Trading Habit #4 - Trading Low Probability Opportunities
The stock market can not be made to go your way by hard work. There are times when the market giveth, and there are times when the market taketh away. The legendary Vancouver stock promoter Murray Pezim once said that all abnormal profits in the stock market are just short term loans. His point is that people do not know when to leave the market alone, and when it is time to work hard.
One of the biggest mental challenges every trader has to overcome is Boredom. Very often you find that market not going anywhere thru out the day with some action during closing hours. This may lead you to believe market is alive only to see that market is back in a range next day. Whenever there is a trade which results out of boredom, whenever there is a trade because of the feeling that you are missing out of action, you are setting up for failures. These failures are not only set back to your P&L but emotionally and mentally they drain you out. First you were not supposed to trade ( you know that), then you took a trade against your own system, Third you lost money. This self-sabotage cycle sometimes can result in suddenly you lose your grip over markets and can lead to spiral loss.
So stay away when trade does’t match your rules. Stay away when you are not convinced 100% about the opportunity. Instead of you rushing to market, allow the market to come to you at reasonably acceptable terms to you.
Traders will tend to take low probability trading opportunities at the worst time, because it is during weak market conditions that the market only shows marginal opportunities. By working really hard, traders can find opportunities that are pretty good, but not great. By taking these lower probability trades, the trader sets him or herself up for failure, since their rate of success will not be as good.
The Solution
I have said it many times, when the going gets tough, tough traders get lazy. You must always be picky about the kind of trades you make, particularly when the market is weak.
Working hard to find opportunities will not make you more money, working hard at being disciplined will.
Please accept the fact that you don’t have to trade all the time. Secondly know that staying away from trading, when right opportunities based on your rules are not available to you is one of the golden rules of risk management. thirdly if you cannot develop stillness to trade then stock market takes you for a ride emotionally morning to evening
Teach yourself to look forward to the slow times. Make a list of things that you are going to do when the market slows down. Do some research, learn a new technique or strategy, play some games, clean up your computer. Just make the list.
Perhaps most importantly, if you depend on the market for a paycheck, make sure that you bank money when the market is good so that you don’t have to trade when the market slows down. Making a trade because you need to pay some bills is not a good way to trade.
All the best
Suresh
Have a great week ahead! and I Wish You Wonderful and Profitable New Year 2018 ahead!
for those of you who missed earlier post of this series
