(Video: Market coach Doug Hirschhorn, PhD, advises traders that making money really is easy. Keeping it, however, is a bit more challenging.)
This week's trading lesson: Making money is easy. In fact, making money in any market is easy. It's keeping it that's hard.
You see, most traders are right about 50 percent of the time. Successful trading really isn't about how much you make when you are right. Rather, it's about how much you lose when you're wrong.
We all know most traders fail to reach their potential because of poor discipline. That's not new. And as the trading coach to Wall Street's elite, I've been able to pinpoint three common factors that cause that loss of discipline:
- Holding a position for a long time and getting out because you're either bored or lose patience.
- Staying in a losing position, thinking it can't possibly get any worse. Invariably, it does.
- Having a winning trade on but being afraid of turning the profit into a loss. You book the trade only to watch it rip in your favor a short time later.
If I just described you, welcome to the party. But don't worry too much -- Dr. Doug has the cure for your trading ailment.
Every day, before you begin trading, look around and see what the price action or the vibe is. Is it quiet? Is it fearful? Is it passive? Is it aggressive? Then I want you to ask yourself one question: "Is today a day to make money or limit my losses?"
Once you have the answer, trade that way. Remember, your job is to make money, not to be right. And sometimes, the best way to do that is to sit on your hands and not lose any.
Think better, invest smarter.