Friday, July 09, 2010

The Pace of Trading

When I first began trading, I got my quotes from the newspaper or by a call to a broker. I wished (along with most other traders at the time) that I could get my quotes faster and more efficiently. Certainly the faster and more efficiently I could get quotes, the better I would trade. It wasn't long before you could get 20 minute delayed quotes over a land line and that was both revelation and a technical revolution. If only I could get real time I often wished and, well you know, now we have it.

I'm not sure that getting quotes any faster made me a better trader. I think improvements in trading have come from other directions, but it really is hard to say. What I do know is that having those 20 minutes delayed quotes and then real time quotes sped up the pace of my trading. I don't mean that I became a day trader, only that I was able to get the information to make my decisions more quickly.

When I first began to trade, I subscribed to a financial newspaper that included stock and some option quotes. I remember riding along in an airplane circling potential candidates to trade the following day and using that information that usually would be at least 24 hours old by the time I placed the trade. Now, it is not unusual to open or close a trade or two while sitting in an airport waiting for a plane.

I write the above not purely to relate how it was "in the old days," but also to wonder how it has improved my trading. One thing is that the faster pace has given me more fun. I really have fun trading and with the faster pace I pack in more enjoyment. That's OK I guess as long as the enjoyment doesn't become the primary goal which, for me, is to make a living. Another thing about the faster pace is it makes my brokerage firm happy because I make more trades and they get more commissions.

However, in moving at the faster pace and making more trades, there is risk. It may unwittingly happen that quantity wins out over quality. The enthusiasm for the activity may divert attention from the ultimate goal of making nothing but good trades. I don't mean to say that is necessarily the case, only to suggest that traders may sometimes be lured into a less than great entry or exit because they are caught up in the pace of their trading.

From the days when I did seminars to the writing of "Trade Your Way to Wealth" and "Smart Investors Money Machine" to the present I have advocated the need for a personal trading plan, one that comfortably fits the trader. Pace is an element that I believe is worthy of some consideration when traders formulate or revise their own plans. It may be desirable to have one pace if you have little time to devote to trading and another if it is your sole livelihood, but in all cases it should be one that is relaxed for you.

I believe that as we are able to relax in our trading, we can become significantly better. I mean relaxation in the sense that we are not driven by fear or by greed, but rather that we can achieve a state of calm discipline. A frenetic pace is unlikely to achieve that state. So, too, there may be the danger of building anxiety through a pace that is too slow as with those who suffer the paralysis of analysis upon which I touched in last weekend's article.

While pace may not be the most important element in trading success, awareness of your own pace may shed some important self-awareness and insight to assist you in the next step along the path.

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


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To comment on Bill's article click on the "comments" link below.

13 comments:

Anonymous said...

I like to read your Weekend Newsletter...and I thank you.

Two weeks ago you talked about "paralysis".

For a period of time, I face this problem. So I have stopped trading. But now I am unable to start over.

What do you suggest in such situation ?

Thank you !

Ted said...

Bill
Another great weekend newsletter.

I love what you say about finding a comfortable trading format, to keep fear and greed to a minimum.

I am a long term investor that is comfortable in my trading method and has been able to reduce fear and greed greatly.

Thanks
T

Tex said...

Bill, Loved the book and your newsletter. I'm confused about the Options Trader FCX trade. You said you owned the LEAPS and then said "I am looking at it as a candidate to add to my existing positions. Once a long position is established, I look for places to sell out of the money calls to reduce risk and bring in income." Do you mean you would exercise your LEAPS and then sell calls, or sell calls against your LEAPS as you describe in Trade Your Way..."? Thanks.
Tex

Bill Kraft, MarketFN.com said...

To Anonymous who has a trading paralysis: Thanks for writing. I've had many calls and have coached people with trading paralysis. It is an extremely powerful issue and, of course, results from fear. In general, it is important to realize that some trades inevitably will lose and that is just the way it is so creating a plan to cut losses is critically important. Once that is done, I would suggest you consider trading just one (1) share of a relatively inexpensive stock that looks good to you. See how you handle that pressure and as you feel more comfortable, consider gradually enlarging the position, each time making sure you have a plan in place ahead of time to cut losses.
Bill Kraft

Bill Kraft, MarketFN.com said...

