Posts Tagged ‘Investment Strategy’

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Video Tutorial - Trading and Patience (Pt.3)

Wednesday, March 23rd, 2011

In the third part of my Trading and Patience tutorial, I examine the 5 ways that a lack of patience can lead to losses for traders and investors.

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On Days Like Today, It’s All About Risk-Reward

Wednesday, November 17th, 2010

Days like today make traders wish they had flattened up and taken a seat on the bench rather than play and watch their year long returns evaporate in hours.

Months to build up, enduring pain, fighting to stay in the game (or get positive) and then, the markets fall apart. Is QE2 to blame? European credit concerns? China’s potential rate hikes? No one really knows for sure the cause, which makes trading around it all that much more challenging.

If you are stuck, wondering if you should add, hold or liquidate, as an investment psychology advisor, I have a process you can use to help you come to a definitive conclusion about which strategy is best in any given situation.

You need to think in terms or “risk-reward.”

Now, normally I would tell my clients to ask themselves, “If I had no position on right now, what would I do?” That question forces them to think objectively about their trades. But as we approach year-end it is a bit different and how you manage your risk manages increasingly. Like it or not, each trade made later in the year means more than it did earlier in the year.

If the score is zero, zero and your goalie saves 50 shots throughout the game but dives (when he shouldn’t have) to save that one last shot and misses it in the final seconds - then the only save that mattered was the one he failed to make because he dove for it. Game over, you lose. That sucks but it is the truth.

Trading these markets is precisely the same. You have to weigh the risk-reward of the situation and decide if it is better to dive for it or to stay on your feet.

If you miss it now, it can define your whole season. I am not saying you should automatically play it safe right now but I am saying we are in the late stages of a long and painful season and sometimes the financial and psychological risk of losing outweighs the rewards of winning. And no matter what, the most important goal you should keep in mind is to be in a position to play the game when the next season in 2011 comes around because great trading is a marathon, not a sprint. –

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Avoid Premature Trading

Friday, August 20th, 2010

In uncertain markets, it can be easy for a trader to lose both focus and discipline. Here’s a recent e-mail I received from a currency trader.

“Dr. Doug: I made the critical mistake, this week, of turning my long-term bearish thesis about instability in Europe and the falling Euro into a short-term trade. I was so afraid to miss out on the big move that I started shorting the rally and got squeezed out near the top. Now the Euro’s falling out of bed and I’m sick to my stomach thinking about what could have been. Please help me get my head back in the game. Signed, Premature Trader.”

Well, here’s the deal: You need to slow down and accept that many times, the best trade is no trade. Most traders naturally fear that if they don’t participate right now, they’ll miss that big move and regret it. The irony is that by jumping in and going against your game plan, you could actually end up missing out on the same money making opportunity.

The solution is simple. Stop trying to be perfect. Great trading is not about perfection, it’s about probabilities. If you go to a restaurant and order a steak, you don’t need to eat the bone, gristle and fat to enjoy the steak. And you don’t need to sell the top or buy the bottom to make a killing in the market. Just look for the sweet spot and dig into that. If you leave some profits on the table, that’s ok. You’re still going to leave the table feeling confident, in control and with a full stomach.

Learn the lesson this time so you avoid this common trading mistake in the future.

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Trader Personality Types

Sunday, March 14th, 2010

(Watch the Video Online: Market coach Doug Hirschhorn, PhD, discusses different trader personality types and how you can take advantage of them.)

Is there an ideal trader personality? In my opinion, no.

Actually, it’s more important to develop your own style based on your own personality. For example, if you’re analytically minded, you should have a trading style that focuses more on data, technicals or fundamentals, and less on price action.

If you’re an “intuitive” person, you should establish a style that has shorter holding times and a go with your gut type of approach.

If you are an introvert, you should avoid chat rooms and instead, set up your own game plans and stick to them.

And if you are an extrovert, you should increase your social interaction and look to pick out the “best ideas” you uncover from others.

So once you determine your personality type, how do you figure out how to put the right size on for the right trade?

Many traders fail to do this is because they’re distracted by the dollars involved in the trade. Get rid of this performance barrier by taking time to identify what you consider to be you’re A, B and C trades.

“A” trades are the ones that have highest conviction, while “C” trades have lowest conviction in, but are still worth doing.

Then write down what size trade you should do if it is an “A” idea, “B” idea or “C” idea. This is determined by how much capital you have to risk and what you’ve established as your daily loss limit.

Then all you have to do is match them up, meaning if you have an “A” trade then do “A” size. If you have a “B” trade, do “B” size, etc.

Traders generally get themselve into trouble when they have “A” conviction but only put on “C” size, or have “C” conviction and put on “A” size.

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Trading Is a Brees

Tuesday, February 16th, 2010

(Watch the Video Online: Market coach Doug Hirschhorn, PhD, advises investors on how to trade like a Super-Bowl-winning QB.)

Last November, three-time Super Bowl winner and legendary quarterback, Tom Brady, described Saints quarterback, Drew Brees, as a player who really loves the game, throws a great ball, is really good mechanically and a great worker.

Last week, we watched Brees hit all four of those characteristics and deliver an A-caliber performance as he led the Saints to their first ever Super Bowl victory. I’ve found the similarities between trading and sports are remarkable, which is why I believe there are some great lessons we can take from Brees and apply to the trading world.

  1. First, he loves the game Just like Brees loves football, great success in trading starts with passion. Passion is what keeps you motivated during the long season and it’s what will keep you pushing through disappointing trades.
  2. He throws a great ball With an 82% pass completion rate in the Super Bowl, his consistency separates him from other great quarterbacks. As a trader, you have to consistently make great trades. Sometimes they’ll make money and sometimes they won’t. All that really matters is that you continue to execute great trades.
  3. Third, Brees is very good mechanically For the trader, this means having a solid process in place—one you can lean on in hard times and exploit in good times. If your mechanics are solid, then, over the course of the season, your results will speak for themselves and set you apart from the pack.
  4. Finally, Brees is a great worker In trading, just like football, there’s no substitute for hard work. Brees didn’t make it to the top of the NFL by taking short cuts or putting in a part-time effort. If you want to be “A+,” you have to put in “A+” effort. That means waking up early and doing your pre-market work. It also means you have to stay on top of market news, map out your game plan and do your daily journals.

Thank you Brees and Brady for this week’s trading lesson.

Think better, invest smarter.

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