Do you have a habit of trading?

I really hope not and let me tell you why..

A habit is a behavior done with little or no conscious thought.

Do you want to trade with little or no conscious thought, do you really want to put your money under these circumstances?

I am sure you don’t. That is why trading should not evolve into a habit.

Trading should be a “boring” systematic approach through chart patterns.

No pattern = No trade (at least for technical analysts)

However your brokerage (online/offline) wants you to create that trading habit in you, even Bloomberg, Cnbc, and most media outlets wants you to have the habit of trading. Why? Because fostering trading habits increases customer lifetime value.

Do Not comply! Refuse

At a previous post I mentioned triggers that run after you and signal & push you to trade for whatever reason. You can review them here, be aware of them and make note whenever they trigger.

You do not have to trade every day or every week or even every month. You should only trade when there is a valid breakout of a pattern even if it means you trade once or twice a month or even a year!

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Euphoria & Greed

He was studying engineering but even back then his entire focus was on financial markets. I remember him watching the prices passing by at the bottom of the screen and trying to make sense of them. While he was a student he started taking part in a radio program on markets and then he worked for a financial institution before he made up his mind to become an independent trader. You know the drill; financial freedom, the hype of trading, the promise of unlimited wealth etc. He first dried up his own hard earned/hard saved money. Then he did the same with the money he borrowed from his family and relatives. At some point he inherited a flat which he sold for $100k and that sum was the start of something big. Being comfortable with the amount, he took substantial risks which ,to his luck although he doesn’t admit, paid off handsomely. He first made it to $500k and at the peak he saw the 7 figures in his account. He was at the top of the world. He opened a $10m leveraged position and started looking for properties all over the world where he can spend his summers and kept on planning a world trip just after this trade makes him another $1m! He never thought of buying a normal flat because he thought that money can be invested better in his hands. Needless to say he is still on rent. He paid off his debt to everyone. After a short while, things started going downhill. He first lost $20k on which he didn’t lose sleep. Then it grew to $100k and then $300k at which point he closed the position. It was only a 3% move against his position. He later on admitted that he should have taken a  vacation on that day while he still could with his $700k. But no; he kept on trading heavily and couldn’t believe how he lost $300k on a trade.  His new target was to get back to that $1m. He lost another $200k in a short while and then some. When I met him in Spring 2007 I guess he was at $500k and still smiling. When I met him again in Summer 2008 the smile was far gone. He was trading with $40k and trying to take care of his family at the same time. That money dried up, he looked for a job and miraculously, after not working for anyone for 10 years, he found an analyst position at a wealth management firm where he is not happy as far as I know. He is still trying to get back to his good old days. He still talks about the big misses, waiting for one more day would have made him 50% in 3 months etc. When I tell him that he would have lost that money too, he doesn’t seem to get it.

Moral of the day:

1. No matter what your trading method is, risk management is all that matters.

2. Avoid euphoria.

3. Buy at least one property for your family while you can. 🙂

Written by Bouraq @ http://www.tradingchannels.co.uk


Which Trader Are You?

Trader Vic

Trader Sic

Avoids taking partial/quick profits Takes quick profits, initiate a position again and loses
Place stops and does not change them Places stops sometimes and changes them often
Takes action on pattern completion & decisive closing breakouts Takes action before the pattern is complete
Takes profits at target Does not adhere to target as if the position will always be in the green and nothing can go wrong
Focuses on big patterns >3months Trades small patterns
Rarely looks at position News, friends (noise) makes you compulsive checker of your position
After a losing trade, forgets about it & finds the next trade Trades too much

So, which trader are you right now? Which trader would you like to be?

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Trade Setups For After The FED

AutoDesk (ADSK) formed a not so perfect 6-months H&S Top which has broken neck @ 35.51. The pattern has retested the pattern and is back below the neck again. The stock is weak compared to the overall market. On a weekly basis the stock has completed a 5 point touch triangle that should be resolved soon.

adsk, H&S, head and shoulders, fed

ADSK Daily

adsk, autodesk, traingle, fed

ADSK Weekly

American Vanguard Corp (AVD) formed a triangle top which has not yet broken down…yet. Keep a close eye at 27.8 level.

AVD, traingle top, fed

AVD

Golden Minerals Co (AUMN) has been trading in a tight range rectangle since mid April. The last couple of days showed volume increasing at the upper resistance and yesterday price pierced the rectangle on the upside but closed inside. A decisive close above the 1.95 completes the pattern heading to the upside. This may be a bottom.

aumn, fed, rectangle

AUMN Daily

Fastenal (FAST) completed a double top formation with the second top exhibiting a sloping H&S. In addition to a pick up in volume, the neck has been broken by 0.10, which is not that decisive. Anyways, watch it closely for an implied target of 41.

fast, double top,

Fast Daily

I wish you a profitable day with Ben and dont forget to comment, like or tweet the post