June 18, 2007

In this week's free newsletter, we'll discuss  The Key to Trading Survival.

I received an email the other day from a trader who was about to make the transition from part-time to full-time trader.  He inquired about what it takes, what all goes through your mind as you make the transition, and how to survive in an arena in which so many fail.

It's a common question these days as so many leave their traditional jobs to pursue their passions in the market, and yet the answer can be surprisingly simple.

Exercise Some Control

As I thought back about how it went for me, I was reminded of one key principle that I feel to this day has kept me in the trading game.  And to take it a step further, since if you're not in the game you cannot succeed, I'll say it's the key to both survival and success in the markets.

The one thing I've always felt is in my control as a trader is how much I let myself lose.  That isn't to say that I can control the market or any given trade, but in general you know that you will only allow yourself to lose so much in a trade or week or month.  So I have never been afraid that I might lose my shirt, simply because my top priority from day 1 was to survive as a trader.  If I were to lose my trading capital, I'd be out of a "job" and have to do something else, so for me capital preservation was goal number 1 from the very beginning.  I was determined not to have to go do something else, so once I realized it boiled down to discipline, I knew that was the key for me.  From there, my success has been dependent upon how correct I am and how aggressively I've pushed when ahead.

Of course, there are inevitably going to be tough stretches where money will be lost, and we cannot avoid such times as traders, but I've never allowed  myself to get so far down that I could not quickly recover from an account drawdown.  That is a choice, and it's important that you know that, since making that choice will ensure your survival as well.

Don't Make A Difficult Game Even Harder

I've seen a lot of traders lose money and leave the game, but they did not have the discipline required to cut their losses when they knew it was time.  And by that I'm not just referring to cutting a bad trade, but to back away from the screens or reduce position sizes when in the midst of an account drawdown.  They wanted to make it right back with a couple of big trades, and it only accelerated their losing by clouding their judgment further.  The pressure mounted and their focus was on "getting it back" rather than making high-quality trades.

Don't get me wrong, the market can be tough at times and make the already difficult game of trading even harder, but the losing streaks of every single trader I've personally watched leave the game were due to their inability or unwillingness to back down when losing.

The bottom line to survival as a trader is CHOOSING  not to lose large amounts....for any given trade, week, month, etc.  Losing is a choice.  Letting the market steamroll you when you know you should be out is a choice - it isn't about the market conditions.  Having a sound trading strategy in place for buying and selling is very important, but HONORING that strategy and obeying your stops is what will get you through the tough times and keep your head on straight.  If you're able to place your ego aside and you're passionate about not giving your hard-earned dollars back to the market, then you can do this! 

Hone Your Discipline With Us!
Start your Membership today!

"Stock Bandit, your picks have generated some big winners for me.  You have a great strategy - look for charts with the perfect setups, take small losers if they don't work, and let the winners run big."   - Mark M., TX

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