and his girlfriend. Once he made the money to pay for the tickets, he was done for the day. There was a good chance, however, that this particular trader would not make money that day, at least not enough to pay for the tickets. He might even lose a whole bunch of money and have to take his chances the following day to make his money back, and then some. Such reckless practices are the ruin of many a trader. The truth is, and you will read this in most any book on trading philosophy, that you should never expect the market to pay for your individual expenses. While you will need to be able to support your family and its lifestyle if you plan on making a career out of trading, you should never approach the market with the mindset that you need to take enough money out of the market during a particular month so you can buy yourself a car, for example.
A lot of traders begin building lifestyles that they cannot at the moment afford in anticipation that they will soon make enough to pay off whatever it is that they had just purchased, whether it be an expensive home, a new car, an extravagant vacation, clothes, or jewelry; whatever the case may be. Because they know that the potential exists to earn an unlimited amount of money at trading, some traders justify an overly-lavish lifestyle by surmising that they will make the money to support such a lifestyle very soon. Perhaps they even use such ostentatious possessions as motivation to become a better trader, convincing themselves that if they know they have an expensive mortgage, they will just have to find some way to make enough money to pay it off.
My father is rife with tales and anecdotes about the old-time traders and the "good old days" on the floor, some of which I have already shared with you . So, here is another:
He knew two traders from a while back, a father and son, each of whom were quite successful. One day, after a very proseprous run in the markets, the son, who was in his late 20's and had yet to experience prolonged periods of either success or failure, pulled up to his father's house on Long Island in a brand new Porsche. Dismayed, the father berated his son as he came bursting out the front door.
"What the hell are you doing driving that Porsche?" quipped the older man. "Do you think you are some kind of big shot?"
Bewildered and a little bit offended, the son remarked back at his father "But YOU shouldn't be one to talk. You always drove a Cadillac!"
To that the father replied, placing a firm grip on his son's shoulder, "The thing is kid, I never bought one Cadillac until I could afford FIVE."
Talk about living within your means! In that example, the father may be a bit extreme, but his financial due-dilligence is not without merit. I, for one, will not necessarily wait until I can afford FIVE houses before I actually buy one house. But, I think that the father makes a good point in that example, in that you should always make a concerted effort to preserve your wealth. Look, if you work hard and earn money, then you deserve to have things and you should not hesitate to buy a little something either for yourself or for someone you care about from time to time. You will not get much enjoyment out of being miserly; and while furnishing your apartment with the desk and chairs you managed to swipe from your dorm room after college might save you a few dollars, I doubt that would be an appropriate lifestyle choice for a young professional. If you happen to have some money to spend, then by all means you should spend some of it, and in saying that, I emphasize, the word some.
In order to have a realistic chance of living a comfortable lifestyle, you need to be realistic about how much money you ought to spend and how much you ought to save. Trading profits are very seductive because each trading session offers the prospect of unlimited gains. Therefore, like the young trader who impulsively bought the Porsche or the one who purchased airline tickets to Rio De Janiero before he could really afford them, it is not uncommon to mistake a brief run of success for actual competence. After all, we have the best intentions for ourselves and want nothing more than to be good traders. So, it is easy to sometimes get overly excited at the prospect of success. But, bear in mind, sometimes, the pretty new girl in class only sits next to you because that is where the only available seat happens to be, and not necessarily because she likes you.
So, for example, I have been as guilty as the next person of getting a bit ahead of myself coming off of some decent trading. I have been known to spend a large portion of a day's profit on some item or another practically the second I left my office. Doing so might feel good at the time, like you might sometimes feel like "what's the good of having money if you can't spend a little of it?" But, buyer's remorse can sure set in quickly, especially when you consider the fact that making money in the market is no guarantee. If you happen to lose money the next day, then you might feel really awful about your previous day's splurge.
Suppose, then, that you had a pretty good day trading; and I am not going to presume that I know what a pretty good day is for you any more than you can for me. But, let's just say that you made $1,000 from trading. And, if I am not mistaken, if you can regularly earn $1,000 per day, that equates to $5,000 in the average week, and that equates to a decent working salary (minus those pesky commissions, of course). Anyway, you are thrilled about your $1,000 and in a moment of carefree elation you decide to buy a jacket that just happened to catch your eye the other day, for $250. Now, in the grand scheme of things, we all spend a couple hundred dollars on something for ourselves or someone we love every now and then. But, if you have not been trading long, have not had regular success, have not amassed any substantial savings, and therefore are basically living off of your daily P/L, perhaps it would not be prudent to impulsively spend a quarter of your daily income. Just think of how quickly you would squander your wealth if you went out and plunked down 25% of it each day. It costs anywhere from 33% to 50% of the average major city-dweller's salary to maintain a basic lifestyle (meaning a home and the usual expenses, such as monthly bills, common to the home). That being the case, if you scrape off another 25% just by being frivolous, you will not have much money for anything else.
