Charles Poliacof has been a trader for more than 12 years. He’s trained hundreds of traders. manages between $10 and $20 million, and is considered one of the top traders on the Street. This week, he talked to market coach Doug Hirschhorn about his approach.

Bonus: On the Fear of Missing Out

“As a professional trader, this is probably the one element I’ve wrestled with most in my career,” says Poliacof. He says a fear of losing is healthy, but a fear of missing out can be destructive. Why? Because you end up making “shot” trades.

Everyone has an approach. If your viewpoint is to focus on the fundamentals, then you’re going to say a certain price multiple to earnings, or EBITDA, or macro turn, these are all the things that make you want to put out a position.

It’s the same in the short term trading world, says Poliacof. “If certain technical indicators are hit, a confluence of quantitative elements that are hit for me, then I put on the trade. But, it’s that ‘I’ve missed out on one opportunity, and I don’t want to miss out on the next,’ that forces me to relax my discipline.”

The end result: over trading and positions you normally wouldn’t take.

Self awareness is the most important thing. Know your triggers. “Know what it is that goes off inside of you, that creates this series of events,” says Poliacof. “For me, it’s the fear of missing out. Instead of being proactive, I become reactive.”

What does he do? He walks away…literally, even though there may be an opportunity to make money. “I’m not thinking clearly, and that means I shouldn’t be participating in the market,” he says.

If everything doesn’t line up the way he wants, there should be something going off in his mind. Sometimes that means taking a huge step back. “I’ll cut back to five percent of my shares in capital if I need to be involved. Even then,” he adds, “that ends up being a loser.”

The best advice he can give? “If you’re not where you need to be, simply take a step back.”

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Charles Poliacof has been a trader for more than 12 years. He’s trained hundreds of traders. manages between $10 and $20 million, and is considered one of the top traders on the Street. This week, he talked to market coach Doug Hirschhorn about his approach.

Managing Your Risk

Poliacof believes investors have to be a student of the markets—to know what has been working and what hasn’t. “The market is this complex, adaptive environment,” he says. “But there are these patterns that happen time and time again.”

Investors should keep a journal that follows what’s been working and what hasn’t. “With risk,” says Poliacof, “I look at what’s worked for me and what hasn’t worked recently.

“If you’ve ever sat down at a blackjack table and you can do no wrong, you’ll continue to press your bet,” he says. “It’s the same thing with trading—when things are working, you want to try to push the envelope as much as possible while still maintaining your rules and discipline.”

To that end, Poliacof encourages investors to be as robotic as possible. As soon as you become emotional with investing or trading, it’s game over. You have to maintain discipline.

Let’s say an investor had an idea and didn’t pull the trigger because he was afraid. These people are likely to start dealing with emotions—frustration, regret, anger or fear of missing out. They start putting on positions they normally wouldn’t. “The next thing you know,” says Poliacof, “they’re losing money on these positions and it creates a cascade of negative events that results in a good deal of money lost.”

Charles Poliacof has been a trader for more than 12 years. He’s trained hundreds of traders. manages between $10 and $20 million, and is considered one of the top traders on the Street. This week, he talked to market coach Doug Hirschhorn about his approach.

Making the Right Trade

Poliacof has broken his day up into three different time segments. The first is from 9:30 to about 10:30. The second is from about 10:30 to 2:00. And the third is from 2:30 to about 4:00.

Anyone who’s a student of the market will see that within those periods, the market exhibits certain character traits. And those patterns, he adds, can repeat themselves over time.

“I find the morning can be, more often than not, aversion to the mean trade,” Poliacof says. That means if you see a gap in the market, and you see a stock behaving in a fashion divergent from that that gap in the market, that will afford you a potential buying or shorting opportunity. You can use that gap as a means of reducing risk in potential trade.

There will be some sort of reversion to the mean, which means you’ll get some sort of sell off, and the market may eventually revert back to its trend or even form a new trend.

At mid-day, the stock market is either digesting what it’s done in the morning, or trying to identify its character for the rest of the day. That’s when you can start to look at various sectors—what’s leading what on the day. If you look at 2009, especially in the run we’ve had up until now, it’s been financials, oils and technology. Using those groups as an indication of sentiment…there’s a famous quote: “In the long term, the market’s a weighing machine, and in the short term, it’s a voting machine.” If you’re going to determine market direction, you’ll use those leading groups as your guide.

The end of the day is tricky. It can be momentum based or volume based and tied to what’s happening with those leadership stocks. If you’re looking for an up close, you’re looking for strength within those groups, you’re looking for big volume. You’re looking for things that are going to provide you with some sort of quantitative edge that points you in the right direction.