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(Watch The Video Online: Market coach Doug Hirschhorn, PhD, discusses athletes, hedge fund traders and gaining an edge.)
There are two things I love most in life: trading and baseball. Historically, peak performance in baseball involved finding something that gave players an edge over their opponent. Some used amphetamines. Others thought steroids gave them the edge.
Maybe that’s what gave some players the ability to hit monster home runs. And while there may be a lot of gray areas and there haven’t been any firm convictions that have come down, there is suspicion about what goes on.
Now look insider trading. Insider trading is kind of the trading world’s version of steroids. Look at some of these hedge funds, these banks. What gives them an edge? How are they outperforming the markets?
At the end of the day, I think it’s somewhat naive of us to believe steroids haven’t been in sports for a long time. It’s also naive to think information that wasn’t publicly available didn’t exist in the trading world.
That doesn’t mean the world’s corrupt. It doesn’t mean Wall Street’s going to fall apart. What it does mean is that you have to look at things objectively, analyze the situation, and find your own edge. To draw conclusions the whole system is awful and bankrupt and there’s no way to fix it misses the point.
(Watch The Video Online: Market coach Doug Hirschhorn, PhD, discusses how to gain a competitive edge in a post-Galleon world.)
With everything that’s going on these days, we may find ourselves asking, “What is edge?”
Rules are changing when it comes to the way we used to think about having competitive advantages and making the right trades at the right time. As the Galleon situation plays out before our eyes, we no longer know if it’s ok to access certain information and to actually trade on that information. And as people at the top of the pyramid are questioned and challenged, it causes us to all rethink our strategies.
Well, here are some things to think about.
First, you may want to consider technicals as indicators. You may also want to look at price action. There’s more than one way to make money in the market. Pick the right strategy and you don’t really even have to worry about missing out on all that information.
Start to look inside yourself. See how your emotions react to the market. See how your personality matches up with your trading style. If you do those types of things, you can find an edge and take your trades to the next level.
From time to time, I get questions at my website, drdoug.com. Many people want to learn how to overcome the barriers they face as a trader. And I try to help them, focusing on the psychology of investing.
Here are a few more recent inquiries:
Q: What do you think are the most important characteristics for a trader?
A: Hands down, the most important characteristic for a trader is self awareness. You have to have self awareness to know how you think, where your fears are, what the triggers are. And once you understand the barriers are around you and how they influence your decision-making process, you can modify your behavior to make better trades.
Q: I’ve been burned by the markets in the past and my confidence has been shattered. How can I re-engage in the process.
A: Confidence is a very interesting thing. We feel like it comes and goes, but the reality is, it never really disappears. You always have it somewhere inside of you. What you need to do during times you’re feeling low confidence is actually put together a solid game plan and make it as mechanical as possible. Follow the game plan so there’s less thinking involved. If you follow the game plan, you can execute with confidence.
Q: How can I learn to be more aggressive in my trades? I often find I have the right idea, but I miss out on opportunities where I think I should be making more money.
A: Being able to see the right trade is really the first step to being a profitable trader. The next step is sizing up, getting more aggressive. The way to do that is to have a process in place where you identify your A-, B- and C-quality trades, which trades you feel the most confident and the least confident in. On the other side of the spectrum, you want to have sizing charts. In other words, if you feel you have A conviction in a trade, and you’re feeling very confident, then rather than thinking about the right size, you just go to the chart and say, ‘Well, if I have A conviction, I gotta go with A size. If I have B conviction, I go with B size. And if I have C conviction, I go with C size.’
(Watch The Video Online: Market coach Doug Hirschhorn, PhD, discusses why earnings don’t mean as much as we think they do.)
We’re smack dab in the middle of earnings season. Many investors get hung up on earnings — they spend way too much time thinking about what the numbers really mean. But here are four good reasons why, if you’re a typical investor, you might want to re-think an investment strategy based on earnings data.
You snooze, you lose If you’re waiting to find out the earnings before you make an investment in a company, you’re already too late the party.
Listen to what the market is saying by watching what it’s DO-ing Successful trading is about watching the price action and reacting to it. It’s far less about trying to outsmart the markets.
TMI (Too Much Information) Earnings season is exciting to watch and fun to talk about, but so what? It just creates more confusion than clarity. My Advice: Pick a few companies in play and focus on them rather than spreading yourself too thin.
Mix it up a bit Here’s a news flash: Just because you have always traded US equities does not mean you should only trade them. In reality, there are lots of different ways to make lots of money, like metals, oil and currencies.
Sometimes as a trader, the less comfortable you feel about a product, the more objective your decisions are. My advice, for Q4? Think outside the box.
