Trading Skill or Profit-Which Are You Choosing?

Trading Skill or Profit-Which Are You Choosing?

             Although mired in controversy as to his alleged use of performance enhancing substances, MLB’s retired ace pitcher Roger Clemens had tremendous success. While his strength, stamina and ability to heal between performances may have been unnaturally manufactured, undoubtedly he has pitching habits that are integral to his well documented proficiency. In fact, in what has been termed a defiant response to questions at a press conference, what stood out to me is that he said that in the past 20+ years he has “worked his butt off to be the best pitcher he could be”. Evidently stressing that his successes ought to be attributed to the diligence and effort he expended toward adhering to what makes great pitching possible (essentially the sound habits he has formed) rather than some foreign substance.
             Regarding habits as a trader, what is your view? Do you think the trading habits you’ve formed or a foreign substance such as luck has gotten you where you are to this point? Since habits originate in the choices we make, realizing whether or not what we are choosing will lead to great trading is worthwhile. In order for you personally to unveil the answer to Trading Skill or Profit-Which Are You Choosing? I urge you to write down your responses as we consider typical choices we face before entry, once filled and when exiting.

                                                                     Pre-Entry
               The choices we make depend largely on what we see. So, prior to your entries, where is your focus? To find out, ask yourself if it is 1) the result of your last trade whether a gain or loss 2) the ease with which the market seems to give up points in either direction 3) the mood you feel the market has 4) the trend 5) the presence of multiple confirmations 6) the entry price available allowing for a favorable risk to reward ratio?

                                                                    Once Filled
              As you are likely aware, the market rarely moves in one direction once we are filled. Rather, it’s movement, which can feel much more pronounced when carrying a position, confronts us with choices as to where and when to place and replace our stops and exits (assuming you use these) or simply, when to get out, either at a gain or loss. To see if you are choosing trading skill or profits once filled, ask yourself 7) do I stick with the price at which I originally chose to cut my losses 8) do I use profit targets 9) do I continue to observe what the market communicates 10) do I use specific conditions to alert me to changes in market conditions 11) do I take decisive action once these conditions, positive or negative occur 12) do I readily protect my position prior to my profit target being reached?

                                                                   When Exiting
              Much like a pitcher’s release plays a big role in his ability to win, whether at a loss or profit, exiting is for us a skill we must master. Proficiency in this area largely depends on if we 13) use pre-determined price-targets 14) use pre-determined trade-carry time limits 15) readily exit at a profit once your target price is achieved 16) quickly exit at a small loss, break-even or a small gain if conditions merit 17) feel good about your exit even when the market trades beyond your profit target 18) feel good about decisively exiting at a loss, break-even or a small gain according to your specific conditions even if the market eventually trades at or beyond your profit target?

                                                                    In Summary
             Really, the summary lies in your responses to the 20 questions posed. If you are convinced that your trading habits determine your results, answered no to questions 1-3 and yes to 4-18 you are on the right track. If not, note the areas your answers differ. Rather than searching for why they differ, simply change your choice and see for yourself if the stress you feel decreases and your successes increase. Avoid taking foolish chances which produce artificially manufactured results. Instead, trade with balance, trade wisely and be content with what you can accomplish. It appears Mr. Clemens has cost himself a great deal by doing both.