Saturday, April 17, 2010

Indecision and Vacillation

I recently had an experience with a prospective coaching student unlike any I've had before that highlights a personality trait that I believe can be extremely detrimental to trading. The coaching prospect contacted me following a webinar I did for my favorite charting service company. I had offered a coaching special at half price to a very limited number of students and this fellow called and scheduled a session. Soon thereafter he emailed and asked if his wife could attend as well, and, of course, that was fine with me. I believe it is a good thing for a spouse of a trader to have at least some basic knowledge in the event something unfortunate happens to the trader. In any event, he then wrote and asked if he could move up the date for his coaching session and I complied. I guess I made my mistake when I sent the fellow my 5 DVD SWAT (Stockmarket Weapons and Tactics) seminar as a gift to help him prepare for the session. Ordinarily, I provide the set at the conclusion of the coaching session to help refresh students after they go back home, but thought the $199 set might be particularly helpful ahead of time for this student since he was not as advanced as many who have come to me. Anyway, after he received the DVD set, he emailed and wrote that he preferred telephone coaching which is something I do not do until after an in-person session. When I reaffirmed that approach with the student he indicated that he understood and "probably" would go forward with the in-person training. To make an already long story short, he simply stiffed me, not even bothering to let me know he had decided to forget the coaching.

I relate all this not just because it was somewhat irritating, but also to illustrate indecision and vacillation. My prospective student first decided on the training and agreed to the terms and a date. He then wanted to change the date and bring his wife, both of which were fine with me. He then changed his mind about in-person training and wanted to do things over the phone because some friend of his had another teacher mentoring the friend over the phone. He then changed his mind again and decided on the personal session. Finally he again changed his mind and decided not to undergo the training, but rather just kept the DVDs.

While I don't like to be taken any more than the next guy, that is not my point here. My point is that this fellow demonstrated a great deal of vacillation and indecision. First one thing then another and then another and then another. My fear is that the indecision and vacillation are symptoms of a personality that may not be conducive to good trading. Buyers remorse is one thing, but frequent vacillation may be quite another. I have seen traders who worry themselves sick about making an entry and once the position is entered become frozen in indecision when the play goes against them. They may, for example, decide that they will exit if the stock price moves 50 cents against them, but when it moves those 50 cents then decide to let it go another 25 cents and so on until what was once a small loss becomes a large loss because they were unable to make the decision to actually pull the plug. The opposite may also be true where they want to get into a position but delay and delay until they finally get in only as the move nears its end.

I believe a trader must be decisive if he is going to be successful. As I outlined in the recent series of articles, good trading in my book starts with a plan. Decisions are made in creating the overall plan and in planning a given trade. That plan would likely include both an entry strategy and an exit strategy. Once the decisions are made, they should be followed. For example, if a trader has decided he will exit a position when a price falls through a moving average, he should exit when the price falls through the moving average rather than vacillate and decide that "it'll come back" and he'll let it go another dime or quarter or dollar.

We all probably have an internal dialog, and I have found that for many unsuccessful traders the internal dialog results in worry, uncertainty and vacillation. Instead of listening to that internal dialog during the heat of an actual trade, would it not be better in most cases to have decided on the plan before encountering the emotions of an ongoing trade and simply follow the plan? Of course, I don't mean to suggest that once made a plan should never be changed. A trading plan is always a work in progress and subject to change. I do suggest, however, that changes be made at a time when the emotions are not pulling and pushing, but rather at a time when the trader can review unemotionally and contemplate intelligently where and how he can improve his plan.

Incidentally, I did email the former prospective student reaffirming that the DVDs were a gift and suggesting that he align himself with some mentor who has been a successful trader, not one who just teaches, and that he be willing to pay the price for the mentoring because one way or the other we all pay for our trading education. Paying through losses is usually a much more expensive way to go than paying for the education from someone who has proven to be a successful trader.

by Bill Kraft, Editor
Copyright 2010, Makin' Hay, Inc.
All Rights Reserved


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17 comments:

Anonymous said...

The person you dealt with wanted the DVD's for free. Unfortunately you got screwed, but you like teaching so hopefully this was a good lesson for you. You run a business, so you have to treat it that way, no exceptions. Just like you teach about trading, be decisive. You wanted to be a nice guy, but an unsrcupulous person took advantage of that. Happy Trading.

Karl said...

You describe the exact personality trait I have a problem with. Some people never learned to make a decision and to stay with the plan. Vacillation just complicates the situation. I'm surprised you would give anybody anything! I paid hundreds of dollars for educational material but that doesn't mean you will become a succesful trader.

Anonymous said...

Dear Mr. Kraft,

Bill, I follow your e-mailings every week with great enthusiasm. You seem to know what my current thoughts and actions are. I am new at this and I have more than doubled my investment on your advice. You have allowed me a better chance to succeed. I will purchase a procuct of yours because of it. Thanks for all of your help. Jamie

Anonymous said...

Dear Mr. Kraft,

I have kept my word and just ordered your "Trade Your Way to Wealth" book on Amazon. Again many thanks for your weekly email publications.
With much due respect, Jamie jsebenius@hotmail.com

Nick said...

Hey, I paid for my DVD's and they are still worth their weight in gold IMHO. Sorry to hear about your loss Bill, but I think you won in the end. Anyone who would pull those shenanigans is someone you don't need. As a previous blogger says, stick to your guns and run the show your way. Maybe your way or the highway is the best way to go..no thanks to this character who made a nice gesture into a losing proposition.... Be well friend........ Nick

Anonymous said...

