Starting 2007 Off Right

Take your losses with composure. Expect the losing trades to teach you more about winning than the winning trades. You're going to get hurt badly on some positions next year, so wrap your head around that ugly idea right now. Besides, losing money isn't the real problem. It's the self-defeating loser's attitude we develop after a major drawdown.

Don't chase the crowd, and avoid the obvious. Learn to think contrarily because the opportunities that scare you the most will turn the greatest profits, while the prettiest patterns will yield the most painful losses over and over again. Remember that if it looks too good to be true, it probably is.

Watch for the warning signs, no matter how great or wonderful your position looks on paper. The market sets up nasty traps at every turn, but big losses rarely come out of nowhere. In other words, don't wait for a lifeboat before you abandon a sinking ship.

Remember, the money isn't yours until you hit the exit button and walk away. Stop feeling good about yourself, and pay attention to the price action. That hard-earned profit might vanish in a heartbeat.

Get rid of your paycheck mentality. Frankly, you don't deserve anything for all of your hard work because the market only pays off when you're right and your timing is really, really good. Remember, there are folks out there spending 60, 70 or 80 hours each week perfecting their skills in picking your pocket. That's your real competition.

Trading isn't a team sport. Stop looking for support in chat rooms, stock boards and financial headlines. Stay informed, but remain cynical about your sources. Huge chunks of data are passed along by folks who have their own financial interests in mind, not yours.

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At the time of publication, Farley had no positions in the stocks mentioned, although holdings can change at any time.

Alan Farley is a professional trader and author of The Master Swing Trader. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback; click here to send him an email. Also, click here to sign up for Farley's premium subscription product The Daily Swing Trade brought to you exclusively by TheStreet.com.

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