This Week’s Battle Plan
7 Ways Not To
Piss Money Away For 2003…And Beyond
About 15 years ago, Steven Covey wrote
a best-selling book entitled “The 7 Habits Of Highly Successful
People.” In it, he taught what successful people did over and
over again. Well, this week, we’re going to look at a variation of his
book. This week’s column is entitled: “7 Habits Of
Not-So-Successful People Who Piss Away Their Trading/Investment
Dollars.”
The Seven Money-Burners
1. Equipment – That’s right, equipment. First, I’ll tell you
it’s important. You need good charting software, a solid execution
platform and proper screening and scanning ability. WHAT YOU DON’T
NEED TO SUCCEED IN THIS BUSINESS IS 14 LARGE-SCREEN MONITORS FLASHING
134 DIFFERENT SHADES OF COLOR, BEEPING NOISES IN 92 DIFFERENT
LANGUAGES WHICH MAKES NASA JEALOUS OF THE EQUIPMENT YOU HAVE!
Traders, especially newer traders who have made some good money in
other industries, think that unless they have all this fancy
equipment, they will never be real traders. The reality is,
simple is better. Two screens (maybe a third screen) plus some
good software gets you 95% of the way there and maybe 100% of the way
there. The rest is simply nonsense.
When I was in high school in the 1970’s, the passion for tennis in
this country was exploding. Everyone, everywhere was taking up the
game.
I remember a couple of guys in my high
school who always had money…lots of money. How did they get this
money? They would go to the local courts and wait for the middle-aged
guys who had hundreds if not thousands of dollars of equipment and
clothing: headbands, wristbands, the expensive Prince rackets,
the tennis shorts, shirts, socks, shoes — you name it, they had it.
If it cost money, they owned it. Now the rest of the world might have
been awed and intimidated by players with such trappings. Anyone who
dressed like this MUST BE a great tennis player! To these two guys,
though, it said something different. It said to them, “SUCKERS.“
They would immediately strike up a conversation with these type of
guys, befriend them, and eventually play tennis with them. Go easy
early on, start the betting soon thereafter, and then raise the
stakes. And by the time the afternoon was over, the gentlemen with the
fancy clothes and equipment would be a heck of a lot poorer when they
left the courts. They thought it was the clothes and equipment that
made a great tennis player. It was not. It’s the skill. It’s the same
for trading. It’s the skill.
Buy good equipment, and leave it at that. Save your money from there.
Another seven monitors will improve your trading about as much as
shirt designed by a French guy will improve your tennis.
2. Trading In Securities, Especially Options, That Have Large
Spreads
This may seem obvious, but it’s still done everyday. I can make you a
fairly certain bet: traders who trade in options with large spreads
will never, never make money. Why? Let’s walk through a real-world
example. I’ll choose a stock we just recently traded in, Polaris. We
traded the stock itself, but let’s look at the options. Let’s say the
bias was to the downside. But instead of trading the stock we trade
the options. We look at a just-in-the-money front month put, which is
the March 50’s. The offer is $2.45. This seems reasonable, so where’s
the problem? With the bid. It’s $2.10. You do the math. You bought
something that you now own which is bid for at $2.10 if we want to
sell. That means we need the market in our option to rise
approximately 15% just to break even before commissions!!! This is
an unbeatable hole that has been dug. Yes, maybe this one will work
out and maybe a few others will work out, but no one will ever make
money with a 15% hole, plus commission to make up in a time sensitive
instrument.
What does this mean? It means that if you are trading in securities
with spreads like this, you will be pissing away money. And that’s not
what you want to be doing with your trading.
3. Commissions
I’m not going to be spend too much time on this. Price and
execution ability must be balanced. And if you are unsure what to do,
simply spend a few hours one week and shop around. If your a
subscriber to our TradersWire,
ask the other traders, especially the better traders, where they
trade. Good traders don’t pay unnecessary money to brokerage firms.
And, if you are an active trader, this one move alone on your part
could save you thousands if not tens of thousands of dollars by year’s
end. A few hours shopping and researching this week may be worth
thousands of extra dollars to your performance.
4. Doubling Up
Buy a stock at 40, it drops to 35, and you buy some more. This
always has been and always will be a sucker’s move. It’s the
ticket to ruin. Hundreds of thousands of people are no longer involved
in the financial markets because they did this in 2000, 2001 and 2002.
Don’t join these people!
5. Trading Just One Side Of The Market
I’m a broken record here. You need to be shorting stocks as well as
buying. No one knows when this bear market will end. The opportunities
for the past three years have been to the short side more than to the
long side. If you are unsure how to short stocks, go to TM
University and read the columns there, or call our office at 213-955-5858
and ask for Todd Gordon, extension 250. He’ll be able to show
you the mechanics. Learn how to take advantage of all the
opportunities to the downside!
6.
Listening To Strangers!
Your parents told you not to talk with strangers. In the trading
world, the advice is: don’t listen to strangers. You don’t take the
advice of people on TV or in the newspaper who you don’t know. There
are no greater gods in this industry! Learn to do this on your own.
Learn how the game is played and learn to rely upon your own advice.
If you are well trained, you are just as qualified as anyone to make
your own decisions.
7.
Trading Against The Trend, Especially In Stocks
Stocks trend. Picking tops and bottoms in them is next to impossible.
Yet, many people try to do it all the time. The better way to spend
your energies is to keep things simple and focus on trading a stock in
the direction of its trend. Is it trading above/below its 200 day
moving average? Does it have a high ADX reading? Are the institutions
buying this stock, or selling it? You want the likes of Fidelity
with you, not against you. At the end of the day, in my opinion,
it’s easier to trade a stock in the direction of the trend and in the
direction of the money than to fight it.
Put together a checklist for yourself that lists the trend
characteristics you require in a stock. This one exercise alone, when
executed over and over again, will likely improve your trading results
almost immediately.
That’s it. Seven ways not to unnecessarily give money away in your
trading business. And my guess is, when you add these seven things up,
your account at the end of the year will be higher than had you not
put all this into effect.
All this is may seem simple and common sense, and it is, but it must
be executed! Reading about it is nice, but putting it into play is
when you will see the results and in a few cases, you will see
immediate results. If you need any help with any of this, please feel
free to e-mail me.
What’s New
1. Dave Floyd’s new book “How I’ve Achieved Triple
Digit Returns Daytrading…Four Hours A Day,” has just been
released. You can read about it here.
2. The next training module from Chris Tyler is
available to order. The module is entirely on trading intra-day
breakouts, and it’s one of the most comprehensive training modules
that has been published to date. Learn more about it here.
Finale
Successful trading has many integrated parts to it. Many traders
naively believe it only has to do with finding the correct strategy.
Yes, of course that’s very important. But it’s much deeper than that.
There are many different pieces to any successful business, and
trading is no different. Your goal should be taking all these pieces
and try to improve upon them. Because, when you are successful at it,
your trading year will likely look much better to you, and so will
your P&L.
Have a great week trading (and don’t show up to play tennis with
expensive clothing and equipment — those two guys may still be
prowling the courts)!