Bill,

I enjoyed your articles every time very much. Thanks! I do have a question if you don't mind. I am currently trading a system developed by myself and it has been working pretty well. However, I am always a bit concerned about how long the system will continue to be effective. So my question is how or when do you know you have a winning system? After one year or two? Or you never know and you just have to apply it and adjust it continuously when necessary?

Thanks,

Bill Kraft, MarketFN.com said...

Thanks, Anonymous. I agree with all you wrote. Hopefully I'd make the same mistake again.
Bill Kraft

Bill Kraft, MarketFN.com said...

Nick, Jamie, and Anonymous, thank you all for your kind words. I genuinely appreciate it that you took the time to offer your support. The incident I related was only mildly irritating to me since it is not particularly important to me that I sell DVDs or, for that matter, coaching sessions. I make my living trading and the coaching, subscription services and books contribute only a very small portion of my income. The really important issue for me was to address the concern I have with people who want to trade yet fail to see how indecision and vacillation can adversely influence their trading. In any event, my sincere thanks to you and the others who wrote expressing their views.
Bill Kraft

Bill Kraft, MarketFN.com said...

Great point, Karl. Thanks for writing.
Bill Kraft

Bill Kraft, MarketFN.com said...

Anonymous Asking about Winning System -- Thanks for writing and congratulations on the success of your system so far. I think it is great that you have developed your own system and that it is working well. That is what good traders do. Your question of how to tell when you do have a winning system is not an easy question as you have already determined. I once had a trading trainer whose advice was to "play it until it breaks" and I believe that is really the answer. Any system is likely to have some losses and account draw downs, but the key, I believe, is whether it continues to work in a given market setting. As an example, buying stocks in a falling market is a system that is likely to result in losses for a trader at least over the short or mid-term so when the trader perceives a shift in the market, he may well consider simply standing aside or modifying his system to begin shorting stock, or perhaps buying puts, or maybe employing some put debit spreads or call credit spreads. I have heard it said and expect it is true that no system works in all market conditions so the trader must be vigil in his observations of market activity and change. We can make money in any market, up, down, or sideways, but first we need to determine which of those is the current status and recognize that it can change quite quickly.
Bill Kraft

Anonymous said...

There are always a few individuals who perceive kindness and generosity as signs of weakness and take advantage of circumstances such as you have described. I found it interesting that you reiterated to the "prospective" client that your DVD's were a gift. It was gracious of you to end the transaction on a positive note since the problem of your client may have had more to do with character than indecision.

Anonymous said...

Hi Bill ,Thanks for all your enlightening comments. About you FEED trade you said you profited 4.7 % .At current prices this would be about .22 cents . Based on a 2.5 to 1 risk reward does this mean you had a .8 cent stop on this trade. If so this seems tight and more likely to hit .

Thanks

Morris

Bill Kraft, MarketFN.com said...

Thanks for the note, Morris. I exited the FEED trade before it hit my initial target because of the stock's behavior so the reward side of the reward to risk was not fully achieved. Reward to risk potential is something I try to determine before entering the trade. It may not always be achieved as was the case with FEED when I got out with the 4.7% return in a short time. I agree that in most circumstances an 8 cent stop is likely to be too tight to be practical.
Bill Kraft

Anonymous said...

Bill,
Greetings from the Old Trader. I am the one who has been in the market for almost 34 years as a trader and Registered Representative. Your newsletter is one of the most valuable things I have encountered in all that time. It is free. The advice is timely and correct. It is real world and straight from the trenches, so to speak. If I ever get the chance, I will buy dinner for you and your wife ( if you have one, if not, then your guest). People that read your newsletter may not realize how much money and time you have lost in acquiring the imperical know-how that you so freely and generously pass along.
Forget the person that stiffed you. If he is stupid enough to continue trading he will pay a very dear price. His personality almost guarantees his painful, expensive demise in the market. There is an old saying "Scared money never makes money."
Your observations could NOT be more correct: Procrastination and indecision are slow and agonizing death to investors in the Stock Marked. This tendency may carry over to other aspects of the person's life, sad to say. Having a trading plan cannot be stressed too emphatically. How do big institutional traders make such big gains? Among other things, they are required to have a plan and that may be reviewed by big-wigs in the company before being allow to be acted on. Also, the trader must be careful to maintain objectivity when altering the original plan.
Bill, you are one of the good ones and there are few of us left, unfortunately.
Keep up the good work. God knows of your good works and intentions.

dsb

Bill Kraft, MarketFN.com said...

Thank you, Old Trader. I genuinely appreciate your kind and thoughtful words. We look forward to that dinner.
Bill Kraft

Anonymous said...

Hi Bill the hardest thing for me is to find a stock to buy.I look for hours some nights only to shut down the computer feeling I'm no closer to finding a stock to buy or sell than when I started.My Idea is to find a MACD fast- slow crossover in "spring" with the stock also crossing and staying above the 25 EMA. As I'm seeing with NITE at the moment. Do you think My Ideas have any merit ,is this enough indicators to warrent a trade? or are there many other factors to consider. Thanks Bill

Morris

Bill Kraft, MarketFN.com said...

Thanks for writing, Morris. As I have often told students, the day you find something where all the indicators line up, please call me. Of course, that is tongue in cheek. The first thing I always look for is a nearby exit so I can get out if the play turns against me because cutting losses is so important. Most of what we do when finding a position is reject play after play until we find one that meets our criteria and when we find the one that meets our criteria, we enter provided we have that nearby exit. Patience is often required, but also seems to be often rewarded. I can't say one way or the other whether you have "enough" indicators. Sometimes one is enough for me. The key is to test your system. Go back in time with your charting software, look for the conditions you are using for entry and then trade forward (no peeking ahead) and see how it does. Once tested like that you may want to consider beginning making small trades until you learn to follow the nuances of your plan.
Bill Kraft