The stock market, just like life, can change on a dime. In the market, just as in life, we must learn to adapt to change. What separates the great trader from the rest of the crowd is his or her ability to change based on current market conditions. In other words, NO EGO ALLOWED. Mark Douglas, in his first book entitled The Disciplined Trader writes,
“There must be a difference between these two types of traders-the small majority of winners and the vast majority of losers who want to know what the winners know. The difference is that the traders who can make money consistently on a weekly, monthly, and yearly basis approach trading from the perspective of a mental discipline. When asked for their secrets of success, they categorically state that they didn’t achieve any measure of consistency in accumulating wealth from trading until they learned self-discipline, emotional control, and the ability to change their minds to flow with the markets.”
We trade the current market conditions as they unfold with a plan to trade one way or the other. To do otherwise would be to fight an undefeated foe.
Not all great investing/trading ideas are profitable. Ideas that spread are. If no one else sees what you see and acts, you can’t make money. Hoping that eventually the rest of the market will understand and embrace your thesis is a loser’s strategy or a privilege for someone with very deep pockets. Markets often know more than you as they constantly try to discount all the available public and private information. You might be convinced that your analysis is right and the market is wrong, but it could remain wrong longer than you could remain solvent. The question again is do you have deep enough pockets to ride the storm out and aren’t there more plausible alternatives for your capital at the time. Smart people like to scale in and out of positions, knowing that no one can consistently pick tops and bottoms.
Should– Phrases include: “The market should have” and “I should have”. Those phrases are often used to socialize losses. They are a strong signal something is off. They should be used to aid you in correcting your vision not make you feel better.
LAW ONE: Always make your future bigger than your past. Find out more
– Losses are a simple cost of doing business
You need to do your own thinking. Don’t get caught up in mass hyste-ria. As Ed Seykota pointed out, by the time a story is making the cover of the national periodicals, the trend is probably near an end. Independence also means making your own trading decisions. Never listen to other opinions. Even if it occasionally helps on a trade or two, listening to others invariably seems to end up costing you money-not to mention confusing your own market view. As Michael Marcus stated in Market Wizards, “You need to follow your own light. If you combine two traders, you will get the worst of each.”