Thanks for writing, Ted. It's great to hear that you are comfortable in your trading since that also usually translates into a report of success as well.
Bill Kraft

Bill Kraft, MarketFN.com said...

Hi Tex. Sorry for the confusion. I mean sell calls against my LEAPS similar to the way I describe in "Trade Your Way..." I'm really glad you liked the book and that you are enjoying the newsletter articles.
Bill Kraft

Anonymous said...

Hi Bill
I have been studying alot lately on equity trading, and have yet to become profitable, In your book Trade Your Way to Wealth you write alot about trading options. I feel that I should become a profitable stock trader before trying options,
or maybe options are less risky because of the limited loss factor of each trade.
Your opinion on this would be valued

Thanks

Morris

Bill Kraft, MarketFN.com said...

Thanks for writing, Morris. While straight directional option trades have loss limited to the cost of the option purchased, the other side of the risk coin is that they expire. When simply buying an option, therefore, you need to be right on direction and the move needs to happen relatively quickly. When owning a stock while the dollar risk may be higher, the stock does not expire so you need be right on direction only. As I explain in "Trade Your Way to Wealth," there are a variety of ways to utilize options other than simple directional plays so certain option strategies may be preferable in certain situations. As is so often true, gaining knowledge becomes very important. With options we would likely want to learn both the basic strategy and adjustments in case we may be wrong on direction. Trading stock often may be less complex than many option trading strategies but entails risk equal to the price of the stock at entry if buying and much greater theoretical risk if shorting. While all the foregoing may not answer the direct question for you, it may help you reach your decision on how to proceed. Whatever the choice, I would suggest paper trading any strategy, including buying stock, before putting real money at risk and see how you are doing. At this point, you write that you are not making money trading stock so you may want to paper trade to see if you can find a way to turn that around. Only when you can see that your paper trading strategy has been working should you consider commiting cash to a strategy and then it is very important to realize that you are likely to find that real money trading adds a dimension of emotion to the activity. It is not unusual that a failure to make money trading is related to emotional reactions to and during the trade. If that is the case, it becomes more important that the trader establish a discipline in his trades in an effort to remove the emotions from the actual trading action.
Bill Kraft

Anonymous said...

Bill thanks for your informative reply.
I think I will stay with equities.
Options will come later.
I had some big losses early in the decade that I have yet to overcome.
I was trading with no training and no rules. I'm slowly getting better,mainly from your books and weekly blog.This year to date I have a small profit in my trading account.
I really want to take a 2 day coaching session when I can find some time.
Is there a certain amount of knowledge a student should have before he/she attends ?

Thanks

Morris

Bill Kraft, MarketFN.com said...

Thanks for asking about the coaching, Morris. There really isn't some specific level of knowledge required for a coaching session since I tailor each session specifically to the individual student. For example, in your case from what you have written so far, I would suspect we would concentrate on precise ways in which you can create a specific discipline to cut losses and learn specific ways in which to let profits run so that you would be far less likely to fall into the trap of cutting profits and letting losses run that is the bane of so many retail traders. We would also probably begin to look at ways in which options could be used to reduce risk as well as to increase income. I look forward to meeting you when your schedule permits.
Bill Kraft

Anonymous said...

Hi Bill

I'm looking at the sp500 5 year weekly it looks to me the bull market from early 2009 has finished and we are now trending down.I would say it is more likely the market continues down than up.This is the first time you could draw a down trend line since the bottom. Is this a reasonable deduction.

I understand if you dont have time to answer this question as its not pertaining to this weeks blog.

Thanks

Morris

Bill Kraft, MarketFN.com said...

Hi Morris. We have definitely been seeing a retracement from the run-up that began in 2009 as you indicate. Retracements are common and expected. The current retracement has gone to a prior level of support and bounced so I'm not sure that we can conclude that the market is more likely to go down than up. Of course, historically over time markets have gone up overall with periods of sometimes significant drawbacks. Short to mid-term direction seems to me to be dependent on how the market (S&P 500 in particular) deals with the downtrend line on the daily chart that began from the April high. As I write it appears that we are about to see a test of that line. A break through could lead to an upward move while a bounce down off that line could foretell a further retracement.

Anonymous said...

Thanks again Bill
Great information

Morris