Monday, February 06, 2006

A trader's fate

A lot of trading careers go:
1. Let's try the markets...Hey that's easy...Just buy or sell and make a nice living...On my first day I made 200$...doing just 2 trades.
2. One week later...hmm, slightly down overall...but so what, I can make it all back
3. 4 weeks later...Ohhh NOOOOO...what is that, this has to stop, add on, then it needs to rebound just 50 ticks not 100...I will add some more or I have no chance to make back the 200 ticks
4. R.I.P. ... another potential trading career ended unneccessarily

It ended not because our trader used no Stop, it ended not because he added onto a losing trade, no it ended because our immaginary trader did not take precautions for the fact, that he's just human. That humans make errors and that he would make errors as well in his new choosen career.

He had No Trading Plan, No Money Management and No Safety Net present.

  • You need the Trading Plan to give you a statistical edge to beat the market
  • You need Money Management Rules to make sure you have an account left, when your Trading Plan tells you to act.
  • You need a Safety Net in place to make sure you can stand-up and fight another day, when you are left knocked-out, because you made a human error.