Saturday, September 27, 2014

Trading is a Long Term Business

As I look at my trading P&L for the month, I am down.  Actually, my trading equity hit its peak in June, so from that perspective I have been losing money for 3 months now.  Imagine working for 3 months and having your boss tell you that you owe them money for your shoddy work, and they debited your bank account.

I changed my mindset rather early in my trading career about making money every day.  I don't try to do it.  If I see a good opportunity, I will trade it.  If not, I am going to do nothing.  It is nice to make money everyday, but it doesn't drive me.  I am looking for the big score.  Isn't this the real reason why most people trade?  The last thing I want to do is turn trading into a chore, a job where I must do this, must do that.  If the opportunities are not that good, I rather do nothing than try to force the issue so I can try to make money that day.  You can beat a horse race, but not the horse races.

I don't need to make money every day, or every month.  Or even this year.  It would be horrible if I didn't make money over a year, but it is not a need.  I have money set aside for living expenses.  Trading is not a business where you decide success on a day to day basis.  Or even a month to month basis.  You decide it over a lifetime.

I have a bit of a gambler's mentality when it comes to trading.  What I mean by this is that when I have a losing day, or losing month, I want to make back those losses quickly.  Yes, it is that dreaded psychology of wanting to get back to even, on the day, on the week, on the month, on the year, etc.  It makes me want to put on positions impulsively even though they are not that good an opportunity just to try to make back my losses quickly.  It has cost me money in the past, and it is something that I try to control at all times.

That is the mental game in trading.  Overcoming those human urges to trade to try to get your money back.  I am a discretionary trader, so I have to control these human urges.  I don't believe in system trading, although one of the system trading benefits is the elimination of much, but not all of human emotion.  Behind every system is a human manning the controls.

A trader is a bit like a poker player who sits down at a casino and plays, waiting for a bunch of fish (bad players) to come into the game so he can make money.  While he is waiting for the fish to come, he plays in a mediocre game where he makes a little, or maybe just breaks even.  But he stays in that game to stay sharp, and also because he wants to have a seat when the fish come in.  In 1999 and 2000, there were a lot of fish at the trading casino.  In 2007 and 2008, there were a lot of fish at the trading casino.  In 2014, there aren't so many trading fish.  But the fish will come back again.  I have a strong feeling that there are enough excesses building up that 2015 should be a whopper for the bears.  That is when I will try to make a big score.  In the meantime, I want to preserve my capital, play short term, small ball, and stay sharp.

No comments: