Doing It All

Discussion in 'Strategy Development' started by Joe Ross, Feb 22, 2011.

  1. If you’re like most modern traders, you try to do it all. You study charts and historical data for trading opportunities. You struggle to devise a thorough, well-designed trading plan. You enter trades on your own electronic trading platform, and you monitor your trades to make midcourse corrections when necessary. Depending on your personality, available resources, and time commitment, you may want to consider depending on others to do some of the work. You don’t have to do it all. You can look toward others for help.

    In the “old days,” traders and investors placed trades with a broker. Electronic online trading has changed all that for the most part. But the change was not without its disadvantages. Behavioral economist Dr. Terrance Odean has shown that the switch to online brokerages had some negative consequences. Traders, especially young men who had a recent trading windfall, tended to over-trade. Easier doesn’t always mean better. There was an interpersonal element of trading with a broker that was lost when it became electronic. It took a little extra effort to call your broker to place an order, but it gave you one more chance to think your decision through. You may have paused for a moment and thought, “Is this move actually a good idea? I don’t want my broker to think that I am foolish.” If you talk to many hedge fund managers, they actually have a staff member place their orders. Are they afraid to place orders themselves? Believe or not, many of them say that having someone else place their orders works out better overall.

    And when it comes to developing a trading strategy, some traders prefer to leave it up to others. Rather than scour the markets for the next insight, you can purchase a trading system. Trading systems usually have a poor reputation in the trading field. A system works great for a little while, but then market conditions change, and the system fails. This common belief may have some truth, but it isn’t necessarily true. It is a matter of what system you chose. You cannot just pick any system. You have to do your homework. Look at the track record of the system and decide if it produces the level of profit you need. The main idea is to put your energy into finding the system that meets your specifications, rather than devoting that time and effort to trying to find new, innovative ideas. In a similar vein, you might also subscribe to newsletters that provide profitable setups. Again, you don’t need to do everything. You can get help when you need it.

    There are other ways of easing the burden of trading. You can use automatic settings on your trading platform. If you are busy working your main job during the day, you can swing trade, for example, by putting a protective stop to ensure that you don’t lose your entire stake should the market turn. There are obvious disadvantages to using automatic protective stops. For example, if you set the stop too tight, you may get “stopped out.” But for the busy part-time trader, the added protection and peace of mind are worth the disadvantages. You may lose a trade here and there due to an improperly placed stop, but you can work your eight-hour shift at your day job with the reassurance that you are protected from whatever market calamity may ruin your trading plan.

    There are many ways to ease the endless burdens of trading. The key is to stop trying to be a super-trader. Don’t try to do it all. Even top-notch, professional traders spread the workload, and so should you.