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How Competitive Are You?

How competitive are you? Does your drive to succeed have a positive impact on your trading results?

Trading is as competitive of an environment as you’ll find anywhere on the planet. With millions of participants, literally trillions of dollars at play, and some of the brightest minds on earth manning the front lines, you’d better show up with your game face on if you want to win in this game!

I’ve been watching the Soul of a Champion series on the new Versus network (formerly OLN), and it is awesome. It stirs up emotions within me every time I watch and hear these stories of great champions in their respective sports. Their drive to succeed and the road which took these athletes to the level they are at is pretty inspiring.

How competitive are you? How driven to achieve your goals are you?

Whether we’re talking about trading or something different on a personal level, you’ve got to have goals in place in order to have a direction each day. How bad do you want it? How hard are you willing to work? What are you driven to achieve? These questions are constantly in front of us as we check our progress, and I think they’re healthy and motivating questions to continually ask ourselves as traders. Ignoring them would be a mistake.

I’ve found that hard work not only improves my skills, but it’s an ongoing source of confidence, which is a requirement for trading. Doing my homework and constantly reviewing my results adds to my confidence level in each trade I make. To put cash at work when there’s an element of fate involved that may be out of your control (like trading), it does take confidence. I set my goals high and I hope you do too!

3 Signs You Have a Pet Stock

One of my top 5 trading books is How I Made $2,000,000 in the Stock Market by Nicolas Darvas. From time to time I re-read this book because there are some good lessons and reminders in it. On page 11, Darvas refers to stocks he was trading in a funny way but one which all traders have been familiar with at one time or another:

“…For some of them I acquired a special liking. This came about for different reasons. Sometimes it was because they were given to me by a good friend of mine – other times, because I had started by making money with them. This led me to prefer these stocks more than others, and before I knew what I was doing I had started to keep ‘pets’.

I thought of them as something belonging to me, like members of my family. I praised their virtues day and night. I talked about them as one talks about his children. It did not bother me that no one else could see any special virtue in my pet stocks to distinguish them from any other stocks. This state of mind lasted until I realized that my pet stocks were causing me my heaviest losses.”

No doubt we’ve all encountered our share of “pet” stocks, but are you holding onto any of them right now? Here are three signs you may have a pet stock:

If you’re scalping stocks like GOOG, CME, RIMM or AAPL without success and yet you continue to trade them day after day, then you’ve got a pet stock.

If you’re sitting in a losing trade but you just can’t pull the trigger on it to cut it loose like you know you should, then you’ve got a pet stock.

If you find yourself repeatedly trying to time entries on a stock in which you’ve profited in the past but you cannot seem to catch a move in it now, then there’s no doubt you’re clinging to a pet stock.

It does to me. I made 107 points in BRCD between 1/24/00 and 2/18/00 (bought $172, sold $279), and needless to say it was the biggest move I’ve ever caught. That’s the good part. The bad part is, for the months which followed that one glorious trade, you better believe that BRCD was my pet stock. But it didn’t love me back the way I loved it, and I gave more of those profits back than I should have, little by little just hoping for one more ride on the magic carpet known as BRCD. Fortunately, I learned that with stocks, you’ve gotta love ‘em and leave ‘em!

If you’re clinging to some pet stocks, take a good long look at what you’re doing. If you’re right, your P&L will show it. But if profit seems to be the one missing ingredient in your master plan, then it’s time to let that pet stock go and look for another good trading opportunity elsewhere. Trade good setups because of the chart pattern, not because some stock treated you well back in the day. If your old favorite pops back up on your radar and you’re doing your homework, you’ll be sure to see it. There’s just no reason to cling to it until then.

So how do we deal with our trading giants?

The first thing I would suggest is that we replace them with a plan. Doubts will always be there to turn to, but if we’ve got an agenda to follow then it’s easy to look beyond the doubts. Have a trading plan. Know your key levels and pivots for the stocks you’re looking to trade. Employ a stock trading strategy to give you a method of dealing with your trades, whether they’re working or not.

Andre the Trading Giant gets head locked by another Bandit trader….

Secondly, overcoming your trading giants is always much easier when you set trading goals. Keeping your eyes on the prize will narrow your focus to what you’re looking to achieve, rather than what you’re hoping to avoid. If I said “don’t think of an orange,” you would almost certainly have a crystal clear image of one in your head. But, if I said “replace that orange with an apple,” you’d be able to think of a Washington Red Delicious instead of that beaming Florida Sunkist. They’re complete opposites. That’s why you must replace your doubts with specific goals.

Finally, monitor your progress. Check your trading stats regularly and see what’s working and what isn’t so that you can adjust your plan of attack and continue moving forward. Keep tabs on not just your P&L for a given timeframe, but also on your win/loss rate and the size of your average winning and losing trades.

