April 2, 2007

In this week's free newsletter, we'll look at two related factors which affect our level of success as traders:  Trading Plans & Self-Honesty.

They say a clear conscience can help you sleep well at night, but can it also help you trade better?  Well, to be more specific, perhaps the question should be "could you trade better as a result of being honest with yourself?"

I believe the answer is yes.

Whether you're a trader, a racecar driver, or Evel Kneivel himself, it's important to know the difference between what you're currently capable of and what you'd like to be able to do.  We each have personality traits that serve as pros and cons for our trading, but which ones are we using best and which ones are limiting us?  Some self-honesty in this department can go a long way towards helping you find the right avenue to travel as you seek out success in the markets.

Know Your Strengths

We all like to talk about what we're good at, right?  So let's start there!

Take stock of the strengths in your personality that benefit you as a trader:

• Are you a diligent worker who isn't afraid to put in the time required to hone your trading skills?

• Are you willing to take occasional risks with your money that others might avoid, allowing you to capture big gains in the market that others could only dream of?

• Do you adapt well to market conditions, changing your trading approach when the environment calls for a varied method?

• Can you ride hot streaks without overthinking the process required to extend them?

Knowing the answers to questions like these will help you outline some of the things you do best in your trading.  You can rely on these strengths when you need to, knowing that they help to offset  those not-so-strong traits you also possess.

Know Your Weaknesses

Now that we've taken stock of our strengths, let's get our hands dirty and clean out our closets a little bit.  Remember - no pain, no gain!  Be honest with yourself and see if you have to answer "yes" to any of the following questions:

• Do you let trades turn into investments when they turn the wrong way?

• Do you add to losing trades when that wasn't part of your original plan?

• In choppy or range-bound markets, do you sometimes find yourself forcing trades out of boredom in search of action?

• During a losing streak, do you sometimes press harder in hopes of "getting it back" with one or two big trades?

If any of those sounded familiar, you aren't alone!  However, you now also have some great starting points when it comes to building your "safety net" as a trader, so take heart!

Allowing For Both

Your trading plan should include your method of attack, as well as your lines of defense.  The ideal trading plan for you isn't necessarily one with just a great track record or one that fits your timeframe.  Rather, it's one that will allow for both your strengths and weaknesses and let you maximize your upside while protecting your downside.  The idea is to thrive when the market is suitable to your style, and survive when the inevitable storms blow in.

When you write out your personal trading plan, be sure to keep your list of strengths and weaknesses close by.  Find ways to let your strengths shine through, and more importantly, make absolutely certain that your shortcomings are blocked as much as possible.

Maximizing your strengths in your trading plan might involve things like bumping up your position size when you're in the middle of a win streak and reading the market well.  You might leave your trading profits in your account for a longer period of time to capitalize on those times when the market is catering to your style of trading.  The idea is to play (trade) to your strengths!

Minimizing your weaknesses through your trading plan is a must.  Take steps to ensure that you aren't able to fall into those old traps.  After a certain number of losses, have a contingency plan for what you'll do the remainder of the day - just don't stay at the PC!  Cut down your trade size when things aren't going well.  Place absolute and automatic stop loss orders with your broker so that you simply aren't able to blow a mental stop.  Just be sure to have those safety nets in place.  Remember, great defenses win championships!

Need some help with your trading plan?
Start your Membership today!

"I have learned more here in 6 months than anywhere.  I have never heard anyone break down the markets with such clarity.  Jeff has a way of shedding some light on the big hairy monster and making it much less intimidating."   - Chuck B., AL

COME TRADE WITH US!

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com

The Stock Bandit, Inc. - 17460 IH-35 N. #160, PMB 240 - Schertz, TX 78154
Copyright 2004 -2008 The Stock Bandit, Inc. All Rights Reserved