As you read this, I am sitting on a lanai in Kauai overlooking magnificent Hanalei Bay. I'm not trying to make anyone envious, I only want to point out the great surroundings I am enjoying because I probably couldn't be doing what I am doing now unless I was in the trading business. Last weekend I wrote about what I consider to be the advisability of treating trading as a business and how I believe it can increase the likelihood of success as compared to those who treat trading as a hobby or as a gambling venture. Nothing guarantees success in trading or, for that matter, any business, but the investor's approach can make a real difference.
One of my early coaching students came to me after having lost a huge sum of money when the tech bubble burst and the markets turned down. Tears literally ran down his cheeks when he described his losses and his hands shook when he spoke about trading. In spite of this, the student claimed he wanted to be a full time trader. We spoke about the necessity of getting his obvious emotions out of the way and substituting discipline in their place. I suggested that the first step would be the creation of a trading business and he was all for the idea. We then began to go through the business plan elements I discuss in "Trade Your Way to Wealth" in order to help this fellow develop a plan that might fit his personality, risk tolerance, and needs. Our discussions began well and he started to develop his plan. We then came to the question of what his business hours would be. I believe it is important for traders to set out time that they will specifically devote to their trading business just as it was important for me when I was in the law business to devote hours to the practice. I also believe it is important to have time for oneself that is not devoted to the business. Time to shake out cobwebs, time to enjoy other things in life can be very important as well. My student absolutely refused to set hours for himself. I explained that the hours he set originally always could be changed because his business plan was never to be set in stone; it was always a work in progress. Nevertheless he flatly refused. He came up with a myriad of excuses even though he had no other fixed time obligations since he had quit his job several years before when he began trading (and before he lost the bundle). It was only after more discussions with him that I began to realize that refusing to set business hours was an excuse for his unwillingness to continue to trade. I addressed that situation with him and suggested that trading might not be for him. He disagreed vehemently so I asked him when he had last made a trade. He had not made a trade in more than 2 years. I suggested we find a stock that looked bullish in a bullish sector (the market at the time was going up) and buy a single share. He began to shake and to cry. He was unable to buy a single share of a $15 stock. He told me he had to wait until the system he was working on was perfected. Though he didn't use these words, he was working to create the holy grail. I suggested he might be better off marketing his system, but now, several years later, he is still working on the system and he still has not made a single trade as far as I know. This poor fellow is an example of the need to know ourselves. Some people are not cut out to be traders and if he ever was he isn't now.
While a plan is very important to trading, my old student taught me that something needs to come before the plan. Honest self evaluation is critical. Anyone can be a happy trader when they are making money, but first we need to know whether we can face the prospect of loss and whether we can handle actual loss since there will be losses. In the business sense, can we look at a loss and understand that it is a cost of doing business or is it going to be devastating? If the prospect of a loss is daunting, trading probably isn't for you. If you understand that losses will occur and that risk is ever present but can be managed with discipline, and if the idea of trading interests you, then maybe you can start working on your plan.
by Bill Kraft, Editor
Copyright 2008, Makin' Hay, Inc.
All Rights Reserved
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