Calling It vs Trading It Properly
Here's something that's been on my mind lately: the tremendous under-discussed disparity between finding the great trade setup and actually executing that trade successfully. If you read enough books on technical analysis, the truth is anyone can find a pattern to trade. It's easy finding those great risk/reward opportunities if you do this long enough. And that's the truth - it's really not that hard. But the mental toughness that it takes to enter at the right time, and more importantly exit at the right price is what separates the managers that make money from those who lose money.
On Stocktwits, Twitter and even in the more traditional media, there's a lot of chatter about what looks good and what doesn't look good. There's plenty of people out there making great calls on stocks, bonds, commodities and currencies from all around the world. But where are we getting in and where are we getting out? That's the key.
Finding the good trade is easy. But what you do when you're wrong about that call that's the tricky part. Boring old risk management.....When a trade goes against you, are you out? Where are you out? Did you double down and buy more by putting good money after bad, even though you told yourself you'd stop yourself out at x-price?
Today was a great example of this. Right at the open I saw Herbalife with a small gap to get the day going. This is a stock that I like and think can go much higher.
It was a good risk/reward too, in that I would have stopped my self out below the rising 5-day moving average that it gapped up above. There was literally 1/2 a percent of risk on the entry, with exponentially higher reward potential. These are the kind of risk/reward ratios that I look for.
But I never took the trade. I wanted more US Dollars instead. Meanwhile, $HLF was up another 6% just a few hours after that. I was focused on some other things we were in. To me that's poor execution on my part. It was a simple trade. And I didn't take it. Totally my bad.
I can tell you a million other stories from my past 10 years on The Street where I wasn't disciplined enough to stop out when and where I said I would. I can tell you about a million calls I made that worked great, that I didn't make a penny on.
I guess I don't really have a main point here, just kind of taking out my frustrations on this poor keyboard. But I think the best thing to take from this is for us to try simply to focus on being discipline. In the case of $HLF it was not being disciplined enough to put on an easy trade (regardless of the fact that it worked). In other cases, it's the discipline to get out when you have to and where you said you would.
I'm not sure who said this, but I think this statement makes a lot of sense:
DISCIPLINE is just choosing between what you want NOW and want you want MOST
Give that some thought tonight....
Tags: $STUDY $HLF