EGO AND STOCK TRADING
Dutch has a favorite saying.
“If you want to be right more than you want to make money, then you’re doomed to fail.”
Being right is irrelevant in the markets.
Sure, we try to be right on the market tone and direction and the stocks we pick, but being right in the stock market on a ST time frame is not the metric you want to focus on.
In fact, being right is the LAST thing you should look at.
The percentage gain on a winning or losing trade is irrelevant.
The percentage of right calls versus losing calls is also irrelevant.
The only thing that matters is the DOLLARS you make or lose on winning or losing trades.
What are you trying to say Dutch?
I’m saying that on a ST time frame, you’re NEVER going to be right 100% of the time, or even 90%.
In fact, great traders are those we call Hall of Fame guys.
They’re right 51% of the time or more, and they make more money on they’re winners than they lose on their losers.
Those are the metrics.
Did you make more money on your winners than you did on your losers.
If you adopt the Carnivore mentality of trading stocks, then you will take 7 out of 10 losses.
For every 10 stocks we buy, its likely we will lose on 7 or them over time probably.
And those need to be small losses.
7 losers at $2,000 each is a loss of $14,000.
And the winners, those need to be big.
3 winners at $10,000 each is $30,000.
And your net is $16,000.
And how you make that happen is you don’t sell your winners so fast.
No, instead you add to them.
So that the DOLLAR amount you win when you sell it is big.
The percentage gain is also irrelevant, remember?
The percentage of times you’re right is irrelevant.
The DOLLARS you make is all that matters, and the difference between that and the DOLLARS you lose when you lose.
Because you will lose.
So make each loss small.
Make each winner big.
If you adopt this mentality on stock trading, when you can forget about losers, and instead look at losers as just part of the game and they don’t even bother you…you’re getting there.
It’s like golfers that practice pitching out of a sand trap.
Most people see sand traps as “bad” things.
The great golfer has practiced getting out of sand traps so much that it doesn’t bother him at all.
He actually looks forward to being in the sand next to a green and turning it into a “miraculous” shot that drops in the cup.
Others think its miraculous, but he just sees it as part of the game that he has mastered.
So take losses.
Lots of small losses.
But when you’re right and you get a runner, like QCOM recently which we picked at $105, which went to $129 in 3 weeks, well, you better be adding to that position on the way up.
Every point you’re adding capital.
And now that it’s kind of topped out here at $129 and is staying steady, you can either sell it and bank the trade on a position that has become quite large, or you can hold it, sell 75% of it and let the rest run, whatever fits for you’re ability to sleep at night. We like to sell like 50% or 80% on a swing trade like that and maybe leave the rest on. Sometimes we sell 90% and then leave the rest on. It all depends. Even then, however, we will put a tight stop on the remaining shares and if they get sold out, we bank that profit and its almost just automatic and takes no thinking on our part.
When you’re right, get greedy and feast on it.
The ego is man’s worst enemy in most cases.
In relationships with other men, work mates, wives and girlfriends, etc.
If you’re ego is big and out front, and you’re running your life on the emotions that the ego is generating, well, that’s usually not good.
And for traders, it’s lethal.
If you’re a ego guy, then you’re wrapped up in the idea that you’re awesome, that you’re right all the time, that others should listen to what you have to say.
And the market demands just the opposite.
It demands that you listen to IT.
It demands that you shut up and ask it what it’s telling you to do.
It demands that you understand that you are not awesome or in control, it is in control.
It will detect if you’re the guy that wants to be right more than make money and it will crush you.
It will test your ability to admit you’re wrong or made a mistake, admit it, and sell a position.
The guy with the ego will not admit he’s wrong, he will say “Screw you market – I’m right” and he will buy more stock as it falls.
Then the market will take that money, and then more of that guy’s money, and drop the stock 30% and blow you out.
Chasing losing positions by averaging down is BAD thing to do number 1.
If, on the other hand, the market detects that you’re the guy that can admit he’s wrong and get out and make a run at another stock that is working, then operating in the environment of the stock market isn’t a battle at all, it isn’t hard.
When you find yourself in sync with the market because you approached it with your palms up asking it what it wanted you to do, its like swimming down a river…you don’t have to work hard at all, you just have to stay afloat and ride the current.
It becomes pleasurable and enjoyable and not so exhausting.
You don’t even feel like you’re trying much of the time.
You go through the motions of making sure you know what you’re doing, putting yourself in front of potentially winning situations, and then you execute using the strategy we teach.
Add to the winners and swim downstream with them.
Cut the losers and cast them off – they’re just going to drown you, so cast them off.
Let em go.
I’ve found that the most successful traders are very humble.
That doesn’t mean they don’t have an ego.
Inside we all have one.
And the ego kind of has to be there, in the background, to give you the confidence to do what we do.
You have to be able to “man up” and suit up every day and be ready to play the game, and you have to believe that you’re good at what you do.
You have to do a Stuart Smalley in the bathroom mirror every day.
(Obscure Saturday Night Live reference)
Even with that ego that must be there underlying everything, they’ve learned that what they think, and what they want the market isn’t important and that they don’t have control over it.
They’ve had their heads pounded into the dirt plenty of times, they have scars all over their bodies, and that’s what taught them these lessons.
At the end of the day, the market is an amazing machine that gets rid of anyone that doesn’t eventually come around to this realization and this humbleness.
It crushes them and they crap out, they’re done, they quit, they’re gone.
Make the decision to approach the market every day with your palms up and essentially say “What do you want me to do today? What are you telling me about the market tone, what stocks are you telling me are going to rock n roll today and over time?”
Dutch says, “If you listen to the market, it will tell you everything you need to know”.
Good Luck Carnivores!