OK, so maybe you don't throw around hundreds if dollars after each and every decent trading day. But, knowing that your earnings can make you giddy, they may also cause a false sense of empowerment and status, all of which might lead to one or two times per month during which you pick up the bar tab for your friends after happy hour. Before you know it, you get your credit card bill in the mail and you are shocked at just how high it is. Believe me, I know all this because I have done it... More than once! A dream car, a fancy wardrobe, picking up checks: they are all part of life's grand fairytale. However, until you can afford such things without later regretting it or without running the risk of sacrificing other expenses, it might be better to be realistic about how much you make and how much you should spend. Traders can make heaps of money but that money does not exist for you until it is in the bank and it is better spent when there is enough money in the bank leftover, with more money coming in.
There is nothing wrong with trying to make a lot of money trading. Financial wealth, at least to the point where your family can comfortably maintain a sensible lifestyle, which includes not only life's necessities but also certain luxuries and the opportunity for leisure, is a reasonable goal for any hard working individual. But, when a reasonable goal becomes an unreasonable obsession, there is a tendency towards disaster. If we become obsessed with making money, we can very easily abandon our better judgment. Like a spurned lover who probably well knows that he should not constatly e-mail his former girlfriend, who has moved on from him and found happiness elsewhere, obsessed traders often act to their own detriment in similar ways. In a mad quest for money, a trader might over-speculate on the market and force a trade before the right one comes along. Fearing that he may miss a significant move in the markets, one in which he can garner great profit, a trader might get involved in a trade at the wrong time and end up painfully regretting the results. Both the infatuated lover and the obsessed trader know that in all reality they are wrong in both feeling and approach, yet they hold on to some idealistic notion that they just might be right and therefore stay their destructive courses in hopes that they are, in fact, right.
Proof=Reality
A good trader makes money. Period.
There have been plenty of times when I based my status as a trader more on my analysis of the market rather than on the actual results of my trades. For example, I might believe on any particular day that I have a solid technical sense for the market. I might be able to determine exactly where I think the market will dip down to and where it will rally up to, and I place my orders accordingly. Well, what often seems to happen (and it's happened to all of us) is that the market will trade to within pennies of my order and then reverse. Frustrated as I may be in that situation, I might find solace in knowing that I prettymuch had the right price in mind and convicne myself that it was only rotten luck that kept me out of a winning trade. I may even take heart that I am indeed a good trader because a only a good trader would be able to see the technical areas that I saw. On occasion, I have even considered such an instance to be something of a moral victory because a true understanding of the market requires being able to both see the market and make trades in the market, and on that particular day, the trades just did not come off as I had hoped. I sometimes take pride in my "moral victories" surmising that a bad trader would have lost money and tomorrow, I will get the trades off. Feeling vindicated, I pick up a bottle of good red wine on the way home.
Now, good red wine can quickly become sour grapes when I lay awake in bed that night, thinking "You know, I really haven't made any money this week. I'm not losing any money and I think I have a good read on the market but I really haven't made money the past few days."
Being able to anticipate the market's moves is a key element to good trading but the real mark of a good trader is whether or not he or she consistently makes money. Being able to execute a trade that has a high probability of being successful, whether it be by aggressively targeting a price area, or by scaling in, is an acquired skill. Inexperienced traders too often realize that the proper trade has taken place only after it is too late. It takes a firm understanding not only of specific stocks, but of the markets in general, the information and news that pertains to the markets, and how that information and news will effect the market, to have a greater chance of consistently making successful trades. Once you have a better grip on the various technicals and fundamentals, you will be able better target when and where trades are likely to occur and you can place your orders acordingly, with greater likelyhood of favorable results. I emphasize this deeper understanding of the market because it is quite possible that you can have a successful run at trading with only a rudimentary understanding of the markets and in many cases, you may get caught up in thinking that you are better than you actually are. I cannot claim to know whether or not you are a good trader. If trading has worked for you in the long run, whatever your method, then I cannot be one to argue with the results. But, it can often be the case that you trick yourself into a false sense of security, based on some early luck in the markets, but you then fall hard when market conditions change because of your over all inexperience. Again, if this had not been my own firsthand experience, then I would not be qualified to discuss it and I am sure that there are plenty of others out there who have been in the exact same situation. Therefore, we must keep guarded optimism by enjoying our progress while constantly seeking a higher level of understanding. A good week- or even a good month -does make one King of the trading jungle, so one must be sure not to gnash one's teeth too soon, lest one is prepared to be bitten oneself.