Gravity and winds are constantly affecting an airplane’s flight, but the pilot is continually making adjustments to overcome them in order to reach the destination. He knows that his job is to stay focused on where he’s going rather than what might happen to his plane.

Think of your trading the same way. Be aware of what risks are present, but don’t allow them to keep you sidelined more than you should be. Don’t let your trading giants get you off course and keep you from making it as a trader. Commit to a plan, set some goals, and constantly monitor your progress!

The Flip Side

You’ve probably heard the phrase, “you’re not trading the stock, you’re trading the people on the other side of the stock.” It’s a valid point that I can agree with to an extent.

As much as you might follow a trading strategy, there will likely be emotions to battle while you’re in the middle of a trade. Almost every trade will have some fear and greed associated with it, but the memorable trades are really packed with emotion on both sides. Keeping close tabs on your emotions while maintaining some awareness of what your competition is facing can greatly help you improve your exit timing as well as your P&L.

As traders, it’s certainly important to understand which emotions are impacting those on the other sides of our trades. For example, If I’m long XYZ stock and I’m losing money, the trader who’s short XYZ may well be getting greedy. As a result, he’s probably in no hurry to buy back the stock (which would help to support price and help out my trade). Knowing this and staying aware of it during the trade would remind me that I am probably better off taking the small loss and moving on to the next trade rather than making matters worse. I can always wait for a better spot and re-enter if I still like the trade.

In another example, say I buy A B C stock on a reversal play off of support. The trader who sold it to me is likely short the stock, and once A B C catches a bid, I know he’s in trouble. As momentum picks up steam, I might offer some out into the strength, but I’ll be looking to ride that stock further just knowing the emotions and disbelief that those on the other side of my trade are dealing with. Ultimately, they’ll capitulate and drive my trade higher, allowing me to capture greater gains.

Consider your own emotions during a trade, but also the emotions of those on the other side of the trade. Even a quick rundown of what the guy on the other side of your trade must be feeling could prevent further losses or help you maximize an already successful trade.

Don’t Forget Your Game Face
Bring your very best or don’t show up at all. That’s the attitude to have when it comes to many competitive activities, and trading is definitely one of them.
Last week, Kobe Bryant put up 81 points one night. Now, I’m actually a Spurs fan (and we don’t like the Lakers!), but I couldn’t help but be impressed by Kobe’s performance. Without question, Kobe had his entire focus on doing his job to the best of his ability. Every time he got the ball, he was on a mission. His focus kept him from being distracted by anything else. Marital problems? Nah. Tabloid rumors? Nope. Disputes with the coach? No way. He had his game face on and nothing stopped him.
Take the same approach with trading. The first thing I try to consider each day is how do I feel. Physically, it’s important to be healthy and alert, but a quick mental check will help you to determine how you should trade today, if at all.
Tiger Woods shows up ready to play every time out, and he stays home otherwise. Think about what an approach like that could do for your trading results!
If you’ve got off-the-court issues bothering you, don’t get in the game. If doing those taxes late last night left you with your head in a fog today, you shouldn’t be trading. If one of your relationships is rocky and you can’t commit your concentration to trading, then today probably won’t be your day to trade. If you have family in town visiting and you feel obligated to entertain, then your trading is going to suffer.
Priorities like health, family and relationships, and a to-do list longer than you prefer can often mean sub-par trading results. Consider sitting on your hands during those times when your situation leaves you with less than 100% focus. A little patience with priorities never hurt anyone. And when you return to trading, make sure you bring your game face!

Another Definition of Trading
Most people think that trading is the buying and selling of stocks. I suppose it is, but I often say that trading is the continual process of making and losing money. This is true! A trader’s success all boils down to making more when he’s right and losing less when he’s wrong. What matters is the difference between how much you make and how little you give back!
I’m right more often than I’m wrong, but that wouldn’t necessarily have to be the case for me to make money. By managing trades properly, a trader could be 50/50 or even worse and still come out profitably. It’s about taking small losses and sticking with the winning trades to overcome the small losses.
Trading does involve buying and selling, but it’s all about making more when you’re right than you lose when you’re wrong!
Knowing that I’ll be wrong certainly helps me to accept a losing trade. Every day when I settle into my routine, I’m aware that I will probably have at least one losing trade – but that doesn’t stop me from trading (or making money). That awareness doesn’t hurt my confidence, but instead it keeps my ego suppressed. I know that I’ll be wrong, so when I am, it’s far easier to hit the sell button and wipe that small mistake off my screen. Then I can focus on my winning stocks without the eyesores and annoyances of stocks moving opposite of what I had anticipated.
Don’t let your ego interfere with your trading! Going to battle with a losing trade by adding to it or simply letting the truck roll over you without getting out of the way are all due to ego. Accept that there will be some losses, commit to keeping them small, and stay focused on getting the most out of your winning trades.