Trading with my eyes wide shut

tensionindicator-eg01One of the first things I learned when I started off in this game was – don’t open a trade without a battle plan.

There has to be a compelling reason to hit that button and start the roller coaster ride. But once pressed, what next? Do I sit back and wait for the trade to move in my direction? Do I pray that the sudden move against me is just a temporary correction? Where do I take profit? Where do I cut out? Where do I increase exposure?

These are some of the questions which need to be addressed BEFORE that button is pressed.

Opening a trade with my eyes wide shut is a recipe for disaster. As soon I open myself to the mercy of the market, sane, rational thought quickly gives way to irrational, reflex decisions. The urge to close the position as soon as it goes against me will derail any future profit potential. And of course, too many of these reflexes will very quickly lead to a fiery demise.

So, how do I deal with this?

It’s actually quite simple, but it takes practice to stick with it.

Firstly, I need a very good reason for opening the trade. It doesn’t need to be the same as YOUR reason, but I need to be able to justify it. And it has to be MY reason. Not something I was advised to do by somebody, or a ‘hot tip’ which I heard. It has to be 100% my idea. (I can research their ideas and see if they are compelling, but I cannot blindly open a trade.)

This always reminds me of something I was told by my desk boss at Lehmans, Akis Karayiannis. It was something along the lines of, “If you open a trade with your own idea, and it loses money, it’s ok. If you open a trade with somebody else’s idea, and it loses money, I’ll fire you”.

This also sits at the heart of a friend’s approach to HIS profession. I’m very fortunate to know the great British pianist, Stephen Hough. One of the things which struck me during our many teas, lunches, chats, was his approach to learning new pieces. As soon as he has decided on a piece to perform, he will stop listening to recordings. He doesn’t want to be influenced by other interpretations. Everything he conveys on stage, whether it’s a small recital for close friends or a full concerto, needs to be his own idea. He cannot go on stage and present Chopin as played by Rubinstein – it must be Chopin as played by Hough.

So, I now have my reasons for opening the trade. What do I need to look at next?

Stops, targets, increasing position size – these will be addressed in a separate piece.

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