We can apply the following If/Then hypotheses in order to achieve ultimate success in the markets:
If I have a deeper understanding of the markets, then I will have a better chance of making successful trades.
If I can consistently make successful trades, then I can make a lot of money.
If I make a lot of money, then I am a good trader.
It is a multi-layered approach to trading success that will make becoming a good trader more of a reality than it might otherwise be. The only true definition of a good trader is a trader who can make a living from trading. The happily ever after is definitely out there and it is absolutely attainable. But, to have it be a reality for you, so it is not just happy for the time being, frustrated ever after, you have to take realistic steps towards your goals. Your goals must be manageable and based in your current reality. With an eye towards the future, your current situation must govern your immediate next steps more than your presumed future situation. Assign any cliche you want. How about: Don't put the cart before the horse. But you need to keep yourself grounded in reality before making any major lifestyle upgrades. We all have desires and those desires may have to do with the size of the family you plan on having the size of your home, a rennovation, what types of cars you drive, or your travel and vacation plans. Regardless of what your desires are, you cannot obtain any ultimate milestones until you are sure you can afford them. You never want to put undue stress on yourself, your trading in particular, so you do not open yourself up to significant failure.
In reality, we all need to follow a plan and understand the steps towards making that plan work in our favor. In the movies people can get by on vague and abstract ideas, usually having all go well in the end. We real folk, on then other hand, are not so fortunate because reality will find a way to put us in our proper places.
If, however, you believe that your proper place is among Wall Street's legendary traders, then when a haunting whisper pricks at your ears, as you stroll past the New York Stock Exchange building after the market has closed one lonely winter evening, carrying the fortuitous message:
"If you trade, then you will make a lot of money."
just make sure to first figure out exactly how that is supposed to happen before you toss out your dinner table in order to build a trading pit in your dining room.
Reflective Sidenote: Everything Right is Wrong Again
One sure-fire reality in trading is that we will not get every trade right. Even very experienced traders are often wrong in their market assment and therefore make unsuccessful trades. However, in being wrong, you can still be right. Let's just say, for example, you buy a stock at $30 because it came down hard from $50 and has entered good support. You see compelling reason for the stock to make a nice march up to $35. Then, after taking on the position, it immediately goes against you and the stock is trading down below $29. What do you do? Perhaps you lament your over-eagerness, telling yourself that you could have scaled in to a better position if you had been more patient. Yet, you are convinced that the stock will reach $35 like you originally thought, so you never covered any of your position for fear of giving up what you thought would be a certain profit. Now, depending on how much stock you were long, you are facing a difficult loss.
Then, suddenly, the stock creeps upward. It is back near your original point of entry and your loss is now much smaller. Do you take some stock off the table, holding only part of your position? The stock might finally be going the way you thought it would and you do not want to cheat yourself out of at least some profit. Then again, the stock already proved weaker than you had anticipated. Maybe you should just cover the whole thing and be happy you got yourself even, when only a few minutes ago you were taking a loss. Any trader will tell you that some of their best trades are pass-outs. Or, maybe you can just hold the whole position. Although you were a little too anxious getting into the trade, the stock is now moving in the direction you thought it would and you are confident that you will ride this winner for some fine profits.
It is difficult to determine what the right and wrong things to do are in any given situation. The market is very unpredictable and we often act, or better yet do not act out of fear that whatever we do will prove to be wrong. Yet, recognizing that you are wrong is important because it can help you to then do what is right. It just may turn out that you were wrong in taking on a position when you did. You can still always try and do what is right however, by covering before the loss gets too great or taking the position back if it gives you a chance to be even. Who knows? You might cover for a loss or a pass-out and the market then goes in your favor once you are out of the trade. But, it is always best to be prudent, especially when your initial inclination might not have been correct. The "homerun" trade, or at least getting all that you thought you would get out of a trade is always a dream scenario, even moreso when the trade starts out against you. In that case, it might just be best to realize that in reality, the trade just might not work out and that you should cover it before you lose a lot of money in it.
