Thursday, January 04, 2007

"The dark side of desire"

In the spirit of up-keeping my "New Year resolution" this post kicks off "Trading rules explained" series.

This post is about one of the most important, but often overlooked rule, having huge philological impact on trader's course of actions and decision making process.

Never confuse "Making money for the sake of fulfilling material desires" with "Making money as having profit on a trade".

We do trade for achieving material independence, when we place the trade we need to think PROFIT, NOT "I need to make $50K to buy new car". Setting material goal as a trade objective is dangerous, it clouds our judgment, messing up initial trade setup and timing and interfere with "close position" decision. What if we are not going to make $50K on a trade or "withing a month"? Are we going to hold position forever if we only making $48K? Are we going to quadruple the size of position to achieve "$50K objective" sooner? Remember "counting turkeys" story? Are we going to trade even if market is bad and timing is wrong? I doubt that many of us will answer "yes" to any of these questions.

So here comes the rule:
Trade for profit - you'll decide how to spend it AFTER you'll make it.