There are 7 essential trading rules that can help investors be successful in any market:
- Begin each trade with the end in mind In other words, have a game plan. Know where you want to get out of trades, whether they're working or not.
- Always maintain a P.T.A. (Positive Trading Attitude) Remember, losing is part of the game. The right mentality helps to optimize your chance for success.
- Avoid falling in love with trades and positions Traders often make the mistake of getting hooked or anchored to sectors they find comfortable. As a result, they end up falling in love with their positions. Once you fall in love, you've lost objectivity.
- Only trade when you have an “EDGE” You must have a competitive advantage. Only make trades when you have that advantage–when the chances of success are in your favor. Remember, no edge, no trade.
- The market does not know your position or P n L, so avoid trading as if it did You want to make trades based on having the odds in your favor and not how much money you're up or down. Analyze the position. Look at the reasons you got in the trade and if the reasons are still there, you'll want to stay in the position or maybe, add to it.
- Manage Your Risk: H + W + P = E Hoping, plus wishing, plus praying equals EXIT. Hoping, wishing and praying are emotions. Any time you get emotional about a trade, it's time to get out of it.
- Play the game “One Trade at a Time” Just like a golfer, the most important shot is the one you have to make right now. As a trader, you can't focus on the trade you just made or may make. You have to concentrate on the one you're making now. Maintaining that one trade at a time mentality will help optimize your performance.
Following these tips can make you a far more effective trader and, in the end, optimize your performance no matter how volatile the market may be.
Doug Hirschhorn is the chief executive officer of Edge Consulting, a firm specializing in “Peak Performance Coaching.” He holds a Ph.D. in Psychology with a specialization in sport psychology, and has offices in New York and South Florida. His client list includes elite athletes as well as many of the largest banks, hedge funds and financial institutions in the world. Doug is presently at work on his new book, 8 Ways to Great (Putnam, 2010).
Have a question for Doug? You can reach him through his Web site, DrDoug.com
Disclaimer: Doug Hirschhorn's expertise is in the psychology of achieving peak performance. He is not a financial advisor and does not make trading or investment recommendations or provide trading or investment advice. He is an expert on the mental game. Although Doug Hirschhorn has a Ph.D. in Psychology with a specialization in sport psychology, he is not a licensed psychologist and does not provide therapeutic, clinical or counseling services.