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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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The only reason to get into a tradeWISHING, HOPING, AND PRAYING Remember earlier we talked about how important it is to be an active winner and loser. In other words, you must act to take profits and act to get out of losing trades. You cannot be passive with the market, and thats exactly what wishing, hoping, and praying does. It makes us passive. In general, there is nothing wrong with wishing, hoping, and praying. We all hope and wish certain things will happen in our lives and thats fine. But there is no room for it in trading. The problem comes when we wish, hope, and pray that the market will do what we want it to. This puts us in a passive relationship with the market. Thus, we dont become an active winner and loser. When you wish, hope, and pray that the market will do a certain thing or move in a certain direction, you are shifting the responsibility to the markets. But as you already know, the responsibility should not be with the market, but within ourselves. In other words, only we are responsible for the results we receive. Hoping, wishing, and praying that the market will do what we want is very harmful. Many times it paralyzes us and prevents us from doing whats in our best interest. This happens because what the market is doing doesnt agree with what we want it to do. And many times our wishing, hoping, and praying causes us to be locked into our opinion of the market. The one thing you must remember is that our opinion isnt necessarily right about the market. To make it even more difficult, our opinion could be right, but we just might be too early. But thats O.K. You dont have to be right all the time to be successful. You just cant get so locked into an opinion that you are wishing and hoping the market moves a certain direction. The market will only move in whatever direction the buy and sell orders cause it to move. Unfortunately, your wishing and hoping will have no bearing on which direction the market moves. If you find yourself wishing, hoping, and praying the market will do something, this is an excellent indication that you do not have a good grasp of the current situation, and its definitely time to exit the position and re-evaluate. Its very easy to get in the habit of wishing, hoping, and praying (especially for newer traders), but as you can see, its a big mistake. Obviously, youll want to avoid it at all costs because it will never be acting in your own best interest, and it will always be difficult to succeed in that passive relationship. The one thing that makes all of this a little confusing is that intuition (that little voice in your head that tells you what to do) feels very much like wishing, hoping, and praying. In The Disciplined Trader, Mark Douglas explains it very clearly: However, there is another less obvious problem with avoidance, especially with respect to wishing and hoping. A true intuitive impulse - a deeper level of knowledge and wisdom that will indicate the next most appropriate step to take - that will always be in our best interest feels very much like wishing and hoping. In other words, it is very difficult to distinguish between the two, making it very easy to mix them up, which is one of the reasons why we find it so difficult to trust our intuition. The way you can know for sure that you are getting a true intuitive impulse is to clear out of your mental environment anything that would cause you to wish and hope that something will happen instead of confronting the issue head on to find out what needs to be done. You can wish and hope that the market will come back, or you can cut your loss and make yourself ready to take the next opportunity requires that you change anything in your mental environment that would cause you to avoid confrontation and consequently wish and hope. The less cause you have for wishing and hoping that something will happen, the more you will know that when you get that certain feeling, it is a true intuitive impulse, and the more confidence you will have to follow it. Intuition will always guide you in the most appropriate way to fulfill your needs. You can wish and hope that the market will come back, or you can cut your loss and make yourself ready to take the next opportunity. DOUBLING UP: ADDING TO A LOSING POSITION As weve talked about so far, the most important thing you can do is keep your risk to an absolute minimum. I cant say it enough. Minimizing your risk is 100 times more important than finding winning trades. (And finding winning trades is important too, so I hope this shows you how important it is to limit the risk.) Then there is the habit that some traders get into that can be very detrimental to your trading. There is nothing that can add more risk to your trading than adding to a losing position. But nevertheless, traders do it every single day. The main reason this happens is the same reason most other trading problems come up. Most traders do not want to admit theyre wrong. By adding to their losing position, they give themselves another chance to not be wrong. But if the key to successful trading is keeping the risk to an absolute minimum, then how can adding to a losing position help a trader? The answer is it cant! This is very similar to what we talked about in Chapter 14 (The Worst Mistake You Can Make). The real problem is when doubling up (adding to a losing position) works out and you end up taking a profit on a trade like this. This validates a very dangerous situation and could possibly tell you its O.K. to do it again next time. But the next time could be the time it takes a big chunk out of your account. The only reason to get into a trade is if you see an opportunity and you feel the market has a good chance of moving in your direction. But the reason people usually add on to their losing positions is not because they see another opportunity, but because they dont want their first opinion to be wrong. The only reason to get into a trade is if you see an opportunity and you feel the market has a good chance of moving in your direction. But the reason people usually add on to their losing positions is not because they see another opportunity, but because they dont want their first opinion to be wrong. They feel if they average out their price, they have a better chance of not being wrong. But, in my opinion, thats the wrong attitude to be successful. I really feel most people add to their losing positions to avoid having to take responsibility for being incorrect about the current market direction. I dont want you to get the wrong idea. I dont think scaling into a position is the wrong thing to do. If you have a plan to put on more than one contract at different price levels, I think thats fine. But what Im talking about is when a trader doesnt have that kind of plan. They simply decide to add to the position as its going against them. This is a mistake. And like I said a minute ago, it could turn out to be an even bigger mistake if it works out, because that situation tells you it might be O.K. to do it the next time. And I promise you it will hurt you much more than it will help you. Ive seen it happen thousands of times. Ive done it to myself enough times to know it will not work out in the long run. Now, on the other hand, I dont have any problem at all adding to a winning position. In fact, I think in many cases adding to a winning position is an excellent idea. I guess the basic idea is its O.K. to add to your position when things are going your way, but its not O.K. to add to your position when things arent going your way. That is a good rule to have. Again, this just goes to the idea of acting in your own best interest. And, if adding to a losing position is a way to avoid admitting that we were wrong about market direction, then it would just go to show you that doing it (without a plan) is simply not acting in your own best interest. This is because if we want to act in our own best interest, we must be willing to admit that we are wrong, instead of avoiding it and making things worse. |
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